The sea oh the sea, the wonderful sea, Long may she roam between Nations and me. Everyone here should get down on one knee And thank God we’re surrounded by water.

That’s one version of the chorus from Tom Cahill’s 1950s song, “Thank God We’re surrounded by Water.” A journalist and playwright, Cahill was keenly attuned to the political tide in Newfoundland. Many people in the newly minted province embraced the traditional view of the ocean as protector and ally. But that was before the 1990s collapse of the ground fishery… before the long battle with Ottawa for rights to the vast offshore oil resources… before the tragic sinking of the Ocean Ranger drill rig… before the scaling back of the Coast Guard and search and rescue services… before frustrations with ferry services reached the present high-water mark.

Today there are signs that there is a new attitude afloat, one in which the ocean is primarily a barrier to prosperity, something to be bridged or tunneled under. We have the technology to make the connection, but at what cost?

The Government of Newfoundland and Labrador has the throttle wide open on the Muskrat Falls Hydro project, including two submarine links, one 500 megawatts across the Cabot Strait to Nova Scotia and the other 900 megawatts across the Strait of Belle Isle from Labrador. For some, dissatisfied with ferry service to Blanc Sablon in the north and North Sydney to the south, the economics of integrating the cable across the Strait of Belle Isle with a fixed link tunnel under the Strait, presents what may be the last opportunity for a more substantial connection between the island and the mainland. There are others who say that the only real opportunity for a fixed link will come when Quebec extends Route 138 all the way along Quebec’s North Shore to Blanc Sablon. Still others argue that, not only is the fixed link too expensive, so too is the Muskrat Falls connection.

Tunnel vision
From opposite sides of the Strait of Belle Isle, the carbide steel tips of two shore-based directional drills are grinding towards each other in the bedrock 20 metres below the seabed. These will eventually emerge at a depth of 70 metres, two kilometres out from Shoal Cove on the island and 1.5 kilometres from Forteau Point in Labrador.

This is the first phase in the construction of the Labrador Island Link (LIL), a 35-kilometre, $700-million set of three marine power cables across the Strait of Belle Isle. This link, in turn, is a key part of the $7.8-billion Muskrat Falls hydro development that, at its conclusion, will help integrate the hydro power of Newfoundland and Labrador and connect the island to the North American power grid for the first time in its history.

Fifty kilometres south of the Shoal Cove drill site is the small community of St. Barbe. From here, Labrador Marine Inc.’s 108-metre-long MV Apollo ferries surface freight and passengers to and from Blanc Sablon on the Quebec-Labrador border. Certified to carry 240 passengers, 220 cars and six tractor-trailers, the Apollo makes as many as 16 trips daily during the peak tourist season. In late winter, service is curtailed to as few as one trip each way until ice becomes too heavy and service shifts 300 kilometres south to Corner Brook where the Sir Robert Bond takes over the service.

Yvonne Jones, Liberal MP for Labrador, has seen life improve for the people served by this year-round ferry service but, she says, more needs to be done. Speaking by telephone from her Happy Valley-Goose Bay office, Jones says that despite the ferries and the Trans Labrador Highway, the people of Southern Labrador remain isolated. “Air transport isn’t affordable and ferries are unreliable,” she says. “We like to blame governments and operators but those services are limited by high winds, tide, and ice.” She believes a fixed link tunnel under the Strait of Belle Isle is the answer.

Nick McGrath, MHA for Labrador West and Minister of Transportation and Works, admits the Province won’t conduct a fixed link feasibility study (estimated to cost $15 million) until Route 138 along Quebec’s North Shore is extended to Blanc Sablon. McGrath is an affable man, tall with grey flecks in his black hair. His gravelly voice is disarming. A newspaper on his table features a large picture of Kathy Dunderdale announcing her retirement. He turns to toss the paper onto the window sill, hesitates and then tosses it instead onto the blotter of his neatly arranged desk. From his sixth-floor west block office, we have a commanding view of the parking lot below. He sits, arms and legs relaxed, at the small side table.

