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Supreme Court of Canada to review 1969 Churchill Falls energy deal

N.L. launched legal challenge in 2010, arguing deal with Hydro-Quebec was lopsided

Churchill Falls generating station

Churchill Falls remains a sore point for many in N.L., because of a long-running contract signed decades ago with Hydro-Quebec. The Supreme Court of Canada, in a ruling released Thursday, says it will review that deal. (CBC)

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The Supreme Court of Canada says it will review the 1969 Churchill Falls energy deal that has been highly profitable for Hydro-Quebec but much less so for Newfoundland and Labrador.

Under the deal, Hydro-Quebec agreed to buy almost all the energy generated by a hydroelectric plant to be built on the Churchill River in Labrador.

The contract, which had a 65-year term, set a fixed price for the energy that would decrease in stages over time. The project has generated more than $26 billion for Hydro-Quebec, compared with about $2 billion for Newfoundland and Labrador.

Churchill Falls (Labrador) Corp. Ltd. went to Quebec Superior Court in 2010, arguing unsuccessfully that the sizable profits from electricity were unforeseen in 1969 and that Hydro-Quebec had a duty to renegotiate the contract.

The Quebec Court of Appeal upheld the 2014 lower court ruling, agreeing the provincially owned power utility has no obligation to reopen the agreement.

Under the 1969 agreement, Hydro-Quebec may purchase the electricity at low prices before reselling it at a much higher price on the domestic market and to export, which Nalcor Energy, the parent company of Churchill Falls (Labrador) Corp. Ltd., says is unfair.

The company argued the contract was broken by "unpredictable events" that have transformed the energy market and obliges Hydro-Quebec to revise the original terms of the agreement in order to regain balance.

Nalcor Energy sign CBC

Newfoundland and Labrador Crown-owned Nalcor Energy has fought for years to reopen the deal. (CBC)

But five appellate court judges that heard the appeal felt Nalcor Energy was trying to "redefine the initial balance" agreed to between the parties.

"The uncontradicted evidence established that the parties knew that the value of hydroelectric power was likely to fluctuate and have voluntarily agreed fixed prices for energy," they wrote in a 61-page judgment.

The court also found the general principle of "good faith" as found in the province's civil code doesn't apply to Churchill Falls as the contract has remained "profitable" for Newfoundland. The benefit generated by Hydro-Quebec is the result of changes in the electricity market, the ruling said.