Those friggers from [insert name of province] #nlpoli

Anyone steeped in the whole Quebec-Newfoundland fight over hydro-electricity exports will look at the whole Alberta-British Columbia fight over oil exports and see the connections.

Sure, they are there.

The most obvious:  one province wants to get somewhere to export its energy product and there’s another province standing in the way.

What else could there be?

Well, lots actually.

NL wheeling power through Quebec #nlpoli #cdnpoli

From April 2009, here’s Kathy Dunderdale – then the province’s natural resources minister – quoted in a news release on an historic agreement that saw Nalcor wheeling electricity from Churchill Falls through Quebec to the United States:

“This is a significant development for us to share our excess green renewable energy with the rest of North America through our transmission access through Quebec and our subsequent arrangement directly with Emera Energy,” said the Honourable Kathy Dunderdale, Minister of Natural Resources. “These markets are seeking clean, reliable energy, which we have in abundance. The recall block availability and this arrangement allows us to build our reputation and experience as a reliable supplier of clean energy now and into the future.”

Anything else you’ve been hearing is simply not true.

In the same news release, Danny Williams said the agreement was “free of the geographic stranglehold of Quebec”.

False information is pretty persistent, though.

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Undisclosed Risk: the cost of freedom is loss

You won’t hear the provincial Conservatives talking too much about an April 2009 deal to sell surplus power from Churchill falls to Emera in New York.

They talked about it a lot when they cut the deal. 

Back then, Danny Williams said the five year contract proved that Labrador hydro power wasn’t isolated any more.  Nalcor wheels Churchill falls power through Quebec to markets in the Untied States.  Nalcor pays Hydro-Quebec a fee for wheeling the power.

And Danny Williams was absolutely right.  Labrador hydro power isn’t isolated.  if Nalcor had customers for Labrador hydro, they could send the power through Quebec tomorrow.

The reason Nalcor isn’t developing the Lower Churchill and shipping the power through Quebec is because there is no market for the power.  Everything else you’ve may have heard from provincial Conservatives in Newfoundland and Labrador and from the local media about a big Quebec conspiracy to block Nalcor is – in a word – crap.

You can see that the Conservatives wouldn’t want to talk about the Wheeling Deal.  it proves that their more recent line, the one that supposedly justifies the Muskrat falls project is – in a word – crap.

Turns out there may be another reason why they aren’t talking about it.

Danny Dumaresque, a former director of Newfoundland and Labrador Hydro, issued a news release on Wednesday claiming that Nalcor is losing money on the Wheeler Deal. The story got decent media coverage across Newfoundland and Labrador and even made it onto the Radio Canada website. There’s also a short story about 20 minutes into the CBC’s Here and Now broadcast on January 5, 2010 and on NTV News from the same date.

Dumaresque looked at the Nalcor annual report and calculated that the company lost money on the deal compared to the previous deal to sell the power to Hydro-Quebec:

Over the past 18 months I have been told various figures of costs and revenue but because these figures were much different than the previous contract with Hydro Quebec, I was reluctant to cite them. However, today I can confirm that this province has lost $15 million in the last 9 months of 2009 under this ‘historic arrangement’ than we would have received from the contract with Hydro Quebec, a reduction of 40 percent.

My information is that results have not been any better in 2010 and up to $20 million will be lost. Therefore, in less than two short years we have lost $35 million of precious taxpayer’s money and the potential to lose up to $100 million over the life of a 5 year agreement which we had with Hydro Quebec!

In addition to this loss of revenue to the province I am also able to confirm that NALCOR has paid nearly $34 million to the Government of Quebec since this deal was done and $7 million to Emera Energy of Nova Scotia. [bold in original]

In the media interviews, natural resources minister Shawn Skinner doesn’t dispute the losses.  In fact he admits that under the deal, Nalcor would lose money when electricity prices are low but it could make them back if prices are high.  Even he uses the line with CBC to the effect that losing money is the price of freedom.  When a politician has to use complete bullshit like that you know he’s been caught out.