McGrath is convinced the Province has taken the right approach to improve transportation in Southern Labrador. In the late fall of 2013, his department issued a request for proposals (RFP) to upgrade the Strait of Belle Isle ferry services. “This is a unique RFP. Rather than just calling for a replacement ferry, we want the proponents to improve the freight, passenger service and reservations,” he says. The RFP closed at the end of February and the new service is expected to be in place sometime in 2015 and will run to 2030. The 15-year term suggests that the government does not see the LIL as an opportunity to consider a fixed link in the Strait.

For Yvonne Jones, this is not enough. “I don’t feel there has been any effort put into looking at the feasibility of a fixed link between Labrador and the island. This is a necessary piece of infrastructure to grow in the future. We need to give the fixed link a serious look.” According to a prefeasibility study completed a decade ago, the fixed link tunnel would take about five years of planning and ground work to satisfy the requirements of existing legislation and regulations and another five to six years to complete.

“This doesn’t have to be a lost opportunity,” says Jones. “Government is living in a cloud if they think they will bring Muskrat Falls in on time and on budget… No one should be expecting power to be online by 2017.” She says that “statistics world wide” show megaproject “cost overruns of 20-40 per cent” and constant delays. “So I wouldn’t use the amount of time required for a feasibility study as an excuse for not looking at the advantages of combining the fixed link and the transmission lines.”

The concept of constructing a Newfoundland- Labrador fixed link to bridge the Strait isn’t new. A keen proponent of the concept for more than 40 years, mining engineer Tom Kierans brought impressive credentials to his lobby efforts. He worked in the mining industry and academia and he played a key role in building the Upper Churchill hydroelectric project. Kierans first proposed the link in the 1970s to bring hydro power from Churchill Falls to the island. Premier Frank Moores paid some attention to the idea in the lead-up to his election in the mid-1970s.

In 1993, Kierans was back with a revised concept: an immersed tunnel of prefabricated sections buried on the ocean floor that would include a traffic tunnel and power cables. Kierans presented a refinement of his earlier concept, and a model for how it might be financed to the 2003 Transportation Association of Canada’s annual conference. He wrote: “In ferry tolls, import-export shipping costs, lost tourism, and no Labrador hydropower, the missing link now costs island residents an estimated $290 million/year. A proposed immersed rail tunnel’s one-billion-dollar capital cost, if amortized over 40 years, plus operating charges, could total only $70 million/year. Thus, island residents are now paying about $220 million/ year more than the estimated annual cost to build and operate the tunnel.”

A few weeks later, Progressive Conservative leader Danny Williams promised a prefeasibility study if his party was elected. Following the election, in keeping with the new Premier’s promise, the Department of Transportation, Works and Services charged the Public Policy Research Centre at Memorial University, under interim director Dave Vardy, with responsibility for an independent study.

Engineering firm Hatch Mott MacDonald won the contract and submitted their fixed link prefeasibility report in 2004. They recommended a rail line through a tunnel bored beneath the Strait of Belle Isle (similar to the chunnel between England and France ) as the most feasible fixed link option. However, at an estimated cost of $1.7 billion, the consultants felt the benefits didn’t justify the construction costs and recommended that it would be more prudent to upgrade ferry service.

Williams’ support was muted. He said the tunnel was technically feasible but was, “a long-term proposition and a national project that will need a significant infusion of financing from the federal government.” He added that, “Though not an immediate priority of government, the possibility remains that a fixed link could be constructed during the completion of projects such as the Lower Churchill hydro development or Highway 138 in Quebec.” The only way traffic could be generated to justify this cost would likely be if the Marine Atlantic service was shut down to drive traffic north to the fixed link. Government buried the idea.

The fixed link was also recommended in at least one government commission. The 1978 Report of the Commission of Inquiry into Newfoundland Transportation (known as the Sullivan Commission), suggested that the fixed link was a key piece of the province’s infrastructure. Burford Ploughman was one of three commissioners.

Seated at the kitchen table in his modest retirement condo in St. John’s, Ploughman pulls out a well-thumbed copy of the Sullivan Report and, turning to page 216, points to a recommendation urging the provincial government to immediately proceed with the construction of a fixed link tunnel under the Strait of Belle Isle.

Over the years and despite the Williams’ government’s dismissal of the link, Ploughman continued lobbying premiers and federal cabinet ministers alike.

