Billions of dollars at stake in hydro-electricity plans in Labrador
Article by Steven Chase, Globe and Mail, Wed. July 24, 2013
(Notes following the article are by Roger Annis)
Newfoundland and Labrador Premier Kathy Dunderdale will find herself face to face with Quebec counterpart Pauline Marois on Wednesday as the Atlantic Canadian leader pushes for greater control in a bitter, decades-old feud over the sale of electricity generated by hydro power in Labrador.
On the eve of an annual premiers meeting in Niagara-on-the-Lake, Ont., Ms. Dunderdale went public with a sharp attack on the Quebec government’s power utility, accusing it of making a “desperate move” to thwart Newfoundland and Labrador’s power business plans. The Atlantic province [1], which believes it got a raw deal in a long-term supply agreement with Quebec [at Churchill Falls in Labrador in the 1960s],[2] says it expects to gain a greater say over power deliveries to its neighbour in 2016 when the energy contract is automatically renewed for 25 years.
Newfoundland and Labrador, which owns two-thirds of the existing Churchill Falls generating station through a Crown corporation, says it believes that as of the renewal date, it will be able to revise its delivery schedule for Quebec-bound electricity so that it can operate the facility in tandem with the $7.7-billion Muskrat Falls hydro power development planned for downstream. Managing water flows between the two could help the province meet energy demand better.
But Hydro-Québec rejects this, and filed a lawsuit this week that it hopes will force the province to continue delivering power from the 1970s facility on a schedule of its choosing, rather than the fixed-block deliveries that appear to be in the works.
Ms. Dunderdale on Tuesday accused Hydro-Québec of trying to frustrate her province’s effort to derive more power and revenue from the Churchill River through the Muskrat development, more formally known as the Lower Churchill project.
“This is arrogance, and Hydro-Québec is being absolutely obstructionist in terms of the development of Lower Churchill – it’s behaviour we’re very used to in Newfoundland and Labrador,” Ms. Dunderdale told The Globe and Mail in an interview. “Newfoundland and Labrador is not going to be held hostage by Hydro-Québec anymore.” She said she is confident Hydro-Québec’s motion, filed in Quebec Superior Court, will fail. [3]
Asked if Ms. Dunderdale will raise the power contract at the premiers’ gathering, known as the Council of the Federation, her spokeswoman, Jennifer Tulk, said: “Energy matters are always discussed at Council of the Federation meetings.”
The outcome of this legal fight could affect power generation at the Lower Churchill Project,[4] which, after completion, will be capable of generating more than 3,000 megawatts of electricity for sale to Nova Scotia and other neighbouring jurisdictions. A Nova Scotia regulator on Monday gave conditional approval to an undersea cable to ship power to the province.
Newfoundland and Labrador is still stinging from the bad deal it feels it signed decades ago to sell power from Labrador’s Churchill Falls generating station to Hydro-Québec. The deal, which runs until 2041, obliges Newfoundland to sell power at discount prices to Quebec – energy Hydro-Québec has resold for billions of dollars in profit.
“They conveniently forget they were able to build their transmission on the backs of Newfoundlanders and Labradorians,” Ms. Dunderdale said.
In 2016, the deal gets even sweeter for Quebec. The renewed contract fixes the power purchase price at one-fifth of one cent per kilowatt-hour, down from one-quarter of one cent per kWh.
Hydro-Québec says in its lawsuit that the Churchill Falls (Labrador) Corporation, two-thirds owned by a Newfoundland Crown corporation, has signalled that it intends to start delivering fixed monthly blocks of energy from 2016 onwards. The Quebec utility wants the court to confirm its energy deliveries cannot be restricted like this.
In the legal challenge, the Quebec utility said it believes it has the “full and entire discretion to determine when and how it can use ‘practically all of the power produced at Churchill Falls’ until Aug. 31, 2041.” Power demand in Quebec is especially high in winter, for instance.
Ms. Dunderdale said Newfoundland believes that as of 2016 – and for the last 25 years of the contract with Hydro-Québec – her province gets a lot more say in how much power is delivered at any given time to Quebec.
“It’s a loss of control for Hydro-Québec, there’s no question,” Ms. Dunderdale said. “But the agenda won’t be set by Quebec in terms of how we do our work, how we develop our resources, and how we access markets.”
Hydro-Québec spokesman Gary Sutherland said the utility’s legal motion is unrelated to the Muskrat Falls development. “This motion has nothing to do with Muskrat Falls. This is really a request to interpret the 1969 Churchill Falls contract,” Mr. Sutherland said.
Pierre-Olivier Pineau, a professor at HEC Montreal business school who has previously called for rapprochement between Quebec and its Atlantic neighbour, said he is puzzled by Newfoundland’s position given the details of the contract. “It seems clear [Hydro-Québec] has the operational control until 2041 and I don’t understand how Newfoundland believes they have this control.”
Hydro-Québec’s lawsuit is also accusing the majority Newfoundland-owned Churchill Falls generating facility of trying to sell more than what it is contractually able to sell to other customers from the 1972 facility. It accuses the operator of “pretending to have the right to sell, to a third party, amounts of power that exceed the 300 MW limit.”
Notes:
The province of Newfoundland changed its formal name in 2001 to Newfoundland and Labrador. Today, Labrador’s population is app. 29,000. Thirty one per cent of those are Aboriginal, consisting of three nationalities–the Northern Inuit of Nunatsiavut (most of whom live in Quebec), the Southern Inuit–Métis of Nunatukavut, and the Innu. Different and very limited forms of political autonomy have been won by all three groups; see links for details.
[2] The Churchill Falls Generating Station was constructed during the latter half of the 1960s. It is the second largest electrical generating facility in Canada, with a capacity of 5,400 MW. That’s about one per cent of world hydro-electric production. The river drainage area from which it draws is larger than Ireland.
[3] Power pricing is not the only controversy dogging the Churchill Falls project. There is also the fact that no consent was given by the Innu people. Large parts of their territory was flooded and access to fishing along the Churchill River and its tributaries was degraded as a result.
Then there is the agreement to sell the electricity generated. The only transmission route for Churchill Falls production at the time was overland to and through Quebec. Hydro Quebec signed a long-term purchase agreement of the electricity at very low prices; ridiculously low in today’s dollars. Two legal challenges over the years by Newfoundland seeking the right to negotiate higher prices have lost. As the Globe and Mail map and chart above estimates, Hydro Quebec has earned nearly 20 times the amount of revenue–$19 billion–from electricity sales than the government in Newfoundland, though it must be noted that the lucrative earnings by those who financed the original project is not listed in the Globe‘s chart.
[4] The Lower Churchill Generating Project is a two-stage project at Muskrat Falls (app 700 MW) then Gull Island (app 2,300 MW). Its production would be transmitted to Newfoundland via an undersea cable (the first) to be constructed across the Straight of Belle Isle. That would permit Newfoundland to close its one, remaining fossil fuel (oil) generating power station, Holyrood (500 MW), app. 100 km from the capital city, St. John’s. The project is opposed by some of the Innu people. Some business observers consider it to be economic folly.
An offshoot of the project would be the export of some 500 MW via the ‘Maritime Link’ undersea cable to Nova Scotia, to be constructed at an estimated cost of more than $1 billion. This project is controversial in Nova Scotia because the financing would be borne by electricity ratepayers in that province, the sales market for its product is uncertain, and it would delay or cancel movement towards establishing other, non-fossil fuel and less centralized electrical production. The line would carry, approximately, the capacity of one of Nova Scotia’s existing, large coal-generated electrical stations in Cape Breton.
