13 September 2007

The power of confusion

In an interview with CBC Radio On the Go, natural resources minister Kathy Dunderdale tried to explain why the province's energy plan doesn't include extending Labrador hydro power to small communities in Labrador.

The argument Dunderdale was advancing seemed to puzzle host Ted Blades, since Dunderdale argued that running lines all the way to the island to replace the Holyrood generating station would entail no increased cost to rate payers, even though the project would be significantly more costly than hooking up some of the communities in Labrador currently served by diesel generators.

Here's a taste of the exchange:
Blades: I’ll get back to that subsidy in a minute, but let me just pursue the cost of the line a little bit further, you said roughly a hundred million dollars to put a spur out to the south coast when the line comes across to the island, what would it cost to go out to the northeast coast above Groswater Bay?

Dunderdale: Well, I would have to get those numbers for you Ted, I don’t have
them right in front of me, but it would cost in the hundreds of millions of dollars, would drive rates up significantly for ratepayers in Labrador and on the island.

Blades: Alright, well given that it’s going to cost billions of dollars to
run the line down to the island, so does that mean that our rates are
going to go up here on the island to pay for that?
That's where things got rather odd. Dunderdale explained that the Holyrood replacement would be financed through a guaranteed power purchase agreement with Newfoundland and Labrador Hydro.

She said it twice, which is a bit odd.

Newfoundland and Labrador Hydro is the entity that would be building the Lower Churchill and the transmission line, either directly or through its Lower Churchill Development Corporation subsidiary.

Now in the context, Dunderdale might have misspoken, saying Hydro when she meant Newfoundland Power. The former is the electricity producer; the latter is the private sector electricity retailer.

Still, it was an odd comment:
Dunderdale: No, what it means is that’s part of the overall project, we’ll need to get financing for the project, we will have to leverage the money that we earn out of our non-renewable projects to help fund the $6- to $9-billion that are going to be required to build the Lower Churchill. What happens with the transmission link is we are able to sell power from the Lower Churchill to Newfoundland and Labrador Hydro to replace Holyrood, so the transmission link, right in the first instance, gives us the first opportunity to have a power purchase agreement with Newfoundland and Labrador Hydro for around 500 MW of power, which will be part of the financing deal, will allow us to leverage financing to develop that project.
Then again, maybe she didn't misspeak. Maybe LCDC will sell the power to its parent, which will in turn sell to Power. Then Hydro - rather bizarrely one might think - would provide the purchase agreement for 500 megawatts of power and somehow give NLDC another bit of leverage to raise the capital to build the project. The Holyrood replacement power represents 18% of the estimated 2800 megawatts that would come from the Gull Island and Muskrat Falls generators.

That's a fair chunk.

Maybe Dunderdale has given another question to ask about Lower Churchill financing. After all, it wouldn't be the first time over the past few weeks when seemingly bizarre comments about energy and royalty regimes led ultimately to more information emerging.