There are three things to note from this.

First of all, this is pretty much what you might expect from the deal.  It was clear at the time Nalcor inked the deal that – based on the numbers they released – the deal would only deliver about the same price per kilowatt hour to Nalcor that they were getting under the old fixed-price deal with Hydro-Quebec.  Sure electricity retails for 20-odd cents per kilowatt hour in New York city.  But by the time you take off the wheeling charges to Hydro-Quebec and all the other middlemen, and allow for Emera’s cut, the net for Nalcor was 3.5 to 4.0 cents per kilowatt hour.

As it turned out, electricity prices dropped in the United States what with the 2008 recession and all. They are so low that American producers can sell electricity produced by natural gas from the United States across the border into New Brunswick.  And as it stands right now, prices are going to stay down for the duration of this first contract. 

Newfoundland and Labrador Hydro considered wheeling the power in 1998 but figured out exactly what has happened.  They opted for selling power for the best return as opposed to going the Danny Williams route and losing money.  Pure business genius at work there signing a deal that only works if prices stay high or keep going up.

Second of all, you have to appreciate that this is exactly the same sort of financial wizardry that underpins the Muskrat Falls deal. 

In order for Danny’s retirement plan to work and for the taxpayers of Newfoundland and Labrador not to take it in the derriere, oil prices have to double from their current level within the next decade and keep going from there.

If anything else happens, then the taxpayers get jammed up badly.  The reason is simple:  Nalcor is building the whole project based on the only guaranteed sale being for power inside Newfoundland.  They can sell power to other provinces or to the United States and if the prices fall far short of the cost of production, then the taxpayers of this province will cover the loss through their electricity rates.  That’s exactly what provincial laws – amended since 2006 – require.

Notice that none of the other players involved lose anything.  Emera gets cash no matter what.  For $1.2 billion they get 35 years of essentially free power to sell to Nova Scotia.  They can sell other power for less than the cost of production and even at the end of the 35 years they will pay less for the power than it cost to produce it in 2017 when the first power is supposed to flow.

It’s the same as the Wheeler Deal.  Hydro-Quebec gets its fees for carrying the juice to the border.  Emera gets its fees and commissions.  The only people who come up short on the deal are the taxpayers of this province who – one way or another – have to cover Nalcor’s losses.

Not bad, eh?

Now the thing is that nobody mentioned this at the time Danny Williams announced the deal in April 2009. Danny never said taxpayers could lose money at all. He never even vaguely hinted at it.  In fact, while he acknowledged prices at the time were low, Nalcor boss Ed Martin said that

[b]ased on current electricity prices, Newfoundland and Labrador could earn about $40 million to $80 million in profits annually….

That’s the third thing and it is the biggest thing of all:  it’s called undisclosed risk. And in business circles, failure to disclose significant risk to investors -  or the de facto owners in this case - is a pretty big deal.  It goes straight to the trust that the ordinary people of Newfoundland and Labrador have placed in these politicians who are now acknowledging, in effect, that there are very important things about these deals that they haven’t bothered to tell people about.

It makes you wonder what other little secrets, what other little time bombs there are ticking away.

What other undisclosed risks are the people of the province facing that they didn’t face before 2003?

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Lower Churchill: US and NL taxpayers might help subsidize costly big hydro project

Premier Danny Williams is promising a Lower Churchill deal before the end of the year and one way he could finance the project is by offloading the cost onto American and Canadian taxpayers.

Some American politicians are trying to redefine state environmental subsidies that currently don’t include hydro megaprojects like the Lower Churchill.  In Massachusetts, Republican gubernatorial candidate Charles Baker not only advocated for big hydro as part of the state’s energy future, he also favoured giving big hydro projects the “renewable” status that would make them eligible for state subsidies. 

