The Churchill Falls hydroelectric project under construction - file photo

Supreme Court sides with Hydro-Quebec in historic Churchill Falls dispute

It is one of Canada’s bitterest interprovincial feuds, the notorious 1969 Churchill Falls hydro deal between Quebec and Newfoundland and Labrador

The Supreme Court of Canada says there is no legal obligation to reopen the 1969 Churchill Falls energy deal that has been highly profitable for Hydro-Quebec but much less so for Newfoundland and Labrador.

In a 7-1 ruling today, the high court says it cannot force the parties to renegotiate the contract even though the arrangement has turned out to be unexpectedly lucrative for the Quebec utility.

Under the deal signed decades ago, 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 energy that would decrease over time. It’s earned more than $27.5 billion for Hydro-Quebec to date and about $2 billion for Newfoundland and Labrador.

Churchill Falls (Labrador) Corporation Ltd. went to Quebec Superior Court in 2010, arguing unsuccessfully that the sizable 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 says that in Quebec civil law there is no legal basis for the claim advanced by the corporation, known as CFLCo, part of Newfoundland and Labrador Hydro.

A majority of the Supreme Court says 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.

“Neither good faith nor equity justifies granting these requests,” the court says.

“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.”

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The landmark decision could have a profound influence on relations between Quebec and Newfoundland and Labrador, given long-standing tensions over the historic energy deal. The project, championed in the early days by then-Newfoundland premier Joey Smallwood, has long been a sore point.

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.

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 to 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, with 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.

Though the project began generating power in the early 1970s, the contract formally 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 notes the terms of the contract will see CFLCo begin operating a plant worth more than $20 billion for its own benefit.

The Canadian Press

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