Churchill Falls reversion fails for second time

The Newfoundland and Labrador government  is making quick changes to a 2008 law after lawyers for the Churchill Falls (Labrador) Corporation  - CF(L)Co – raised questions about the impact of the bill on the company’s 1961 lease and rights to all property related to Churchill Falls.

Lawyers for CF(L)Co raised the issue with the provincial government’s  NALCOR Energy company during talks on water management for the proposed Lower Churchill project. 

The changes were tabled Tuesday in an emergency sitting of the House of Assembly.

It appears that - reminiscent of the 1980 water rights reversion bill - the 2008 bill stripped CF(L)Co of its lease.

In the original 2008 bill - Energy Corporation of Newfoundland and Labrador Water Rights Act - the Lower Churchill River is described as including “all waters that originate within the Churchill River catchment area and all rivers that naturally flow within the catchment area or from diversions into the catchment area.”

Clause three of the then stated that

any property in and rights to the use and flow of water, previously conferred by a grant, lease, licence or other instrument or under a statute of the province, or vested in, acquired by or accruing to a person by whatever means relating to the Lower Churchill River are extinguished.  [Emphasis added]

By combining the two clauses, the new bill effectively cancelled the 1961 Churchill Falls lease.  The 2008 law also blocked rights holders from any legal action and stripped them of  any entitlement to compensation.  

The bill became law on June 4, 2008.  There is no indication when cabinet issued the license to the energy corporation, now known as NALCOR Energy.

The changes introduced in Tuesday’s emergency session make it plain that the 2008 water rights law applies only to the Lower Churchill and that, for absolute certainty,  the 2008 bill “ excludes the area described in Appendix A to The Churchill Falls (Labrador) Corporation Limited (Lease) Act, 1961, and all waters while they are in that area.”

Emergency sessions are rare

For its part, the Williams administration is downplaying the session and the hasty changes.  In a news release, Dunderdale said that the act was never intended to cover Churchill Falls.

But the very fact the session was called to deal with one set of amendments to one bill suggests the issues involved are far from routine and that the legal implications of the water rights bill would be significant if left unamended.

Emergency or special sessions occur very rarely and usually only deal with extraordinary issues like war or labour disputes that threaten public health and safety.

Ordinarily – and if the implications of the bill were considered inconsequential or inadvertent -   CF(L)Co and NALCOR could simply have made routine amendments in the regular fall sitting a condition of an overall deal on water rights management on the Churchill River. 

Interestingly, the provincial government also tried to downplay the water rights bill in 2008, even to the point of making apparently misleading statements in the legislature.

In June 2008,  natural resources minister Kathy Dunderdale told the House of Assembly that the bill was needed since government had decided against using the  Lower Churchill Development Corporation as the vehicle to develop the Gull Island and Muskrat Falls power projects. 

But the 2008 water rights bill didn’t repeal the 1978 Lower Churchill Development Act, nor did it remove the LCDC option for development of the Lower Churchill.  The 2008 bill merely extinguished previously existing rights, leases, grants and licenses. 

Deja vue

This marks the second time since 1975 that a Progressive Conservative administration in Newfoundland and Labrador has found itself in hot water over legislation related to Churchill Falls.

In 1980 Brian Peckford’s administration introduced the Upper Churchill Water Rights Reversion Act.  The bill expressly cancelled the 1961 lease.  A subsequent legal challenge by creditors led to a landmark decision by the Supreme Court of Canada that ruled the 1980 statute was illegal. 

One of the influential factors in that case was public comments by politicians that identified the real purpose of the bill as being to undo the 1969 Churchill Falls agreement.

If the 2008 water rights bill effectively expropriated the Churchill Falls complex, it would be the second such move by the Williams administration in 2008.  In December 2008, the Williams administration moved to seize assets of Abitibi, Enel and Fortis including hydro-electric generating facilities. 

Confusion reigns in hydro policy

Revelation of the 2008 water rights ploy is the fourth Lower Churchill-related blockbuster news in a week.

On Friday, natural resources minister Kathy Dunderdale revealed that the provincial government had been trying unsuccessfully for five years to interest Hydro Quebec in an ownership stake in the Lower Churchill project. 

Dunderdale told Open Line Show host Randy Simms and his audience that the provincial government proposed to “set the Upper Churchill [issue] to one side.”

This move came despite commitments by Premier Danny Williams that there would be no Quebec involvement in the Lower Churchill without redress for the appalling 1969 deal that sees Hydro Quebec buy electricity at better than 1/30th the cost for which it is sold to consumers.    Williams has repeatedly railed against the 1969 deal as an example of a resource give-away by previous provincial governments.

The offer of an ownership stake to Hydro Quebec also flies in the face of Williams’ 2006 commitment to develop the Lower Churchill without any outside help:

"It's an opportunity for us to get back some of what we've lost on the Upper Churchill, and the fact that we're going to do this alone is significant," Williams said in an interview.

The Dunderdale revelation came after Williams accused Hydro Quebec of doing everything possible to block the Lower Churchill project. 

Williams also said last week that  his government would no longer plan to string hydro lines from the Lower Churchill through a UNESCO World Heritage site.

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Williams miffed Hydro Quebec rejecting ownership stake in Lower Churchill

Far from going it alone on the Lower Churchill or seriously pursuing a transmission route around Quebec,  the Williams administration has been working fervently to get Hydro Quebec on board as a co-owner  of the Labrador project. 

Those efforts have been in vain, according to natural resources minister Kathy Dunderdale.

Dunderdale  told VOCM Open Line show host Randy Simms on Friday morning that over the past five years, the Williams administration “got a path beaten to their [Hydro Quebec’s] door” in an attempt to have HQ become what Dunderdale described as an “equity partner” in the Lower Churchill.

Dunderdale described the Lower Churchill “piece” as a “win-win” for Hydro Quebec.  She said that despite efforts by the Government of Newfoundland and Labrador there was “no take up [from Hydro Quebec] on the proposal.”

The new version of events offered by Dunderdale is at odds with media reports this week of Premier Danny Williams’  speech to the Canadian Energy Forum meeting in St. John’s last Wednesday.  Williams reportedly accused Hydro Quebec of protecting its own interests and of blocking efforts to develop the Lower Churchill. 

However, Dunderdale’s comments fit with a more careful reading of  Williams’ remarks at the energy forum.

On Wednesday, Williams accused  Hydro Quebec of blocking the Lower Churchill project by not being interested in it at all.  Instead, the Quebec Crown corporation was pursuing other projects – like La Romaine – which Williams said was inferior to the Lower Churchill:  Williams is quoted by the Telegram in a Friday story [not online] as saying “La Romaine is not as good a project as the Lower Churchill.” 

Hydro Quebec is pursuing several projects within Quebec, including alternative sources of energy to hydro, all of which are aimed at boosting Hydro Quebec’s portfolio of capacity by more than 4500 megawatts. 

That was known at the time Williams made the decision in 2006 to “go it alone” on the Lower Churchill.  He also Williams attacked the other projects in 2006.  At that time, he claimed that those projects would get to market before the Lower Churchill and hence would beat out his pet project.  In 2006, Williams vowed to continue in spite of competition.

Friday marked the first time, however, that there was public acknowledgement the provincial government was actually trying to lure Hydro Quebec into an ownership position.

This week also marked the first time Williams linked a possible Hydro Quebec financial stake in the Lower Churchill to the 1969 Churchill falls contract.   Williams told the forum that as a result of Hydro Quebec’s exorbitant profits from Churchill Falls, “the very least I would expect Hydro-Quebec to co-operate with us to the fullest on getting the Lower Churchill through.” 

Previously,  Williams has consistently tied any negotiations with Hydro Quebec over the Lower Churchill with “redress” for the 1969 contract.  That’s inconsistent with offering Hydro Quebec an ownership stake in the new project.

Williams also said that Hydro Quebec had filed procedural applications in an effort to stall a hearing by the Quebec energy regulator - Regie de l’energie – into an objection filed by NALCOR/Newfoundland and Labrador Hydro over a regulatory issue. 

