State-owned energy company Newfoundland and Labrador Hydro has inked a two-year deal with Emera to for the latter to broker the sale of up to 250 megawatts of power from Churchill Falls into the north-eastern United States.
On the face of it, the deal looks like an arrangement to sell power on the spot market instead of the guaranteed purchase arrangement it replaces.
Premier Danny Williams said the agreements mean the province will get the “lion’s share” of the profits from the sale of the power. He said the $40 million to $80 million per year expected for the province comes after HQ and Emera Energy take their cuts.
Williams told members of the media today that, as the price of energy goes up, the revenue for the province will also increase.
By the same token, as prices go down so too would revenue, presumably.No details of the financing were released outside of estimates that Hydro would receive between $40 million and $80 million annually for the power, depending on electricity prices, the available power and the load capacity on the grid at the time of sale.
A separate five year agreement with Hydro Quebec Transenergie, owner of the Quebec energy transmission grid, facilitates the sale. News media reports have been erroneously playing up the Quebec angle on the story even though that aspect was pretty straightforward. Since the American federal energy regulator established a free markets policy in 1992, Canadian electricity markets have had to adopt what is known as an open access transit tariff for electricity that allows power to be wheeled competitively across the province at rates set by the provincial electricity regulators.
Quebec Transenergie didn’t have much choice, provided the existing grid could handle the load. by the same token it’s unclear what New Brunswick premier Shawn Graham meant when he stated that he would not stand by and allow energy to be wheeled through his province at the expense of development in his province. New Brunswick will have to abide by the same free market rules as other energy-producing provinces if it wants to sell power into the United States.
Interestingly, the sale is being handled by Newfoundland and Labrador Hydro, although the power is generated by Churchill Falls Labrador Company. While Hydro used to be the CFLCo parent, the two are now sister companies within the provincial umbrella energy corporation.
The power deal appears to replace a similar arrangement with Hydro Quebec known as the guaranteed winter availability contract. First signed in 1998, the GWAC saw Hydro recall 130 megawatts of power from Churchill Falls under the terms of the 1969 CFLCo development agreement and then re-sell the power to Hydro Quebec at a defined price far above the pernicious terms of the 1969 deal.
The original three-year GWAC contract was renewed for a further three years in 2001 and then for five years by the current provincial government. The five year deal expired on March 31, 2009. The five year deal generated $46 million revenues annually.
The GWAC was a way of forestalling a possible bankruptcy by CFLCo since the 1969 agreement returned insufficient revenue to keep the company solvent over time. The original news release, linked above contained a background presentation but this has disappeared from the provincial government website.
The original GWAC became the subject of some controversy with accusations arising from then opposition energy critic and current Hydro board chairman John Ottenheimer.
It is unclear from Thursday’s announcement if the GWAC and the related shareholder’s agreement within CFLCo have expired, been replaced or will be honoured in some other way. CFLCo is owned by Newfoundland and Labrador Hydro (65.8%) and Hydro Quebec (34.2%).
That information might change the claim today that Hydro captures the “lion’s share” of the revenues from the Emera deal.
Also unclear at this time is the status of the 225 megawatts of power from Churchill Falls that currently flows to western Labrador through Twin Falls Power Company. Twin Falls was a joint venture of the two iron ore companies in western Labrador and BRINCO. The power plant was shut down and TwinCo received a guaranteed price on a block of Churchill Falls power. That agreement expires in 2014.
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