Where is the protest movement? Sovereignty is our ability to govern ourselves. It is our capacity to make choices that serve our interests. The new Churchill Falls MOU2 (The Definitive Cooperation and Implementation Agreement, DCIA) is a surrender of sovereignty to the federal government and to Quebec. We are not being invaded; we are surrendering peacefully, at our own hands. And this time round there is not even a referendum! Why is there no protest?
Collateral Damage The federal government is in a trade war with the United States. Two provinces of Canada are threatening to secede from Confederation. The Prime Minister on August 17 announced federal support for the new MOU 2, which has the potential to supply more electricity to feed growing demand. The MOU binds Quebec to Canada with financial support for Gull Island and other energy initiatives, both in Quebec and in Newfoundland and Labrador (NL). MOU 2 makes our province and its prosperity nothing but collateral damage in the eyes of the national government.
Federal Engagement The big difference between MOU 1 and MOU 2 is the engagement of the federal government as an active participant. Ottawa’s support of new hydro and wind projects on the Churchill River courts Quebec to strengthen its governing party, the Coalition Avenir Québec (CAQ), and to weaken the separatist cause in Quebec. We are not fooled. Ottawa is pretending to be neutral in the tense negotiations between Quebec and NL. Ottawa is pretending to be blind to the fact that the parties are equal constitutionally, albeit unequal economically. But you can be sure Ottawa is acting in its political interests, not in NL’s long- term economic interests. Behind the PM is his hand-picked head of the federal public service, none other than Michael Sabia, the former CEO of Hydro Quebec and lead negotiator for MOU 1.
The Labrador border Ottawa is unconcerned that the negotiators of MOU 2 have surrendered the sovereignty of Newfoundland and Labrador. The Premier is buoyed by the support from the PM. He has effectively signed an executive order renaming the Churchill River as Rivière Québec. He has conceded to Quebec’s longstanding demand that the border be adjusted. Quebec is behaving as if it owns the Churchill River. MOU 2 concedes control to Quebec.
No level playing field The architecture of the DCIA is one sided, favouring Quebec. Look at how each section protects one side, to the detriment of the other. This includes the “non-discrimination” exhibit which prevents NL from changing taxes, water rentals and royalties, the Shareholder’s Agreement, which vests the minority shareholder with majority powers, the CPI escalator which pretends to escalate revenues to GNL, the block sales of power to Quebec, all highly restrictive for Newfoundland and Labrador. No level playing field here.
Loss of Value Our negotiators should be demanding market prices for our power in order to maximize economic rent, which means revenues to the provincial Treasury. Cost-based rates for Gull Island (GI), for the Churchill Falls upgrades and for any wind generation, turn over the economic rent to Quebec. The acceptance of a rate schedule for power from the existing plant, at multiples below market price, surrenders value to Quebec, just as it has since 1969.
The large allocations of power to Quebec are continuing. HQ has 90% of the power from the existing plant. They will receive 73%, on average, over the course of the 51-year PPA. If GI does not go ahead, they will take 84%. The DCIA imposes conditions on our use of our smaller energy allocations which prevent us from exporting our power to third parties. We impose no conditions on the use of their allocations. We don’t tell Quebec they can’t use Churchill Falls power to subsidize their aluminum industry. We do not tell Quebec they cannot export Churchill River power into the United States. They bully us and, in MOU 2, we meekly accept the status of impotent victims, without agency or sovereignty.
Dominance Normalized We have normalized dominance by Quebec which effectively places the Churchill River under the control of Hydro Quebec, giving Quebec sovereignty and in the process shifting the border and conceding Quebec’s management and control. We have normalized victimhood in the process.
We are accepting loss of our fiscal sovereignty by accepting the “no discrimination” clauses in Annex C of the MOU 2. After the definitive agreements are signed our freedom to adjust royalties and other levies will be limited if not precluded. If we sign definitive agreements arising from MOU 2, we will be locking ourselves in for 51 years. This will limit our fiscal capacity and erode our sovereignty. We have invested over 55 years to gain back our rights and control of the Churchill River assets; MOU 2 surrenders our assets to HQ again!