That’s a bizarre way to describe things, though.  Newfoundland and Labrador Hydro is one of several interveners in a decision on transmission rates for 2009.  NL Hydro filed its notice seeking intervener status at the last minute.  But since the rate hearings affect more companies than NL Hydro and NL Hydro is one of a dozen interveners, it’s hard to see how a routine regulatory process is part of a plot to frustrate the Lower Churchill.

What’s more, Williams’ claim flies in the face of successful efforts by NL Hydro to wheel power through Quebec.  Hydro started the process in 2006.   In early 2009, Hydro announced successful completion of a deal  with Hydro Quebec’s transmission arm to wheel power through Quebec to markets in the United States.  

Efforts to cut a deal with Hydro-Quebec while claiming something else are only the latest in a series of erratic moves and claims by the provincial government since 2003.

In 2006, Williams rejected out of hand a proposal from Hydro Quebec and Ontario’s Energy Financing Company to finance the Lower Churchill.  The proposal came in response to a called for expressions of interest issued by the Williams administration.  Under the proposal, Ontario and Quebec would buy the power and cover the costs of upgrading transmission facilities within the provinces and across the provincial boundaries.  The proposal also included flexible options on financing the construction of the two generating dams at Gull Island and Muskrat Falls.

Williams tossed that proposal and several others aside in favour of what he characterised at the time as going it alone.

In 2006, Williams said publicly that investors should look to the Lower Churchill instead of projects Quebec because Quebec is politically unstable.  Williams later apologised because people found the comment offensive but he did not retract his comments about Quebec’s political climate.

Williams has also sought financial support from others despite the “go-it-alone” claim. In successive federal elections, Williams has raised the idea of federal loan guarantees with federal party leaders.  He has also tied federal financial support for the Lower Churchill as some apparent form of compensation for having to run transmission lines around Gros Morne national park.

The erratic public positions don’t stop there. 

In 2008, natural resources minister Kathy Dunderdale indicated the provincial government was considering a law suit against the federal government over the 1969 contract.  Later in the day, the provincial government backtracked.

In early 2009, an official with NL Hydro hinted that the provincial government was considering financing options other than the “go-it-alone” version.  Little did the people of Newfoundland and Labrador know what the other options were.

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Ready for a better tomorrow

If the past is used by politicians like Danny Williams as a demon to frighten small children and the politically naive, the future is the great hope that will deliver the answer to all our prayers.

In the political religion of Newfoundland and Labrador, Tomorrow fills the role of Heaven: it is the place when all will be milk and honey and the travails of living in this place will be gone. Salvation cannot be achieved today - in this life - but we can be prepared for the time when we are taken up to Heaven and our great reward.

Yesterday's announcement on the Lower Churchill fits the bill perfectly.

Danny Williams and natural resources minister Ed Byrne invariably trotted out the spectre of the Upper Churchill "give-away" - the hardships of this life - as a contrast with the promise of riches and peace Tomorrow will bring now that Newfoundland and Labrador has decided to "go-it-alone" on an energy megaproject that would effectively double our provincial debt.

Other premiers have held out the Lower Churchill nirvana to distract from their short-term political hells. Frank Moores started the pattern. It was taken up more recently by Brian Tobin and Roger Grimes and always set against the pledge that what will be done tomorrow will not be as bad as what happened yesterday.

When Danny Williams announced the start of the Lower Churchill development process in early 2005, he predicted that right now would be Phase Three. This would be the time when the short-list of development options would be turned into detailed negotiations that would lead to Phase Four, more negotiations and finally Phase Five, that is the signing of a development deal and the start of work. Option 1 of the proposal submitted by Ontario, Quebec Hydro and SNC Lavelin followed that timescale. It anticipated construction would start in 2006 or 2007 with first power flowing to market by 2011.

But what Danny Williams announced yesterday was really the resetting of the clock to the beginning again. Now we will not see a decision about the viability of the chosen option until 2009 and first power will be achieved in 2015 at the earliest. Tomorrow is a day that apparently is hard to reach.

What is most remarkable about the most recent Lower Churchill promise is that the provincial government clearly does not have have a business case or a business plan to carry it forward. Most of the preparatory work on the Lower Churchill is done. Some work needs to be done to bring those older plans up to date, but what needs to be sorted is the financing. There must be a power purchase agreement, the consequent decision on delivery methods and then the negotiation of the considerable borrowing - likely double or more than double the provincial accrual debt load - that will let digging start on the first hole.

But there is no business plan to move this project forward. The go-it-alone option was inserted into the overall process in August 2005, at the last minute and apparently by the Premier himself. In the meantime, it has never been discussed publicly so that we can see the evident advantages, assess the risks and see why doing the Lower Churchill the Danny Williams way, in which the provincial government assumes the lion's share of the risk, is actually better - demonstrably better - than any other approach.

If there was a provincial government business plan, Williams and his minister would be speaking to it. They would be able to map out exactly the basis on which they have made their decisions. Yesterday's announcement would have been about getting into the heart of the challenge of developing the Lower Churchill's considerable hydro potential. Danny Williams, the self-described successful businessman would be talking like a businessman; that is, he'd about the "metrics" by which risk and reward are assessed in the real world where results and money count.

Instead, we got the usual rhetoric of Danny Williams the politician: masters of our domain, of the virtues of "going-it-alone", righting the wrongs of the Upper Churchill and how this decision confirms the Premier's previous judgments that the province is not afraid to be self-reliant:

- "...but the big message here is that we are masters of our own destiny, that Newfoundlanders and Labradorians are in control of this project for the benefit of Newfoundlanders and Labradorians."

- "By taking the lead we are in full control of the project, unlike the circumstance with the last government; that project, basically, was going to be controlled by Quebec..."

Hydro president and chief executive officer Ed Martin talked about the next steps for what they are: Hydro will take three years - 36 months! - to develop the go-it-alone option that we have already been told is better. Something we have not seen yet is better? How can anyone make such a judgment?

The reality of Newfoundland politics is typically very different from the promises of its clergy. The Lower Churchill announcement is no different. Newfoundland and Labrador has always been in total control over development of the Lower Churchill. In the early 1990s, when a deal was close, the provincial government was not prepared to accept a key condition of the project partner, Quebec Hydro. The Wells administration would not accept an extension of the Upper Churchill deal as a condition of signing a Lower Churchill agreement.

More importantly, though in every single discussion - bar none - Quebec Hydro was seen as a partner in the development, bringing its deep financial pockets and expertise in hydro megaprojects. This is exactly the same position Danny Williams mapped yesterday. Newfoundland and Labrador is seeking partners for its supposedly go-it-alone project:

- The federal government must provide loan guarantees. Danny Williams believes he has those already. Prime Minister Stephen Harper has made no such commitment publicly. Loyola Hearn, Harper's Newfoundland and Labrador representative, made no such commitment.

- Equity partners - that is co-owners of the project - are welcome to join in. Williams needs their deep pockets. Of course, in exchange for risking their capital and their credit, these equity partners will demand a return. Altius talked of a share of gross sales; others will put similar conditions on their investment. That too is identical to every other proposal, even the Upper Churchill contract. The party that puts its cash at risk expects to reap the financial rewards.

So what is different about the Danny Williams Lower Churchill compared to all that has gone before?

Precious little, in the final analysis. The outstanding issues are the same issues facing every other Lower Churchill negotiation. The financial issues are still to be settled. The project hinges on firm markets, guaranteed sales and the ability to raise huge amounts of capital. It depends on a balancing of risk and reward for all those involved. This is a project that we simply will not be doing on our own, no matter what Danny Williams claims. If it happens at all, there will be many partners. The rewards for Newfoundland and Labrador will obviously be very different from the Upper Churchill contract but they will not be - they can likely never be - as phantasmagorically wonderful as the vision Danny William laid before us.

