Players look to future after court sides with Hydro Quebec on Churchill Falls

By Jim Bronskill   

Industry Energy Government Manufacturing Churchill Falls electricity energy Hydro Quebec manufacturing Newfoundland

The contract, covering 65 years, has earned more than $27.5 billion for Hydro-Quebec and about $2 billion for Newfoundland.

OTTAWA — Newfoundland’s premier and Hydro-Quebec say they will look to the future, not dwell on the past, now that the Supreme Court of Canada has ruled Quebec has no legal obligation to reopen the divisive 1969 Churchill Falls energy deal.

In a 7-1 ruling Nov. 1, the high court said it cannot force the parties to renegotiate the decades-old contract even though the arrangement has turned out to be unexpectedly lucrative for the Quebec utility but much less so for Newfoundland and Labrador.

Under the deal, Hydro-Quebec agreed to buy almost all the energy generated by the power plant on the Churchill River in Labrador.

The contract, covering 65 years, set a fixed price for the electricity that would decrease over time. It has earned more than $27.5 billion for Hydro-Quebec to date and about $2 billion for Newfoundland and Labrador.


Churchill Falls (Labrador) Corporation Ltd., part of Newfoundland and Labrador Hydro, went to Quebec Superior Court in 2010. It argued unsuccessfully that the huge profits from electricity were unforeseen in 1969 and that Hydro-Quebec had a duty to renegotiate the contract.

An appeal court affirmed the ruling but the Supreme Court agreed to hear the corporation’s case.

In its ruling, the high court said there is no legal basis in Quebec civil law for the claim advanced by the corporation, known as CFLCo.

A majority of the Supreme Court said CFLCo was seeking to undo certain aspects of the contract while keeping the ones that suit it. In effect, it was asking Hydro-Quebec to give up the benefits it obtained in exchange for the sacrifices it made to get the massive project up and running – a situation from which CFLCo has been benefiting since 1969 and continues to benefit today.

“In the final analysis, CFLCo has not provided any compelling factual or legal basis for the courts to reshape the contractual relationship it has had with Hydro-Quebec for the last 50 years,” the court said.

The landmark decision threatened to further strain relations between Quebec and Newfoundland and Labrador. The project, championed in the early days by then-Newfoundland premier Joey Smallwood, has been a persistent sore point.

Newfoundland Premier Dwight Ball signalled he would not brood over the court ruling. “The past is the past. For us, the decision is the decision,” he said.

Ball noted he recently had a positive conversation with new Quebec Premier Francois Legault, and the two committed to working together for mutual benefit.

Added Quebec Energy Minister Jonatan Julien: “This decision does not just bring an end to a conflict, but it also allows, in particular, to look ahead in terms of our collaboration with the government of Newfoundland and Labrador.”

The Churchill River in Labrador drops more than 300 metres over a stretch of less than 32 kilometres, making the falls one of the world’s most significant sources of hydroelectric power. A massive underground power station, carved out of solid granite, produces over 34 billion kilowatt-hours of energy annually, enough to power a large city.

In its submission to the Supreme Court, CFLCo said the energy market and regulatory landscape in 1969 were vastly different than they are today: energy was a public good with no real market value, and exports were simply a means of disposing of surpluses and required legislative authorization. Hydro-Quebec was a public service provider, required by law to sell electricity to Quebec consumers at a low price.

Over the decades, everything has changed, CFLCo argued. Energy has become a supply-and-demand commodity with lucrative export markets.

In turn, Hydro-Quebec’s mandate evolved and the utility has made billions of dollars selling power to Quebecers and billions more exporting to previously non-existent markets at 20 to 40 times the contract price, CFLCo told the court. Meantime, the corporation remains stuck in 1969, selling at a fixed, declining electricity price.

Hydro-Quebec argued that under the contract it assumed the risk associated with any fluctuations in the market value of energy, which made financing the Churchill Falls project possible. In return, Hydro-Quebec had assurance that the price set in the contract would provide the utility, for the full term, with stable supply and protection against inflation.

In reality, CFLCo was seeking a new contractual balance bearing no relation to the original one struck by the parties – redress that falls outside the role and function of the courts, Hydro-Quebec said.

The Supreme Court agreed, concluding the significant changes in the electricity market over the years do not justify disregarding the contract’s terms.

Hydro-Quebec spokesman Cendrix Bouchard welcomed the ruling, saying it confirmed the utility has acted in good faith while negotiating and administering the contract. Hydro-Quebec hopes the conclusion of the lengthy legal process means “the beginning of a new chapter” for the partners, he added.

Though the project began generating power in the early 1970s, the contract took effect in 1976 with a 40-year term and an automatic 25-year extension – meaning it expires in September 2041.

In its ruling, the Supreme Court noted the terms of the contract will eventually see CFLCo begin operating a plant worth more than $20 billion for its own benefit.

Newfoundland Natural Resources Minister Siobhan Coady said discussions about the post-2041 period have yet to begin but the province hopes to learn from how the current contract played out.

The lone dissenting judge was Malcolm Rowe of Newfoundland and Labrador, who said Hydro-Quebec has disavowed the relationship of trust and co-operation created by the contract _ turning it into one of “unilateral exploitation.”

“This is unwarranted under the civil law of Quebec.”

— With files from Holly McKenzie-Sutter



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