The recent
Decision of the
Superior Court rejecting Nalcor’s interpretation of the Upper Churchill Renewal
Contract constitutes a very significant loss for Newfoundland and Labrador. 

The loss is
felt not just because Nalcor was barred from accessing surplus energy from the
Upper Churchill. It skewers the concept of water management on the
Churchill River, a Plan essential to maximizing the power potential of
Muskrat Falls – especially the plant’s capability to meet maximum scheduled
demand. Water management is pivotal to any claim to viability of the project.

The Water
Management Agreement (WMA), approved by the provincial PUB, is best understood as an “energy bank”, one that makes provision for an
independent coordinator to record power delivered to the Upper Churchill from
Muskrat and from the Upper Churchill to Muskrat when the plant was capable of
producing surplus energy. In that way the water flows are coordinated and their conversion to electricity maximized.

management is a perfectly sensible idea. But it can’t be implemented if the legal authority to operate it is void.

What really
makes the Decision of the Quebec Superior Court (QSC) so beguiling is Nalcor’s
recklessness given that it knew – prior to Muskrat sanction – the WMA might be
a problem. Hydro Quebec (HQ) refused to sign off on the Agreement in the first place. For
that reason, the fact that it is called an “Agreement” seems fanciful.

The Crown
Corporation had been warned that it ought to seek a
Declaratory Judgement from the Courts (a legal determination by a court that
resolves legal uncertainty) before proceeding with the Muskrat Falls project.

leadership at Nalcor was deaf to the critics of the project even though able
lawyers like Bern Coffey, Dennis Browne, Cabot Martin, and the late Ed Hearn
laid out solid legal reasons, including the experience of having lost repeated
attempts to seek redress on the unconscionable 1969 Upper Churchill Contract. “Billions
of dollars are at stake”, Bern Coffey, representing the 2041 Group, told a
Press Conference. “Legal certainty is required, particularly in light of
Hydro-Quebec’s past success in defending its power contract rights…(t)he point
is simply that the outcome of any such legal proceedings is far from certain.”

The Quebec
Superior Court’s (QSC) Decision was absolute. Nalcor cannot claim a
single victory despite having originally made several claims on the Upper Churchill. In summary,  the QSC

– denied
Nalcor’s interpretation of the Renewal Contract and declared that HQ has the right
to purchase any energy produced in excess of the amount specified in the

– confirmed
HQ’s right to both the energy and capacity of the Upper Churchill (except for
the amounts committed under the Recall and the Twinco Agreements).

–  confirmed HQ’s right to schedule the energy
produced from Churchill Falls.

Nalcor denies the fact, the decision confirming HQ’s right to schedule the
energy from the Upper Churchill was especially a devastating blow to the
Muskrat Falls project.

position that the Quebec Court’s Decision has no bearing on Water Management is
not sustainable. It is tantamount to an untruth, a lie, a predetermined and deliberate
attempt to give cover to a Nalcor leadership unwise enough to pursue Muskrat
sanction in spite of the risks involved.

Having thrown
caution to the winds, as it rolled the dice on the judicial outcome, Muskrat Falls may
be reduced to as little as 180 MW when the Upper Churchill is operating at minimum allowable capacity – enough power to supply only Nalcor’s obligations under the Nova Scotia Block.

Nalcor denies that outcome. The Nalcor Press Release made this assertion:

“The Water
Management Agreement was not the subject of this action commenced by
Hydro-Québec in the Quebec court… the Water Management Agreement (WMA)
established by the Public Utilities Board (PUB) (will be) governed by the laws
of Newfoundland and Labrador and subject to the jurisdiction of the
Newfoundland and Labrador Courts.” It goes on to add: “The WMA optimizes
production for facilities on the Churchill River and ensures that Muskrat Falls
and CF(L)Co. can meet their contractual obligations while ensuring that the
provisions of the Churchill Falls Renewal Contract are not adversely affected.”

conclusion is wrong. The Corporation
 cannot have it both ways.