And that, most of all though, is the key to understanding Danny Williams latest version of the Lower Churchill. At the very least, and like Brian Tobin before him, Williams has attacked past deals of any kind so vigorously and relentlessly that only a perfect Lower Churchill deal could survive political attack. Perfection is impossible in this life and so Williams' Lower Churchill is a deal he can never sign.

The function of the Lower Churchill is to serve as a distraction from the very real and very difficult problems in front of government. It is supposed to take our minds - and our media coverage - off the hardships of this life and fix them instead on the promise of our reward manana.

In the meantime, as preacher Tobin used to say, we must be ready for that better tomorrow when the rapture comes.

What they actually said: Lower Churchill

vocm.com is saying this about the Lower Churchill comments of Stephen Harper and Paul Martin, as well comments by Premier Danny Williams:

In the meantime, Martin will not give a commitment to assist the province in getting access to a transmission corridor across Quebec for Lower Churchill power. Martin says he supports the development, but wants to see the details of the plan first. Premier Danny Williams says the fact that the Prime Minister is here with only a few days to go until the election means he's trying to shore up support for the Liberals.

Williams says Martin has not given a full commitment to the Lower Churchill project, nor has he given a full guarantee.

Conservative leader Stephen Harper says he's prepared to work with the government to ensure the province is the principal beneficiary of the Lower Churchill. Speaking on VOCM Back Talk with Bill Rowe, Harper said the province will not be left out in the cold, similar to the Upper Churchill. [Emphasis and paragraphing added]

Well, here's what both Harper and Martin wrote in response to the Premier's question:

Williams: Does your party support efforts to develop the hydro-power resources of the Lower Churchill River System primarily for the benefit of Newfoundland and Labrador?

Harper: We support this proposal in principle and believe it is important for Newfoundland and Labrador to have greater control of its energy mix. A Conservative government would welcome discussions on this initiative and would hope that the potential exists for it to proceed in the spirit of past successes as the Hibernia Project. [Emphasis added]

[Comment: At no point does Stephen Harper provide a full guarantee on this project or even a partial guarantee. he simply welcomes discussions and offers the hope potential exists to move forward with the project.]

Martin: Our government is committed to the exploration of clean power sources that move Canada toward a clean energy future. The development of the Lower Churchill is an exciting opportunity for our shared goals of Newfoundland and Labrador's economic future and for the necessary investments in clean energy. We have funding in place to assist in the development of hydro power projects such as this and upon the province giving this project high priority, we want to ensure Labradorians, and in particular Aboriginal, Metis, Innu and Inuit communities, are central to consultations that will be undertaken.

[Comment: It's curious that Danny Williams is now characterizing the Martin response as being something far less than the "discussions' promised by Stephen Harper.

Williams is well aware of the memorandum of understanding signed last April that included these comments from his own natural resources minister:

I am pleased that one of the priority areas in the MOU is to explore the role that hydroelectric projects, such as the development of Lower Churchill, can play in achieving national and provincial climate change objectives," said Minister Byrne. "Besides providing an economical source of electricity, the Lower Churchill project can provide a significant portion of Canada's greenhouse gas reduction target, which is good for the environment, the economy, and the country."

That is in addition to comments by John Efford in St. John's two years ago that the federal government was prepared to assist with the Lower Churchill development.

As Williams himself put it at the time:

"I heard through the media that Minister Efford has opened the door for talks between the province and the federal government on the possible development of the Lower Churchill, and we would certainly be delighted to have those discussions. In my first and subsequent meetings with Prime Minister Martin, I indicated the province would like to see the federal government play a significant role in developing the Lower Churchill, so I am glad to see this moving forward....]

In the intervening two years, the Martin administration has signed an agreement with the province that contains provisions that would support Lower Churchill development. The agreement does not preclude other assistance.

The Harper commitment to talks are clearly, significantly less than the current federal government position.]

Tense Problems #nlpoli

“As a lawyer,” natural resources minister Jerome Kennedy told reporters on Thursday,” you’d often hear the phrase that the best predictor of past behaviour is future behaviour.”

This is not just a slip of the tongue.  The minister is confused.   Obviously confused. 

You can see that confusion in Kennedy’s other comments. He called reporters together around 12:30 and gave them some of his thoughts on a letter by former premier Roger Grimes that appeared in the Thursday Telegram.  Kennedy was a bit tense, it seems, and so it isn’t surprising that in his remarks, Jerome confused his tenses.

Verb tenses.

And that, as they say, made all the difference in the world.

Five years of secret talks on Lower Churchill: the Dunderdale Audio

In early September, natural resources minister Kathy Dunderdale revealed that the provincial government tried unsuccessfully for five years to get Hydro-Quebec to take an ownership stake in the Lower Churchill project.

A key component of the offers to HQ included the pledge to set aside any talk of redress for the 1969 Churchill Falls contract.

The talks were never revealed publicly until Dunderdale’s admission.

The news was all the more astonishing given that Premier Danny Williams stated repeatedly between 2001 and 2005 that he would not cut a deal with Hydro-Quebec on the Lower Churchill without some from of compensation – redress – for the inequitable 1969 contract that sees Hydro-Quebec buy virtually all the Churchill falls output for fractions of a cent per kilowatt hour.

To date, not a single conventional media outlet has reported Dunderdale’s comments.

Amazingly, not a single conventional media outlet has picked up the very obvious point about setting aside any grievance over the 1969 contract despite Williams repeated pledges to make redress a part of any Lower Churchill deal that involved Hydro-Quebec. 

That grievance is a core part of Williams’ intervention in the New Brunswick Power proposal.  On Friday, he noted the appropriateness of the Atlantic Premier’s meeting at Churchill Falls since “it symbolizes exactly what's happened to Newfoundland and Labrador at the hands of Hydro-Quebec.”

While excerpts have been posted at Bond Papers and at labradore previously, this is the first time, the audio file has been posted: Kathy Dunderdale, September 4, 2009, live on VOCM Open Line with Randy Simms (he’s the fellow pictured with mayoral chain ‘round his neck).

 

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Related:

• “Williams miffed Hydro Quebec rejecting ownership
  stake in Lower Churchill”, September 4, 2009
• “Churchill Falls reversion fails for second time”, September 9, 2009
• “NL caught screwing with Churchill Falls:  the quotes”, September 9, 2009
• “ Hydro Quebec not an issue:  Ed Martin”, September 10, 2009
• “R.I contradicts Dunderdale; no legislative problems and state still interested in Lower Churchill power”, September 16, 2009
• “Lower Churchill unviable for the foreseeable future”, October 29, 2009 [Market assessment by industry analyst]
• “Lower Churchill long way off”,  November 9, 2009 [Comments by Premier]
• “Lower Churchill definitely a long way off”, November 18, 2009 [problems in finalizing land claims deal]
• “Danny Williams and the Philosopher’s Stone:  Control and Resources” November 17, 2009
• “Danny Williams and the Philosopher’s Stone:  Converting Principles to Cash”, November 18, 2009

Jerusalem, Eldorado, and Perdition #nlpoli

Part I:  The development of our country
_______________________________

The Heritage Newfoundland and Labrador website "aims to provide school students and the general public with a wide range of authoritative information on the province's history, culture, and geography. It is based at the Memorial University of Newfoundland. Faculty, graduate students, and professional writers contribute articles, while undergraduate students provide support as research assistants."

That statement of authority is one of the reasons why the introductory sentence to its section on the impact of Churchill Falls is so intriguing:

The Upper Churchill Falls hydroelectric project remains one of the most notorious ventures in Newfoundland and Labrador's resource-development history.   

There is no such thing as the "Upper Churchill Falls" project.  There is no upper Churchill Falls or, indeed, a lower one.  There is simply Churchill Falls.

Whose line is it anyway?

In this case a transmission line for the Lower Churchill.

A couple of weeks ago, former Premier Roger Grimes took issue with a comment by noob finance minister Jerome Kennedy that the Lower Churchill transmission line would be a good project for federal infrastructure spending.

The Telegram story - not online - quoted Grimes:

"There has been no routing actually planned for a transmission line,"says Grimes. "If they have a transmission line already planned, already designed ... then why don't they tell us where it is?"