Our province should demand that we be treated as ordinary Canadian citizens. When HQ denies us reciprocal transmission rights they treat us as second class Canadians, as outcasts in our own country. In fact, the bordering US states have reciprocal rights to wheel energy that NL does not have in its own country. Our government should mount a national campaign to assert these rights while at the same time undertaking research into our options under the regulations of the Federal Energy Regulatory Commission for reciprocal access.
Geography matters but guarding our rights matters more Quebec is for us the gateway to the North American energy market. Geography matters but we must not let it dominate our place in Canada, or our fiscal and constitutional sovereignty. When we joined Canada, we did so with the expectation that we would enjoy free trade in all commodities, including our energy.
We understand that, with greater distance, the line losses increase but the reality is that Quebec enjoys the lowest wholesale prices in North America. A significant contributing factor is that they get 15% of their energy virtually free from NL. Why would we choose to sell our product in the market which offers the lowest value? The line losses are normal transportation costs, not limited to electric power. We are closing the door on more lucrative markets by dealing exclusively with Quebec.
Former Prime Minister Jean Chretien, in a open public letter in response when President Donald Trump mocked Canada as a 51st state, called upon the country to establish a national power grid and breakdown any barriers to internal trade in electricity. Our provincial government should embrace Chretien’s proposal rather than standing aside with Quebec and remaining silent.
Gull Island The MOU 2 gives NLH 60% of the ownership in Gull Island project and supplies power at cost to Hydro Quebec. It is for their benefit. Without changes in the statutory lease the existing royalty regime will apply, and revenues will be of marginal value. Without access to market prices, the return to NL will be small. The GI development gives control to HQ who gets most of the energy at cost for fifty years within the same structure as the initial Churchill Falls contract.
Hydro Quebec has 12 years to decide whether the GI project goes ahead. If it does not, then our allocation of power from the existing plant will be reduced by 805 MW, from 1630 MW to 825 MW. The project will be managed by Hydro Quebec which will continue to own 40% of the plant after the power purchase agreement (PPA) with Hydro Quebec comes to an end and substantial debt will remain unpaid on the plant after fifty years.
False Indexation The new agreement, MOU 2, offers virtually no indexation to the CPI as claimed, when we look closely, one finds that it offers little or no protection against inflation. The alleged protection offered by Annex F, the new CF PPA Inflation Adjustment Mechanism, is deceiving. It appears to insulate our province from inflation within the context of a policy target of 2%, but an escalating “deadband” shifts the goalposts and eviscerates the adjustment mechanism. Was the GNL negotiating team outfoxed or outgunned? Did Hydro Quebec dominate the negotiations, extracting all the benefits?
Conclusion The 1969 power contract locked us in a vice which could only be unlocked after 2041 upon its expiry. MOU 2, if approved, will push our “liberation day” off to 2077. If we accept the new agreement, we will once again be denied access to the economic rent which is due to the owner of the resource. The issues at stake are enormous, beginning with the loss of control and sovereignty.
As former US President Ronald Reagan said, with respect to nuclear disarmament, we should “trust but verify”. The government committed to a referendum, and we should demand that this commitment be honoured. We should also demand that there be a public inquiry to verify whether the new agreement is in the public interest and makes our province the principal beneficiary. Such an inquiry should be chaired by a Supreme Court Judge with diverse witnesses, all under oath, and subject to cross examination.
We owe this to future generations yet unborn. If we fail in our duty, we will be dishonoured in the eyes of our children and grandchildren. We place at risk the huge heritage of value which can improve our fiscal sustainability. This is our lifetime opportunity to get things right and set a new path of hope for our future.
Will Prime Minister Mark Carney “stand on guard” for Newfoundland and Labrador? The Prime Minister has a duty to guard Canada. Who is guarding Newfoundland and Labrador, now becoming an unsuspecting victim to the national agenda. MOU 2 places in jeopardy our ability to make the choices that best serve the benefit our people and make them the “principal beneficiary” of our resources. We must do better than MOU 2, which is an abysmal failure on all counts and the betrayal of the hopes of generations yet unborn. Our fervent prayer must be: “God Guard Thee, Newfoundland and Labrador”; we cannot count on our government to guard us.