Nfld. & Labrador

From bad to worse: Churchill contract renewal means even less revenue for N.L.

With revenue from Churchill Falls dropping as of Sept. 1, the province is considering a further appeal of the notorious contract to the Supreme Court of Canada.

'It's very difficult to wake up this morning and not think about what could have been': Dwight Ball

Former premier Joey Smallwood at the opening of the Upper Churchill project in 1971. (CBC archives)

With the province of Newfoundland and Labrador earning less than ever from the Upper Churchill power contract, which renewed Thursday for another 25 years, Premier Dwight Ball is considering his options.

"It's very difficult to wake up this morning and not think about what could have been," Ball told reporters.

"September 1, 2016 could have been a much different day if not for that contract."

He said the province, which has lost in two recent court decisions related to terms of the contract, may appeal to the Supreme Court of Canada, and is evaluating what that process would cost.

Premier Dwight Ball told reporters on Thursday that the province is weighing the cost of a continued court battle with Hydro Quebec. (Mark Quinn/CBC)

The Sept. 1 renewal clause extends the notorious 1969 deal until 2041, with prices paid by Hydro Quebec dropping from $2.20 per megawatt hour (MWh) to $2.00 per MWh.

That's a great deal for the Quebec utility, according to David Vardy, an economist and former chair of the Newfoundland Public Utilities Board (PUB).

"They're making a billion dollars from the export of the power from Churchill Falls and that's a lot more than we're making."

Harsh history lesson

Vardy and Memorial University economics professor Jim Feehan told CBC Radio's On The Go Wednesday that Hydro Quebec played hardball when the contract was signed 40 years ago.

Feehan said originally the contract was for a shorter period, and the renewal clause was meant to be a chance for the parties to renegotiate terms, quantities and prices.

Economic professor Jim Feehan says the renewal clause was supposed to reopen the terms of the Upper Churchill deal, but Hydro Quebec wanted changes just before it was signed. (CBC)

But just before the contract was signed with the Churchill Falls (Labrador) Corporation, "Hydro Quebec demanded a change," he said, asking for a two-dollar fixed rate for 25 years.

We were just so desperate.- David Vardy

"That was really cheap, in 1968," said Feehan. "It was just incredibly good price, even at the time."

But CFLCO and its parent BRINCO were running out of time and money as they rushed to complete the $650-million ($6 billion in today's dollars) project. The province had not contributed any money, and had transferred water rights.

"The government of Newfoundland was essentially a bystander at the time," said Vardy.

"We did not exercise the prudence we should have exercised because we were the owner of the resource … We were just so desperate."

Court losses

In early August, the Quebec Court of Appeal upheld the 25-year renewal clause, rejecting Nalcor's claim that the terms were unfair.

A week later, the Quebec Superior Court ruled that Hydro Quebec has the right to buy all of the power produced at the Churchill Falls plant, except for two fixed blocks.

Vardy said there was an expectation that Newfoundland would have access to more power in 2016 and that Hydro Quebec's rights to that power would be capped.

Power from the Upper Churchill is sold to Hydro Quebec for a fraction of what the company can sell it to customers. (CBC)

Both he and Feehan are encouraging Premier Dwight Ball to continue fighting in court.

"I think the appeal should be done. The size of the pie we're talking about is quite large," said Feehan.

"We have to take it to the Supreme Court of Canada," said Vardy. "The only thing we have to lose are the court costs." 

Ironic twist

Had the Upper Churchill contract been different, the economists said, there would be no need for the Muskrat Falls project now underway.

With a reservoir that is 600 times bigger than Muskrat Falls, the Upper Churchill could supply the needs of the province and more.

David Vardy, the former chair of the Public Utilities Board, says the province has to take the Upper Churchill contract battle to the Supreme Court of Canada. (CBC)

The final cost of the Muskrat Falls project will be "astronomical" according to Vardy. "At least $15 billion."

He said with competition from natural gas and other cheap sources of power, Nalcor will not be able to charge enough to recover costs once the project comes online.

"We will be stuck on the island of Newfoundland and Labrador, unfortunately, with these enormous costs from Muskrat Falls power and I think it's going to reach a point where ratepayers are not going to be able to absorb that cost," said Vardy.

"It will end up having to be some kind of a bailout, so it's a very difficult situation."

With files from Ted Blades and On The Go