He was reacting to Kennedy who the Telegram quoted as saying:

"That's something that we could start immediately, it's something that
we wouldn't have to wait for the environmental assessments because, essentially, we'd simply be building a transmission line," said Kennedy at the time.

Kennedy said Transportation Minister Trevor Taylor delivered a similar
message to federal Infrastructure Minister John Baird just days before.

Similar comments were made by [Premier Danny ] Williams in a year-end interview with The Telegram.

Williams did mention the Lower Churchill in that year-end interview.

Williams also took issue with Kennedy’s comments in the Telly story on Grimes’ comments saying that Kennedy had spoken out of turn. There would need to be an environmental impact assessment. Williams also said that Grimes simply didn’t know enough about what was going on:

"Poor Roger is talking through his hat. He doesn't have the background,he doesn't have the information," says Williams.

"We've been working on this plan for a long, long time, we've a lot of
engineering done," says Williams.

Of course, Grimes and Williams have been at odds over the Lower Churchill for years and of all the province’s politicians, Grimes seems to have a unique ability to get under Williams’ skin.

But that’s not the only talk of transmission lines since the New Year. Emera president Chris Huskelson told the Halifax Chronicle Herald that without a line to Newfoundland, it made no sense – presumably economic sense - to try and ship power directly from Labrador into the Maritimes.

"Newfoundland decides to bring energy to the island, it makes perfect sense to bring energy further to Nova Scotia. If they decide not to bring energy to the island, it won’t make sense to bring it to Nova Scotia."

Then to cap it all, Ed Martin, president and chief executive officer of NALCO(R) and Hydro told the Chronicle Herald that shipping power across the Cabot Strait to Nova Scotia is one of the options Hydro is looking at for the Lower Churchill. Hydro and Emera signed a memorandum of understanding a year ago to explore the possibility of shipping power from the Lower Churchill to Nova Scotia. But as Martin said this weekend:

"It’s looking like somewhere in the Sydney area would be an excellent landfall for us," Mr. Martin said of the proposed undersea cable.

"Not only is it distance-wise one of the closest points to Newfoundland, but it’s close to the Lingan plant, which is a significant emitter for Nova Scotia (Power) . . . but nothing is final yet."

Nothing is final yet.

Well, nothing is really clear in all of this. As labradore noted in a post on Sunday, not so very long ago, Martin and Hydro were talking about shipping electricity into New Brunswick from Cap St. George on Newfoundland’s west coast. That was certainly the option examined in 2005, as reported by both the Telegram and Stephen Maher of the Chronicle Herald. Sea Breeze Power of British Columbia was proposing an underwater line from the coast of labradore to Prince Edward Island or Nova Scotia.

This isn’t a new idea. As Bond Papers reported in 2007, the idea of underwater transmission lines for Lower Churchill power goes back to the 1970s although officials were quick to note that it wasn’t an attractive proposition:

For one thing, according to Vic Young, president of Newfoundland and Labrador Hydro, the 77-mile cable across the Cabot Strait is an extremely poor prospect. Although a study two years ago stated it was technically possible, its capital and maintenance costs would be enormous. The electricity delivered would cost about twice what it would if brought down overland.

But all this talk of transmission lines and environmental assessments gets really curious when one looks at the Lower Churchill proposal which is now in the hands of a joint federal-provincial environmental assessment panel.

The only transmission lines mentioned in that proposal are for two running from Muskrat Falls to Gull Island and then a single line back to Churchill Falls. From there, power would head into Quebec through the existing interconnection.

The project is described very straightforwardly in the agreement between the federal and provincial governments on the environmental review panel:

The Proponent proposes a project/undertaking consisting of hydroelectric generating facilities at Gull Island and Muskrat Falls, and interconnecting transmission lines to the existing Labrador grid.

…

Interconnecting transmission lines consisting of:

• A 735 kV transmission line between Gull Island and Churchill Falls; and,

• Two 230 kV transmission lines between Muskrat Falls and Gull Island.

The 735 kV transmission line is to be 203 km long and the 230 kV transmission lines are to be 60 km long. Both lines will be lattice-type steel structures. The location of the transmission lines is to be north of the Churchill River; the final route is the subject of a route selection study that will be combined on double-circuit structures.

No proposal has been presented publicly for any other transmission lines related to the Lower Churchill. There’s nothing in Quebec or New Brunswick and Nova Scotia. In Both Quebec and New Brunswick, Hydro has simply filed an application for wheeling - moving power through the existing grid - but there’s no discussion of new transmission lines.

While Danny Williams might claim Roger Grimes isn’t up-to-speed on the project, existing public information suggests the Premier and his finance minister aren’t exactly coming clean on the whole thing either.

In fact, Grimes might well be closer to the truth given that if a new transmission line – say through Quebec – is being contemplated there’s been nothing done to make it possible within the next couple of months.

As Grimes noted – and the Premier concurred – a transmission line would have to go through an environmental assessment. That idea would be a wee bit more complicated politically if the line through Quebec was expressly intended to carry power from the Lower Churchill through Quebec to another market.

If there’s another line Kennedy was thinking about, like say across to eastern Newfoundland, there’s still a provincial environmental process that would at least have to be considered. The major problem there is one of cost. Figure on a project costing upwards of $2.0 billion by the time it is done.

The cost of that little make-work venture would be borne entirely by the ratepayers of eastern Newfoundland who, it should be noted, don’t really need all that extra power and certainly wouldn’t get it right away, anyway. Hydro just expropriated over a 100 megawatts of generating capacity from AbitibiBowater and there is surplus power in the grid since the Abitibi Stephenville mill closed in 2005. The Inco project at Long Harbour will suck up some of the juice but there is no great demand for power on the island in the near term.

As for timing, those lines – even if they were built over the next couple of years – would be more than a decade old before any Lower Churchill power coursed through them. The Lower Churchill project will take nine years to complete. The proposal in the environmental review called for construction to start in 2009 with first power in 2014 and the completion of the whole thing in 2018.

But even if the environmental assessment is finished this year it would be well into 2010 before anyone would start digging dirt in Labrador.

Even 2010 would be an optimistic start-time these given that Hydro doesn’t have a single customer for the Lower Churchill power and the money markets are a wee bit skittish these days what with the shortage of capital in the markets.

Heaven forbid that work might start without those contracts in place and with the work being funded out of the public treasury or whatever cash the energy corporation might have laying about. That’s what happened last time with BRINCO as some people are only now realizing. The company borrowed cash and started work in the mid-1960s. Hydro Quebec took maximum advantage of the BRINCO foolishness and with the latter in a financial bind managed to secure the sort of contract concessions it had been seeking from the start.

All the bluster at the time about running power down through Nova Scotia was just a tactic to improve the bargaining position with Hydro Quebec. Ditto the talk of running a line through Quebec with federal backing. There’s no evidence the request was ever made, even though many people insist on repeating the story. In the end, Hydro Quebec got everything it was looking for from the start and then some.

Maybe what we have here with all this talk of transmission lines is the same sort of bluster and political posturing we saw 40-odd years ago.

Certainly there is nothing in the public domain to suggest that anything Kennedy referred to is real.

Maybe Roger Grimes knows a lot more than Danny Williams will ever give him credit for. And when it comes to contracts, it’s not like the two haven’t been at odds before with Williams having to change his position when the facts were in. Anyone remember Voisey’s Bay?

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Hydro Quebec has leverage on Danny Williams

If Premier Danny Williams listened to Opposition Leader Danny Williams he’d know what went wrong with efforts to develop Labrador hydroelectric power.

Here’s Danny Williams in November 2002 in full fury over a proposed deal on the Lower Churchill:

Mr. Speaker, could the Premier please tell the people why he did not use the Lower Churchill as a bargaining lever to address the inequities of the Upper Churchill contract? Would the Premier explain why he quit on the objective of every single Government of Newfoundland and Labrador since the deal was signed over thirty years ago?