According to the Boston Globe, the subsidies in Massachusetts alone could be worth as much as six cents a kilowatt hour.

Incumbent Democratic governor Deval Patrick  - who won re-election last week - opposed the idea:

“It does not make sense to give renewable energy incentives to a foreign-owned enterprise for something that needs no subsidy,’’ Patrick said in a statement to the [Boston] Globe. “It would amount to a windfall of hundreds of millions of dollars for Canadian ratepayers at the expense of Massachusetts customers.’’

That doesn’t mean the idea is dead in Massachusetts, though.  Energy giant Hydro-Quebec is lobbying hard for the “renewable” status for its own projects. Earlier this year, the company won a battle in Vermont to make hydro eligible for subsidies. That’s all part of HQ’s push to take its share of the New England energy market from 8.5% to upwards of 12%.

Lowering the cost of Lower Churchill power by six cents a kilowatt hour could make Muskrat Falls financially viable, especially if NALCOR left the American marketing to a private sector partner and let that company keep the subsidies.  NALCOR already sells power at the Quebec-New York border to Emera.  Under a deal announced in 2009, the Newfoundland and Labrador company apparently gets about the same rate per kilowatt hour it got from a similar deal with Quebec that expired in 2009.  Any other financial details, like profits from seasonal price fluctuations, seem to flow to the private sector.  It’s hard to know for sure since details of the 2009 detail are confidential. 

And while Danny Williams claimed last week he’d lay any development deal for the very expensive Muskrat Falls version of the project in front of the public, he hasn’t lived up to similar promises yet on other projects.  Many of the key details of the 2007 Hebron deal remain shrouded in secrecy.  Amendments to the province’s open records laws in 2008 shield the publicly owned NALCOR from disclosure of its financial dealings even though it receives public funds to run the company and its subsidiaries.

Foreign tax credits aren’t the only way NALCOR could subsidise the cost of building Muskrat Falls.

Under the most recent version of the Lower Churchill described recently by Premier Danny Williams, 40% of the power from Muskrat Falls would come to eastern Newfoundland. NALCOR’s environmental submissions on the project make it clear, however, that the island portion of the province doesn’t need the power now or in the foreseeable future. The company also plans to keep its diesel generators at Holyrood running even after it builds any new lines to the island from Labrador.

Shipping power to a part of the province that doesn’t need it would give the public utilities board the legal basis to offset any losses from sales to Nova Scotia or into Quebec by offloading them on local ratepayers.  That’s because provincial laws require that the public utilities board to set rates that protect NALCOR’s financial position from its entire operations.  But that rate-setting power only applies to domestic rates. PUB doesn’t regulate export prices.  By using Lower Churchill power in the province – even when it isn’t needed - NALCOR could use local ratepayers to subsidise power exports. 

Taxpayers could get hit another way on the deal as well.  Any NALCOR debt for the project – likely to be at least $6.0 billion – will wind up on the balance sheet of the provincial government, one of the most indebted provincial governments in Canada on a per capita basis. 

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Lower Churchill: more potato, potato

Sometimes really interesting things crop up in two stories about the Lower Churchill. 

Take for example, the likelihood of a deal with Emera to run a power line to Nova Scotia.  There’s a Canadian Press story dated November 1 that says this:

The head of Nalcor Energy won't say whether the Newfoundland and Labrador Crown agency is close to inking a deal with Emera Inc. (TSX:EMA) on the proposed Lower Churchill hydroelectric project.

Then there’s a CBC story dated November 1 that says something else:

Hydroelectric power from a proposed project in Labrador could reach the Maritimes within five to six years, Ed Martin, president of Newfoundland's Nalcor Energy, said Monday.

That five years obviously wouldn’t start today because as of 2010, the project is still bogged down in an environmental assessment.  Still, Ed didn’t give a probably projection on that.  It could – entirely fantastically  - be pumping juice in five years;  odds are though that the project would not be pushing electricity a decade from now. 

