NR8 | Natural Resources Magazine | November/December 2010

EDMARTIN sees a very bright future forNewfoundland and Labrador. More specifi-cally, the CEO of Nalcor Energy, a provincialcrown corporation power utility created in2007, believes that future is inextricably tiedto the proposed Lower Churchill hydroelec-tric project (in a good way).

“The future of our province rests on en-ergy,” he said. “And we’re going to have atremendous amount for export. The LowerChurchill itself could take 3.2-million cars offthe road. It could take [care of] 100 per centof Atlantic Canada’s electricity emissions and15 per cent of Canada’s 2020 target... If weget a good deal for Atlantic Canada, we’regoing to do the deal.”

The deal he’s talking about is one withNova Scotia energy company Emera, one thatwill take power south from Labrador, acrossthe Strait of Belle Isle, down the island ofNewfoundland, and then across the CabotStrait into Nova Scotia. Transmitting LowerChurchill power into Nova Scotia has beenNalcor’s stated goal since May of this year.

In the interest of clarity: The LowerChurchill Project is a proposed hydroelectricdevelopment in Labrador, located down-stream from the existing 5,428 megawatt(MW) Churchill Falls generating station. Thenew project will consist of installations atGull Island and Muskrat Falls on the LowerChurchill River (known as Mishtashipu tothe local Innu) which, combined, are expectedto produce 3,074 MW of electricity annuallyat an estimated capital cost of $6.5-billion.That $6.5-billion becomes $9-billion whenyou include the cost of the transmission in-frastructure. While the potential of Gull Is-land and Muskrat Falls have been a given fornearly 50 years, everything else is up for de-bate. Blogger Ed Hollett (of the “Sir RobertBond Papers”) contends that, based on vari-ous media reports and inflation, the cost, withtransmission, is more like $15-billion.

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NR10 | Natural Resources Magazine | November/December 2010

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There are two routes the transmissionlines can go. They can go northwest and con-nect with the existing transmission link be-tween Churchill Falls and Hydro-Québec, orthey can go southeast, to the island of New-foundland, and continue south from there.

The Lower Churchill Project has been aneager gleam in political eyes since former Pre-mier Joey Smallwood first made mention of

it on March 19, 1964. In a 1997 speech, Pre-mier Brian Tobin had this to say: “The Na-tional Energy Board of Canada has rankedthe… Gull Island site on the Lower ChurchillRiver in Labrador as the lowest cost unde-veloped hydroelectric site on the NorthAmerican continent. Just a few miles down-stream, the Muskrat Falls site has beenranked as the fifth lowest cost hydroelectric

site on the continent. Together, these twosites are capable of producing 17-billion kilo-watt hours of environmentally clean, stable,and competitively priced electricity.”

So, why hasn’t it been developed yet?

LIKE MANY large infrastructure projects, thetwo major issues at stake with the LowerChurchill are politics and economics. Withinthe Government of Newfoundland andLabrador, it has been a popular mantra formany years to state that no deal will be madewith Hydro-Québec for development of theLower Churchill without redress for 1969 (theyear contract negotiations were finally con-cluded between Brinco and Hydro-Québec).

What went wrong in 1969? According toPhilip Smith’s Brinco: The Story Of ChurchillFalls, Québec was in the position of powerand the Brinco corporation was in a positionwhere they had to make a deal. Brinco hadspent a considerable amount of money andtime trying to develop the project; if it didn’tproceed, the corporation would have goneunder. Add in Premier Smallwood’s insistencethat the deal had to happen, and there wasvery little the Brinco negotiators could do.They were between Québec and a hard place,and that, more than any other reason, is why

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they made the now-infamous deal that failedto include allowances for the rising price ofelectricity. In fact, as negotiated, the price paidby Hydro-Québec has actually been falling, atregular intervals, instead of rising with infla-tion.

Developing the Lower Churchill will par-tially make up for the humble pie Newfound-land and Labrador has been forced to eat inthe face of the 1969 deal. If that deal was anexpression of the desire to bring the benefitsof modern economies to Newfoundland, thisproject is an expression of Newfoundland andLabrador’s modern economy.

THE LOWER CHURCHILL PROJECT hasbeen a pillar of the current premier’s govern-ment platform since 2003, and it’s been a verycentral one since Danny Williams publiclyopted to “go it alone” (i.e. sans Hydro-Québec) in 2006. Since then, Newfoundlan-ders and Labradorians have been living in anenvironment much akin to the years leadingup to the Churchill Falls deal. There are pub-lic announcements, angry outbursts and, verylikely, a whole lot of meetings behind closeddoors.

According to one schedule articulated inthe past, Nalcor should have broken ground

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Top left, clockwise: proposed damandpowerhouse development (2,250MW/year) for Gull Island; two dams andpowerhouse development (824 MW) proposed for Muskrat Falls; Muskrat Falls, a natural 15 metre waterfall onthe lower Churchill River, west of Happy Valley-Goose Bay, Labrador. Photo: Nalcor

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NR12 | Natural Resources Magazine | November/December 2010

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by now, but CEO Ed Martin puts a positivespin on the delay. He says there are fivethings that must be completed before theproject can move into the next phase: engi-neering and construction planning; an envi-ronmental review; ratification of an impactand benefits agreement with the Innu nation;project financing; and, transmission access.

