A Bad Deal by A Bad Government

If anyone ever says to you,  “Why should I go to the polls?”  your reply should be to just look to Newfoundland for the answer.  This is in no way an endorsement to say that the good folks of that small province have made good political decisions.  It is quite the opposite.  Because brewing in our far east is a lawsuit between Newfoundland and Quebec, that should concern every Canadian.

Newfoundland and Labrador (NL) have officially launched a court action in Quebec Superior Court to redress the 1968 Upper Churchill power deal, seeking an additional half a billion dollars per year from Hydro-Quebec.  In essence, NL is saying that the deal struck under  the 1968 provincial government lead by then Premier Joey Smallwood, was made under economic duress giving Quebec an unfair piece of the pie, even by 1968 standards.

The three companies involved, which like many utility companies are heavily owned by each province pits Hydro-Quebec against the Churchill Falls Labrador Co. (CFL Co.) and Nalcor Energy.   The court action is looking to, as Ed Martin CEO of Nalcor has put it, seek to amend the contract pricing terms to address the inequity which has resulted from unforeseen circumstances.

In essence, a Hydro plant on Labrador property, turns out 34 Million Megawatts of energy per year, of which Quebec purchases at a rate of $2 per Megawatt hours.  Confusing yes, but it comes to perspective when you understand that even by 1968 standards, the price of two-dollars was laughable even then.

After the deal was struck the CEO of CFL Co. stated that they were “stripped to the underwear” by Quebec-Hydro.  The deal also saw Quebec-Hydro acquire 34.2% of the Churchill Falls site interests. What is even worse is that this deal was agreed to for a period of 50 years, with an automatic renewal clause of an additional 25 years.   To make matters worse, the NL government of the time, agreed to this automatic renewal without any need for the agreed parties to sign off on the renewal.  So, the people of Newfoundland, are stuck selling power to Quebec at a $2.00 rate until 2041.

To add insult to injury, Quebec sells off this power produced by the Upper Churchill Hydro Dams in Newfoundland, outside Canada at a rate that brings in yearly profits of $1.7 billion while Newfoundland and Labrador at the agreed rate earn a mere $63 million per year.

Many can say that a deal is a deal.  However, when the first part of this poorly handled deal expires in 2016, before the auto renewal kicks in, a Provincial Tax Concession ends that has been protecting the Hydro operation from inflation.  At a rate $2.00 per Megawatt hours, CFL Co. will begin to lose a great deal of money threatening to put the company in a position of a needed bailout.  Since Hydro-Quebec owns 34.2% of the operation already and has been making out like a gross profiteer for years, they will in essence be in a position to own the entire operation, and Newfoundland will lose a crucial energy industry, making them even poorer than they already are.

Although very complicated, history has recorded that this deal was made at a time when the CFL Co. and the Province was in near dire straights, and then Premier Joey Smallwood saw an opportunity to come off as hero to the electorate. The deal was struck, and to the average 'Joe' is looked sweet, but even then Quebec knew that it had made a deal, by which under definition was done so under “Economic Duress” and it is this ruling Newfoundland is looking to the Quebec high courts to act on.  Because, under Quebec civil  law, they have a “Good Faith” provision which Newfoundland is looking to plea for.

This is not the first time Newfoundland has challenged this deal in court. In 1988, the Newfoundland government tried to challenge the contract in the Supreme Court of Canada but the court ruled in Quebec's favour.

This court case will be one to watch because there are several elements influencing the outcome.

First we have the fact that Quebec had always resented Newfoundland for being granted ownership over Labrador based on a decision of the British Privy Council in 1929.  The same Privy Council that gave the Northern BC coastline to the United States. It would be fair to assume that Quebec believes they really own Labrador and that the Churchill Falls Hydro operation should be theirs in the first place.

Second, if the Quebec Supreme Court Judge rules in favour of Newfoundland, it could once again inflame the separatist movement which was only stemmed off in the last referendum by 1% of the vote.

And, lastly, the judge could rule that the case was already decided by Canada's Supreme Court.  In doing so, a Quebec Supreme Court Judge would be recognizing Canadian authority in agreeing with the 1988 Supreme Court of Canada decision.  It could again inflame the separatist movement and we will once again be in a position of seeing another referendum.

This all comes down to weak leadership and more importantly a complacent electorate.  Smallwood ran Newfoundland virtually unchallenged for 23 years winning  six consequetive  elections and ran Newfoundland like their was no way he could lose.  In doing so, he forgot that he was there to run the province in the best interest of the people.  No one person or even party should ever get comfortable in their positions, because that is when they get sloppy with a provinces resources.

The actual power to appoint authority is always in the hands of the voter.  If anyone ever says to you,“Why should I go to the polls?”  your reply should be to just look to Newfoundland for the answer.