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Monday 11 December 2017


What's behind the recent announcement by federal Energy Minister Jim Carr promoting  an “energy corridor” for the Atlantic provinces? How does it relate to this province? Are there other issues at play that should worry NL? Is the financial “dead carcass” of NL about to be picked over?*
The public should worry when weak governments run the province. For a decade, successive administrations have given little focus to tough public policy issues, worsening an already difficult fiscal situation. They don't see that successful societies harm themselves looking inward when predators come calling. 

We forget that, while political parties, labour and business conduct their affairs with a vision narrow enough to be thought ‘in the moment,’ the real business of politics — our business — is being managed in places where strategic self-interest has long been defined.

A few weeks ago, a story by La Presse in Montreal contained some rather interesting messaging.

The story quoted federal Natural Resources Minister Jim Carr to the effect that Ottawa is eager to pursue a “regional transmission line connecting Quebec and the Atlantic provinces”. There was even the offer to “kick in some cash” to make it happen.

Jim Carr went so far as to welcome “the recent thaw in relations” between Quebec and NL. “I am encouraged by what I have heard from elected officials from both provinces,” Carr was quoted. Strangely, no one in this province was ever alerted to a chinook having passed through.

Carr added that the corridor “could also open the door to exports, with such a regional network, to the northeastern United States.”

Carr either knows little about the paradigm shift in electricity supply and demand in many regions of the world — including the northeastern U.S. — or he is playing the “dumb” game, the same one Williams, Dunderdale and Nalcor used on the NL public to get Muskrat sanction.

The price of electricity in the New England area, especially energy sold on the “spot” market, has fallen into the basement in line with the commodity price of natural gas. In addition, emerging and anticipated cost declines in wind, solar and energy storage pose significant threats to Hydro Quebec (HQ) — which is dependent on high-cost, large-scale transmission infrastructure. This is a huge new risk and it is occurring in markets that have served as HQ’s traditional playground and on which their newest megaprojects depend.  

The fact that the Feds, in 2017, are still willing to fund such a transmission corridor — even after Muskrat — knowing as they must that it will add to Canada’s lack of competitiveness, is indicative of the size of HQ’s problem and its influence on national politics. Exhibiting the empire building character of bureaucrats, HQ also failed to recognize market changes before it damned the Romaine River.   
Federal Natural Resources Minister James Carr
Carr’s mission is to find “new lands”; to “boldly go”, on HQ’s behalf, where previously it was uneconomic for them or where they were rejected.

The scuttling of the NB Power/HQ deal in 2010 is still fresh. HQ sought changes to the deal to purchase NB Power assets, leaving then Premier Graham to conclude that it “no longer” made the $3.2 billion deal “worthwhile”. Vigorous protests from New Brunswickers also found their mark.

Readers might recall an attempt by HQ, Ontario Hydro and SNC Lavalin to do a deal in 2005 to develop the Lower Churchill — which foundered. Out of the effort, SNC could still be seen grasping the friendly hand of Danny Williams, leading to the birth of the Muskrat Falls project.

Earlier this year, HQ again attempted to entice Ontario to take more power but ended up with a quite tepid agreement to trade surplus power back and forth, in the end giving HQ none of the export gains it had sought.

Against this background, readers will understand the absurdity of La Presse having invoked the Churchill River’s third hydro prospect — Gull Island — for potential development.

The assertion works perfectly on the gullible and short-sighted, but the changing electricity market — one enjoying the fruits of new technologies and increased competition — has reduced a large megaproject, like Gull Island, to the status of “bait” for the exuberant and the uninformed.

The provincial Energy Minister, Siobhan Coady, acknowledged that she is too busy talking to Quebec about mining to “have that conversation” on the electricity corridor. Had she said, ‘what’s such a corridor got to do with NL?’ we might have acknowledged that — for once — the Minister is on her toes. “Too busy” only confirms that she lacks a capacity to walk and chew gum at the same time. 

Of course federal Minister Jim Carr was being coy. He had essentially confirmed what has long been suspected: the talks allowing the Feds and NL to ‘settle up’ with Quebec were under way.