Sitting in a boardroom overlooking the St.John’s harbour arterial, Martin checks themoff one at a time. “We have come to a pointwhere we have enough engineering andenough construction planning done thatwe’ve had an independent assessment tell usthat... we’re ready.” He further reports thatthe environmental assessment is underwaywith public hearings planned for next year,

agreements have been made with the Innuand are expected to be ratified before 2011,and engineering work shows that proposedinter-provincial and subsea transmission linesare feasible. Work is also proceeding on ne-gotiations with Emera (Nalcor’s publiclytraded Nova Scotia equivalent).

“Obviously the governments of both sideswill eventually be involved,” Martin said,“but right now we’re in discussions withEmera and those discussions are aimedat...what agreements will be made. I thinkwhat we’re ensuring is that there are certainthings Nova Scotia needs, there are certainthings Newfoundland needs, and we’re struc-turing an arrangement that meets bothneeds.”

Most importantly, from the Province’s per-spective, Nalcor is in a much better positionthan Brinco ever was. While Brinco had tofinance operations by repeated stock offer-ings, Nalcor and the provincial governmentcan finance their operations with oil money.“If you look at our oil resources, which aregenerally increasing, but in time will goaway, it’s an obvious thing to take some ofour revenues from there and pump them into here, because this is the future. That’s ourstated strategy,” Martin said.

The second ace in Nalcor’s hand is a greenone. Electricity might be comparativelycheap right now, but that is going to change,and ‘Green’ energy will command a pre-mium. “What is now a bit of a glut of powerin the market is expected, in the course of thedecade, to become a relative scarcity,” saidTim Curry, president of the Atlantica Centerfor Energy in New Brunswick. Not only that,but with provinces, states and entire nationsmaking green energy goals, 3,000 MW couldgo a long way towards scratching that itch.

Marketing the Lower Churchill as ‘Green’does have its challenges because some criticssay it, well, isn’t. Nova Scotia and manyother governments limit the use of ‘Green’ tohydro projects that allow what’s called “run

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of river” (which is to say, projects that don’thave a reservoir behind them as the LowerChurchill will).

Martin, however, asserts this won’t be aproblem. “We’ve obviously had discussionswith the Nova Scotia government in additionto the Newfoundland government and they’reindicating that it will fit in the final analysis,so it will be classified as it’s required to be,”he said. “(Compare hydroelectricity to) re-placing coal, replacing oil, even replacing nat-ural gas. There’s absolutely no comparison.Hydro has no [greenhouse gas] emissions,practically, and these others do have tremen-dous amounts.”

CONNECTING THE Lower Churchill Projectto existing transmission lines in Québec re-mains the easiest way to get power to market– or, it would be but for the decades of polit-ical jockeying between Québec and New-foundland and Labrador. Until this pastspring, the Williams administration had putits efforts into trying to make a deal, offeringHydro-Québec an ownership stake in theproject, and then, when that fell through, try-ing to negotiate a transmission agreement.

The talks came to a head when the Régiede l’énergie (Québec’s energy review commis-sion) ruled that Hydro-Québec was withinits rights when it said there was notenough capacity on the existing grid forLower Churchill power. Newfoundland andLabrador Premier Danny Williams called theruling “blatantly incorrect and unjust.” “Thisdecision took my breath away,” he said.

Both the provincial government and Nal-cor issued statements that came close to ac-cusing Hydro-Québec of obstructionisttactics, which are illegal under the (U.S.) Fed-eral Energy Regulatory Commission (FERC).The FERC requires that utilities provide ac-cess to their grids to energy producers in anopen-access, non-discriminatory manner. Therequirements are known as the Open AccessTransmission Tariff (OATT). Hydro-Québechas been complying with the OATT sinceMay of 1997 to facilitate cross border trade,though it should be noted that the FERC hasno jurisdiction in Canada.

“While there has been much detailed dis-cussion around technicalities and legalities, itall boils down to a very simple question: DoesHydro-Québec provide fair and reasonableaccess to its transmission lines as it is sup-posed to do under its own tariff rules whichthey’ve adopted from the United States? Westrongly believe that the evidence is to thecontrary,” Martin said.

On the other hand, it’s not out of the ques-tion that Québec was playing by the book.“[The decision] made sense in the sense

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NR14 | Natural Resources Magazine | November/December 2010

that...transmission lines getbuilt typically to meetknown service demands,”said Curry. (It should benoted that Newfoundlandhas been transmitting asmall amount of power fromChurchill Falls to U.S. mar-kets through Québec, in aprocess known as wheeling,since 2009 under a Trans-mission Service Agreementwith Hydro- Québec.)