On the one hand, Nalcor makes the admission that the WMA is an instrument “governed by the
laws of Newfoundland and Labrador…” but, on the other, it doesn’t add that the Upper Churchill
Contract is subject only to the laws of the Province of Quebec. Therefore, the
QSC’s ruling confirming HQ has the right to schedule the power production at
the Upper Churchill effectively removes water management from the control of
Nalcor. Even the NL Courts cannot impact the Upper Churchill Contract as prior
legal losses regarding water rights, suffered by the Province, confirm.

Strangely, Nalcor CEO Stan Marshall argues the case doesn’t affect the WMA – he
states the case was about who owns the output of the Upper Churchill.

acknowledges that Nalcor thought they had the rights to a certain block of
power but that the QSC says they have to give it all to HQ.

or otherwise Marshall doesn’t connect the dots. Let me explain.

CFLco and Nalcor
essentially made the pitch to the QSC that under the Renewal Agreement CFLco
was to deliver certain blocks of power to HQ monthly. They asserted that as
long as HQ got those blocks of power they couldn’t say anything about where the
power came from. Within that interpretation the WMA could be applied.  But the QSC confirmed no such arrangement.
The Court said HQ is entitled to the whole output of the Upper Churchill plant.

Given the right to schedule the power, Nalcor gets to direct the
Under this
edict the whole idea about banking and swapping power,
between the Upper Churchill and
Muskrat Falls, what the WMA is designed to do, simply collapses.

That means the WMA cannot be implemented without a side deal with HQ.

Let me state the case in a different way.

The QSC did
not award HQ the equivalent of the power
output from the Upper Churchill….it awarded HQ the whole output. Hence, Stan Marshall’s assertion the WMA is untouched
is wrong. It is simply not true.

QSC left no wiggle room.

Now, if
CFLco receives an instruction from HQ and one from Nalcor which request do you
think CFLco is required to carry out?

the Court said contractual rights of the 1969 Contract remain unamended. The
Court confirmed that any end run, like that contemplated by the WMA, is a fiction.

Nalcor does
not want to admit they have a problem.  They
only want the problem to go away. But for that to occur Nalcor will have to grease the palms of HQ.

The real risk,
however, is that Nalcor will attempt to disguise the problem……resolving it in a
side deal with HQ without the public ever knowing the cost.

It is time
for Nalcor to stop lying to the public.

Marshall could have taken a different approach in his response to the QSC
Decision. He could have laid out the truth about the mess the Dunderdale
Government got the province into; a mess inspired under the leadership of Ed
Martin and Gil Bennett.

could have said the lying has got to stop, that the public interest is best
served if the truth is consistently the basis of public policy issues and
challenges including those where bureaucrats and politicians have made a whip
for the public’s posterior.

We all know Premier
Ball still supports Muskrat. He is still uttering foolish claims in the
tradition of former Premiers Kathy Dunderdale, Tom Marshall, and Paul Davis.
Their claims of profitability and with respect to water management never did
add up. In the post-QSC world the idea that the WMA is sustained is a cruel
joke. The public will deal with Premier Ball in time.

But Stan Marshall
could have said to the Premier: do you really want me to say those untruths
about the position the province is in following the ruling of the QSC?  He could have said… I won’t say that…I will
ruin my reputation.

That is what
strong people do, isn’t it?

Likely, Stan
Marshall is unwilling to acknowledge publicly that he is trying to get the best
stinky deal possible with HQ.

But he should remember that any deal he strikes will still be based
upon a lie told to the Newfoundland public. I suggest, Sir, we have had enough
of that.

Finally, if
Stan Marshall really believes the Water Management Agreement is unaffected by
the Decision of the QSC, he should tell his PR people to stop snowing us with

should just show us the legal opinions (which have been paid for with public
money) that support his assertions regarding the effectiveness of the Water
Management Agreement following the QSC Decision. He should also hold up for public
scrutiny all the opinions that placed this Province in front of the QSC in the first place- as
Nalcor continued to spend billions.  

