Emera's role in wheeling deal

A quick review of the raw video of the wheeling deal news conference [cbc.ca/nl link] led to something that means we have to change our view of this deal a bit.

Emera is not the broker of further deals, as we took it earlier. It is the customer, at least as far as Newfoundland and Labrador Hydro is concerned.

At about the 17:25 minute of the news conference, the Premier says quite plainly that the power is sold on the Canadian side of the border to Emera which then is free to sell the power to the market. There's also a reference by Ed Martin at 23:24 to Emera selling power in New England, New York or into Ontario having taken delivery on the Canadian side of the international border.

Since Emera doesn't actually operate as a power distributor in New York, apparently, it's take from sales in the Empire State will be affected by the wheeling and other costs associated with the sale.

The Premier refers at about 25:55 to an escalator clause being in the contract but there is no indication of how that works. It could be something as simple as an inflation adjustment. No matter what it is, the figures tossed out by Ed Martin - maximum $80 million - don't match up with the returns from selling power that takes maximum advantage in the summer month demand spikes in New York.

Taken altogether that reinforces the notion - at least as far as the revenue projections go - that this deal is somewhat better than the previous arrangements. Ed Martin refers to 40 to 45% better than deals over the "past five to 10 years."

However, we also have to consider that the current market prices for electricity may also be better than they were even six to seven years ago. Any suggestion that this deal and the concept of wheeling power is responsible for the increase in prices would be like the government trying to take resposibility for oil being $150 a barrel last summer.

As one last caveat, take note of the references to making more as prices go up, subject to Emera taking a profit. That's all true. However, the downside is equally true, namely that if prices drop, Hydro will make less money. Notice there was no talk of having a floor price.

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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.

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Hydro inks electricity deal with Emera

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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Use power profits for region: Pike

Former Abitibi public relations executive Roger Pike is suggesting the provincial government create a fund using the money generated by the hydroelectric assets seized by government in December. There’s a front page story accompanying Pike’s opinion piece in the Friday Telegram.

The money would be used to promote further economic development in central Newfoundland.  Pike believes the annual revenues generated by the assets could be as much as $35 million annually. After borrowing and other costs are considered, the net profit would be $15 million.

Pike also suggests that the provincial government will be entering a partnership with other operators at Star Lake and in a project on the Exploits even though the expropriation bill in December seized all assets and cancelled all rights held by any companies involved.

With Nalcor Energy now taking 50 per cent ownership positions (through expropriation) in Star Lake and the Exploits River Hydro Partnership (previously held by Abitibi) the profit from these two projects would be an enduring benefit to the province, and under the existing agreements the province would be the sole owner of these projects in 2022-2033 respectively, thus doubling their benefit.

The benefit from the 54 megawatts directly associated with the manufacturing of newsprint should be set aside to now provide the economic stimulus for our region.

Merely setting aside the energy from the 54 megawatts to attract a big industrial customer is not wise for one principal reason. An incentive based on energy alone is simply too restrictive in scope. Remember, AbitibiBowater had an energy subsidy but left.

The benefit from the 54 megawatts must be contained in a vehicle that stimulates our region. From what I understand, the energy produced by the 54 megawatts should be worth at least 7.5 cents per kilowatt/hour (KWH) to the island electrical system. At 7.5 cents, the annual revenues would amount to approximately $35 million. This is a fair chunk of change (a conservative estimate) being generated out of our small community.

The Telegram story rightly notes the controversy in central Newfoundland over the power assets and government’s plans. Bond Papers readers are already familiar with that.

One sign of the mounting public concern is a new website – municipalmatters.ca – that gives an online forum for people in central Newfoundland to discuss economic and other issues affecting the region.

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“The most serious threat to Gros Morne”

A report prepared as part of the 1987 application process to declare Gros Morne a World Heritage site labelled proposed transmission lines through the park for the Lower Churchill project as “the most serious threat to Gros Morne”.

The report said an environmental assessment determined the proposed route would affect the park’s caribou populations and plant life along the transmission line.  The summary report, prepared by the International Union for the Conservation of Nature, was submitted to the panel reviewing applications under the United Nations Economic, Scientific and Cultural Organization’s World Heritage program. It also concluded the development wasn’t very likely but that the potential impacts needed to be clarified.

The NALCO proposal in 2009 does note potential impact on caribou in and around Gros Morne but indicates the company will continue to practice measures to mitigate the impacts even though the impacts are not precisely known.  There is no apparent reference to the earlier environmental assessment of the project in the 2009 proposal although it  includes a reference in the bibliography to the UNESCO website.

Gros Morne was selected as a World Heritage site for its relatively pristine environment, special geology and overall physical beauty.

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So where is the sustainable development act?

We asked the question already but in light of the Gros Morne fiasco, one must wonder what happened to a piece of legislation we were told in 2003 was supposed to help deal with federal provincial co-ordination on environmental issues.

Like the whole Lower Churchill project, not just slinging hydro lines through a UNESCO World Heritage site.

From the 2003 Provincial Conservative policy manual, no longer available on the party website:

A HEALTHY ENVIRONMENT

The Sustainable Development Act will be the legislative framework for a Strategic Environmental Management Plan, which will have the long-term goal of achieving environmental and economic sustainability and a high quality of life for Newfoundlanders and Labradorians. The Plan will incorporate management systems that:

• Integrate environmental considerations into all government decision-making processes.
• Involve all sectors of the Province in identifying common values and working towards a shared vision of a sustainable and prosperous future.
• Utilize a variety of experts to ensure that management decisions are guided by reliable information.
• Provide a framework to coordinate activities across federal, provincial and municipal jurisdictions, and cooperation among various government departments and agencies.
• Create a stable and predictable regulatory environment that will benefit all interests.
• Promote the use of environmentally-friendly technology to meet the objective of sustainable, responsible resource development.
• Promote private sector investment in recycling, heritage conservation, eco-tourism and other business opportunities in the environment sector.
• Make use of environmental resources to create new wealth and generate employment in rural areas of the Province. [Bolding added]

Promised 2003.

Passed 2007.

Still not in force, 2009 and no sign of it showing up soon.

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Gros Morne controversy hits the Globe

Only a couple of weeks ago the tinfoil hat brigade was crowing because one of their cherished delusions made it to the Globe.

Then the Premier explained there was no problem with the Labrador border.

So then the whole thing became the Globe’s fault for trying to invent controversy.

Now the Premier is back in the Globe again, this time as the supporter of that idea to sling 43 metre high towers through a UNESCO World Heritage site.

This one has turned out to be a big political problem domestically and it will soon turn into an international controversy.

That sort of stuff is always good for raising capital and generally creating the image of place where you’d like to do business.

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Tourism group/daily newspaper oppose hydro lines through UNESCO World Heritage site

Hospitality Newfoundland and Labrador has joined the growing list of groups and individuals opposed to NALCO’s plan to string hydro lines through Gros Morne, a national park and UNESCO World Heritage site.

"Running towers in front of dynamic and dramatic landscape is going to take away from the natural beauty of it," [HNL president Bruce] Sparkes said. [CBC story]

"From a photographic, awe-inspiring point of view, it's going to take away that. And who wouldn't say, 'Gee, too bad they put that pole line there?'"

The editorial in the Tuesday edition of the province’s other daily newspaper also joined the chorus of opposition.  The Western Star is published in Corner Brook, in Premier Danny Williams’ district:

The route of the power line and towers can be diverted around Gros Morne Park at a cost of only time and money.

Any modest higher cost for construction pales in comparison to the loss Gros Morne Park will suffer.

Williams supports the proposal to build the towers in the park based on a trade-off.

"The reason that those lines are actually going through that park and the existing transmission corridor is to take out the dirty emissions that are coming from the Seal Cove-Holyrood plant," said Williams, referring to an oil-burning generating plant in eastern Newfoundland.

The Holyrood plant will not be taken out of service if the line from the Lower Churchill is built.  NALCO’s 20 year capital plan includes retention of the Holyrood plant which it calls an “absolute necessity” for decades to come.

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Williams lends credence to other expropriation theory

The Premier may have been trying to deflect one set of questions about the expropriation of AbitibiBowater’s hydroelectric assets when he told reporters:

Williams explained that the province didn't need the power from the Exploits River in order to accommodate the Long Harbour plant. He said 70 megawatts were freed up when the Stephenville paper mill closed, and an additional 54 megawatts of wind power has also been added to the grid.

In the process, though he just leaves hanging the question of why he bothered to expropriate the hydro assets in the first place including Star Lake, a site that wasn’t feeding power to the ABH paper mill at Grand Falls.

If NALCO didn’t need the assets and the assets weren’t going anywhere and the only thing they could do is generate electricity, why exactly was the provincial government in such a rush to seize them?

Failed Star Lake bid?