Premier Danny Williams recently told a gathering of the province’s Reform-based Conservative Party that a deal to develop one dam was possibly very close.  Ed Martin, the head of the province’s energy corporation told reporters in Halifax this week that  - from the CBC story – "[t]ime will not drive us. It has to be right."

Hmmm.

Potato.  Potato.

Tomato. Tomato.

Maybe the whole thing’s off. 

Maybe the whole thing’s on.

Maybe the whole thing is half on, and half off, go-it-alone and with partners simultaneously.

Surely you’ve noticed that since 2005 this project has gone from doing it alone to doing it with partners to doing only a bit of it with partners and still nothing has happened after five years of endless public posturing.

Oh yes, and five years of secret talks, in addition to the public talking about it.

And the price, meanwhile is still $6.5 billion for the smaller dam and a bunch of expensive transmission lines.  That was the original price for two dams and a line to Quebec. The whole thing could actually cost as much as $14 billion.

But that’s not the end of the flippin’ and da floppin’.

Danny Williams told his Conservative followers that the line to Nova Scotia would be a sweet way to reject Quebec after all their slights, real and imagined, over the years.  According to CBC, Martin said that shipping all that power means NALCOR needs a line to Nova Scotia in addition to a line that runs through Quebec.

"If we are going to move the kind of volumes we're talking about over the 50 years, we've come to the conclusion we need both routes."

And in leading up to that comment, Martin restated one of the ideas your humble e-scribbler floated, just so he could refute it:

"With respect to that question of is it something that we're using it from a leverage perspective, the answer is no,"

Still, though, if Ed Martin actually had a deal or was really close to one, he’d be announcing it rather than talking about all sorts of scenarios and possibilities.

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The old trading federal cash for a deal with Quebec trick

“This is truly a historic and momentous occasion for the people of our province, as never before have we been granted access through the province of Quebec with our own power.”

That was Danny Williams in April 2009. 

Williams was describing a deal by NALCOR Energy to wheel power from Churchill Falls through Quebec to American markets.

These days you’d hardly know the event happened.

But it did.

The April 2009 deal is the single episode which refutes all the claims Williams has made since then about not being able to run Labrador power through Quebec.

Williams told reporters at the time that the deal

“… shows that our power [in Labrador] is not stranded power," he said.

"We're not forced to just sell it at the border to Quebec at whatever price Quebec wants to pay for it."

Not surprisingly, given its position on a line from Labrador to Ontario, the Government of Quebec preferred this option to a line subsidised by Ottawa.  CBC quoted Quebec natural resources minister Claude Bechard on the April 2009 deal:

"We don't want to have a new transmission grid that will be subsidized by the federal government," Béchard said.

"That's the way that we have to work for the future. That's the way we have to work if we want to keep our capacity in our place."

All in all, Williams most recent attack on Quebec is very odd indeed.

Neither he nor the Nova Scotians should have been surprised by Quebec’s objection to federal subsidies for a new line to Nova Scotia, even if – as in the Nova Scotia line – it has nothing whatsoever to do with the Lower Churchill.

Oh yes, Danny Williams mentioned this might be a way to run power from the Great White Whale to the Maritimes, but NALCOR isn’t really too interested in that very long and very expensive route.

You can tell this because the route it is highlighting to the never-ending environmental review process, the route described connects the two new dams back to Churchill Falls and then to the border with Quebec.  The most recent local media report confirm NALCOR is still using exactly the same development scenario described in the original submissions, which are the same as the project outlines used by Roger Grimes’ crew in 2002, Brian Tobin’s gang in 1998 and every provincial administration back to Joe Smallwood.

And it’s not like Nova Scotia Premier Darrell Dexter doesn’t realise this whole transmission connect to Newfoundland isn’t really about the Lower Churchill either. As Dex put it last January:

Premier Darrell Dexter said he’s not surprised Newfoundland and Labrador is looking for a cheaper option than an underwater cable connection to Nova Scotia for moving energy from Lower Churchill to market.