Let those
who have to pay for this debacle see who is responsible.

Mr. Marshall:
when does the new era of accountability and transparency you promised begin? 

Editor’s Note: Readers looking for more detail on the purpose of the Water Management Agreement, the consequences of it not being applied, the risks Nalcor took in essentially rolling the dice in the face of continuing to commit billion of dollars to the Muskrat Falls project, or of the claims Nalcor attempted to defend when Hydro Quebec challenged the Corporation in the Quebec Superior Court ,are referred to this Uncle Gnarley Post: THE QUEBEC SUPERIOR COURT GIVES NALCOR NOTHING: WATER MANAGEMENT A PIPE DREAM 
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?


  1. RIGHT ON (as Snook says). I believe your version of truth over Marshall`s. I can only believe that water management will be dictated by HQ. If there is a side deal, it will be on HQ terms and at a cost. Fess up Stan, your reputation is at stake, for being a straight shooter. And minimum power supply might be 170 MW or less after transmission losses instead of 180, if memory serves) Winston Adams

    • I agree – this article is RIGHT ON.

      HQ will be in a better position (it has the knowledge/experience/competence/resources) to actually manage Muskrat (for a fee) on behalf of Nalcor.

      Nalcor/NL would get what it needs in terms of firmed base power, and HQ would ensure optimal production/minimal hydraulic losses in both upper and lower Churchill.

  2. It seems that there are no lies left to tell, that will convince anyone of ANY good reason to complete this project. Yet the costs of stopping the project (or for completing it), are not put forth for scrutiny or consideration by (non-shareholder) experts or by the people who will pay dearly for the whole corrupt fraud.

    The contract with Nova Scotia may not be "null" (as yet), but it is certainly "void" of any real capacity by NL to fulfill it.

    These guardians of our economy… these leaders… these "successful" bright shining stars of business (corrupt cable companies, McD's and pharmaceutical salesmen) have FIRST laid ALL of our cards on the table… and THEN began to place bids against the house (HQ) for which the game was stacked long before the cards were ever dealt. It seems that now we're "ALL IN" and trying to bluff with an (exposed) losing hand and no cards left to be dealt !!!

    Bankruptcy for this province may be the only remaining answer when compared to ATTEMPTING to starve through (another) multi-billion dollar, long term, money losing contract, and it may be only a matter of time.

    I expect the same may end up being true for Galway too, but then that works for most folks I think. …. now… where was I? Oh yeah, saying goodbye to another friend & family leaving the province permanently (today)… and searching through houses for sale in NS …

  3. "the unconscionable 1969 Upper Churchill Contract"

    FWIW, The QSC ruling also includes very informative historic facts about the prior contract negotiations that occurred. HQ had already declined an earlier Brinco/NL offer, and decided instead to build Manicouagan (a cheaper option than Brinco's first offer). Some years afterward, HQ had to choose this time between the James Bay or a new offer for Upper Churchill (costs were very similar). HQ picked Upper Churchill, with the results we know.

    Knowing all the resentments that resulted, HQ should have gone for the James Bay instead. James Bay would have been way cheaper (inflation only occurred afterward) to build than what it ended up in 1980, and would have been the bargain Upper Churchill currently is.

  4. "QSC declared that HQ has the right to purchase any energy produced in excess of the amount specified in the contract"

    On a side note, the ruling also mentioned that (in the past few years) CFLCo secretly sold to Nalcor power in excess of the amount specified in the contract (the Upper Churchill dam actually produces more power than what was envisioned).

    Nalcor then exported that excess power in the US (using HQ power lines without telling HQ/paying usage fees…)

    When HQ requested CFLCo to provide detailed production stats (to confirms those excess sales…), CFLCo did not respond.

    So this QSC ruling, I guess, puts HQ in a position to sue CFLCo and Nalcor for illegally taking possession of excess power that HQ should been sold to HQ in the first place, and then illegally use HQ power lines to export in the US.