In 2007, at the invitation of Armand Joncas, mayor of Blanc Sablon, he joined the Neighbours without Borders Coalition. Disappearing into his condo, Ploughman returns with a four-page business plan prepared for this affiliation of towns and development groups. It describes the case for completion of Highway 138 along Quebec’s north shore to Blanc Sablon and the fixed link tunnel.

Ploughman’s argument is underpinned by an estimated reduction of $1.9 billion in subsidies over the next 20 years for ferry services. That includes removing one of the super ferries from the fleet maintained by the federal government across the Cabot Strait and eliminating Quebec’s weekly ferry service along the North Shore as well as Newfoundland and Labrador’s daily service across the Strait of Belle Isle. There was little or no response from governments.

Ploughman’s frustration is palpable. “We are the last province in Canada with no road connection to the rest of Canada,” he says. “Even Prince Edward Island, with one quarter of our population, got the Confederation Bridge at a cost of $1.3 billion.” Ploughman pauses, “We will never be equal as Canadians until we have a fixed link.”

Car wait 20 minutes car wait 20 minutes car…
The distance from Quebec City to St. John’s on the Trans-Canada Highway through the Maritimes is 2,300 kilometres, not counting the distance across the Cabot Strait. Making the same journey via Labrador, along Quebec Route 138 to 389 to the northeastern community of Fermont, then onto the Trans-Labrador highway, adds 700 kilometres to that distance — not to mention the aggravation of tailgating logging trucks and substandard roads. And then there is the Apollo ferry ride with its seasonal limitations.

However, if Route 138 were extended across the 300-kilometre gap to Blanc Sablon and all sections were upgraded to highway standards and a fixed link was in place, then the distance of 2,400 kilometres from Quebec City to St. John’s is comparable to the Maritime route, minus the ferry delays.

Such a scenario would be irresistible to trucking companies operating west of the Maritimes and shipping into Newfoundland says Gordon Peddle, former chair of the Atlantic Trucking Association.

Peddle has taken the call on his cell phone by mistake and he only has a few moments to talk as he makes his way between meetings somewhere in the Maritimes. “Most of the food shipped into Newfoundland comes out of distribution centres in Quebec and Ontario and from produce centres out of the United States,” explains Peddle. That accounts for “about 70 per cent of all the tractortrailers crossing the Cabot Strait.” Peddle says, “If you can save time, travelling all the way by road, assuming distance is relatively equal, then that is the route the traffic would take.”

In conducting the prefeasibility study, Hatch Mott MacDonald reviewed ferry traffic statistics across the Strait of Belle Isle for four years in the early 2000s: passenger traffic was up 59 per cent; vehicular traffic was up 76 per cent and commercial vehicles were up 27 per cent. Despite the growth, overall traffic is low. In 2004, the last year the consultants reviewed, 24,042 private and commercial vehicles made the crossing. That’s an average of 66 vehicles a day or one vehicle every 20 minutes, 24/7.

These numbers are dwarfed by P.E.I.’s Confederation Bridge. Opened in 1997 for $1.3 billion, this 12.9-kilometre long bridge brought a one-time boost of 30 per cent in traffic, after which numbers stabilized. In 2012 there were close to 1.4 million crossings. That’s an average of 3,836 vehicles a day or one vehicle every 23 seconds. That same year, the Woods Island ferry at the other end of the province served 160,000 vehicles including 15,175 commercial trucks. All this for a total population of less than 150,000 people.

Travelling from Halifax, however, the fixed link route is more than 1,000 kilometres longer one-way to St. John’s than Marine Atlantic’s ferry connection to Port aux Basques. Enshrined in Newfoundland’s Terms of Union with Canada, this ferry service enjoys strong demand. In 2011, Marine Atlantic’s gulf class super ferries set sail more than 2,000 times carrying a total of 131,597 passenger vehicles, 100,620 commercial vehicles and 382,522 passengers.

Now whose fault is that?
In October 2013, during his failed bid for leadership of the provincial Liberals, Danny Dumaresque visited tunnelling projects in Norway. On his return Dumaresque told local media: “We could have two tubes, 28 feet wide, two lanes each way, for road traffic for a total of $496 million,” less than one-third of the estimated cost in the prefeasibility study.