The CBC reported thatHydro-Québec asked for $3-billion in transmission up-grades. Martin went on therecord saying Nalcor would

pay for “reasonable upgrades” to Hydro-Québec’stransmission lines along with annual tariffs between$75-million to $200-million (depending on how muchpower went through Québec). Hydro-Québec, however,is silent: officials declined to be interviewed for thisstory, and have been consistently reticent with othermedia as well.

PREMIER WILLIAMS’ response was to push for a so-lution that excluded Québec: the Maritime Route. In itscurrent iteration, the Maritime route exists in two parts.

The first part consists of a link from Labrador to the is-land of Newfoundland, known as the Labrador-IslandTransmission Link. The proposed 1,100 kilometre HighVoltage direct current link would extend from Gull Is-land to Newfoundland’s Northern Peninsula, thenacross the island, terminating in Holyrood where thepower it carried would replace the existing thermal gen-erating station. At peak, the Holyrood station burns18,000 barrels of oil per day and generates 500 MW ofelectricity annually. According to Martin, the transmis-sion link would lead to a zero emission energy climatein Newfoundland and Labrador, which means that theLower Churchill Project would replace close to 738MW of installed generating capacity province-wide, ac-counting for more than a quarter of the LowerChurchill Project’s projected output.

The second, and very crucial, piece of the Maritimeroute would be an undersea cable between Port auxBasques, Newfoundland and North Sydney, Nova Sco-tia, thereby connecting Lower Churchill power to theNova Scotia grid.

The Maritime Route (formerly known as the “AngloSaxon Route”) has been technically doable since it wasfirst considered in 1964, but it was deemed prohibi-tively expensive. In 1978, Vic Young, president of New-foundland and Labrador Hydro at the time, said: “The77-mile cable across the Cabot Strait is an extremelypoor prospect. Although a study two years ago stated itwas [doable], its capital and maintenance costs would

“Shameful.” That’s howNewfoundland and LabradorPremier Danny Williams(foreground) describedQuébec’s opposition tofederal support of aproposed subsea powercable linking Newfoundlandand Nova Scotia. NalcorEnergy CEO EdMartin isshown in the background.Photo: Paul Daly,pauldaly.net

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be enormous. The electricity delivered wouldcost about twice what it would if broughtdown overland.”

Today, the economics of the MaritimeRoute look a bit better. An SNC-Lavalinstudy published December 2009 estimatedthe inter-tie would cost from $800-million to$1.2-billion. The cost, while considerable, isless than the $3-billion reportedly requestedby Hydro-Québec. There’s also a substantialamount of precedent.

Ed Martin points to a map of undersea ca-bles crisscrossing the North and Baltic seas.“As in many things, the Europeans are wayahead of us...What we’re proposing is lesslength and possibly about the same capacityas these routes, so technically it’s not anissue.”

Not only that, but the Maritime Route isfriendly. Nalcor has officially been exploringthe possibility with Emera and Emera sub-sidiary Nova Scotia Power Inc. since thethree parties signed a Memorandum of Un-derstanding (MOU) in January of 2008. “Iwill say we have the right attitude, both par-ties have the right attitude because we’re in awin-win mindset... and that mindset is totallydifferent from the mindset we’ve encoun-tered elsewhere,” said Martin.

In June, the provinces of Newfoundlandand Labrador and Nova Scotia filed a jointproposal to the federal government request-ing $375-million towards the cost of the un-dersea link. Québec filed a letter opposingthe grant, on the basis that federal subsidiescould distort the price and market for elec-tricity. Williams called the move “shameful.”

There’s been no official word on whetheror not the federal government will approvethe application, and from the way the twoprovinces are talking, it appears that they aredetermined to make this project happen -with or without the federal government’shelp. Indeed, Martin reports that confiden-tial discussions between Nalcor and Emeraare continuing at a promising pace, thoughhe would not say if a Power Purchase Agree-ment (PPA) is part of those negotiations. Ifone is signed, it’ll be the green light theLower Churchill Project has been waitingfor.

Emera CEO Chris Huskilson was simi-larly tightlipped on whether talks are headedtowards a PPA, but he does corroborate thepositive direction they’ve taken. “We believethat new transmission capacity… benefitseveryone in our region. It’s critical to futureenergy development, including renewable

generation... Emera is pleased to be involvedin these discussions and we will continue towork with all stakeholders in the region to-wards further energy development,” he said,via email.

Emera is also considering plans to up-grade the Nova Scotia–New Brunswicktransmission link, a move which would cre-ate the opportunity to export excess powerto the rest of the Maritimes and New Eng-land. It’s a definite possibility given that Ban-gor Hydro Electric is a wholly-ownedsubsidiary of Emera.

ALL OPTIMISM ASIDE, there are still hun-dreds of ways this project could falter – allof the ways it has in the past and many morebesides. But, if there’s one lesson to belearned from Philip Smith’s Brinco account,it’s that government and a sense of urgencydo not help the deal making progress. So it’srefreshing to hear that even with all his en-thusiasm for the project, Nalcor’s Ed Martinisn’t rushing into any decisions. “All I canabsolutely commit you to is that whateverdecision is made will have a tremendousamount of logic, commercial sensibility, andreason behind it,” he said.

We’ll see. | NRM

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