Panel rules Hydro-Quebec contract stands
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Published: April 18, 2001
By John Dillon
TIMES ARGUS STAFF
BURLINGTON - An international arbitration panel has ruled that Hydro-Quebec must pay Vermont power companies $20 million for electricity capacity it failed to provide following a catastrophic 1998 ice storm.
But the panel also rejected the main claim by Vermont utilities that Hydro-Quebec's faulty power line design and maintenance caused the collapse of its transmission network during the storm.
The panel instead said the freezing rain that coated northern New England and the St. Lawrence Valley was an unforeseeable act of nature - "force majeure" in legalese - that could not be used as a way out of the expensive 30-year contract with the provincial utility.
Under terms of the original contract, a dispute would be heard by a panel of arbitrators, one chosen by each side and the third chosen by the two arbitrators.
For Vermont utilities - which have aggressively pursued the legal case - the ruling was bittersweet: They won the money they claimed they were owed but they are still subject to the costly contract. The $20 million award, including additional interest payments, is still subject to negotiation and must be counterbalanced against the $15 million in legal fees the companies spent on the case.
Robert Rogan, vice president for Central Vermont Public Service Corp, said the ruling was good for the state, since Vermont companies would be paid for the power they had contracted to buy.
"There were a whole range of possibilities that could have come out of this award. This is one of the possibilities that we anticipated," he said. "It's an award that's significant, and one we're pleased to receive."
But the utilities had been seeking far more than reimbursement for the cost of power Hydro-Quebec failed to deliver. They had asked the three judges in the case to terminate the 30-year contract both for the future and retroactively, which could have obligated the provincial utility to pay the above-market costs for the power it had sold since the contract began in 1990.
The Vermont companies sought to void the contract on several grounds, including fraud. The arbitrators dismissed all the claims against Hydro-Quebec except the utilities' claim for compensation for the power they did not receive.
While Rogan called the ruling a "split decision," a Hydro-Quebec representative said the panel had decided mostly in the provincial utility's favor.
"The reaction of Hydro-Quebec to this is very positive," said Richard Saudek, a Montpelier lawyer who represents Hydro-Quebec. "I would not call it a split decision."
"All of the principal claims were dismissed," he added. "And the most important thing is that the tribunal held that force majeure, an act of nature, was responsible" for the failure to export electricity.
The ice storm was at the heart of the three-year legal battle. The contract calls for an uninterrupted electricity supply and Vermont companies argued Hydro-Quebec breached the contract by failing to send electricity south in the months following the storm. Power deliveries were interrupted completely for 30 days starting Jan. 7, 1998 and were not restored completely until early March. The utilities said Hydro-Quebec had essentially sown the seeds for disaster by failing to design and maintain its transmission system to withstand the massive ice load.
"What we purchased from Hydro-Quebec was a Cadillac energy product. What we were getting was somewhat less than that," Rogan said.
The panel's 200-page decision details the storm and its devastating aftermath in Quebec. The arbitrators found that much of the damage to the transmission network could not have been prevented.
"On the evidence before us we conclude that taken overall an ice storm of the severity and extent of that of January 1998 was not foreseeable, and that Hydro-Quebec could not have been expected through the exercise of due diligence and foresight to have designed, built and maintained a transmission system capable of surviving it undamaged," the panel said. "We conclude therefore that taken overall, the ice storm constituted an event of force majeure."
The five day storm felled 3,100 wood or steel power towers and downed 116 Hydro-Quebec high voltage transmission lines. Some 3.5 million people were left without power in Canada, some for over a month. Quebec authorities seriously considered ordering the evacuation of Montreal due to the lack of power and essential services, the panel said.
The panel ruled that Hydro-Quebec's failure to deliver electricity following the storm was a breach of the contract. But the breach was excused due to force majeure.
At the end of the ruling, the panel listed the hours and the legal fees - ranging from $250 an hour to $500 an hour - incurred by the three judges. Their bill, including their secretary's time, totaled $1,659,547.
"It was by far the worst such storm experienced in Canada in living memory," the decision said. "No ice storm had ever been recorded of such prolonged duration, geographic extent and intensity."
Rogan of CVPS said the $20 million award should ultimately benefit customers, but it's not clear if and when ratepayers will see a refund. "It's premature to talk about the amount customers will receive out of this," he said. "We have to sit down with our regulators ... and do the calculations."
Both sides have 90 days to decide whether to appeal the ruling to federal court. And both Hydro-Quebec and the Vermont utilities are required under the ruling to split the cost of the arbitrators' time, a not inconsequential bill.
At the end of the ruling, the panel listed the hours and the legal fees - ranging from $250 an hour to $500 an hour - incurred by the three judges. Their bill, including their secretary's time, totaled $1,659,547.
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