Canadian Manufacturing

Hydro-Quebec wins latest Churchill Falls legal battle with Newfoundland

Long-running contract dispute put to bed for another quarter-century after Court of Appeals rules Hydro-Quebec has acted in "good faith"



MONTREAL—Hydro-Quebec has won another legal round against Newfoundland and Labrador over that province’s efforts to modify a 1969 agreement with the utility over Churchill Falls power.

The Quebec Court of Appeal upheld a 2014 lower court ruling Aug. 1, agreeing that the provincially owned power utility is under no obligation to revisit the deal as Newfoundland and Labrador has wanted.

The Newfoundland government as well as Nalcor Energy—the Crown corporation that oversees hydroelectricity in the province—has maintained the agreement that allows Hydro-Quebec to purchase the majority of electricity from the central Labrador facility, is unfair.

On Sept. 1, the contract will be automatically renewed for 25 years and will expire in 2041.

Hydro-Quebec has long argued the agreement was valid because it had assumed all the costs and risks that came with the project when the deal was signed.

“The judgment confirms the good faith of Hydro-Quebec in negotiations and the administration of the contract,” the utility said in a statement, adding they have established contacts with Nalcor’s new leadership group to “revive the business relationship between the parties for the future.”

It’s the latest blow for the Atlantic province in a decades-long legal fight with Quebec over Churchill Falls power; one it has challenged unsuccessfully up to the Supreme Court of Canada.

Nalcor Energy launched legal action in Quebec Superior Court in 2010 after Hydro-Quebec rejected calls from the Newfoundland and Labrador government to reopen the deal.

It argued in a motion that Hydro-Quebec had a “good faith” duty—as per the Quebec Civil Code—to recognize how unforeseen pricing escalations have meant lopsided benefits.

Under the 1969 agreement, Hydro-Quebec may purchase the electricity at low prices before reselling it at a much higher price on the domestic market and to export, which Nalcor says is unfair.

They believe the contract was broken by “unpredictable events” that have transformed the energy market and obliges Hydro-Quebec to revise the original terms of the agreement in order to regain balance.

But five appellate court judges that heard the appeal felt Nalcor Energy was trying to “redefine the initial balance” agreed to between the parties.

“The uncontradicted evidence established that the parties knew that the value of hydroelectric power was likely to fluctuate and have voluntarily agreed fixed prices for energy,” they wrote in a 61-page judgment.

The court also found the general principle of “good faith” as found in the province’s civil code doesn’t apply to Churchill Falls as the contract has remained “profitable” for the province.

The benefit generated by Hydro-Quebec is the result of changes in the electricity market, the ruling said.

On Monday, a Nalcor spokeswoman said the company is reviewing the decision and will provide further information once the review is completed.

Nalcor Energy has said previously it estimates Hydro-Quebec has reaped $22 billion from Churchill Falls since the deal was signed, compared to $1 billion for Newfoundland and Labrador.

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