A new deal with Hydro-Québec 'best, rational way' to solve N.L. fiscal crisis, says columnist

With Newfoundland and Labrador on its financial knees, a business columnist with Quebec's largest newspaper says Hydro-Québec should pounce in order to secure a favourable deal for Labrador hydro assets.

Francis Vailles says Quebec is hungry for power, and N.L. is desperate for financial Hail Mary

A Quebec newspaper columnist is suggesting that Hydro-Québec seize the opportunity presented by Newfoundland and Labrador's fiscal misfortunes to strengthen its position on the Churchill River in Labrador. One of the scenarios? Purchasing an ownership stake in the Muskrat Falls project, which is scheduled for completion later this year. (Nalcor Energy)

With Newfoundland and Labrador on its financial knees, a prominent newspaper columnist in Quebec is suggesting that Hydro-Québec seize the opportunity to secure its long-term energy needs.

"We can say we will help Newfoundlanders and be charitable for Newfoundlanders. But in business that's not the way it functions," Francis Vailles told CBC News on Thursday.

Vailles writes a business column for La Presse, an influential French language online newspaper based in Montreal.

He tauntingly headlined his May 15 column "What if Hydro-Québec Bought Out N.L. Hydro?"

He wrote that the best business opportunities "arise in bankruptcy," and that Newfoundland and Labrador's massive public debt, long pattern of deficit spending, and the 40 per cent cost overrun on the Muskrat Falls project presents a "great opportunity" for Hydro-Québec.

"The great asset you have is the Churchill River. It's up to you to negotiate," Vailles said in an interview.

Francis Vailles is a well-known business columnist with the French language La Presse digital newspaper, based in Montreal. (Francis Vailles/Twitter)

Despite the lingering resentment over the controversial and lopsided 1969 Upper Churchill contract with Hydro-Québec, Vailles said it's not a case of one province preying on another one flirting with insolvency.

He said the hydroelectric assets on the Churchill River can form the foundation of a strategy to prevent Newfoundland and Labrador from falling into a fiscal abyss, and ensure Quebec has the energy it needs to meet its growing contractual obligations.

"Hydro-Québec needs energy. And Newfoundland needs a deal. So I think there's mutual needs for both," he said.

'Newfoundlanders have to be rational'

Vailles envisions a scenario in which Hydro-Québec increases its ownership stake in the Upper Churchill project, buys a portion of Muskrat Falls, and negotiates a new long-term power purchase agreement for Labrador power.

By his calculations, such a deal could inject between $300 million and $500 million annually into Newfoundland and Labrador's treasury, which he says would take a large bite out of the province's structural deficit of roughly $1 billion annually.

"Politically it would be very difficult to accept for Newfoundlanders, but I'm a business columnist so I think that's the best rational way to solve the problem.

"Newfoundlanders have to be rational," he said.

In order to make such a deal attractive for Hydro-Québec, he said, the federal government would have to accept responsibility for all or most of the $8 billion that Nalcor Energy has borrowed to build Muskrat Falls, which came with a loan guarantee from Ottawa.

He said both sides have some bargaining power, since the the hydro assets are owned by Newfoundland and Labrador, but Hydro-Québec can't afford to lose the massive quantities of power it receives from the Upper Churchill, which equates to roughly 13 per cent of its generating capacity.

What's more, said Vailles, Hydro-Québec has been signing new long-term power agreements with several U.S. states, and there's growing demand for clean energy as vehicles transition from gas engines to electrical power.

He said Quebec would be hard-pressed to meet those obligations without power from the Upper Churchill, even if it were to invest heavily into more wind and solar power.

Hydro-Québec ready to talk

As for Hydro-Québec, the Crown corporation is hinting that it's ready to talk, with a spokesperson writing in a statement that "we want to work constructively with Newfoundland and Labrador and we are open to explore different possibilities."

Newfoundland and Labrador's energy minister, however, says no talks are planned, but he's not ruling out any scenario.

"I wouldn't close any door to the possibility of doing something that's going to better us, that's going to help us financially, and lead to a better environmental future," Andrew Parsons said Thursday afternoon.

"Geography wise, we know where Quebec is, and we're going to have to work with them. I don't think we should be scared of that."

Newfoundland and Labrador Energy Minister Andrew Parsons says there have not been any discussions with Hydro-Québec about striking a new deal for the hydroelectric assets on the Churchill River. (Patrick Butler/Radio-Canada)

Vailles wrote his column in the wake of a report called The Big Reset, which dropped like a brick earlier this month as it detailed the province's staggering financial problems, including more than $47 billion in total public debt, and laid out a plan for economic recovery that includes across-the-board spending cuts, tax increases and a ground-shaking retooling of the way the government operates.

Churchill River as a package deal

One of the recommendations by author Moya Greene is to package the resources on the Churchill River and "seek federal government and private sector partners" in order to "maximize the economic value and its renewable energy potential."

Those assets include the Upper Churchill power station, which has a generating capacity of 5,428 megawatts, the 824-megawatt Muskrat Falls project, which is scheduled for completion later this year, and the proposed Gull Island project.

Nearly all the electricity generated by the Upper Churchill is committed to Hydro-Québec, which purchases the power at a bargain basement price of less than a quarter of a cent per kilowatt-hour under a controversial contract that expires in 2041.

Nearly all of the more than 5,000 megawatts of generating capacity at the Churchill Falls hydro station is committed to Hydro-Québec at less than a cent per kilowatt-hour. (Nalcor Energy)

Newfoundland and Labrador Hydro owns 65.8 per cent of CFLCo, the company that operates the Upper Churchill, while Hydro-Québec owns 34.2 per cent.

While Hydro-Québec has received billions in profits over the years, CFLCo barely earns enough to cover operating costs.

Repeated court challenges to amend the contract have failed, and the matter has long been a matter of resentment in Newfoundland and Labrador.

Hydro-Québec a 'natural partner'

Because of massive cost overruns with the Muskrat Falls project, meanwhile, electricity rates in Newfoundland are poised to soar from 13 cents per kilowatt-hour to 24 cents.

Vailles said the weighted average price between Churchill Falls and Muskrat power is 3.1 cents, and "any negotiating price between that 3.1 cents per kilowatt-hour and the six cents [Hydro-Québec] can get elsewhere, for example with new wind projects, should be considered."

As such, Vailles said Hydro-Québec is a "natural partner" to prevent electricity rates from doubling in the Muskrat Falls era, and that it's in the interest of every Newfoundlander and Labrador to "bury the hatchet" over the Upper Churchill contract.

Andrew Parsons said he's ready to talk to Hydro-Québec and any other potential partner but he doesn't agree Newfoundland and Labrador is in a vulnerable position.

"They can say what they want but the reality is I like where we are, and I think that in times of challenge you can also find opportunity," he said, adding that he's in the process of assembling a panel of experts to advise the province as 2041 and the expiration of the Upper Churchill contract approaches.

"Our province has always tried our best to get back what we believe to be ours from decades ago," he said.

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Terry Roberts is a reporter with CBC Newfoundland and Labrador, and is based in St. John’s. He previously worked for The Telegram, The Compass and The Northern Pen newspapers during a career that began in 1991. He can be reached by email at: