Many critics
of the Muskrat Falls development have advanced the view that the Government
should not expose the small population of NL to high cost power and to the
financial risk associated with the mega project; the idea is that our incremental
power needs can be met from a variety of smaller, less risky sources, until the
Upper Churchill Contract expires.
For at least
a year, the Provincial Government has been attempting to dispel the idea that
developing a portfolio small projects, under the “isolated island” option was a
viable. Your Uncle Gnarley scribe wrote
an article on the subject entitled: Upper Churchill Contract: Inherent Uncertainty or Bafflegab. When the Minister released the new documents,
The Telegram on November 10, 2012, quoted him paraphrasing an opinion contained
in the Paper. Said the Minister:
“I know at
one point I laboured under the illusion that as we waited for 2041 we would get
free power, we would have unlimited power, but when you look at the corporate
structure of CFLco it’s not that simple.
“It’s not
going to be Hydro-Quebec simply agreeing that all power will be given to
Newfoundland and Labrador. Churchill
Falls (Labrador) Corp. will still exist – its ownership split between
Newfoundland Hydro (with 66 per cent stake) and Hydro Quebec (34 percent). Whatever happens with Churchill Falls, the
interest of Hydro Quebec simply can’t be ignored.
“There is no
doubt that Newfoundland and Labrador will benefit in 2041 power, but it’s very
difficult to envision what exactly will take place”.
It is
difficult to contemplate that these are the comments of the Minister of Natural
Resources, a lawyer and former a Minister of Justice. Let’s cut to the chase.
Any person who runs a company, in which there are minority shareholders, knows that the only requirement, in law, is that their rights must not be subjugated to the interests of the majority shareholder(s). The majority shareholder, in this case, is Newfoundland and Labrador Hydro. It is the owner of 66 percent of CFLco shares.
The Minister
suggests that the existence of a minority shareholder constrains CFLco’s
ability to make decisions. The Minister
is wrong. It is true that, in 2041, CFLco will not be able to sell power to
Newfoundland Hydro (NH) or to any other customer for a price that is less
than the ‘market price’ (such an action would prejudice the minority
shareholder). But, it will be able
to sell to NH, at the market rate.
Why would
Kennedy be afraid of that conventional corporate practice? Is he confused about
the rules? Is he fearful that the truth
may interfere with his mission to get Muskrat Falls approved?
We should
hope that power costs, in 2041, will be higher than they are now. Why? Because, as owners of 66% of CFLco, NL
will be the major beneficiary.
Newfoundlanders
and Labradorians would do well to remember that the Moore’s Administration, in
1974, used $160 million of taxpayers’ money to purchase BRINCO, the developer
of the Upper Churchill. To date, little payback
has been received on that investment.
You may ask,
if electrical rates in 2041 are high, won’t my power bill be impacted? NO, is the short answer! But, an explanation is required.
Upper Churchill
power, in 2041, will have a ZERO cost base, except for the cost of on-going
maintenance of the hydro plant and the cost of transmission to the island.
The
Provincial Government owns 100% of Nalcor and Newfoundland Hydro Corp. is its
100% owned subsidiary. Once CFLco sells
electricity in 2041 to either Nalcor or its subsidiary (likely the latter
because NH is already engaged in electricity sales), the government can adjust the cost of the power before it is sold to Newfoundland
Power (the distributor); in so doing, it will not impact the minority
shareholder of CFLco.
Alternatively, the Government can
reduce the “market price” by some other mechanism including by direct
subsidy to the ratepayers. Actually,
for the Government, it’s a very simple process. Just keep in mind that, on a net
basis, Government revenues are unaffected since it will receive 66% of the net
income of CFLco. There is no magic
involved for Government; just a few more accounting entries for NH.
That is what Mr. Kennedy, in his
disingenuous way, is hiding from you.
Let’s move
on.
The Minister’s
Upper Churchill Paper also contains this quotation:
“Instead HQ’s
minority shareholder position….and the legal rights that it confers, will have
to be considered. This will have various
consequences, one of which is that CFLco may not be subject to being operated
at the instruction of NLH. Instead,
there will be legal, financial and corporate obligations upon CFLco, including
those of Directors of CFLco that may be appointed by NLH, as a result HQ
continuing economic interests. These
obligations may or may not align with the Province’s public interest or policy
goals at any given time.” (Underlining
added)
This view
might be believable, except that it is the NL Government who appoints a
majority of Directors on the CFLco Board right now, and who will appoint possibly
more than a majority in 2041. What Mr.
Kennedy is essentially saying to you is this:
be concerned that one or more Directors will not represent the interests
of the Government that appointed them. This
is not credible.
One final
point. The Paper fails to note that at
the end of 2041, the Province will also have the legal right to expropriate the
34% CFLco shares owned by Hydro Quebec.
The Upper Churchill Contract, having expired, ceases to be an
interprovincial matter. Provinces, as the jurisdiction in which property rights
are vested, enjoy the constitutional right to undertake such expropriation
under Section 92A of the Constitution Act of Canada. Possibly, NL won’t want to take that
step. Most importantly, such an option
is available should unforeseen legal issues need to be resolved.
In case you
wondered, power from the Upper Churchill, upon expiry of the contract with HQ
will be plentiful, available and cheap.
Mr.
Kennedy’s ‘information dump’ has done little to advance the case that it is
being responsible and transparent. But,
then, the Government’s case for the Muskrat Falls Project has always been dodgy. I suggest, if this is the best Kennedy and
his lawyers can do, pray that they have better engineers. 