"The sheer economics of it are undeniable in terms of a transportation corridor for that energy," the premier said after a cabinet meeting Thursday.

If you want to know what this Nova Scotia line is really all about, you have to look nor farther back than April 2009.

That Ontario line and its subsidies went “poof” pretty quickly, didn’t it?

This whole Anglo-Saxon route is nothing more than a bargaining ploy the Old Man is using in his ongoing efforts to get a deal with Hydro-Quebec.

And besides, it’s not like a Newfoundland and Labrador Premier didn’t use Nova Scotia to try and leverage a deal with Quebec for Labrador power before.

Would you believe 1964?

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NL Hydro intervenes in Hydro-Quebec FERC application

The way some people talk, you’d think this was the first time Newfoundland and Labrador’s energy company had intervened in the United States over wheeling rights for electricity from Labrador.

Well, for those who think that, guess again.

The year was 1997 and then-mines and energy minister Rex Gibbons announced:

"Hydro's objective is to secure the province's right to transmit electricity from Labrador to North American markets on terms that are open and non-discriminatory. … This is consistent with FERC's Order 888, requiring that `Customers in the United States should not be denied access to cheaper supplies of electric energy, whether such electric energy is from a domestic source or a foreign source'."

As it turned out, NL Hydro cut its first deal with Hydro-Quebec a couple of years later to sell surplus power from Churchill Falls.  The first deal was a straight sale to Hydro-Quebec.  The price at the Quebec border was basically the same as the price obtained at the US border or farther south, after all the wheeling and other charges were taken into account. As you can see from this 2000 backgrounder, NL Hydro has been on top of the whole issue for some time.

Curiously enough, the situation hasn’t really changed all that much in 10 years or so, despite all the chest thumping that’s been going on lately. NL Hydro gets roughly the same price per kilowatt hour from the April deal that it got from the previous deal  - signed in 2004 – that saw the power sold to Hydro-Quebec at the border.

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The Transmission Skirmish: more documentation

The Telegram’s Rob Antle did a bang-up job of shedding some extra light on the ongoing skirmish between Newfoundland and Labrador Hydro and Hydro-Quebec over transmission of electricity through Quebec.

So far all anyone has had has been the Premier’s characterisation of the whole affair.

Well, for the record, here is the link to what appears to be the ongoing kerfuffle as it appears before the Quebec energy regulator agency, the Regie d’energie.

But if you scoot along to the United States Federal Energy Regulatory Commission – better known as FERC – you’ll find there a copy of a decision taken last November.  This is one of the documents cited in Antle’s piece.

Now the interesting thing is that all of this fuss happened before last spring’s announcement of a deal to wheel power through Quebec and sell it to Emera. Newfoundland and Labrador Hydro will pay Hydro-Quebec $19 million annually in wheeling charges on the block of power.

The Premier was fulsome in his praise for the deal at the time:

“This is truly a historic and momentous occasion for the people of our province, as never before have we been granted access through the province of Quebec with our own power…”.

Curious that he is now talking as if that whole deal never happened and that the provincial energy corporation can’t ship a watt of power through Quebec.

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Fire cost NALCOR $18 million in lost revenue

A fire at Churchill Falls last November cost the province’s energy corporation a total of $18 million in lost revenue in late 2008 and early 2009 under the Guaranteed Winter Availability Contract (GWAC) with Hydro-Quebec.

NALCOR Energy released updated information in response to a request from your humble e-scribbler.

The fire occurred November 3, 2008 in a cable shaft at the Churchill Falls generating station and caused what a NALCOR spokesperson described in an e-mail as “extensive damage”.  Damage knocked two of the plant’s 11 turbines out of action and reduced overall generating capacity by a reported 1,000 megawatts.

