UPPER CHURCHILL CONTRACT: “Inherent Uncertainty” or Just Bafflegab?

Note: This item, written by your Uncle Gnarley scribe, was first published in the Telegram August 11, 2012 and is posted here for Uncle Gnarley readers.

and Labradorians have a right to feel a sense of betrayal, that an energy strategy,
already bought and paid for, focusing on expiry of the Upper Churchill Contract
in 2041, has been rejected by the Williams/Dunderdale Administrations. 

following is a direct quote from Nalcor’s Submission, to the PUB, in defense of
its Muskrat Falls strategy:

is inherent uncertainty around guaranteeing the availability of supply from
Churchill Falls in 2041 because it is difficult to determine the environmental
and policy frameworks that will be in place 30+ years out. There are other
issues surrounding the CF asset with respect to HQ, as Nalcor is not the sole
shareholder of the Churchill Falls operation”.

Efforts to either break Hydro Quebec’s stranglehold on the Upper
Churchill and develop the Lower Churchill, formed significant policy
initiatives not just of the Moores and Peckford Administrations. 

Those of Brian Tobin and Roger Grimes had a different strategy but each
attempted to limit risk to the NL treasury by engaging Hydro Quebec.

Notwithstanding the failures which ensued, energy policy, since 1974,
has been pursued with the certain knowledge that the Upper Churchill Contract,
in 2041, expires. 

Indeed, in another time, another Premier, indelibly linked with the
Contract, might be heard to say: “It is not a case of ‘maybe’ or ’if’ or
‘possibly’.  The Contract
‘unquestionably’, ‘unreservedly’, ‘unconditionally’, ‘absolutely’ expires in

Former Premier Danny Williams, in a 2007 Energy Paper, confirmed the position
taken by previous Administrations, though he later found that second thoughts
were later needed to bolster his Muskrat Falls initiative.   The Paper stated, on Page 3:


These goals were developed in the
context of protecting our environment while
maximizing opportunities to the
province from current and future developments,
including after 2041 when the province
is in the position to receive the full
benefit from the Upper Churchill.
(Underline added).

 I find the
statement to be rather unequivocal, as to the matter of contract expiry.  I imagine most people would.  Hence, this must be one of those cases of, if
the ‘story’ doesn’t fit, just change the script.

Nalcor’s current position then, with the approval of the Dunderdale
Administration, we ought to ask:  what is
this “inherent uncertainty” surrounding “environmental and policy frameworks”,
to which Nalcor is referring? 

What has Ed
Martin uncovered that advice sought from some of the top lawyers in Canada and
Great Britain, working for Moores, Peckford, and possibly later Premiers, did
not reveal? 

We need to
know if these concerns are real or whether they are merely an attempt by Nalcor
to obscure Muskrat Falls inside a shroud of mystery to which only Ed Martin is
permitted the truth. 

In 1974, the
Moores Government used $160 million of public money to pay Brinco, when it
nationalized the developer of the Upper Churchill, in 1974.

 That is how the Province became the beneficial
owner of two thirds of CFLco. It is the reason people have been led to believe,
for nearly four decades, that the deep injustice perpetrated on the people of
the Province, by Hydro Quebec, would finally be rectified. 

Today, we are
forced to ask ourselves again, in light of the new Williams/Dunderdale script,
whether we will receive a return on our water rights and on our substantial investment,
when the contract ends in 2041. 

A strategy to
bridge the gap between the proposed closure of the Holyrood generating station,
in 2020, and availability of Upper Churchill power, in 2041, is all that is

 It would permit the Province to avoid the high
energy costs, huge debt and other risks associated with Muskrat Falls.

Indeed, one
must ask, on what basis, should we not optimize the opportunity for repair of a
historical grievance with Hydro Quebec and obtain a suitable return on our
considerable investment in the Upper Churchill project?

energy destiny was set in 1974; it does not need to be re-set in 2012 with a risky $8-10 billion
project, now, to cover a questionable, though a comparatively small energy
deficit given the less risky alternatives available. 

How is it, that
Nalcor can make a determination that NL ratepayers should suffer increases in
power costs each year, for 50 years, to pay for Muskrat Falls, but energy
policy in 2041 should not even be weighed against the risks, today?

There is no
logic in Nalcor’s argument.

I would
argue, that Nalcor, having adopted its Muskrat Falls strategy, has caused
greater uncertainty than any that may be attached to the Upper Churchill

If Muskrat Falls proceeds now, we
will be locked in to expensive Muskrat Falls power, under a 50 year “take or
pay” contract, and unable to replace it with much cheaper Upper Churchill

If Muskrat
Falls proceeds now, we will be playing into the hands of Hydro Quebec, because the
high cost of that project will place the Province in a financial strait jacket and
threaten our ability to make the right decisions on Upper Churchill power, when
the time comes. 

No one has
suggested that, in 2041, the hydro power will be free.  CFLco will have to treat Hydro-Quebec like
the ‘minority’ shareholder that it is. Any Canadian corporation would legally
be required to treat minority shareholders, fairly.  No more and no less!  While power from the Upper Churchill will not
be free, it will be cheap. 

As for
energy policy in 2041, the issue of cost will be a decision of the then
democratically elected government.   

By then,
Dunderdale, Kennedy and their cohorts will have been long run out of town.
Des Sullivan
Des Sullivan
St. John's, Newfoundland and Labrador, Canada Uncle Gnarley is hosted by Des Sullivan, of St. John's. He is a businessman engaged over three decades in real estate management and development companies and in retail. He is currently a Director of Dorset Investments Limited and Donovan Holdings Limited. During his early career he served as Executive Assistant to Premier's Frank D. Moores (1975-1979) and Brian Peckford (1979-1985). He also served as a Part-Time Board Member on the Canada-Newfoundland Labrador Offshore Petroleum Board (C-NLOPB). Uncle Gnarley appears on the masthead representing serious and unambiguous positions on NL politics and public policy. Uncle Gnarley is a fiscal conservative possessing distinctly liberal values and a non-partisan persusasion. Those values and opinions underlie this writer's views on NL's politics, economy and society. Uncle Gnarley publishes Monday mornings and more often when events warrant.


Bill left public life shortly after the signing of the Atlantic Accord and became a member of the Court of Appeal until his retirement in 2003. During his time on the court he was involved in a number of successful appeals which overturned wrongful convictions, for which he was recognized by Innocence Canada. Bill had a special place in his heart for the underdog.

Churchill Falls Explainer (Coles Notes version)

If CFLCo is required to maximize its profit, then CFLCo should sell its electricity to the highest bidder(s) on the most advantageous terms available.


This is the most important set of negotiations we have engaged in since the Atlantic Accord and Hibernia. Despite being a small jurisdiction we proved to be smart and nimble enough to negotiate good deals on both. They have stood the test of time and have resulted in billions of dollars in royalties and created an industry which represents over a quarter of our economy. Will we prove to be smart and nimble enough to do the same with the Upper Churchill?