Leverage.

Before he got elected, Danny Williams said there would be no deal on the Lower Churchill under his administration without redress for the 1969 Churchill Falls contract.

He rejected a joint Hydro Quebec/Ontario Hydro/SNC Lavalin proposal to develop the Lower Churchill in partnership with Newfoundland and Labrador Hydro.

Williams gave away what he himself described in 2002 as leverage.

That part was reported by the conventional media.

Then Williams went a step further.

After rejecting the proposal out of hand in order to “go-it-alone” and in complete contradiction to his own stated commitment on redress,  Williams then spent five years secretly trying to get Hydro Quebec to take an ownership stake in the plan to develop 3,000 megawatts on the Lower Churchill leaving the 1969 contract “to one side”.

According to the province’s natural resources minister:

“We know that if you come in here as an equity player that you have to have a good return on your investment. And we want you to have a good return on your investment.”

That part of the saga – Williams secret efforts, without redress - hasn’t been reported by the conventional media and likely never will.

At the same time as he was trying to court Hydro Quebec as a business partner, Williams lambasted Quebec as politically volatile:

Three weeks ago, in a bid to garner support for the massive Lower Churchill hydroelectric project in Labrador, Williams said Canada should reduce its reliance on energy from Quebec because the province is too politically unstable.

"The more we can spread out our energy supply means that we won't be totally dependent on Quebec for energy which, given the volatility of the politics in Quebec, could be a very, very sensitive situation in the years to come,'' Williams said Sept. 27.

He later apologised if anyone took offense but would not withdraw the remark.  Williams said he was only described the “reality.”

Not surprisingly, Hydro Quebec wasn’t interested in any Lower Churchill deal involving Danny Williams. 

With the Quebec market gone and the Ontario one looking less promising, Williams and his crew looked elsewhere.  

A potential deal with Rhode Island (not that far from New York city - died for an obvious reason:  Lower Churchill power was simply too expensive.  By the time the very expensive project got its power all the way to Rhode Island – along with all the American-side wheeling charges -  Rhode Islanders just wouldn’t/couldn’t afford the bill.  And let’s not even start talking about the depressed prices and forget the race to develop cheaper alternatives that are just as or even more green than Gull Island and Muskrat Falls.

Not content with the failures to date, the Williams’ administration then tried to undermine the 1969 contract with a clumsy legal ploy that would have given control of the entire Churchill River to the provincial energy corporation.

That failed too.

With no markets, no money could be raised.  And with no markets and no money, the very expensive project just wouldn’t fly. Even Danny Williams had to admit the obvious, recently.

And now, with that as prologue, Danny Williams and his energy corporation are turning back to an idea he rejected five years ago: redress for the 1969 Churchill Falls deal.

Theirs is nothing more than a dolled up version of an old whine:  “Aw come on, it’s just not fair.”

And it isn’t fair, really.

But that doesn’t matter, as Danny Williams, opposition leader, and Danny Williams, lawyer, know very well. Without some sort of leverage, there isn’t any way to get at the 1969 contract and amend its terms.  Whatever leverage he had, Danny Williams has managed to either fritter it away or take a giant axe to it.

About the only saving grace for Newfoundlanders and Labradorians is that Hydro Quebec is unlikely to take the request to renegotiate the deal seriously; not likely that is, unless there is a chance of making it even sweeter for them in other ways.  There are always things that could get better for Hydro Quebec.

Take, for example, the tax free status of the project until 2016.  In the early 1990s, HQ wanted to have that extended as part of a Lower Churchill deal.  The idea fell on the deaf ears of the Liberal administration of Clyde Wells.

Maybe Danny Williams would be more amenable given that he is quite obviously jammed up:  he needs a political score for the 2011 election much more than Hydro Quebec needs any talks or more money.

Then there is the issue of shares.  Right now Hydro Quebec holds about 35%. Danny Williams has already said that he was willing to see Hydro Quebec gain a good return on its investment.  Perhaps more shares in CFLCo and a new corporate structure could be worked out in exchange for cash.  That way, Hydro Quebec gains back some of the cash it would have to pay the corporation it already owns a significant chunk of:

[Claude Garcia] also noted that new benefits to the project operator, Churchill Falls (Labrador) Corp., would also provide some juice to Hydro-Quebec because it has a one-third interest in it. Nalcor Energy holds the remainder.

And after all, Williams is on record as saying that  - at some point – principle converts to cash.

Even without the prospect of a deal, Hydro Quebec can win big concessions just for talking.  They can get Williams to shut up about transmission on the Lower Churchill.  They can get him to withdraw NALCOR’s current procedural assault on Hydro Quebec Transenergie’s wheeling rates.

Maybe there’s something else no one has even thought of yet.  After all, re-opening the contract, as NALCOR has asked, means putting everything on the table.

Hydro Quebec actually has nothing to lose in entering talks quietly.  In fact, they have everything to gain.  On the other side, Danny Williams and NALCOR – like BRINCO 40 years ago – are in a tough spot.

Leverage.

It’s great when you have it.

Sucks when you don’t.

And right now Danny Williams and NALCOR have no leverage.

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Hydra Corp reinvents Lower Churchill wheel; markets want to talk price

The president and chief executive officer of Newfoundland and Labrador's Crown-owned Hydra corporation is in Toronto continuing work on the proposed Lower Churchill hydro-electric development by doing work that was already included in a proposal Premier Danny Williams rejected earlier this year.

Ed Martin is talking to Ontario officials about technical requirements of transmitting power from the Labrador site through Quebec and into Ontario. Under an application filed in July, Hydra corporation was seeking permission to ship power into Canada's largest province.

Under a proposal submitted by Quebec and Ontario in early 2005, cost of improving the connections between the two provinces would have been paid for by Ontario's Hydro One and Hydro Quebec. Martin's proposal would have the Newfoundland and Labrador Crown corporation pay for the upgrades. A similar requirement to expand the electricity grid in Quebec - also needed to get Lower Churchill power - was included in the Ontario/Quebec proposal but will now be paid for by Newfoundland and Labrador as part of what Danny Williams has termed the "go-it-alone" option.

In an interview with the Toronto Star [linked above] Martin said shipping power to market around Quebec is still under consideration by his company. Such a route would involve submarine cabling across the Strait of Belle Isle and the Gulf of St. Lawrence . The so-called Anglo-Saxon route has een estimated to add at least $1.5 to $2.0 billion to a Lower Churchill development already pegged in the $6.0 to $9.0 billion range. Every previous review of this option concluded that while it is technically feasible, the resulting cost of Lower Churchill power made it unsaleable.

A viable sale agreement for the Lower Churchill's estimated 3, 000 megawatts will be crucial to the project. Ontario energy minister Dwight Duncan told the Star:

"We are very interested in buying from them," Dwight Duncan, Ontario's energy minister, told the Star last week. "But I'm not going to put the ratepayers of Ontario at risk."

He said Newfoundland will have to get transmission guarantees from Quebec to make the deal possible, and ultimately any deal will come down to cost.

"The challenge Ontario has is we simply can't blindly enter into an agreement and pay whatever. You're looking at long-term arrangements that involve price-sensitivity. I don't want my grandchildren to look back in 20 years and say `what were they thinking.'"

In May 2006, Hydra vice-president Gilbert Bennett confirmed that financial issues will one of several major factors in determining whether the project is sanctioned.

Another factor will be competition from other projects already under development in Quebec, Ontario and Manitoba. The Lower Churchill project - about a year behind schedule - would require project sanction in 2009 with first power being generated in 2015. Martin is talking to Ontario officials several months after Hydro Quebec officials started talking potential purchase agreements, according to Globe and Mail's Konrad Yakabuski in a May 2006 column.

Ability to guarantee delivery will also influence any decision to buy power from a Lower Churchill project. As Yakabuski noted, "[t]he buyers will not choose their supplier based on price alone; since the contracts must be signed before the first shovel goes into the ground, the buyers must have the confidence, if not assurance, the seller can deliver the merchandise."