    CFLCo and Nalcor knew very well that this excess power should have been sold to HQ in the first place (otherwise they would not have been so secretive)

  5. When it seems that the bad news for MF must eventually dry up, then yesterday, the CBC piece on many homes converting to oil for heat. This goes to the unreliable forecasting to justify MF. 1. By 2011, before sanction Nfld Power surveys showed many houses off the Avalon were switching from all electric to wood heat. 2. 2015 report by Nfld Power shows uptake in minisplit heat pumps to replace baseboard heaters. 5000 units installed so far and many more being converted. 3. Oil prices so low that Holyrood fuel cost is much lower and they have to compensate customers by reducing electricity price by 7 percent. 4. Oil for home heating so low and prospects that electricity price will double, so many switching to oil heat. All of this is negative for MF and impacts electricity sales and puts the lie to the forecast for the province needing that power in the first place. And this moving away from baseboard heaters and electric furnaces is happening 4 years before MF goes on line. Already the peak demand forecast is being reduced from 30 to 50 megawatts lower than forecast. And new house construction rates are down also. Not only does the New England Governors not want this expensive power, Nflders do not want it either. STOP THIS PROJECT NOW. It is a white elephant and boondoggle that only gets worse with as it goes forward. The government needs to go with demand management and further reduce demand for power, as wise ratepayers are moving in this direction big time. Reverse course! Ball and Marshall must be nuts to think people are going to pay 20 cents kwh for electricity when there are so many other option for heating. Is there anyone with the power companies or government with a clue! People are not waiting for these high power rates…. they are taking action now with those personal decisions.

  6. Pat Daley on VOCM this morning echoes DES: if the Water Management is not impacted by the court ruling, he calls for Stan to spell it out.
    On the other hand Pat says we can live with power rates of 21.4 cents as long as it do not go higher. Who is the WE he refers to….. not all those who are converting, and not the low income ratepayers. And Pat says any conservation will only make rates go higher!(This is the type of thinking that makes us odd man out in North America). This is theory, not fact. It is an argument not to use energy efficiency, or not to convert. If we stop MF now we can hold rates to 15 cents instead of 21.4 or higher if we spend another 5 billion for a useless project. Fact will be that rates will not be permitted to go to 20 cents or more as it will cause a major collapse of electricity sales, so MF will be paid by more levies, less government services etc, and not rates of 20 cents. Take or pay contract be dammed, ratepayers cannot afford it and it will not happen. Other taxes will kick in. Reduction in electricity use will and is happening. Pat expects people to be patriotic and not reduce electricity use…. stupid Pat, stupid Pat. Last one out , turn off the lights!

    • Paddy's words have to be taken with a ton of salt, 21.4c kWh is NOT affordable to tens of thousands of NLrs (60,000 on GIS) – To the Steele's, himself and other PCs they can afford the 9.4c kWh increase. Did Paddy also mention the cost of goods and services increasing due to MF? 9.4c kWh is +$1666 if homes use the same 62GJ of power they now consume or $375 million (225,000 homes) taken of the economy. Discretionary income down due to power bills coupled with higher goods and services cost and $2 billion deficits, NL could never afford the go it alone approach for MF.
      Proponents of MF were in their ivory towers ignoring everyone else led by their demagogue Saint Danny, personally attacking the credibility of people that raised valid concerns about the projects viability.
      Someone ask Stan if HQ has to be involved, why didn't Nalcor try to sign a long term PPA first before building MF, MF is the unnecessary middleman in NLs power needs.
      Financially, legally, logistically, contractually, environmentally and ecologically – Nalcor has failed on all accounts and led NL "down the garden path" as one OL caller said to Paddy.
      James Feehan idea of supply management with peak and non peak rates, credits for homes to be more energy efficient and a rise in electricity prices to curb demand – Nalcor didn't even give this idea a trail period so see how demand would be affected. Wade Locke "we can raise power 80% so there would be no demand!" 21.4c is 114% higher V 2010s electricity rates.
      With all of the lawyers the PCs had in their ranks/friends not ONE of them questioned the legality of the WMA??
      Forever $100+ oil, 10500GWh of assumed demand by 2041, we need the power, getting around the bogyman Quebec, it's green(greed) energy and there's NO WAY the project will be 3X the initial cost of $5B – talking points of the proponents.

