Quebec's top court rules for N.L. in Churchill Falls dispute with Hydro-Qubec

Newfoundland and Labrador has achieved a rare win in its longstanding battle with Hydro-Qubec over a 50-year-old agreement on sales of Churchill Falls power that haslong been a source of contention for the province.

The Quebec Court of Appeal says in a ruling that Churchill Falls Corp. Ltd. a subsidiary of Newfoundland's Crown corporation overseeing hydroelectricity has the right to sell energy produced above a certain threshold. Hydro-Qubec retains the right to sell Churchill Falls energy up to a monthly cap.

That's good news for Newfoundland and Labrador because it ensures that Churchill Falls Corp. can manage water on the Upper Churchill to avoid negatively affecting theMuskrat Falls facility's ability to generate power, said Premier Dwight Ball.

The province will be able to set a threshold for the size of reservoirs and ensure adequate flow from the Upper Churchill to the Lower Churchill, he said.

"At least now from a water management point of view, we will not have to worry about that again," said Ball.

The decision is the latest round in a battle that reached the Supreme Court of Canada, which ruled last year that Hydro-Qubec had no obligation to modify its 1969 deal, which hasprovided much more financial benefit to Quebec than to Newfoundland and Labrador.

The deal has yielded close to $28 billion in profits to Quebec, compared to just $2 billion for Newfoundland and Labrador.

Under the agreement, which is valid until 2041, Hydro-Qubec can purchase the majority of electricity from the central Labrador facility. The utility had argued successfully the deal was valid because it had assumed all the costs and risks that came with the project when the contract was signed.

Thursday's decision concerns how a contract that has been highly profitable for Hydro-Qubec should be interpreted since September 2016, rather than whether it should be renegotiated. In 2013,Hydro-Qubecasked for interpretation of the contract with regards to water management, Ball said. Newfoundland and Labrador lost a ruling on that in the Quebec Superior Court in the summer of 2016 and quickly decided to appeal, he said, resulting in Thursday's verdict.

"We had to. There was no choice," Ball said."If we didn't appeal it back in 2016 and accepted the loss, then Ithink we would have been in a very different position today."

Stan Marshall, Nalcor Energy's president and CEO, said in a statement that the Crown corporation is"pleased" with the decision.

"The decision issued today is complex and the company will need some time to complete a comprehensive review of the judgment and its financial and operational impacts. We will continue to work cooperatively withHydro-Qubecto implement the court decision," it continued.

Deal expires in 2041

The legal dispute over the 1969 Churchill Falls deal has been long running. Under the terms of that contract,Hydro-Qubecagreed to buy most of the electricity produced by the plant and protect Churchill Falls from cost overruns, and in return Churchill Falls agreed to fixed prices for the entire term of the contract.

In November 2018, the Supreme Court rejected Churchill Falls Corp.'s bid to reopen the energy deal with Hydro-Qubec, ruling in a 7-1 decision that the Quebec utility had no obligation to renegotiate the 65-year contract.

"The magnitude of the profits it earns under the contract does not justify modifying the contract so as to deny that benefit,"reads thatmajority decision written by Justice Clment Gascon.

Ball said at that time that while the decision was disappointing, it was not surprising and would not affect his province's working relationship with Quebec.

As for today's decision, it makes the province better able to ensure Muskrat Falls can operate as intended, but he doesn't believe it hasany consequences for the contract's expiration of overall status, Ball said.

"The 2041 contract, at the end ofthe day, when that's done and we get in a position to renegotiate that, what we do know is that this province will be in a much better spot. They will have more control and better control over that asset."

When the Churchill Falls deal expires in 2041, full control of the hydroelectric project will be given to Churchill Falls Corp.

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