31 March 2005

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.