Nfld. has the power -- and it's no patsy any more

Murray Campbell
The Globe and Mail
Aug 21, 2006

In an ideal world, it would be a slam dunk: Newfoundland is sitting on immense amounts of hydroelectric capacity and, God knows, if there's one thing that Ontario needs, it's electricity.

But reality intrudes even as the Atlantic province is launching plans for two new dams. There are immense technical and political problems that mean Ontario might never get its hands on the power it desperately needs. A newly confident Newfoundland is determined to get the maximum return for its abundant natural resources, and that just might leave Ontario out of the picture.

Newfoundland wants to build two dams on the Lower Churchill River in Labrador at a cost of up to $9-billion and bring to the market about 2,800 megawatts of power by 2015. This power could meet the needs of about 1.5 million households. The fact that this electricity would be available at about the same time that Ontario is forecasting a shortfall of 10,000 MW makes it "a great marriage," according to Ed Martin, president of Newfoundland and Labrador Hydro.

And, indeed, Ontario Energy Minister Dwight Duncan says "we're very interested" in doing a deal. But any number of things could happen to derail the project by 2009, when Newfoundland has to make a decision about putting the shovels into the ground for a 2,000-MW dam at Gull Island and for an 824-MW project at nearby Muskrat Falls.

An environmental assessment must be done, engineering problems have to be solved and a deal has to be reached with the Innu Nation of Labrador. All of that is standard procedure in any energy project, but what is different here is that Newfoundland is no longer willing to be played for the fool. It's a much different province from the one that negotiated with Quebec the disastrous contract to develop the 5,428-MW Churchill Falls dam in the late 1960s.

The terms of that deal, under which Quebec buys Newfoundland power for a fraction of a penny per kilowatt hour and then sells it in the United States at much higher market prices (about 14 cents a kilowatt hour now), are burned in the soul of a generation of Newfoundlanders. Quebec's average yearly revenue has been about $600-million, compared with just $23-million for Newfoundland.

It's little wonder that, as Premier Danny Williams lamented recently, "there has been a history of giveaways" in the province. "It started with the Upper Churchill and that's the thing we keep coming back to."

The recent successful development of the Hibernia offshore oil field changed financial, technical and psychological resources. Both Ontario and Quebec had sought to help Newfoundland develop the Lower Churchill, but the province decided in May to go it alone. Now it's evaluating whether to send the power to Ontario or to the U.S. Northeast. Mr. Martin said "both are in play" but that "intuitively" he would prefer a domestic arrangement. This is not a given, particularly since market prices are much higher in the United States. "We're holding the reins, we're confident, we know what we need, we have alternatives and we're not moving ahead unless we get the right deal," he said during a visit to Toronto last week.

Issues surrounding the transmission of the power are the main obstacle to any deal with Ontario. Moving electricity over long distances is a complex physical challenge. It is also expensive, not the least for the new lines that would have to be built. The fact that these lines would have to cross Quebec also makes it politically challenging.

Newfoundland is working with Hydro-Quebec to determine the cost and technical considerations this would involve. Mr. Martin says officials are working well together, but observers in Ontario's energy sector worry that bad blood will surface eventually. Newfoundlanders remember, particularly, that Quebec has refused to reopen the Churchill Falls pact, which doesn't expire until 2041.

Mr. Duncan says the deal could founder if "the age-old challenge between Newfoundland and Quebec" can't be overcome.

Newfoundland is working with Ontario's electricity industry to sort out the costs and technical issues involved in bringing power here. Mr. Martin's got two years of hard slogging ahead of him but isn't deterred.

"The big projects are really just a big series of hurdles that you line up and knock down one at a time," he said.