According to the spokesperson,

This contributed to the decrease in GWAC revenue to Nalcor Energy in 2008 of $8.4 million and year-to-date 2009 of $9.6 million. No penalties [for non-performance] apply under GWAC.

One of the turbine/generation units was back in action by February 2009.  Repairs to the second unit were completed over the summer.

Under the GWAC,  Churchill Falls Labrador Corporation [CFLCo] agrees to supply Hydro-Quebec with a set amount of power during HQ’s high demand winter season apparently in addition to that supplied under the 1969 contract.  The power is used in Quebec. 

GWAC is one of several elements of a 1998 deal that included the recall and resale of a block of 130 megawatts of power and a new shareholders agreement for CFLCo between majority shareholder Newfoundland and Labrador Hydro and minority shareholder Hydro-Quebec.  

In the recall component of the deal, NL Hydro recalled a block of power under the 1969 contract and then resold it to Hydro Quebec at new, higher rates.

The recall element of the agreement has now been replaced by a new deal to wheel upwards of 800 megawatts of Churchill Falls power to the United States through Quebec.  Newfoundland and Labrador Hydro pays Hydro Quebec’s transmission corporation $19 million annually in fees for wheeling the power under terms set down by Quebec’s provincial energy regulatory board.

NL Hydro gets  about the same net price for its power under the wheeling deal with Emera and Hydro Quebec as it did selling the power directly to Hydro Quebec. 

Note that some of the links on GWAC are no longer active. They seem to have disappeared in a series of routine redesigns of websites in the provincial government and in the development of the new NALCOR website.

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Eating his own

Newfoundland and Labrador Premier Danny Williams is tearing strips, not off New Brunswick Premier Shawn Graham or Hydro-Quebec but his own deal with Hydro-Quebec from last April.

Williams attacked the deal in a letter to Graham:

Despite our expectation of regulatory fairness [ in wheeling electricity across Quebec], Nalcor Energy has encountered obstacles in Quebec. Nalcor has been forced to lodge four complaints with the regulatory authority in Quebec about the tactics being used by Hydro Quebec Transenergie that serve to delay and inhibit our progress.

Under an agreement announced in April 2009, the provincial government’s energy corporation sells power to unidentified customers in New York state.  The power is wheeled along transmissions lines in Quebec under what is known as the open access transmission tariff.   NALCO pays Hydro-Quebec $19 million a year to wheel the power.  The figure was not released by NALCO or the Government of Newfoundland and Labrador.

While Williams is now slamming the deal – making it sound as if there was no wheeling agreement at all -  back in April, he was positively giddy with excitement at what he termed an “historic” agreement:

“This is truly a historic and momentous occasion for the people of our province, as never before have we been granted access through the province of Quebec with our own power…”.

There is no obvious explanation for Williams sudden attack on his own project nor is there any explanation for his claims that Hydro-Quebec is blocking or trying to block NALCOR’s access to markets.  The April deal proves there is no real obstacle.

What makes the latest tirade all the more bizarre is that in a scrum with reporters two days ago, Williams acknowledged  that there was no obstacle to getting power to markets in the United States.  In the same scrum, he said Hydro-Quebec might be trying to do just that. 

His disdain for the sale of NB Power to Hydro-Quebec is apparently based on losing the race for new markets for hydroelectricity.

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Wangersky on the Wheeler Deal

Simple.

Factual.

Right now, we’ll have Nova Scotian energy firm Emera handle the deals with customers.
But in fact, the big change involved is not as much the result of us meeting a giant challenge with some newfound strength and determination as it is that Hydro-Quebec changed its rules.

Not only for us, and not recently, either.

No, it’s not so much our strength and determination as the creation by Hydro-Quebec of a transmission unit called Hydro-Quebec Transenergie, and something called the Open Access Transmission Tariff.

In 1997. It hasn’t been a secret, either.

It’s amazing how newsrooms across the country were snookered in the first news cycle by the torque in the official news releases.

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