Posted November 28, 2012
In the 1960s, the Province of Newfoundland made a very bad deal with Hydro Quebec to sell power from Churchill Falls. Quebec buys electricity at a rate that was absurdly low even 35 years ago – and even more so today. Quebec resells the power at an annual profit of billions of dollars. The contract continues in this fashion until 2041.
Newfoundland has made strenuous efforts through both the courts and political channels to improve its position, all to no avail. No arrangement between Canadian provinces has left a deeper scar.
Given this history one might expect the government to be more cautious before rushing into a new venture. On the contrary, Premier Dunderdale is moving as quickly as possible to approve the Muskrat Falls project, bypassing the normal regulatory process and short-circuiting debate in the legislature.
The risks are considerable. Labrador’s economy is already overheated with many large scale mining projects underway. There will be great upward pressure on labour costs, and a consequent risk of exceeding the budget, which recently increased 20% to $7.5 billion. At a time when electricity prices are dropping because of cheap natural gas this is not an economically sound venture.
There may be a certain logic to Newfoundland’s perspective. In 2041, when the current arrangement with Hydro Quebec expires, there will no longer be an obligation to sell electricity for next to nothing. But neither does Newfoundland have an alternate route to markets in New England, and it will therefore be in a very weak bargaining position. An alternate route via Nova Scotia will greatly strengthen its hand for power from Muskrat Falls and an even larger project imagined for Gull Island — plus continuing power from Churchill Falls.
Much has changed since the project was originally proposed. The American economy has weakened and a flood of natural gas has become available through new extraction technologies. According to a 2012 Hydro Quebec survey, residential electricity prices in all ten US cities have gone down since 2009 (while Halifax’s went up 16.5%).
The Winnipeg Free Press reports that the Manitoba government, faced with the same set of facts, has asked its Public Utilities Board to compare a proposed hydroelectric development with a natural gas alternative.
Some experts in Newfoundland have made a similar case for domestic use of natural gas. Newfoundland has a substantial gas resource offshore and it is currently unused, although piping the gas onto land would be tricky. It is wrong that the provincial government has prevented evaluation of the comparison.
The Muskrat Falls project will produce far more power than Newfoundland itself needs and there is no near term prospect that it will be receive an adequate price in the American market, where gas is plentiful and cheap. Newfoundland might be wise to postpone the project until closer to 2041.
And what about Nova Scotia? We do not have the scar tissue from the Quebec Hydro deal for Churchill Falls. We do have our own sources of natural gas and pipelines connecting us to other supplies. And we do not have a near term need for the large block of power that is proposed.
An alternative that was tailored to Nova Scotia’s needs would include smaller increments provided by gas, perhaps supplemented by wind and imports. In Manitoba the government is insisting that its independent review board evaluate the natural gas alternative. In Nova Scotia the government is preventing our Utilities and Review Board from looking at the same question.
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