Hydro-Quebec's challenge on Churchill Falls will fail, Newfoundland premier says

ST. JOHN’S, N.L. – The latest skirmish in the energy wars between Quebec and Newfoundland and Labrador has erupted as premiers are set to gather for what could be a tense meeting in Ontario.

Premier Kathy Dunderdale says she won’t shrink from raising with her Quebec counterpart Pauline Marois issues related to a legal challenge that she blasted Tuesday as “desperate” and “arrogant.”

Dunderdale told reporters outside the legislature that she has every confidence a motion filed Monday by Hydro-Quebec in Quebec Superior Court will fail.

The legal challenge involving the Crown-owned utility’s rights to access energy from the Upper Churchill dam is an attempt to foil the $7.7-billion Muskrat Falls hydro project now under construction farther down the Churchill River in Labrador, she said.

“They thwart us at every opportunity and so we have an arrogant, I believe, and a desperate Hydro-Quebec trying now in this final attempt to stop development on the Lower Churchill,” Dunderdale said.

“Hydro-Quebec is not going to set the agenda.”

Her comments came a day after Hydro-Quebec asked the court to affirm its right based on a deal signed in 1969 to buy “virtually all of the power and energy produced by Churchill Falls Generating Station until Aug. 31, 2041.”

The utility takes issue with assertions by the Churchill Falls (Labrador) Corp. that from 2016 — when the Upper Churchill power contract is renewed — until 2041 when it expires, Hydro-Quebec would only be entitled to monthly allotments of energy.

Nalcor Energy, Newfoundland and Labrador’s Crown utility, has argued that it has the flexibility under a 2009 water management agreement with Churchill Falls (Labrador) Corp. to co-ordinate the Upper Churchill dam with the Muskrat Falls power station to meet energy needs in all seasons.

Gilbert Bennett, Nalcor vice-president for the Lower Churchill project, has repeatedly said that related regulations and the water management agreement all respect Hydro-Quebec’s rights under the 1969 deal.

Hydro-Quebec spokesman Gary Sutherland said Tuesday that the Churchill Falls (Labrador) Corp. has the contracted right until 2041 to recapture no more than a 300-megawatt block of Upper Churchill power for sale to third parties. But since June 2012, he said the corporation has sold more than that amount to Crown utility Newfoundland and Labrador Hydro —interrupting deliveries scheduled by Hydro-Quebec under the contract.

“The motion that was filed yesterday is really to obtain an interpretation from the courts on the Churchill Falls contract from 1969,” Sutherland said. “It’s not related to the Muskrat Falls project.”

But critics of the Muskrat Falls development say construction should stop until the legal questions are settled.

St. John’s lawyer Bern Coffey has questioned for months whether Hydro-Quebec might challenge how Nalcor intends to manage water flows between the Upper Churchill dam and the downstream Muskrat Falls project.

“Common sense and prudence would dictate that Nalcor stop spending money until the legal certainty is arrived at,” he said Tuesday.

An affidavit filed last winter by Nalcor in response to a separate constitutional challenge of Muskrat Falls says work at the site near Happy Valley-Goose Bay costs about $500,000 per day.

Dunderdale said the province has done its legal homework and won’t let Quebec dictate its energy policy. She said she’s confident that Hydro-Quebec’s court challenge will fail before the end of the year, and that she will defend her province’s interests when the premiers meet Wednesday in Niagara-on-the-Lake, Ont.

“I believe in candour and in frankness,” Dunderdale said in an interview. “I’m certainly not going to shrink away from any kind of a challenge from Quebec or anyone else that takes a position that’s not in the best interest of Newfoundland and Labrador.”

Meanwhile, Dunderdale said construction of Muskrat Falls continues full steam ahead. Provincial NDP Leader Lorraine Michael doesn’t share her optimism.

“I certainly have never been able to understand where the premier gets her confidence from … with regard to Muskrat Falls and the whole economy of Muskrat Falls with all the different wrinkles that are there,” she told reporters Tuesday. “She just seems to ignore them, and that bothers me.”

The project is scheduled to generate power by 2017.

On Monday, Nova Scotia’s Utility and Review Board gave approval for a $1.5-billion subsea link that would ship electricity from Muskrat Falls to Nova Scotia on the condition that energy customers in that province get the best price for surplus power based on market conditions.

But Nalcor Energy has not committed to offering any price guarantees to private company Emera (TSX:EMA), its partner in the Muskrat Falls development.