Martin's Hydra corporation has never completed a project as large, costly and complex as the Lower Churchill on its own, raising questions about the company's ability to deliver on time.

Concerns about completion plagued the now-infamous Upper Churchill development. Ultimately, investors' need for completion guarantees coupled with the weak financial position of proponent BRINCO led the Newfoundland and Labrador company to sign a deal that saw Quebec buy virtually all the power from the earlier project at rock-bottom prices for 65 years. In exchange, the Quebec Crown corporation guaranteed investors the project would be completed.

At $9.0 billion, the Lower Churchill project would double the size of Newfoundland and Labrador's provincial debt.

The Price of Revanchism #nlpoli

Churchill Falls occupies a unique place in Newfoundland and Labrador's political culture.

Most of what people believe about Churchill Falls is just sheer nonsense.  Made up.  Never true. Completely ludicrous.  But accepted as fact and unshakeable truth all the same.  And that's where things get weird. People use all that foolishness nonsense to make decisions in the real world.

One of the enduring legends is that Newfoundland wanted a corridor to wheel electricity through Quebec,  went to the federal government in the 1960s to look for one, couldn't get it, and thus wound up a slave to Hydro-Quebec in 1969.  It's been a popular story since the 1970s,  after the Newfoundland government nationalised BRINCO.

There's never been any evidence that Joe Smallwood ever put the question to Lester Pearson although lots of people will swear to it and swear by the story as evidence of how Newfoundland has been shagged by whatever version of the foreign boogie-man they favour.  

Danny Williams trotted the story out, indirectly, in November 2010 when he announced he had committed the provincial government to build Muskrat Falls.  Our electricity would never be stranded again.  We would never again be held hostage by Quebec.  The new, magnificent power corridor through Nova Scotia was the way that we would break Quebec's stranglehold over our magnificent future.

Yay!  Hooray! people screamed, including more than a few editors and columnists.

The only thing was that what Williams said wasn't true.

And he knew it.

So haunted by ghosts #nlpoli #cdnpoli

Hear what comfortable words our Premier sayeth:

For generations gone by, the undeveloped hydro-power resources of the Lower Churchill were, for Newfoundlanders and Labradorians, like a treasure just out of reach, tantalizingly close but never close enough to enjoy. The gatekeepers of the natural transmission route through Quebec were denying us fair opportunity to get the power to market, and having been burnt once on the Upper Churchill, we were determined not to let that happen again.

Churchill Falls remains as powerful a totem for some politicians in this province as it ever was.  The crowd currently running this place use it more frequently as their beloved Muskrat Falls project encounters more and more problems.

Their only problem is that they know only the illusion of the thing, not the reality.

Take that bit from Premier Kathy Dunderdale’s marathon oration a couple of days ago as a case in point.

At the time of the 1969 contract to sell power from Churchill Falls to Hydro-Quebec, the Lower Churchill was supposed to be a source of energy for the province itself. You can find the very idea in a piece from the People’s Paper from back in the day, as the hideous saying goes.  Only later on did politicians think about trying to sell the bulk of the power outside and use any  money from those sales to pay for a line to bring electricity onto the island, if need be.

The idea of Quebec as an obstacle is an old one, as well.  The truth is that since the early 1990s they haven’t been a problem.  No one developed the Lower Churchill because they could never make the economics of it work out.  The fools never thought of making the people of the province foot the bill for the whole thing  so they could ship the discount juice outside.

In any event, Kathy Dunderdale herself should know that Quebec isn’t an obstacle any more. In April 2009, her predecessor announced a deal to sell electricity from Churchill Falls to the United States through Quebec.  Surely the Premier remembers these words attributed to her in the official news release three years ago:

“This is a significant development for us to share our excess green renewable energy with the rest of North America through our transmission access through Quebec and our subsequent arrangement directly with Emera Energy,” said the Honourable Kathy Dunderdale, Minister of Natural Resources. “These markets are seeking clean, reliable energy, which we have in abundance. The recall block availability and this arrangement allows us to build our reputation and experience as a reliable supplier of clean energy now and into the future.”

There it is in black and white:  “through our transmission access through Quebec”.

Not around Quebec.

Not under Quebec.

Not over Quebec.

Through Quebec.

Through the "natural transmission route", in the words of the craftsman who put them in Kathy’s mouth.

Nalcor has been losing money on the deal, though.  Electricity prices have dropped through a combination of lower demand in the United States and abundant cheap energy from natural gas.  The reason Nalcor isn’t developing the Lower Churchill for export is that no one wants the power at the prices Nalcor would have to charge for it.  As it is, Nalcor had to promise Nova Scotia a block of power for 35 years for free to get them on board the Muskrat Falls Express.

But through it all, dear friends, based on all that stuff which turns out wasn’t exactly fully, totally and completely in correlation with what we colloquially know as true, “we were determined not to let that happen again.”

And so determined was Kathy Dunderdale “not to let that happen again” that she and her boss tried for five years to lure Hydro-Quebec into taking an equity position – an ownership stake, if you will – on the prized Lower Churchill with the electricity going into Quebec and through Quebec.

We know this because Kathy herself told us all, even if no news media in the province have ever reported it lo these two and a half years later.

Hear what comfortable words Kathy sayeth back then:

Y’know, the Premier has gone to Quebec, and gone to Premier Charest, and, y’know, we’ve had NALCO(R) visit y’know Hydro-Quebec, I’ve been meeting with Ministers and so on. And we say to them, okay, y’know, we’ll set the Upper Churchill to one side, but, y’know, let’s sit down and have a talk about this Lower Churchill piece. Y’know, we know that we have to have a win-win situation here. Because we, as I’ve said earlier this week, we know that if you don’t have win-win you have win and poison pill. Because that’s what we’ve got with the Upper Churchill. So we can have a win-win situation. We know that if you come in here as an equity player that you have to have a good return on your investment. And we want you to have a good return on your investment. But it also has to be a good deal for the people of Newfoundland and Labrador. Now we have been with that message back and forth [i.e. to Hydro-Quebec] for five years. No, sir. No, sir. There is no takeup on that proposal.

In fact, so determined was Kathy that she not let that 1969 contract happen again, so firm was she in her resolve on the matter that she and Danny Williams told the folks at Hydro-Quebec to forget all about it:

we’ll set the Upper Churchill to one side, but, y’know, let’s sit down and have a talk about this Lower Churchill piece

For good measure, Kathy wanted to make sure that Hydro-Quebec actually got a “good return” on their investment in the Lower Churchill.  How good?  Maybe as good as Nova Scotia will get – free power – but alas we will never know. 

Hydro-Quebec, as it turned out, just wasn’t interested.

There are some people, as it seems, who are haunted by the infamous Upper Churchill contract.  They see its ghost at every turn, beckoning them onward. 

And so they follow, mesmerised by the rushing of water and the humming of generators,  deeper and ever deeper into its lair until they can no longer tell what is real and what is illusion.  They talk as though one was the other and that both were the same.

It is then  - and only then – that you know the Ghost in the Turbines has claimed another victim.

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Danny Williams, Hydro Quebec and Churchill Falls: that was then edition

In light of Kathy Dunderdale’s revelation of secret efforts to start talks on the Lower Churchill with Hydro Quebec as part owner, it’s interesting to go back and look at what Danny Williams used to say when other people tried the same thing.

The year is 2002.  In fact,   the release came  two days shy of one year before Williams won the 2003 general election as it turned out.

Back then, redress for the 1969 contract was an integral part of Williams’ policy and the thought of splitting one (1969 and redress) from the other (the Lower Churchill) was anathema:

…Yet, Roger Grimes has categorically stated that the Upper Churchill and Lower Churchill agreements are separate entities. In referring to this new agreement, he recently said, ‘Let's not be stuck in the past.' I say those who do not learn from the lessons of history are doomed to repeat them. Nobody wants to see this province walk away from the only lever we have to seek some form of redress from the Upper Churchill. I don't accept Premier Grimes' position. [Emphasis added]

 

Who would have thought that a mere three years later, Danny Williams would be trying to recreate Roger Grimes’ policy to the letter?

