Newfoundland and Labrador Premier Danny Williams announced on Tuesday that the province's hydro corporation had filed applications to transmit electricity through New Brunswick to unspecified markets.
In a media scrum, Williams said there were currently no talks under way on power purchase agreements since negotiations couldn't occur until costs were known. Tuesday's announcement was part of the process of gathering information on costs.
Williams also told reporters the provincial government would consider deferring revenue on the so-called Maritime route (Labrador via Newfoundland to Prince Edward Island). Deferring revenue is code for selling power at a loss.
The feisty Premier claimed the New Brunswick application is part of a plan to deal with a situation in which Quebec would supposedly try to keep Lower Churchill power from markets by loading its grid with energy generated by Hydro Quebec.
Williams knows this argument is a complete fiction since the joint Quebec/Ontario proposal on the Lower Churchill - flatly rejected by Williams - included upgrades to the Quebec grid and to the Quebec-Ontario interconnection. The limitations of Quebec's existing grid are well known and Hydro Quebec is already working on upgrades to the system's capacity.
The go-it-alone option now being pursued by Williams means that Newfoundland and Labrador Hydro may now have to eat the costs of grid upgrades in Quebec and will certainly bear the cost of the underwater cabling to use the Maritime route. The cheapest estimate for the Maritime route would add an additional $1.5 to $2.0 billion to the project cost.
Taken altogether, Williams announcement on Tuesday would likely slide the project time lines back by upwards of two years. Project sanction - which some assumed meant construction startup - might be achieved in 2009 but that would simply mean approval to start negotiating power purchase agreements. Construction would start - if it started at all - only after those deals were closed and financing arranged.
Plans to sell Upper Churchill power to New York fell apart in the 1960s since the costs of transmission from Labrador could never be brought in line with market prices.
The Lower Churchill project is currently estimated to cost upwards of $9.0 billion, or 75% of the total provincial debt load. An additional $9.0 billion of public debt - especially if power is sold at a loss - would bring the provincial debt to almost $20 billion.
That figure may be tough for financial markets to bear given the current gross domestic product is running at less than $25 billion. Newfoundland and Labrador's debt to GDP ratio at that point would be one of the worst in the developed world. Cancellation of major oil projects, like Hebron and Hibernia South, will prevent anticipated growth in the provincial economy that might have otherwise offset the financial problems or given cash that would have covered some of the Lower Churchill's costs.