The government of Newfoundland and Labrador, through its energy corporation Nalcor, is asking Hydro-Québec to renegotiate the Upper Churchill contract.

Premier Danny Williams told the legislature Monday, shortly after it opened for the fall sitting, that the request was made after the province discovered a "very legitimate and compelling" legal argument that has yet to be tested in the courts.

"It is our firm hope and desire that Hydro-Québec will affirm their desire to renegotiate this lopsided contract," Williams told the legislature. He said under Quebec law, both parties in an agreement are to "enjoy equity and fairness."

The 65-year Upper Churchill contract, signed in 1969, has been the subject of several failed court actions by the province and continues to be at the heart of a long-standing resentment toward Quebec.

The deal allows Hydro-Québec to buy power at inexpensive rates from Newfoundland and Labrador, at a quarter of a cent per kilowatt hour according to Williams, and then re-sell it for up to 36 times the price it paid.

Williams told the legislature that last year, Hydro-Québec earned approximately $1.7 billion from the contract, while the Churchill Falls (Labrador) Corporation, known as CF(L)Co, received only $63 million. Williams said Newfoundland and Labrador is also responsible for the running, upkeep and maintenance of the Upper Churchill facility.

"The gross inequity of this agreement cannot be denied. It is without a doubt considered the biggest giveaway of resources by this province. In fact, I would venture to say there are no other similar agreements of such a disproportionate magnitude in the entire country."

Williams said the legal argument centres on Quebec's civil code.

"Under Quebec's own civil code, there is an obligation imposed by law for parties to act in good faith in all legal relationships, including the negotiation and ongoing performance of contracts."

The Churchill Falls Corporation is now a subsidiary of Nalcor. Its president has written to Hydro-Québec asking that the deal be renegotiated.

Nalcor said it has a legal opinion from the Montreal law firm of Irving Mitchell Kalichman that there are grounds to renegotiate the pricing contract under certain provisions of the Quebec civil code. It said the basis of opinion is that circumstances have changed in a way that could not have been reasonably foreseen at the time the contract was initiated.

Williams said the letter to Hydro-Québec asks that they enter into negotiations to amend the pricing terms of the contract for the future, so both corporations get a fair and equitable return.

"This would be consistent with the good faith principle that is fundamental to the Quebec civil code."

Hydro-Québec isn't commenting on the request.