David Vardy dismisses these numbers. An economist by trade, Vardy oversaw the prefeasibility study on behalf of the Department of Transportation and understands the complexity of the issues. He says the difference in cost is not due to technology but to the underlying geology. “In Norway they drill through solid granite. But in the bedrock under the Strait there are many geological faults,” he says.

This is supported by the prefeasibility report which discovered that a 1980 study by SNC-Lavalin determined that “water wells drilled through such [fault] zones have been productive with an estimated capacity of over 45 litres per minute while those drilled away from the fault zones were dry.”

Despite the provincial government’s unwillingness to move on a feasibility study for the fixed link, Minister McGrath says it should be a national priority. “I’m confident that at some point in Canadian history, Newfoundland should be joined by fixed link to the rest of the country.”

Connecting the energy loop
Mist spatters the lens as the camera pans across the rocky shoreline and over a mighty river where water surges around a huge granite outcrop and plunges 15 metres into seething foam on the way to Lake Melville. This is Muskrat Falls, 25 kilometres west of Happy Valley-Goose Bay on the lower Churchill River. Fed by the snow and rain from the vast interior of Labrador, the river spills an average of 1,740 cubic meters per second (m3/ sec.) over these falls. At spring flood, water volumes reach 6,820 m3/sec. That’s higher than the annual average of 5,880 m3/sec. for the Niagara River. However, water volumes as low as 253 m3/sec. have also been recorded here.

Since Muskrat Falls is downstream from the Churchill Falls hydro dam, water flow is ultimately controlled by Hydro Quebec with whom Nalcor Energy, Newfoundland and Labrador’s energy utility, has no formal water management agreement. Nevertheless, Nalcor selected this site for the fourturbine hydroelectric dam. Having cleared environmental and financing hurdles, and with aboriginal negotiations “well under way”, the project was sanctioned by the provincial government in December 2012.

By 2017, Nalcor plans to have two dams and a powerhouse here which will generate 824 megawatts (MW) of hydroelectricity. Known as Phase One of the Lower Churchill Project, the Muskrat Falls hydro development is an historic and controversial megaproject. Including the Maritime Link (100 per cent owned by Nova Scotia’s utility, Emera Inc.), it will cost a minimum of $7.8 billion. At that price, even with the creation of approximately 2,000 jobs annually for five years in more than 70 trades, some question whether the Muskrat Falls hydro project is the last opportunity for a fixed link or anything else, or whether it is a millstone around the necks of ratepayers in Newfoundland.

For this overall price tag, the project includes not only the dam and power plant but also three transmission lines that will connect the Lower Churchill and the island of Newfoundland to the North American power grid in a new electricity loop that fuses a 35- year partnership between Nalcor and Emera.

The deal will be consummated with construction of the most controversial of the three Muskrat Falls transmission lines, a 500-MW submarine power line between southwestern Newfoundland and northeastern Cape Breton.

Recently approved by Nova Scotia’s Utility and Review Board, this $1.58-billion transmission line, known as the Maritime Link (ML), will be managed by Nova Scotia Power – Maritime Link Inc. (NSP-ML), a whollyowned subsidiary of Emera.

According to Nova Scotia’s Department of Energy, power from Muskrat Falls will supply up to 10 per cent of that province’s energy needs — enough electricity to power 100,000 homes. Emera also plans to import hydro over the Maritime Link from the existing Churchill Falls power plant in Labrador to replace up to 30 per cent of Nova Scotia’s present electrical needs. How does this compare with the benefits for Newfoundland and Labrador?

“The way you compare benefits is the cost projections that were put on the table,” says David Vardy. Those projections were for the costs of the New England spot market electricity (“real-time” market for wholesale electricity to meet projected demand) which he says were projected to reach anywhere from five to nine cents per kilowatt hour (kWh) during the life of the agreement.

“Newfoundlanders will be paying more than 21 cents. And that is before Newfoundland Power adds on its distribution costs,” says Vardy. Currently on the island, where thermal generation accounts for more than half of the power supply, he says the rate is about 12 cents per kWh. Hydro power in Labrador is much cheaper says Vardy: “In Labrador West, where the power is supplied by the Upper Churchill and where generation costs one quarter of a cent per kWh, the rate is around four cents.”

