MISSED OPPORTUNITY: SCUTTLING OF THE 2002 GULL ISLAND FRAMEWORK AGREEMENT

Guest Post by Ron Penney
MISSED OPPORTUNITY: THE SCUTTLING OF THE 2002 FRAMEWORK AGREEMENT FOR DEVELOPMENT OF GULL ISLAND 

The full development of the Lower Churchill consists of two projects: Gull Island and the much smaller Muskrat Falls project. Gull Island is projected to be a 2250 megawatt project as compared to the Muskrat Fall’s 824 megawatts. Gull Island was always felt to be the far more economic project.

In 2002 a draft Framework Agreement was negotiated with Hydro Quebec to develop Gull Island. A link to that agreement is found here.

At the time, the then Chair of Newfoundland and Labrador, Dean MacDonald, and another Board member, Mark Dobbin, broke with the rest of the Board, and opposed the agreement. The then Leader of the Opposition, Danny Williams, became aware of the agreement and mounted a vigorous and ultimately successful campaign to scuttle the agreement.

This represented the most recent attempt to develop Gull Island and led directly to the Muskrat Falls debacle.

Canadian Press Photo

When Mr. Williams became Premier any suggestion of dealing with Quebec was anathema and our energy policy became one based on revenge for the inequities of the Upper Churchill project and the obstacles placed in our way by Quebec to restrict access to export markets. This led to the renewal of what former Premier Joey Smallwood called the “Anglo Saxon Route”, which is the real motivation behind the Muskrat Falls. Plus, of course, former Premier Williams need for a legacy project to allow him to retire from active politics with the acclaim of an adoring populace.

We know how that is turned out. Revenge doesn’t make for good public policy particularly when it backfires so spectacularly. Would Mr. Williams still put his own money into Muskrat Falls, as he famously said he would if he could, when he announced the project?

So what did the 2002 Framework Agreement contain and how does it look now, some 16 years later, as compared to the Muskrat Falls project, which may spell the end, yet again, of our right to govern ourselves.

The project would have been constructed by us through a company called the Gull Island Energy Corporation.

It would have been financed by Hydro Quebec.

The project was primarily an export project with recall rights.

The price was $35.50 per megawatt hour, or 3.55 cents per kilowatt hour, indexed to changes to what Hydro Quebec was getting in the market.

We would have had the right to recall up to 500 megawatts of power during the life of the power purchase agreement, which compares favorably to what we we are projected to use from the 40% of Muskrat Falls Power, 330 megawatts. Assuming an in service date of Gull Island of 2010, we would have had access to 300 megawatts of power in 2021, at a third of the cost of Muskrat Falls power and could have sized the transmission line accordingly.

Ron Penney

One of the key positive aspects of the agreement would have been the right of Hydro Quebec to appoint an Independent Engineer, similar to what the Government of Canada has done. The difference being that Hydro Quebec actually has a record of building Hydro projects on time and on budget.

There was also a requirement to hire an experienced Engineering, Procurement, and Contracting Company to manage the project. We, of course, relied on our “world class experts” to run the project. How has that worked out so far?

And there would have been a water management agreement binding on Hydro Quebec, something which we don’t have now.

The project would have also been built at a time when we had competent management at Newfoundland and Labrador Hydro and when there were no major construction projects competing with it. It would have been far more likely to have been built on time and on budget.

Looks pretty good now, wouldn’t you say?