Eliminating any potential competition – guaranteeing NALCO’s monopoly position - seems to be the prime motivating factor. As the Telegram renders the Premier’s comments,

he said the most important fact is that the province, through Nalcor Energy, a Crown corporation, will take full control of the power at the end of March. [Emphasis added]

No details update:  Premier Danny Williams will confirm that NALCO tried to buy a portion of Star Lake but he won’t give any more details.

So if they didn’t need the power – as the Premier said in another interview - why try and buy in? According to the Premier, it was to bring “provincial ownership of the resource.” 

Odd statement that since the Premier knew that legally the provincial government owned the resource already. Al the Star Lake partnership had was a set of water rights leases and agreements.

Forget the conspiracy theories.  This is looking more and more like a case of “Why buy when you can seize?”

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Holyrood an “absolute necessity” for decades to come: Hydro

Newfoundland and Labrador Hydro is pushing the $10 billion Lower Churchill project and the multi-billion dollar power lines through a UNESCO World Heritage site as a replacement for the Holyrood diesel generating station near St. John’s.

But, Hydro’s 20 year capital plan, submitted to the public utilities board in 2008, notes that “[d]epending on which scenario unfolds, some, or all of the Holyrood generating plant will be required for decades into the future.”

According to Hydro, the Holyrood generating station is an “absolute necessity in the system.”

It is important to consider that whichever expansion scenario occurs, an isolated Island electrical system or interconnected to the Lower Churchill via HVDC link, Holyrood will be an integral and vital component of the electrical system for decades to come. In the isolated case Holyrood will continue to be a generating station; in the interconnected scenario its three generating units will operate as synchronous condensers, providing system stability, inertia and voltage control.

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Hydro towers likely to confront cabinet in retreat

The provincial cabinet may be retreating to Corner Brook for a couple of days but they won’t be able to retreat from a number of controversial issues, including their plan to sling hydro lines on 40 metre tall towers through a UNESCO World Heritage site.

The plan apparently came as surprise to tourism operators in the region.  They’ve got serious reservations about the scheme.

“Stand almost anywhere in the park and, given this proposal, the one thing that would catch your eye is a 50-foot transmission tower,” said [Todd] White. “I can’t sell that.”

Letter to the Editor update:  from Greg Knott of Norris Point -

Gros Morne National Park is widely considered around the world to be one of the most beautiful places on the planet and should be preserved as is, at all costs, to protect its visual and environmental integrity for all generations around the world to enjoy ... forever.

 

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Churchill Falls “go-it-alone”: not so much edition

It’s not like you haven’t heard this before but the provincial government isn’t going alone on the Lower Churchill if the Lower Churchill goes at all. 

[Gilbert] Bennett indicated that the go-it-alone option is not the only one on the table for the potential megaproject.

"The preferred alternative is for us to lead the development of the project," Bennett said.

"That statement has been made certainly by government on many occasions. From our perspective, our job at this point in time is to collect the data necessary to give government the information they need to make a decision. So I'm not going to comment on partners, sources of equity, at this point in time."

This story – from the Wednesday telegram confirms what Bond Papers said in 2006: the thing is more show than substance and the thing can only work if other people chip in to pay for it.

When the project was announced, though, the Premier wasn’t quite so equivocal as to call going it alone merely a “preferred” option:

- "The purpose of the announcement today was to indicate that the Government of Newfoundland and Labrador, and the people of Newfoundland and Labrador, are going to do this project themselves."

- "...but the big message here is that we are masters of our own destiny, that Newfoundlanders and Labradorians are in control of this project for the benefit of Newfoundlanders and Labradorians."

- "By taking the lead we are in full control of the project, unlike the circumstance with the last government; that project, basically, was going to be controlled by Quebec..."

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Lower Churchill EIS: first observations

NALCO released the environmental impact statement for the Lower Churchill development on Tuesday.  Following are some initial observations on certain sections.

1.  Need:  The project is justified based on meeting current and future domestic demand including industrial development, export potential and maximising local benefits.

a.  Domestic demand: NALCO’s own figures forecast load growth at “1.1 percent on the Island and 0.2 percent annually in Labrador. Forecasts indicate that by 2027, an additional 582 MW of generating capacity will be required to meet the demand in the Province, an increase of more than 29 percent over requirements in 2007.”

The report varies the power measurement units (megawatts in some places and gigawatt hours in others).  This makes it difficult to assess clearly the actual domestic demand and supply situation without an independent analysis.

