Churchill Falls 'do-or-die' deal

An economist at Memorial University says one of the most controversial elements of the Churchill Falls hydroelectricity contract with Hydro Quebec was essentially forced on the Churchill Falls (Labrador) Corp. (CFLCo) when it was nearly down and out.

Memorial professor James Feehan told an audience at the university Wednesday his research shows the controversial renewal clause in the 1969 contract, which extends Hydro Quebec's right to energy from Churchill Falls until 2041, was pushed by the Quebec Crown corporation in 1968 when CFLCo's financial resources were drying up.

The 25-year extension, which begins in 2016, requires CFLCo to continue to sell electricity to the Quebec Crown corporation for just $2 per megawatt hour - a rate Feehan said was ridiculously low, even in the 1960s.

"That rate was probably half the cost of energy (in those days)," Feehan said.

And, he said, Hydro Quebec agreed it was a bargain.

According to his research, Hydro Quebec officials said the deal was "extremely advantageous ... even at this time."

But, Feehan said, the renewal clause was not always intended to be such a bad deal. Until 1968, a letter of intent between the corporations had included a renewal clause that would have allowed CFLCo to re-negotiate the price and quantity of electricity sold to Hydro Quebec after 2016.

However, when CFLCo started running out of money - partly due to the lack of success of Brinco, its parent company - the Quebec corporation took advantage of the situation and pushed the clause through.

Feehan also suggested that because Hydro Quebec owned more than a third of CFLCo, with two members sitting on the company board, it's likely the hydro company knew just when it could insist on the clause.

He said Hydro Quebec pushed the renewal rules so hard, one CFLCo negotiator called it a "do-or-die" ultimatum.

Now, Feehan said, with the end date of the original contract and the beginning of the 2016-2041 extension coming up, people in Newfoundland and Labrador are looking at several options to resolve what is widely viewed as an unfair deal.

The Newfoundland and Labrador government, which now owns nearly 66 per cent of the Churchill facility, may seek to re-negotiate a renewal clause, or seek an avenue to apply tax to the electricity leaving the province - each option with significant legal challenges.

However, Feehan said it might be worth looking at the Hydro Quebec seats on the CFLCo board, and considering whether a clear conflict of interest existed.

"In my view it is an untenable position," he said.

emclean@thetelegram.com