    • I heard the same comment this morning and raised an eyebrow as well. On the one hand he said if we consume less we pay more and then says we can live with 21.4. This exposes the depth of Mr. Daly's understanding of economic realities. He also said that a 25% increase in the provincial sales tax (8% to 10%) would have no impact on consumption patterns.

      I'd like to see an analysis of the final anticipated "cost-of-living" increase we can expect upon completion of this project. Large power commercial consumers such as supermarkets, bakeries, fish plants and municipalities will pass on their cost increases to the same person who has his own increase. Every business, mine included, will have to pass on these increases.

      Maybe Wade Lock can do that one for us. Then Paul Lane can explain how this is a good thing. Perhaps paid Nalcor Lobbyist Tim Powers can back up the assertion from Paul Davis that "all will be fine when oil comes bouncing back".

      The cheerleaders & promoters (Daly included although lately he seems to have found the road to Damascus) of this calamity still need to account for their unwavering support.


    • Daly is dumb as a brick and he has provided cover for this boondoggle from the outset. He has abused, and in my case orchestrated a cabal to keep me from VOCM, all the critics that were informed.

      He is in love with Danny and will carry his water to hell. The hypocrisy of now calling for the Nalcor books to be opened after his cowtowing to the Nalcor black hole for years is hilarious.

      What that he has said about MF has not raised eyebrows as MF has spun out of control in the void that has devoured the treasury?

  7. Unfortunately, Maurice, your results, while good, do not reflect optimum or best practises. But you know this. Your results is about 23 percent saving on your yearly bill. Nfld power survey shows 20 percent average saving, so yours is a bit better. Best practises as to sizing, operation, good models, and when used to replace all baseboard or electric furnace heaters should save at least 35 percent on the yearly average bill(60 percent or more saving on heat energy). But savings can range from 25 to 50 percent on yearly bills, subject to the house size and construction.Here are some examples: A 4000 sq ft R2000 house would save about 25 percent and would have about a 10 year payback. A medium size house with moderate good construction would save 35 percent with a 6 or 7 year payback. A small poorly insulated house (about 600 sq ft) would save about 45 percent with about a 5 year payback. The payback is for current rates of 10 cents per kwh. At 20 cents per kwh the payback would be half of that indicated. The higher percentage of savings as the insulation standards are lower seems counter what might be expected. But the reality is that higher standards of construction have much more invested in the insulation, better windows, tighter construction, and there is less energy to be saved with the heatpump in those. So the good news is that most house are relatively small, at 1100 sq ft on average, and offer great opportunity for substantial savings for these , which are generally low income ratepayers. This is what my END-USE research is showing for minisplits. The power companies have no reliable research, and report the average result, which often do not an adhere to best practices. So even poor practices give 20 percent saving on yearly power bills. Nevertheless, your installation allows for additional energy savings as you indicate. And your graphics show how it reduces energy use in the winter months when most important to reduce energy use on the grid to avoid rotating outages. But the power companies promote putting on sweaters instead. Winston Adams, Logy Bay

  8. Kudos Des for some in depth review of this issue, something that is sorely missing from our 'media'. We are more likely to see a video of a snoring dog on CBC's Here&Now than an serious look at the 11 billon dollar boondoggle that is bankrupting our province.

    The latest interview CBC did with Dunderdale is a fine example of the state of the media in Newfoundland. They agreed to her conditions of not mentioning Muskrat Falls or politics! A media that informs the public is another pillar of democracy missing from our province. We appear to have a bunch of sycophants producing 'news'.
    Until we fix our non-functioning 'democracy' which is rife with cronyism we will continue to get boondoggles like MF.