A December 2012 story from the CBC quoted Alexandre Cloutier, Quebec's intergovernmental affairs minister saying that “his province never received similar help from Ottawa for its hydroelectric development.” He added that “Quebec is looking at its legal options to fight the deal.” As quickly as Cloutier began his pout, someone told him to shut up.

If the Feds and NL had forgotten that Quebec believes it deserves a veto over matters that even peripherally touch La Belle Province, including the Federal Loan Guarantee for Muskrat Falls, Quebec MPs had passed a reminder on to PM Harper and later PM Trudeau.

Smart federal Ministers/MPs apply skills befitting their powerful positions. It has been a long time since a Minister from this province weighed in on “big picture” issues. Admittedly, though, they are very good at ‘photo-ops’.

In contrast, Nova Scotian Peter McKay, as PM Harper’s Minister of Justice and Attorney General, Minister of National Defence and Minister of Foreign Affairs, understood power — the political kind. He is the (real) unsung architect of the FLG — having designed the Guarantee in a way that enabled a veto over the project by Nova Scotia.

Of course, Minister Carr is aware of several issues whose status is more than just tangential to that of an electricity corridor.

The Water Management Agreement on the Churchill River is one — essential if Muskrat ever works — though Nalcor is still in denial that it was orphaned by the Quebec Superior Court.

Then there is the Muskrat debt problem. We can properly forget the phrase ‘too big to fail’. The sums piled up are simply ‘too big to be paid back’. It constitutes a worrisome footnote to the Federal Loan Guarantee, raising the question: does NL have some assets that an entity like Hydro Quebec might need to help reduce the debt burden?  

Naturally, such a question can’t be nearly as important as the ass-covering required for both levels of government, the bureaucrats and the politicians, too; all having played a role in effectively bankrupting a Canadian province for the first time since Confederation.

Who has more interest than the Feds and Nalcor to back-channel such issues, affording our elected suitable political cover?

People may be inclined to think an “Atlantic electricity corridor’ a one-dimensional interest of HQ. They would be foolish. Even Emera had better not get too big for its britches.

It is worth reminding readers that, except for HQ’s interest in purchasing the assets of NB Power, it had no interest in Atlantic Canada — until now.

This excerpt from the UARB Hearings to approve the Maritime Link is instructive. Questioned is Rick Janega, President of Emera Newfoundland and Labrador, who is speaking about a meeting held with Hydro Quebec in 2009 to determine if HQ would sell them a quantity of firm power. ("Firm" energy is a source that is always available.) Stated Janega:

That was one reason Emera turned to what — for them — was Nalcor’s far more attractive Muskrat idea.

Another was that that the Maritimes' electricity infrastructure was sub-standard.

The next excerpt from the Maritime Link Hearings is categorical on the point.  The UARB comments are based upon analysis conducted by Morrison Park, its consultants for the ML Application: 

Nova Scotia has hopes to replace over 4000 GWh of thermal generation, some of that via MF.

Understandably, Emera could not have imagined their good fortune when electricity neophyte Ed Martin came calling. Not just Nova Scotia’s point man, Peter McKay, could see a sucker all the way from Ottawa, Emera CEO Chris Huskilson wasn’t exactly blind.

Under the Emera/Nalcor deal, the “Nova Scotia block” of 1.2 TWh is expected to lower that province’s thermal footprint, as will power committed under the “Energy Access Agreement” and the “Supplemental Agreement” — which together, at least for the first five years after first power,  represents 50% of MF generation (and 12% of MF costs, according to David Vardy).

Financially embarrassing for NL is that, beneath each of those agreements, there is little price difference between the “sold” power and the “free” stuff, Nalcor having netted just 1 cent per kWh from Upper Churchill "recall" power last year. (HQ profited more than did Nalcor just from the “wheeling” fees to transport the energy.)

But even worse — a political embarrassment for the Government of Canada — is that it backed Muskrat, having given the project scant analysis.

Now, delays and concerns for reliability are causing Nova Scotia to wonder if they have bargained for a ‘pig in a poke’. (Though Emera's recent application to run an undersea cable to the Eastern Seaboard assumes that the cheap energy it negotiated will be available — presumably to be mixed with wind/solar from other sources.)