The EIS mentions possible small hydro projects but puts the total potential at 60 to 100 MW instead of 150 MW.  As well, the EIS does not include the upwards of 150 MW of capacity NALCO acquired in the December expropriation of hydroelectric assets on the island.

b.  Industrial Development:  The EIS lists a series of potential industrial developments and estimated energy demands. For the most part these are fanciful projects that have been kicked around for decades without ever being seriously contemplated.

Still, even if by some chance these projects all materialised and needed new power sources, the requirements for most of the Labrador projects could be met using Churchill Falls power under the recall option in the original contract. Additionally, CFLCo could divert additional power beyond the original contract amounts through an agreement with Hydro-Quebec.  Such an approach would be attractive to HQ since it would increase the profitability of CFLCo.

Project	Power Demand (MW)	Status/Notes
Aluminum smelter (Labrador)	560	Studied since 1970s.  Unlikely, based on market demand, costs etc. Would require large amounts of power at or below production cost to offset costs of importing raw materials and transportation to markets.
New iron ore mine (Labrador)	255
Uranium mine	35 to 45	Could be met with power from CFLCo.
Silicon smelter (Labrador)	50	Promoted since 2000, the project for western Labrador has thus far failed to materialize.
IOC expansion (Labrador)	20 to 30	Currently on hold pending changes in markets.  Power need could be met through Churchill Falls recall.  IOC is a partner in Twin Falls Power Corporation which currently supplies power to western Labrador through an arrangement with CFLCo.  Power demand for the expansion could be met easily through the existing recall arrangements under the 1969 Churchill Falls contract.
Voisey’s Bay underground mine (Labrador)	40 to 50	VBNC currently meets its electricity demand using thermal generation.  Expansion could be powered using same method. Potential exists for small hydro development closer to project than Lower Churchill.  Transmission lines from LC to VB would add significantly to project cost.
Refinery (Newfoundland)	175 to 235	Second refinery project died in 2007.  Only reported dead publicly in 2008. Current status:  dead.
Nickel refinery (Long Harbour)	80	Can be met with existing capacity, additional capacity expropriated from AbitibiBowater or development of added capacity through wind generation and small hydro.

2.  Cost:  The project, consisting of two dams and hydro lines connecting to Churchill Falls, is estimated to cost $6.5 billion.  This seems low based on the recent Montreal Economic Institute study of Hydro-Quebec and some media reports are carrying the estimated cost of the project at $10 billion.  Both figures apparently come from the proponent.  This suggests the project is considerably less well developed than it appears.  Were it close to actual development, the costs would not be varying by over 50% in the time it took to revise this EIS document. ($6.5 billion to $10 billion)

As a Crown corporation, NALCO debt is backstopped by the provincial government and therefore affects the province’s financial status.  As current structured, this project is larger than the current provincial government accumulated borrowings and approximately the same size as the provincial government current net debt (assets less liabilities). 

3  Timelines:  The project will not complete the environmental review process until late 2010 or early 2011.  If built, the project would require a decade to bring fully on stream.

This is considerably at odds with comments by NALCO chief executive officer Ed Martin who claimed as recently as October 2008 that problems in American capital markets would delay the project by a mere six months. By contrast, the Premier has been lowering expectations on the project timelines since early 2008.
A proposal by Ontario and Quebec in 2005 suggested project sanction in 2007 with first power by 2011 at the earliest. This was rejected in favour of the so-called “go-it-alone” option which envisaged first power in 2015.

4.  Land claims agreements.  The Innu land claims vote originally scheduled for January 31 was cancelled with reports the Innu Nation and the provincial government had returned to the bargaining table to discuss “outstanding issues.” There have been signs of problems with the agreement since shortly after it was signed on top of contentious periods during the negotiations.

The EIS does not discuss the most recent developments, noting only that the land claim is still being negotiated (p.25) and that the provincial government and Innu Nation signed an agreement in September 2008 that “resolves key issues related to the land claims (Innu Rights Agreement), Innu redress for the upper Churchill hydroelectric development and the lower Churchill (Project) IBA.” This may not be accurate.

5.  Power purchase agreements.  No sign of any at all anywhere with any body.  They are crucial to securing long-term financing. The EIS merely describes a standard, theoretical structuring of mostly long-term agreements supplemented by short and medium-term contracts. 

6.  The Long Way Around, a.k.a the Anglo-Saxon Route.  Originally conceived by Joe Smallwood as a negotiating ploy for dealing with Quebec, the idea of stringing power lines to the island and then on to the Maritimes remains more fantasy than reality.  The concept has always floundered on the basis of cost.  The ASR remains a rhetorical device for this project. 

A line to the Avalon peninsula from the Lower Churchill  is being sold in part because of its potential to be extended southward to the Maritimes.  The Nova Scotia Liberal Party leader recently met with Premier Danny Williams to discuss the ASR.  NALCO and Emera signed a memorandum of understanding to explore the possibility of moving power from Muskrat Falls and Gull Island to Nova Scotia.

The EIS mentions this project only obliquely.

7.  Project linkages or Do they not talk to each other in the office?  The Lower Churchill project is justified in part on the basis of replacing thermal generation at Holyrood.  The EIS contains no proposal for meeting that requirement. Instead, the line to Newfoundland is referred to as an addition.  All the same, it appears that this document has not been updated in some time.  Either that or people within the office don’t talk to each other.

EIS comment on the line to Newfoundland sent for environmental review within the last two weeks:

At the time of this filing/submission, Nalcor Energy expects that there has or will be a registration and project description filed for the proposed Nalcor Energy Labrador‐Island Transmission Link project.

8.  Alternatives: When you are the proponent of a megaproject that is largely driven by political considerations, you are likely to give short shrift to alternatives to the politically-favoured project.

a. Conservation:  Estimated to reduce demand growth (2007 to 2027) from 29% to 17%. The implication of this is not discussed at all since it dramatically alters the demand profile being used to justify the project.

b.  Wind:  Wind capped at 80 MW due to what NALCO describes as problems with management of demand flow.  NALCO already has contracts for 54 MW.

c.  Natural gas:  EIS gives a cursory discussion of natural gas noting only that the technical and economic feasibility of gas-fired generation has not been established.

d.  Added capacity:  A vague discussion, at best, this section does not catalogue the existing alternative hydro generation sites. 

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Lower Churchill EIS released

NALCO released the environmental impact statement for the Lower Churchill project on Tuesday.

The environmental review will not be completed until 2010/2011, marking yet another slide back in the project timelines since 2005/06.

The project will take a decade to complete.

Current estimated cost  - for two dams and the feed to Churchill falls - is $6.5 billion according to the EIS.  This seems low.  Some media are reporting an estimated cost of $10 billion which is closer to cost estimates based on other hydro projects described in the recent study of Hydro-Quebec by the Montreal Economic Institute.  The $6.5 billion does not include the cost of the line to the island.

 

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NALCO handling expropriation talks: AbitibiBowater

The province’s energy corporation is handling talks on compensation with AbitibiBowater for the latter’s expropriated assets, according to AbitibiBowater chief executive officer David Paterson in a Globe and Mail story Tuesday.

Abitibi executives are dealing with the pending transfer of assets through talks with the province's hydro utility, which is handling the issue of valuation. "We are in a dialogue indirectly with the government through Newfoundland Hydro," Mr. Paterson said.

Still, he said, the process is very one-sided. "[It] basically consists of Newfoundland telling us what they are going to do and we have to comply."

He said the expropriation legislation does not give the company any right to a judicial hearing. As a result, the determination of value "is at their whim."

The carrying value of the assets is US$300 million, according to documents filed with the Securities and Exchange Commission in the United States.

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Hydro towers through UNESCO World Heritage sites: the editorial view

The Telegram Saturday editorial takes a dim view of NALCO’s proposal to string high voltage transmission lines through Gros Morne.

The problem is that the Gros Morne proposal, on the face of it, is hardly an acceptable option for a national park. Between a rock and a hard place, indeed.

Indeed it is.

One of the comments from a reader suggests that it is preferable to do this than keep a diesel generator running at Holyrood.

Fair enough at least for a proposition.

But the NALCO proposal doesn’t address the current electricity demand and the current utilization at Holyrood to cement the case that this massive transmission project – at least $2.0 billion in added taxpayer debt – is actually the best solution to the Holyrood problem. 

Electricity demand is not exactly skyrocketing on the island.  Two major industrial projects have died since 2005 and the Vale Inco project at Long Harbour will only suck 75 megawatts a year, when it comes on line some time around 2012.  In the meantime, the expropriation bill gifted NALCO with almost 150 megawatts of power that costs virtually nothing to run.

On top of that there are at least six other small hydro projects that have been frozen in place since the late 1990s. According to the province’s energy plan, that moratorium is due to be reviewed in 2009.

Meanwhile, Kruger was looking at a site at Silver Mountain.  NALCO itself completed studies on two others in 2006, one at Island Pont (36 MW) and another at Portland Creek (23 MW).  On top of that, AbitibiBowater had three sites under consideration in 2006:

• Badger Shute (24 MW)
• Red Indian Falls (42 MW), and
• Four Mile Pond (24 MW).

There are others.

One of the problems facing any development of those alternative sources of power is the stranglehold NALCO now holds on development in the province.  The energy plan makes it clear that the government now considered NALCO to have a monopoly within the province even before it expropriated several private sector developments including Star Lake:

We believe this means the Energy Corporation should control the development of all small hydro developments for the benefit of all electricity users and determine whether to do this alone or with private sector partners. However, in the long term, the province, through the Energy Corporation, must maintain full control over any new hydroelectric generation assets. We will do this by adopting a policy that no new water rights for hydroelectric generation will be issued except to the Energy Corporation or another company acting in partnership with the Energy Corporation.

If that weren’t enough, changes to the Electrical Power Control Act – passed in 2007 but only quietly implemented after the expropriation in December 2008 – ensures that NALCO can enforce its control over future developments through the Public Utilities Board. 

NALCO isn’t famous for getting things done expeditiously.  It has taken the company the better part of a decade to implement several small wind power projects.  Efficiency and effectiveness aren’t the usual order of the day at any Crown corporation and as a recent study on Hydro-Quebec shows, taxpayers usually aren’t well-served by the behemoths.

Between a rock and a hard place, as the Telly-torialist put it,  doesn’t even begin to describe what else NALCO will come up with besides stringing power lines through a UNESCO World Heritage site.  Next thing they’ll want to add upwards of $10 billion to the public debt for something or other without any sign of a way of paying for it beyond borrowing.

Oh, wait.

They have already.

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Hydro towers in national parks: first Gros Morne, now Mealy Mountain

The proposed Lower Churchill infeed will also involve stringing an electrode from the main transmission line into the territory of the proposed Mealy Mountain National Park.

Apparently hitting one national park in the province wasn’t enough.

The Mealy Mountain park has been under development for most of the past decade. 

Gros Morne Update: From CBC -

Peter Deering, manager of resource conservation at the park, said it's important the park not be disturbed by transmission lines.

"We do not support the proposal and we are not prepared to accommodate the proposal at this time," Deering told CBC News. "One of the reasons Gros Morne was designated as a UNESCO World Heritage Site was because of its wilderness values."

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Selective perception

The Telegram’s front page story on Friday reports on a study released by the Montreal Economic Institute that, according to the Telegram, shows that Hydro Quebec profits hugely from the Churchill Falls power development.

Shocking!

What’s actually much more interesting is what the study was about.

Amazingly enough, it wasn’t about how much money Hydro Quebec makes of Churchill Falls.

Rather, the Montreal Economic Institute study argued that Hydro Quebec should be privatised because it is wasteful and inefficient.

The title of the report – conveniently omitted from the Telegram story -  is one that would surely ignite even more gnashing of teeth in these parts than the amazing revelation about Churchill Falls:

“How would the privatization of Hydro-Quebec make Quebecers richer?”

The title on the news release is even better:

“Privatizing Hydro-Quebec would give $10 billion more a year to Quebecers”

By privatizing Hydro-Québec, Quebecers would get $10 billion more out of it per year through improved productivity, higher electricity rates and an end to costly subsidy programs for aluminum smelters, according to a Research Paper published by the Montreal Economic Institute. The new private company would be required to pay substantial annual royalties to the government, says the study, prepared by Claude Garcia, member of the board of directors of several corporations and former president of the Canadian operations of Standard Life.

Standard Life. 

Hmmm.

That would be one of the companies whose hydro-electric assets in Newfoundland and Labrador were nationalised by the the legislature last December.

The paper is far more provocative than the bit excerpted by the Telegram, especially in a province where the government is already committed to create in Newfoundland and Labrador a Crown corporation that is the mirror of Hydro-Quebec.

 

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Whose line is it anyway?

In this case a transmission line for the Lower Churchill.

A couple of weeks ago, former Premier Roger Grimes took issue with a comment by noob finance minister Jerome Kennedy that the Lower Churchill transmission line would be a good project for federal infrastructure spending.

The Telegram story - not online - quoted Grimes:

"There has been no routing actually planned for a transmission line,"says Grimes. "If they have a transmission line already planned, already designed ... then why don't they tell us where it is?"

He was reacting to Kennedy who the Telegram quoted as saying:

"That's something that we could start immediately, it's something that
we wouldn't have to wait for the environmental assessments because, essentially, we'd simply be building a transmission line," said Kennedy at the time.

Kennedy said Transportation Minister Trevor Taylor delivered a similar
message to federal Infrastructure Minister John Baird just days before.

Similar comments were made by [Premier Danny ] Williams in a year-end interview with The Telegram.

Williams did mention the Lower Churchill in that year-end interview.

Williams also took issue with Kennedy’s comments in the Telly story on Grimes’ comments saying that Kennedy had spoken out of turn. There would need to be an environmental impact assessment. Williams also said that Grimes simply didn’t know enough about what was going on:

"Poor Roger is talking through his hat. He doesn't have the background,he doesn't have the information," says Williams.

"We've been working on this plan for a long, long time, we've a lot of
engineering done," says Williams.

Of course, Grimes and Williams have been at odds over the Lower Churchill for years and of all the province’s politicians, Grimes seems to have a unique ability to get under Williams’ skin.

But that’s not the only talk of transmission lines since the New Year. Emera president Chris Huskelson told the Halifax Chronicle Herald that without a line to Newfoundland, it made no sense – presumably economic sense - to try and ship power directly from Labrador into the Maritimes.

"Newfoundland decides to bring energy to the island, it makes perfect sense to bring energy further to Nova Scotia. If they decide not to bring energy to the island, it won’t make sense to bring it to Nova Scotia."

Then to cap it all, Ed Martin, president and chief executive officer of NALCO(R) and Hydro told the Chronicle Herald that shipping power across the Cabot Strait to Nova Scotia is one of the options Hydro is looking at for the Lower Churchill. Hydro and Emera signed a memorandum of understanding a year ago to explore the possibility of shipping power from the Lower Churchill to Nova Scotia. But as Martin said this weekend:

"It’s looking like somewhere in the Sydney area would be an excellent landfall for us," Mr. Martin said of the proposed undersea cable.

"Not only is it distance-wise one of the closest points to Newfoundland, but it’s close to the Lingan plant, which is a significant emitter for Nova Scotia (Power) . . . but nothing is final yet."

Nothing is final yet.

Well, nothing is really clear in all of this. As labradore noted in a post on Sunday, not so very long ago, Martin and Hydro were talking about shipping electricity into New Brunswick from Cap St. George on Newfoundland’s west coast. That was certainly the option examined in 2005, as reported by both the Telegram and Stephen Maher of the Chronicle Herald. Sea Breeze Power of British Columbia was proposing an underwater line from the coast of labradore to Prince Edward Island or Nova Scotia.

This isn’t a new idea. As Bond Papers reported in 2007, the idea of underwater transmission lines for Lower Churchill power goes back to the 1970s although officials were quick to note that it wasn’t an attractive proposition:

For one thing, according to Vic Young, president of Newfoundland and Labrador Hydro, the 77-mile cable across the Cabot Strait is an extremely poor prospect. Although a study two years ago stated it was technically possible, its capital and maintenance costs would be enormous. The electricity delivered would cost about twice what it would if brought down overland.

But all this talk of transmission lines and environmental assessments gets really curious when one looks at the Lower Churchill proposal which is now in the hands of a joint federal-provincial environmental assessment panel.

The only transmission lines mentioned in that proposal are for two running from Muskrat Falls to Gull Island and then a single line back to Churchill Falls. From there, power would head into Quebec through the existing interconnection.

The project is described very straightforwardly in the agreement between the federal and provincial governments on the environmental review panel:

The Proponent proposes a project/undertaking consisting of hydroelectric generating facilities at Gull Island and Muskrat Falls, and interconnecting transmission lines to the existing Labrador grid.

…

Interconnecting transmission lines consisting of:

• A 735 kV transmission line between Gull Island and Churchill Falls; and,

• Two 230 kV transmission lines between Muskrat Falls and Gull Island.

The 735 kV transmission line is to be 203 km long and the 230 kV transmission lines are to be 60 km long. Both lines will be lattice-type steel structures. The location of the transmission lines is to be north of the Churchill River; the final route is the subject of a route selection study that will be combined on double-circuit structures.

No proposal has been presented publicly for any other transmission lines related to the Lower Churchill. There’s nothing in Quebec or New Brunswick and Nova Scotia. In Both Quebec and New Brunswick, Hydro has simply filed an application for wheeling - moving power through the existing grid - but there’s no discussion of new transmission lines.

While Danny Williams might claim Roger Grimes isn’t up-to-speed on the project, existing public information suggests the Premier and his finance minister aren’t exactly coming clean on the whole thing either.

In fact, Grimes might well be closer to the truth given that if a new transmission line – say through Quebec – is being contemplated there’s been nothing done to make it possible within the next couple of months.