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The full text of the news release:

Williams calls for more
information on Lower Churchill

ST. JOHN'S, October 24, 2002 — Danny Williams, Leader of the Opposition and MHA for Humber West, today called on Roger Grimes to provide the people of Newfoundland and Labrador with additional information on the deal now being finalized with Québec to develop the Lower Churchill.

"We are asking for additional information on this deal to develop the people's resource so that we can understand exactly what is being proposed and possibly offer a few suggestions that may be able to help the process. Unfortunately, because it is being negotiated in secret, we know very little about this deal and therefore are not able to provide constructive thoughts and suggestions as to how it can be improved," Williams said in a news conference.

"The agreement-in-principle reached between Québec and Newfoundland and Labrador involves new concepts and new ideas that were not previously discussed. It is fundamentally different from the principles agreed to with Québec in 1998. In fact, this entire arrangement sprang out of nowhere just days after talks between this province and Alcoa fell apart. There has not been a single update provided to the House of Assembly. We were not able to ask a single question in the legislature on behalf of the people, which is our right and duty as the Official Opposition. The government has an obligation to provide the people with this information in order to allow meaningful debate."

Williams outlined a number of concerns with the limited details of the deal as described by Premiers Grimes and Landry. "The principles do not appear to address the future energy requirements of the province. This is further evidence that our province does not have an energy plan. Roger Grimes has stated that there will not be a transmission line to the Island. Therefore, the Island will never have access to clean, cheap and renewable hydroelectricity.

"This should be of great concern as this province presently uses almost all of the hydroelectricity at its disposal. All new developments must be powered by conventional fossil fuel energy sources. That places this province at a serious disadvantage when competing for new industrial developments, even more so now that the government of Canada plans to ratify the Kyoto Accord.

"This agreement will see all of our hydroelectricity shipped exclusively to Québec so that it can become the supplier of choice for cheap power. Québec will be in an excellent position to attract new investors. Obviously, Québec has an energy plan to attract new investors. My question is simple: what will we use to attract new investors?"

Williams also pointed out that this agreement fails to seek redress for the Upper Churchill contract with Québec, which has been a key objective for successive Liberal governments. "The Upper Churchill power project must be the most lopsided agreement ever signed in the history of Canada. Prominent Newfoundlanders and Labradorians, such as Chuck Furey, a former energy minister, and Vic Young, former president and chief executive officer of Newfoundland and Labrador Hydro, have stated that any deal to develop the Lower Churchill must address the incredible loss suffered by this province through the Upper Churchill. I agree.

"Yet, Roger Grimes has categorically stated that the Upper Churchill and Lower Churchill agreements are separate entities. In referring to this new agreement, he recently said, ‘Let's not be stuck in the past.' I say those who do not learn from the lessons of history are doomed to repeat them. Nobody wants to see this province walk away from the only lever we have to seek some form of redress from the Upper Churchill. I don't accept Premier Grimes' position."

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Quebec appeals court decision on Churchill Falls contract no win for Newfoundland and Labrador #nlpoli

Media reports, political comments, and pundit opinions are wrong about the decision last week by the Quebec Court of Appeal in a case about the renewal clause of the 1969 Power Contract between Churchill Falls (Labrador) Corporation and Hydro-Quebec.

The Court decision leaves Hydro-Quebec with virtually all of the electricity produced from Churchill Falls and, most importantly, operational control of water flows on the river.  This will have an adverse impact on Muskrat Falls. As a result, CF(L)Co is likely to appeal the decision.

__________________________________________________

The Quebec Court of Appeal ruled last week that Hydro Quebec retained operational control of electricity production at Churchill Falls. It made a minor change to an earlier decision by the Quebec Superior Court in a decision from 2016.

That’s why Hydro-Quebec issued a statement that it was satisfied with the outcome of the decision.

In other words, English-language media reports and political commentary got it wrong when they claimed “Quebec's top court rules for N.L. in Churchill Falls dispute with Hydro-Québec” (Canadian Press) or “A Victory For NL In Long-Standing Legal Battle With Hydro-Quebec On Upper Churchill” (VOCM).

The English-language reports focused on the idea that Hydro-Quebec could only buy electricity from Churchill Falls up to a maximum each month under the terms of an automatic renewal to the 1969 power contract between Hydro-Quebec and Churchill Falls (Labrador) Corporation.  VOCM went a step further in the mistake department my making it sound like both Hydro-Quebec and Newfoundland and Labrador Hydro could sell electricity from Churchills Falls. 

The clue that something was amiss in the English-language coverage is the statement from Nalcor that said the Quebec Court of Appeal “had ruled substantially in favour” of CF(L)Co on the question of Continuous Energy.

Here’s why.

Masters of our domain: the Danny Legacy Option wins Lower Churchill contract

Regular readers of Bond Papers will recall that in August 2005, we predicted that Newfoundland and Labrador Premier Danny Williams would chose the go-it-alone option on the Lower Churchill.

Today Williams confirmed the choice, in a vaguely worded news release. The release talks about the provincial government partnering with Newfoundland and Labrador Hydro; this is just a convenient bit of verbal fluff. Hydro is functionally a department of government. It doesn't partner with the provincial government: government tells it what to do.

The release is vague since it gave absolutely no indication of the business case supporting the decision. All we heard is that : "Today marks a turning point in our history as we acknowledge that we as a province are capable of leading and having full control of this process."

"We know that we are capable of executing this project in a way that will ensure we maximize the returns while mitigating the risks," the premier continued. "We have the experience, knowledge and capacity to take on a project of this magnitude and we are recognized as world leaders in hydroelectric operations and development. This is about doing it by ourselves, for ourselves. We are on a path to be masters of our own destiny and the successful development of this project will be a significant
step forward in reaching that ultimate objective for this province."

The release is also vague since it doesn't indicated where markets for the power will be. Under one option presented by Ontario and Quebec, Newfoundland and Labrador Hydro would develop the project on its own with Ontario and Quebec buying the power. (see below as well as the original Ontario/Quebec joint release from last year.) The timelines in the Ontario/Quebec proposal match those in the Williams new release today.

The biggest advantage of the go-it-alone option for the provincial government is that it gives the Premier total control of every aspect. As the Bond Papers noted last October (reprinted last week),

A genuine contradiction would exist if the [Progressive Conservative policy manual, the] Blue Book embraced the philosophies underpinning the Wells and Peckford approaches. It does not. Rather, Williams appears to be focused on control as an end in and of itself. For example, take this phrase dealing with prospective hydro development: "I'’d like to see us own the lion'’s share of the Lower Churchill...". The provincial government already owns the "lion's share" and can claim rents from electricity as a matter of owning it.

What Williams is talking about here is owning and controlling the company which generates the electricity.

Recent estimates put the project cost significantly above the CDN$3.5 billion originally suggested. In January 2006, CBC Radio used the figure CDN$ 9.0 billion or, put another way, approximately the same size as the current provincial debt. Since Hydro is a Crown corporation its debt is carried on the provincial government's books. The lower cost estimate is more than double Hydro's existing debt load (CDN$1.4 billion) while the higher estimate is over six times the current Hydro debt.

There is no indication in today's release of any possible role for Altius Minerals, a company that had proposed a financing option for the Lower Churchill construction and which is currently studying the feasibility of building a new oil refinery in the province. Premier Williams announced that private sector venture in February 2006. Altius proposal would see that company take a share of the project revenues.

According to a story in the Halifax Chronicle Herald, Danny Williams efforts to fund the Lower Churchill's non-Quebec route for transmitting power to markets other than Quebec was rejected by New York funders as being too costly and impractical.

In making today's announcement, Premier Williams appears to have discarded other proposals without indicating why. One, from Ontario, Quebec and SNC Lavelin offered two options. In one version the companies would fund construction and lease the generating facilities from Newfoundland and Labrador Hydro for a period of 50 years.

