“Getting it Right – a Good Start”
Premier Wakeham has delivered on his commitment to have an independent review of the MOU. The terms of reference for the review put forward by the Government on our behalf puts the entirety of the MOU under review. So now the public should get all the facts about the benefits and risks associated with the various components of the MOU. One of biggest challenges of the Commissioners will be to disaggregate the renewal terms of the Churchill Falls contract from the those that underpin the proposed Gull Island development, Churchill Falls upgrades, and Churchill Falls 2 as it is referred to, in the MOU.
I suggest that if the three-member panel strips away the MOU’s obnoxious complexity and opacity, the people of this province will begin to understand that the Churchill Falls contract renewal amounts to this: Hydro-Quebec is advancing NL funds in the early years only to maintain the full benefit of the 1969 contract. The MOU facilitates a price for energy sold to Quebec that is well below fair market value. The MOU contains no price reopener clause, nor is there any exit or off ramp for NL over the 51-year term. The funds advanced to NL are fully recovered by Quebec through lower energy rates for that province post-2041.
There is more.
The Gull Island development is simply an energy proposal that may get completed. The decision to proceed is entirely under the control of Hydro Quebec. In other words, NL is getting paid upfront money for a twenty- year exclusive option that enables HQ to control and decide on any future development of the lower Churchill River. The terms of the Gull Island deal are exactly the same as the 1969 agreement, which allows 90% of the energy to go to Quebec.
The terms of the Gull Island deal, however, are actually more favourable to Quebec than the original 1969 contract: they only pay about 75% of the project cost. The remainder is left owing after 50 years along with any cost overruns. The new JV company is responsible for this debt, making NL, which owns 60% of the Company, to be exposed to large financial risks when Quebec receives the benefits from the power deal. The arrangement ensures that HQ gets low stable rates for energy over the 50 years. Our people only get to do the physical construction if HQ decides to build, but Quebec performs all the engineering, construction management and procurement, and controls the entire Churchill River if they decide to proceed.
The Churchill Falls upgrades are being undertaken by CFLco. Our majority owned company will invest 100% of the funds necessary to replace the existing turbine generators at Churchill Falls. Though the capacity and energy output at Churchill Falls is increased by the upgrades, we will get very little of the power and the energy will primarily be sold to HQ for terms similar to the 1969 contract; in other words at fixed cost of service rates for 50 years. NL is denied market energy pricing, an off-ramp, or an exit from the contract when market and future commercial opportunities arise.
The project known as Churchill Falls 2 provides a new capacity expansion of 1100MW. The additional energy capacity is produced entirely for the benefit of HQ, its purpose to support wind energy development in Quebec. For this purpose, too, our company, CFLco, is investing its financial resources into the development – again to provide new capacity to HQ for 50 years at fixed cost of service rates. This means no market pricing, no way out when market and future commercial opportunities arise. It is a project 100% for the benefit of HQ.
Overall, the MOU is committing NL to take on investment of $22.8 billion primarily to supply 7200 MW of green renewable energy to HQ for the next fifty years at rates well below those that currently exist in the market. It is “CHURCHILL ALL OVER AGAIN” (referencing the MOU song). This is not a new revelation. The CEO of HQ informed us as much at the time the MOU was signed.
The challenge for the Review Panel is to inform the public and to determine the extent that our people and our province is a beneficiary from the MOU. Determining that we are not the principal beneficiaries will be the easy part of the exercise.
By now, many Newfoundlanders and Labradorians should be wondering how this mess was created. The review will hopefully shed light on this very subject.
We deserve to know how was it possible that our so-called Hydro experts, the negotiating Committee, the NL Hydro Board of Directors, and a host of high paid consultants – all expected to look out for our interests – all chose, instead, to lead the province down this road?
The Review Panel has many questions to answer. But more than any other, I want to know how a repeat of the 1969 Churchill Falls contract was allowed to reappear in the MOU!
That explanation, alone, will justify the Review Panel’s creation.