Still, the uncertainty is a big problem for a province with 11 federal seats — all of them Liberal. You can well imagine that this issue plays into Jim Carr’s mission, too.

But that is Jim Carr’s problem — not Hydro Quebec’s.

The latter needs new markets, the “spot” market in the northeastern U.S. having become so oversupplied that prices are at historic lows. To make matters worse, local State politicians want at least some of the sought-after “green” power produced locally.

A federal subsidy for a “corridor” might assuage the bad taste left by the rejected 2010 New Brunswick deal and permit HQ to return to that province the “value… unacceptably taken away”, as NB’s Premier discreetly described the failed negotiation over the purchase of NB Power.  

The Point Lepreau nuclear plant represents 35% of NB’s demand and is getting short on its useful life. But of more immediate interest is that 25% of NB’s power needs are generated with fossil fuels, and it therefore remains a juicy market for HQ.

In short, Hydro Quebec seeks an Atlantic Canada market because it offers them a new value proposition. There is less competition and wholesale electricity prices are higher than in the New England states. If the Feds “kick in” a subsidy for transmission line construction and upgrades, all the better. Besides, it will square Quebec's demand for commercial parity with the value given Muskrat via the Federal Loan Guarantee.

There are other irksome sidebars to this story.

With NL not needing any power from outside the province, and neither NS nor NB having extended the welcome mat to HQ, one could assume that the idea of an “Atlantic corridor” has been skilfully misnamed. Is it not a “Quebec corridor” that the Feds actually seek?

I suppose it could have been called a “pipeline” but hadn’t the Montreal area mayors, including Denis Coderre, put political pressure on the Quebec Government to oppose the “Energy East” proposal? Did the Quebec government tell them to be quiet? I don’t think so.

When NL sought “wheeling rights” to transmit power through Quebec, the province was denied by that province, then derided by Ottawa because, ostensibly, we were putting at risk the fabric of the nation — interfering with Quebec nationalist sensibilities — by merely raising the subject. But a corridor for Quebec? The ‘fabric’ is not nearly as brittle when it is someone else’s.

Yes, in proceeding with Muskrat, Newfoundland screwed itself in order to screw Quebec — even if that wasn’t Williams’ sole motivation for the project. But the suggestion of an electricity corridor — with federal backing — is justifiably a sore point.

An electricity corridor — not even for all, but for just one part of the smallest economic region of the country — can get national attention when Quebec demands it!

Let’s be clear. Quebec is not our friend.

Quebec is a capable, disciplined and shrewd player, both in national politics and in the business of influencing its own economic interests. Newfoundland and Labrador is not.

Negotiations with Quebec — or allowing the Feds and Nalcor to back-channel those negotiations — should not proceed when the province is on its economic knees. And they should never be undertaken by two of the parties who were complicit in the Muskrat Falls debacle: the Feds and Nalcor.

Quebec will have the last laugh over Muskrat; that is an incontrovertible fact.  

But what is clear is that a new game is afoot. And we are not even at the table, as Minister Coady has confirmed.

Yes, the game is about preserving and growing Hydro Quebec's power monopoly in Eastern Canada, and about the Feds insulating themselves from the uncertainties of a big mess in the context of Muskrat.

But only the terribly naive would think that is all that the “Atlantic Energy Corridor” is about.

Underneath it all is about how to best pick over the dead carcass that is a bankrupt Newfoundland and Labrador.

The disposal of NL Hydro, and of the nearly 67% of the shares in CFLco that Hydro Quebec does not own, will be eyed greedily by them.

That assets, alone, won't raise enough to resolve the whole financial problem. Other assets will have to be stripped from the province too.

Meanwhile, as Quebec and the Feds play out their idea of “big picture” politics, our Ministers and MPs send us “selfies” oblivious to the issues and their implications.
We are destined to make a virtue of stupid.
Editor's Note: This piece was written with research contributions from David Vardy and PlanetNL. The opinions expressed are mine.