The most straightforward of the three Muskrat Falls transmission lines, in terms of physical components, is the $700-million line extending 250 kilometres west and north to connect with the Churchill Falls generating station. This line will enable power exchanges between the Upper and Lower Churchill systems and provide back-up power.

The third and longest of the three Muskrat Falls transmission lines is the 1,100-kilometre Labrador-Island connection (a $2.6-billion extension cord between the Lower Churchill Project and Soldiers Pond, near St. John’s). In central and southeastern Labrador, the 400-km transmission line will cross 194 rivers and streams including the Kenamu River and St. Paul River. On the island, 700 km of transmission lines will span 392 rivers and streams before it reaches Soldiers Pond. There the power will enter the provincial grid for distribution to ratepayers.

A real jolt
“Hearing Danny Williams the day he said that this province is going to develop Muskrat Falls put a shiver through my spine,” says Vardy. It’s 11:00 p.m. but he is returning my call and he is… animated.

His biggest objections to Muskrat Falls are the cost and the way the project has been sold to Newfoundlanders and Labradorians as a good deal “even though all the risk is loaded on local ratepayers.” He’s appalled at how the terms of the Energy Access Agreement (EAA) between Nalcor and Emera Inc. are weighted in favour of Nova Scotians, and how, in his opinion, the cost of that deal has been foisted onto the shoulders of ratepayers on the island of Newfoundland.

“This will double our debt. This is $20,000 for every man, woman, and child — and that is if we hold the costs to $10 billion. It could go up,” says Vardy. He tosses around terms such as terawatt hours (TWh) and megawatts as if he was talking hockey scores. As the retired chair of the Public Utilities Board, and a former board member of Nalcor Energy subsidiary Newfoundland and Labrador Hydro, Vardy is one of the Muskrat Falls project’s most active and informed critics.

For Vardy, a huge red flag on this deal is Bill 61, passed in 2012 by Newfoundland and Labrador’s House of Assembly. He says the bill grants Nalcor a monopoly on power on the island. The legislation says that Nalcor has the “exclusive right to supply, distribute and sell electrical power or energy to a retailer or an industrial customer.” At a time when the island of Newfoundland is about to connect to the North American power grid and create new opportunities for energy entrepreneurs, the House of Assembly has passed a law forbidding “industrial customers on the island portion of the province … to develop, own, operate, manage or control a new facility for the generation and supply” of electrical power, either for its own use or for sale to the grid.

A former clerk of Executive Council (the body responsible for the overall operation of the provincial government, including decisionmaking, planning, formulation of policy and the general development of provincial resources), Vardy claims, “the legislation contradicts the rules which the Province used to argue our case against Quebec.” These rules, imposed by the Federal Energy Regulatory Commission (FERC), a power utility regulator in the United States, require that suppliers who generate energy and transmit it into the American grid, provide open access to their transmission lines.

Nalcor used this argument to gain access through Quebec for up to 250 MW of surplus power from the Upper Churchill. And now, says Vardy, they are proposing to avail of open access to sell power from Muskrat Falls to customers in the eastern United States and Canada.

When asked if the newly passed Bill 61 violated the terms of FERC, then-minister of Natural Resources, Jerome Kennedy said, “There would be or could be potential arguments on that but we’ll have to wait and see if they arise.”

The view from here
Interviewing management staff at Nalcor Energy can be a little like wrestling a tag team by yourself. The communications contact, in this case Karen O’Neill (the senior communications advisor for Muskrat Falls), greets you in the main lobby with a professional smile and a handshake. Through the locked doors and into a shiny elevator to some floor and into a windowless meeting room, where Gilbert Bennett, vice president for the Lower Churchill Project, shakes hands and sits at the large table. Greg Jones, general manager of energy marketing joins us. O’Neill takes the head of the table.

The conversation around Muskrat Falls often boils down to 40-20-40: 40 per cent of the power generated will replace thermal generation at Newfoundland’s aging Holyrood power plant; the Nova Scotia block of 20 per cent is in return for building the Maritime Link and turning it over to Nalcor in 35 years; and, 40 per cent surplus energy to meet the province’s growth in demand or to sell as surplus power into spot markets in North America. But is that 40 per cent surplus really available to Newfoundland and Labrador or has it been committed to Nova Scotia? David Vardy believes it is not available.

