CANADA

Losing on Churchill Falls

MICHAEL CLUGSTON May 14 1984
CANADA

Losing on Churchill Falls

MICHAEL CLUGSTON May 14 1984

Losing on Churchill Falls

Premier Brian Peckford was a drawn and defeated figure as he stood in the Newfoundland legislature last week. The premier had to acknowledge that the province had suffered a second judicial setback this year in its efforts to control what it claims are its own natural resources. Declared Peckford: “It is not a very nice day for anyone in this province,” referring to the unanimous Supreme Court of Canada ruling that Newfoundland cannot break its contract to sell hydroelectric power to Quebec—at 1969 prices—until the year 2041. In March the same court awarded control over the Hibernia oil resources on the Grand Banks to the federal government. Even Quebec Premier René Lévesque called for negotiations on Labrador power, and angry callers jammed radio phone-in shows in St. John’s to denounce the court’s decision. Peckford himself echoed a theme heard frequently on the open-line programs. The decision, he said, would likely fan the flames of separatism in Newfoundland.

The court’s ruling struck down a 1980 Newfoundland law allowing the province to expropriate the water power rights on the Upper Churchill River. And although Lévesque called Newfoundland’s efforts to break the contract “unconscionable,” he added that he is willing to continue negotiations on the contract, which broke off last March 31 after seven fruitless months. At issue are the price and other conditions of sale of almost all Churchill Falls’ annual output of 5,225 megawatts. Hy-

dro-Québec buys the power at one-tenth of market rates—three-tenths of a cent per kilowatt hour—and resells its surplus for as much as 10 times that amount. That deal has strained Newfoundland’s relations with Quebec for about 10 years, and Peckford has charged that while Newfoundland nets $8 million from its Labrador hydroelectric operations, Quebec gains as much as $790 million a year by reselling surplus electricity to utility companies in the northeastern United States.

When construction began on the Churchill Falls project in 1967, there was no indication that what was then the largest hydroelectric station in the world would become a symbol of government mismanagement to a generation of Newfoundlanders. Indeed, then-Premier Joseph Smallwood took pride in convincing Quebec to support the development loans for the $930-million station. In return, Newfoundland awarded Hydro-Québec the contract, allowing the company to buy almost all the Churchill power at a price equivalent to buying a barrel of oil for $1.61 (today’s price, $36 a barrel). But there was no provision for reopening the contract, and when world

energy prices began to increase dramatically in 1973, Quebec was in a position to enjoy bargain rates on Churchill power until well into the 21st century. In 1976 Premier Frank Moores unsuccessfully attempted to purchase 800 megawatts from the Upper Churchill in a case that will go before the Supreme Court of Canada later this year. Newfoundland’s failure to regain any of the Churchill power flowing into Quebec has cost the province dearly: since 1975 it has spent $700 million building four new generating stations across the province to meet its own growing hydro needs.

In 1980, one year after Peckford came to power, the province initiated its second court battle. It passed the Water Rights Reversion Act, expropriating the water lease of the Churchill Falls (Labrador) Corp. Ltd., a company that Newfoundland and Quebec jointly own. But last week the Supreme Court ruled that the takeover legislation was a thinly disguised attempt to break the power contract. In writing the judgment, Mr. Justice William McIntyre said the Newfoundland law directly affected another province, and under the Constitution provinces can only write legislation that applies within their own boundaries.

The judge went on to say that even if the judicial body sympathized with Newfoundland’s case, “it is not for this court to consider the desirability of legislation from a social or economic perspective.” Peckford asked the federal government to come to the province’s rescue. Said Peckford: “Ottawa should use the powers conferred upon it by the Supreme Court of Canada to give the people of Newfoundland some reasonable, just and fair returns on the contract.” But the federal government interceded on the side of Quebec in the court case that ended last week and it will likely limit any future involvement to mediating the dispute between the two provinces.

For his part, Premier Peckford is beginning a purposeful and intensive cross-country speaking tour in an attempt to win support for Newfoundland’s claim to offshore oil resources. With the latest court decision, he may have additional public sympathy. But Peckford would prefer to have the bargaining power that his defeats have taken from him. -MICHAEL CLUGSTON,

Anthony Wilson-Smith