Danny Williams is an EST guy.
No, I don't mean a graduate of the 1970s sensitivity training program.
I mean a guy for whom everything must be superlative. As in best, biggest, most.
No surprise therefore that the release yesterday on the Lower Churchill proposals plays up the number of expressions of interest - 25 - without actually breaking them out. During the news conference, though, questions from reporters did garner some clarification.
Out of that 25, only 10 actually are comprehensive development proposals that include financing, building and transmitting power. The others are all from people wanting a piece of the action - engineering firms, environmental companies, equity investment houses, the guys who sell toilet paper, maybe.
Before we go any further, let's all remember that Ontario was at the table between 1989 and 1992. It's nice to see them back. The premier described their value accurately. It's just not the first time they have been there.
The number of proposals the premier acknowledged is a bit interesting since the actual call for expressions of interest is pretty clear about what government wanted. Check page 7:
"The proponent shall provide a summary description of the proposed technical project configuration including generation and transmission infrastructure. The proponent shall provide a description of the proposed nature of commercial arrangements for project construction, project financing, operation, sale of power, and other key elements. In particular, the description should cover arrangements between the proponent and the Government, and arrangements between the proponent, other participants and other government entities. The commercial arrangements must address ownership of the facilities, types of power sale arrangements, potential risk allocation, potential financial incentives/ support requested, proponent’s perspective on royalty arrangements, ownership of potential greenhouse gas credits and other relevant terms." [Emphasis added]
Right off the bat we can flick more than half the submissions into the discard pile since they failed to meet the tender specs. It would be a monumental waste of time to entertain any comment from anyone who is really not prepared to put forward a proposal to handle the whole thing as they were asked to do. Environmental guys, engineers, financiers and the guys who sell chemical toilets can bid on the tenders coming from the successful proponents.
For the remaining proposals, though, if we think it through for a second, we can limit the whole thing down to some basic considerations.
1. Markets. Any project must have a market for the power. In this case, expect to see Quebec and Ontario as the major markets. New York is a possibility.
2. Competitive pricing. No point in spending a buck fifty to get a fifty cent cuke on the market. Therefore, while California is a potential customer, as is Chile, the costs of getting Labrador electricity to those places is just too high to make it commercially viable.
Bring yourself a little closer to home. Now think about the costs of adding to existing infrastructure using established technology. That brings you back to the three markets I just mentioned which can be reached cost-effectively using either existing transmission lines or by adding to the grid.
The non-Quebec route is fine as long as the power to the potential customer - New York state - is as cheap or cheaper than our competitors.
3. Capital. With those two things in place - especially the long-term purchase agreement, we can raise the cash. A project of this size is likely to cost upwards of $5.0 billion, all-up, including transmission lines. The people with cash want to know their investment is secure. The long-term purchase arrangements will make them sleep soundly at night.
Consider too that if we pile on local benefits and drive up royalties, those things add to the project costs and/or drive up the unit cost the end-user pays. If those things price us out of the market, then we won't get the tremendous benefits the premier talked about today and we don't have a project at all.
Basically every single one of the 10 real proposals received last week has to address those three points to be viable. We can pick among the best of the lot and try some bargaining, but just look closely at it and you'll see that contrary to what some people may say, the possibilities are not really endless.
If the only viable markets turn out to be Ontario and Quebec, are they going to pay more for the energy than if they developed it themselves? Do you feel the options dwindling somewhat?
Ontario and Quebec are savvy energy players. They have tons of experience, but so do we here in the province, if we look around and find Stan Marshall for example.
We have some leverage in all this, potentially, but since I am not an -EST guy, I really don't have the need to inflate expectations beyond some level of probability. There is a deal to be done here and a good one if the thing is handled properly.
We just don't have any flags to tear down.
Let's see what happens in the next few months.