As Grimes noted – and the Premier concurred – a transmission line would have to go through an environmental assessment. That idea would be a wee bit more complicated politically if the line through Quebec was expressly intended to carry power from the Lower Churchill through Quebec to another market.

If there’s another line Kennedy was thinking about, like say across to eastern Newfoundland, there’s still a provincial environmental process that would at least have to be considered. The major problem there is one of cost. Figure on a project costing upwards of $2.0 billion by the time it is done.

The cost of that little make-work venture would be borne entirely by the ratepayers of eastern Newfoundland who, it should be noted, don’t really need all that extra power and certainly wouldn’t get it right away, anyway. Hydro just expropriated over a 100 megawatts of generating capacity from AbitibiBowater and there is surplus power in the grid since the Abitibi Stephenville mill closed in 2005. The Inco project at Long Harbour will suck up some of the juice but there is no great demand for power on the island in the near term.

As for timing, those lines – even if they were built over the next couple of years – would be more than a decade old before any Lower Churchill power coursed through them. The Lower Churchill project will take nine years to complete. The proposal in the environmental review called for construction to start in 2009 with first power in 2014 and the completion of the whole thing in 2018.

But even if the environmental assessment is finished this year it would be well into 2010 before anyone would start digging dirt in Labrador.

Even 2010 would be an optimistic start-time these given that Hydro doesn’t have a single customer for the Lower Churchill power and the money markets are a wee bit skittish these days what with the shortage of capital in the markets.

Heaven forbid that work might start without those contracts in place and with the work being funded out of the public treasury or whatever cash the energy corporation might have laying about. That’s what happened last time with BRINCO as some people are only now realizing. The company borrowed cash and started work in the mid-1960s. Hydro Quebec took maximum advantage of the BRINCO foolishness and with the latter in a financial bind managed to secure the sort of contract concessions it had been seeking from the start.

All the bluster at the time about running power down through Nova Scotia was just a tactic to improve the bargaining position with Hydro Quebec. Ditto the talk of running a line through Quebec with federal backing. There’s no evidence the request was ever made, even though many people insist on repeating the story. In the end, Hydro Quebec got everything it was looking for from the start and then some.

Maybe what we have here with all this talk of transmission lines is the same sort of bluster and political posturing we saw 40-odd years ago.

Certainly there is nothing in the public domain to suggest that anything Kennedy referred to is real.

Maybe Roger Grimes knows a lot more than Danny Williams will ever give him credit for. And when it comes to contracts, it’s not like the two haven’t been at odds before with Williams having to change his position when the facts were in. Anyone remember Voisey’s Bay?

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Lower Churchill falls further behind

According to the Globe and Mail, Hydro-Quebec is negotiating its first long-term power purchase agreement in decades to ship power to New England for 20 years beginning in 2014.

New England is a major market for hydro and long-term power purchase agreements are the way to secure financing for a project like the Lower Churchill.  Thus far, Newfoundland and Labrador Hydro hasn’t been able to secure a single contract – erroneous reports to the contrary -  nor is there a sign any contract is forthcoming.

Both the Premier and NALCO(R) boss Ed Martin spent most of 2008 lowering expectations for the long awaited development of the 2800 megawatt facility.  As recently as October, Martin blamed uncertain financial markets for the apparent decision to slide back project sanction by at least six months. In February, the Premier repeated a comment he made in January that the odds of the Lower Churchill going ahead were “50/50”.

Financial problems with the project – lack of secured markets being chief among them – are likely the reason the Premier keeps insisting on federal financial backing for the project, even though it supposedly one on which he intends to “go it alone:”

"It was an opportunity for the federal government to right the wrong of the Upper Churchill, whereby we are losing, like, a billion and a half dollars a year."

But Williams maintains the feud is over now, and says he hopes for co-operation from Ottawa on funding a new penitentiary, a federal ocean agency, the Lower Churchill project and transmission line.

Linking the Conservative family feud with the Churchill Falls deal is curious.  While it plays well with the local tin-foil hat brigade – see the comment on the Globe story from “Calvin St. John”, for example – the federal government didn’t play a role in that project except as a Joe Smallwood negotiating ploy. 

Linking the 1969 BRINCO deal with the federal government isn’t a sure-fire way to secure federal cash.  A more successful approach would have been to look at a deal with both Ontario and Quebec of the type that the provincial government had in hand yet specifically rejected when it decided to “go it alone” three years ago.

There’s also no telling how the Abitibi expropriation will play with investors in Canada. American investors likely won’t look favourably on it at all.

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