In the second option, Ontario and Quebec would sign a power purchase agreement with Newfoundland and Labrador Hydro for all the Lower Churchill's output for an unspecified period.

One of the major challenges in developing the Lower Churchill is finding a stable, long-term market for the power. The Ontario/Quebec second option would fit with the go-it-alone approach, or as we called it previously, the Pink White and Green Caribou Corporation. Long-term markets in Quebec and Ontario would help secure funding for building the Lower Churchill. Then only transmission infrastructure needed would be the additional lines needed to get the power from the Lower Churchill to Point A or some other location where the distribution system in Labrador meets the Quebec hydro grid.

Point A is the term in the Upper Churchill contract for the intersection of the Labrador and Quebec power lines. To avoid any references to the Labrador-Quebec border, the term "Point A" was inserted.

Williams lowers expectations for Lower Churchill...again

In an interview with The Telegram, Premier Danny Williams admits there are considerable hurdles to overcome in developing the Lower Churchill hydroelectric project. The story isn't available online.  [Amended;  by request, we've removed the article from the post. If it turns up online, we'll supply a link.]

Williams repeated his January estimate that the chances of the project going ahead are 50/50.

"Well, at best that would be late 2009," said Williams. "We're going through the environmental process. We're attempting to reach agreement with the Labrador Innu. I'm optimistic that can happen. (Then we'll
decide) what the nature of the project will be and get the financials in place and be ready to rock'n'roll."

Take that statement as being an admission the project is unlikely to proceed at all. The crucial element is project financing. If that isn't even being reviewed until 2009 - at the earliest - then it's a well as saying the project is not happening in the near future.

In the interview Williams exaggerates the development issues, referring to them as hurdles, and claiming that the hurdles are larger than on other mega-projects either under development or under consideration in the province. The other projects are all private sector ones.

The development issues aren't larger.

It all boils down to markets for the power and financing to make it happen.

In 2005, Williams rejected a joint project with Ontario and Quebec which would have seen both provinces purchase the power and assist in the financing and construction.

Williams rejected the proposal without explanation, inserting instead a so-called "go-it-alone" option which had not be evaluated by Newfoundland and Labrador Hydro or government officials before it was publicly announced. However, even in announcing his own idea of having the provincial government build project on its own, he left the door open to equity partners.

Shortly after he went to the federal government looking for a loan guarantee, still insisting the provincial government would build the Lower Churchill project - estimated to cost between $6.0 and $9.0 billion - on its own.

Despite receiving no such commitment from Stephen Harper, Williams insisted Harper promised a loan guarantee and used it as part of his political feud with his fellow Conservative first minister.

Williams has announced only two potential customers for Lower Churchill power. The State of Rhode Island and Nova Scotia's Emera have signed separate memoranda of understanding committing to explore the possibility of purchasing Lower Churchill power.

Beyond that, Newfoundland and Labrador Hydro has had no serious discussions with potential external customers for the project's estimated 2800 megawatts. Even the plan to sell power to eastern Newfoundland - covering at least $2.0 billion of the total project cost - is contingent on the project going forward. That idea, floated by natural resources minister Kathy Dunderdale just before last fall's provincial election seemed to confuse the radio host interviewing her at the time since she insisted the plan wouldn't increase electrical power rates on the Avalon peninsula.

The Lower Churchill project figured prominently in several campaign announcements both during last year's Summer of Love pre-election spending spree and in the energy plan campaign prop.

There are some factual errors in the Peter Walsh story. The Wells administration came close to a deal on the Lower Churchill in the early 1990s, however political issues at the time and changed economic circumstances scuttled the negotiations.

Brian Tobin used development on Churchill River as the start of a re-election campaign he started in 1998. Ultimately none of his promised development occurred.

Roger Grimes had a tentative deal to develop the Lower Churchill but it was scuttled by political opposition within his own caucus and cabinet, heightened by the dramatic resignation of Hydro chairman and Williams associate Dean Macdonald from the Hydro board.

Walsh also repeats a claim that the 1969 Churchill Falls deal has produced $19 billion in revenue for Hydro Quebec versus $1.0 billion for Newfoundland and Labrador Hydro. Those figures are not substantiated by any factual analysis. It is, however, a popular myth.

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More Churchill Stuff

Here's some additional information and observations on the Churchill hydroelectric issues.

Tomorrow, I would hope to see from the provincial government a list of all the proposals received with the names of the various companies or consortia (groups) that have expressed an interest in developing the Lower Churchill. We know enough about one proposal. Let's see the same level of detail from the others.

As a matter of accountability, that is the least we should expect at this point.

1. To start let's correct something I posted earlier about the Tobin plans for the Upper Churchill.

The rivers involved did flow south into Quebec. Seems the plan was to dam them and buildup the water level to the point where they could be diverted back to the Upper Churchill system. The environmental impacts and political costs associated with it were deemed too high and so the plan was scrapped. Without the added water, there was no value in adding more turbines to the Upper Churchill.

2. It is interesting to see Ontario again involved in the Lower Churchill. Those with memories will recall that in the negotiations between 1989 and 1992, Ontario was a part of the discussions. In fact the first meeting of energy ministers and officials, as I understand it, was held in the Ontario energy minister's office.

Talks continued until 1992 when the downturn in the economy made the project less attract. Quebec simply didn't respond to the last Newfoundland and Labrador proposal, preferring to "lay it aside" for the time being given the circumstances.

Incidentally, Quebec had made it clear that they felt they would be able to use all the Lower Churchill Power. Nonetheless, Ontario remained interested in the development since they were and are interested in new sources of electrical power.

3. It was interesting to hear Fortis' Stan Marshall on CBC radio this morning talking about the Ontario/Quebec proposal. Fortis has developed considerable expertise in electricity production and distribution throughout North America and Marshall's insights and advice should be taken into account.

He made many of the same observations that people have made before on the prospect of a Lower Churchill deal involving Quebec. Basically, it boils down to this, and these are my words (not Marshall's) for it:

- The Upper Churchill deal is in the past.
- If a deal with Quebec is a good deal, then let's sign it. The odds are small that the province will make the same sort of mistake as Brinco made made almost 40 years ago.
- Ontario's involvement is worthwhile for a number of reasons, not the least of which is to make the public perception in this province much better. Marshall called it optics. The main benefit they bring to the table is the ability to raise capital based on guaranteed Ontario purchases over a long period.

4. Overall, I'd still point to a few issues that we need to keep in mind:

- I am not yet convinced that the Grimes deal was quite as bad as people say. Maybe it is just the fact that the thing became such a political football, but I can't help but look at all the associations of all the people who condemned it to leave me with some doubts about the public perception of the last Lower Churchill deal.

- The odds of renegotiating the Upper Churchill deal are nil. That said, Hydro Quebec has been willing to look at creative ways of addressing some of the financial issues though things such as the winter availability contract that ultimately do nothing so much as keep CFLCo solvent and therefore in Newfoundland and Labrador Hydro's hands. Marshall's comments this morning on the Ontario/Quebec offer are likely to be very similar to what the provincial government will say if this is the proposal that is accepted for negotiation.

- The default provisions of the Upper Churchill deal (forestalled by things like winter availability) are likely in any deal on the Lower Churchill in a situation where someone else is fronting the cash. Private sector or public sector developers are likely to insist on the same thing or something like it involving substantial cash penalties for failing to deliver the power.

- Newfoundland and Labrador (including Hydro) lacks the ability to raise the needed capital to develop this project on its own. Even with purchase agreements with Canadian or US customers to backstop a funding request to the banks, the provincial government would be courting other financial problems if it tried to assume the debt for such a large project.

- There is likely very little appetite in Ottawa for pushing more cash or appearing to push more cash to Newfoundland and Labrador in the he wake of the crass way the provincial government handled the offshore talks from October to December last year. Paul Shelley just got politely shown the door. The Churchill projects wouldn't be any different, especially since the provincial governments in Ontario and Quebec can handle raising the needed capital.

Another few hours to go and we'll know more about what is happening.