In a follow-up email, Vardy writes that under the amended Energy Access Agreement (EAA), Emera will pay 20 per cent of the total Muskrat Falls Project cost to a maximum of $1.58 billion in exchange for: 20 per cent of Muskrat Falls power (the Nova Scotia block) which equals 1,000 gigawatt hours annually for 35 years at 15 cents per kilowatt hour; five per cent of Muskrat Falls power (supplementary block) which equals approximately 240 gigawatt hours annually for five years at the same rate as the Nova Scotia Block; and 40 per cent of Muskrat Falls power (market-priced energy block), which equals 1,200–1,800 gigawatt hours until 2041 for a price that ranges from five cents per kilowatt hour at the start of the agreement to nine cents at the end.

Vardy explains that this new “20 for 60” principle was the basis on which the Nova Scotia Utility and Review Board conditionally approved the EAA application for the 500 MW Maritime Link. Nalcor needed the deal approved to secure a critical federal loan guarantee. So, when NSP-ML, the Emera subsidiary, came back to the table to renegotiate the agreement, Nalcor had no more cards left to play.

“An attractive rate indeed compared with rates [of more than 21 cents per kilowatt hour] to be charged in Newfoundland for power coming from the same generation source,” writes Vardy.

When Nalcor’s Gilbert Bennett and Greg Jones are asked why Newfoundlanders will be paying more for power than their Nova Scotian counterparts, Jones says something to the effect of having to be able to pay for the system. An ability further enhanced by Bill 61.

Vardy asserts that that commitment to Emera poses challenges for Nalcor. If Vardy’s numbers are correct and up to 60 per cent of Muskrat Falls is committed to Emera with the remaining 40 per cent required just to replace the Holyrood Generating Station, it’s difficult to see how Muskrat Falls can help Nalcor meet the anticipated growth in energy demand through its least-cost power generation strategy.

Perhaps this dilemma underlies the enthusiasm with which Jones and Bennett discuss the potential for the system to import power into the island. Once transmission lines are in place, the Muskrat Falls system will connect Newfoundland and Labrador to the North American power grid and create a power supply loop through which electricity can flow to and from Quebec and Nova Scotia. The difficulty here though, as Vardy pointed out in an earlier interview, is that the 500 MW capacity limit of the Maritime Link is sized around Muskrat Falls. If it is fully loaded delivering purchased power for Nova Scotia, then how much flexibility is there to import power?

There’s nothing in the Energy Access Agreement that deals with importing energy into Newfoundland, but both Jones and Bennett say that one of the big benefits of the Maritime Link is that they can import electricity from the North American grid into the island when spot market prices are low.

“We are in the energy export business,” Jones says, “but our hydro power gives us an export warehouse.” Electricity is difficult to store and has to be available on demand so this could be interpreted as an advantage of hydro generation, assuming the reservoirs have a sufficient flow of water and the transmission lines have the capacity to meet peak demand. When power from the market is cheaper than they can produce it, Nalcor would keep water in the reservoirs and import electricity.

Vardy calls this “grasping at straws.” And it does sound like an admission that Muskrat Falls energy won’t be able to compete in an open access market. But, the way Jones explains it, this is a positive. During peak demand, when electricity is at a premium, Nalcor would run the hydro dams at full capacity and sell every surplus kilowatt. This, adds Bennett, will be much easier to manage after 2017 when Muskrat Falls, Churchill Falls, and the other provincial hydro generating stations are operating in concert and connected to the larger national power grid.

Are these two different stories? The expensive hole that will never likely see the light of day and the expensive hydro project held up by government as the least-cost way to light the future? Or are they two sides of the same story? Are they manifestations of a yearning to bridge “the wonderful sea” and to continue striving towards the deepest intention of confederation with Canada: to reach out at any expense, including the loss of nationhood, to the neighbours across the sea? to trade provincial rights for an end to isolation? Perhaps it comes down to a matter of priorities.

Source: Nalcor