03 April 2009

Wheeling deal

Running a block of 130 megawatts of power through Quebec will cost Newfoundland and Labrador Hydro $19 million annually over the course of a five year deal with Hydro Quebec Transenergie.

The wheeling arrangement facilities the sale of the power to American markets.  The sale in the Untied States is brokered through Emera.  The Emera deal is for a duration of two years.  Newfoundland and Labrador Hydro is expected to net between $40 million and $80 million annually.

A previous deal to sell the same block of power directly to Hydro Quebec netted the Newfoundland and Labrador provincial energy company $46 million a year over a five year period. According to Le Devoir, Quebec sold the block on the American spot market.

In effect that would mean the deal announced Thursday merely replaces Hydro-Quebec with Emera as the broker. Hydro-Quebec still earns money on the project through its transmission arm and ultimately through its share of Churchill Falls Labrador Corporation, which generates the power.

Quebec energy minister Claude Bechard described the deal as win-win since it shows Newfoundland and Labrador had accepted the rules of the market instead of seeking special access to the Americans and a federal subsidy for a transmission line through Quebec.

«C'est aussi une bonne nouvelle pour le Québec en ce sens qu'on sait que Terre-Neuve voulait que le fédéral subventionne une ligne, voulait avoir des conditions spéciales pour exporter de l'énergie aux États-Unis. Donc, ils viennent d'accepter, si on veut, les règles du marché.»

Le Devoir said the deal includes a block of 800 megawatts of power for Quebec and 300 MW for Newfoundland and Labrador.  Out of the 300 MW, Newfoundland and Labrador will ship 130 MW to the United States after satisfying local demand with the other 170 MW.

However, under the 1969 Churchill falls deal, Hydro-Quebec purchases the lion’s share of Churchill Falls power – more than 5200 MW – at a fixed cost of fractions of a penny per kilowatt hour.

This arrangement of 800 MW for Hydro Quebec seems to be an increase in the amount guaranteed for winter availability (GWAC) in Quebec under a special 1998 agreement.   Under the original 1998 deal, Hydro Quebec received a guarantee on delivery of 682 megawatts during winter months and the Churchill Falls power plant would be operated at peak performance during the inter months to guarantee the additional power.

Winter is the peak demand time for Quebec.  American peak demand is in the summer.

A news release at the time suggested it was a long-term contract valued at $1.0 billion. [link corrected;  amount corrected]  The wheeling arrangement may have involved more complex negotiations than it first appeared.  The news release on Thursday about the Emera deal contained few facts.

Details of the GWAC deal have been removed from the provincial government website.  The Hydro website now archives news only as far back as 2002. A search of the site for guaranteed winter availability contract using the sites own search engine returned no results. A google search for the same term yielded several hits, all of which have been apparently removed from the Newfoundland and Labrador Hydro website.