MARTIME PARTNERSHIP ROUTS QUEBEC IMPASSE. COULD REGIONAL UNITY BE NEXT?

It was a beginning that quickly led to an ending. In a St. John’s hotel ballroom on Nov. 18, Newfoundland and Labrador Premier Danny Williams announced a deal to develop part of the Lower Churchill hydroelectric project.

Just a week later, in the lobby outside the provincial legislature, the outspoken premier announced his retirement from the job he held for seven years. The conclusion of the hydro deal, Williams said, was the last item on his political to-do list.

“We fought the critics and ignored those who said, ‘We must go to Québec. We have to go to Québec,’” Williams said in his nationally-broadcast farewell speech. “And we successfully negotiated an outstanding agreement to develop the long-awaited Lower Churchill project.”

Developing the Lower Churchill has been the holy grail of Newfoundland and Labrador politics for decades, ever since the province inked a catastrophic agreement with Québec on the larger Upper Churchill power project. That 1969 contract has long been a scar on the province’s psyche. Subsequent efforts to make a deal with Québec on the Lower Churchill — and get redress for the Upper Churchill debacle — have all failed.

The $6.2-billion energy agreement announced in November avoids La Belle Province. Instead, Newfoundland and Labrador is partnering with Nova Scotia. The two provinces hope the project (which will see the development of Muskrat Falls, at 824 megawatts the smaller of two sites on the Lower Churchill) will lead to a new era of Atlantic energy co-operation.

“As a region, we’re making a statement here to the rest of North America, and indeed the world,” Williams told reporters the day of the announcement.

Nova Scotia Premier Darrell Dexter framed the agreement as a nation-building exercise, comparing it to the construction of the railway that linked Canada from Pacific to Atlantic in the 19^th century. “In my view, this is our CPR,” Dexter said at the announcement in St. John’s. “We are building the Atlantic region, we are building the nation. This strengthens us as region, but ultimately in so many categories it builds the country.”

The Muskrat Falls plan has been hailed as a bold move to develop and generate green energy that could benefit all of the Atlantic provinces, and possibly beyond. It has also faced pointed criticism as potentially expensive, with many details lacking and hurdles yet to be overcome.

The project’s proponents have dismissed those concerns. The day he unveiled the project’s details, Williams insisted that Muskrat Falls will become a reality. “This project,” he said, “is a go.”

There are three main components of the agreement between Crown-owned Nalcor Energy of Newfoundland and Labrador and Emera Inc. of Nova Scotia.

The first is constructing the 824-megawatt generating facility at Muskrat Falls and local transmission lines connecting the plant to Churchill Falls. Newfoundland and Labrador, through Nalcor, will pay the estimated $2.9-billion cost.

The second is a 1,100-kilometre transmission link between Labrador and the island of Newfoundland. Overhead lines will be strung from Muskrat Falls to the Strait of Belle Isle, where 30 kilometres of submarine cables will carry the power to the island. Overhead lines will cross Newfoundland all the way to Soldiers Pond on the Avalon Peninsula. Nalcor will pay for, and own, 71 per cent of the in-province transmission infrastructure; Emera picks up the other 29 per cent. Total cost: $2.1-billion.

The third piece of the puzzle is a maritime link between Nova Scotia and Newfoundland. Emera will be responsible for the $1.2-billion project, which will connect the island of Newfoundland to the North American grid for the very first time. Some 180 kilometres of submarine cables will run across the Cabot Strait from Cape Ray, N.L., to Lingan, N.S., where a 500-MW converter station will tie into the existing Nova Scotia transmission grid.

All told, Emera will fund $1.8-billion of the project’s total estimated $6.2-billion cost. Nalcor — and, ultimately, Newfoundland and Labrador taxpayers — will be responsible for the remaining $4.4-billion.

There are three specific blocks of power from Muskrat Falls, with three specific uses.

Roughly 40 per cent of the planned project’s electricity output will be used to replace the oil-burning Holyrood generating station near St. John’s. The Holyrood plant is scheduled to shutter when Muskrat is up and running.

In return for its investment in building the $1.2-billion maritime link, Emera will get 20 per cent of the juice for a period of 35 years, free of charge. That block of power represents roughly eight to 10 per cent of Nova Scotia’s domestic needs.

The other 40 per cent of Muskrat energy will be available for other uses, such as sales either in the Maritimes or down the Eastern Seaboard into the United States. Emera has infrastructure and transmission rights all the way down into Maine. Nalcor will control any sales of this excess energy, and pay Emera a tariff for the use of their lines.

The deal represents the consummation of a marriage of convenience between the two sides, with each bringing elements to the altar lacked by the other. Nalcor has untapped green hydro power — albeit in a remote location, with no easy way to get it to market. Emera needs green energy, in part because of an ambitious Nova Scotia plan to phase out dirtier power sources, and has infrastructure to get excess electricity to the rest of the Maritimes and beyond. Emera also brings cash to the table.

Supply, meet demand. Demand, meet supply.

The two sides signed a term sheet in November, with the deadline for the conclusion of formal agreements on Nov. 30, 2011. Before then, however, a number of hurdles remain in the way of Muskrat Falls becoming a reality. And a number of critics are raising questions about the deal.

Muskrat Falls will have to pass a joint federal-provincial environmental review. That process can be time-consuming. The Lower Churchill generation proposal was registered four years ago, and referred to a review panel in late 2007. That panel was finally established in January 2009, and has been examining the details of the project ever since.

Also still in play are aboriginal concerns in Labrador. The Newfoundland and Labrador government has signed the so-called New Dawn agreement with the Innu Nation. But New Dawn (which addresses land claims, benefits and redress for the Upper Churchill) has yet to be ratified in a referendum. Further complicating the process are ongoing talks between the Innu and Ottawa over land claims.

And critics have charged that Muskrat Falls power will be expensive, resulting in a big boost to power bills for Newfoundland consumers. “There is a tremendous amount of information missing from this deal,” said the province’s acting Liberal Opposition leader, Kelvin Parsons. “We know our electricity costs are going up, but we don’t know by how much … 

“This new deal sees Newfoundlanders and Labradorians footing the bill for construction and paying for it as consumers. The premier has an obligation to tell all of us, who are the real owners of Muskrat Falls and Nalcor, just how much this is going to cost and who really benefits.”

According to Nalcor, the blended average rate for Newfoundland consumers in 2017 — which includes all generation resources including Muskrat Falls — is expected to be roughly 15 to 16 cents per kilowatt hour. By comparison, customers today are paying about 9.5 cents per kilowatt hour.

But Nalcor insists power would cost that much in 2017 even without Muskrat Falls, thanks to forecast higher oil prices and operating costs at the Holyrood plant. In the long run, the company contends, Muskrat Falls will be cheaper, with stable rates further out into the future.

And, according to the proponents, the benefits spill over into the realm of economic development. The Newfoundland and Labrador government estimates that total direct, indirect and induced employment in the province will tally up 18,400 person years. Peak direct employment levels, the Province says, will hit 2,700 people in 2013.

Nalcor CEO Ed Martin said Muskrat Falls will be one of “a suite of opportunities” (others include the Hebron oil project) allowing Newfoundlanders to come home for steady work. “It’s a not a one year, it’s not a six month, it’s not a year and a half’s worth of work. We’re looking at potential for years and years and years of project work that will continue on for quite awhile.”

Regardless, the project backers see Muskrat Falls helping lead to a cleaner energy future for the region. Newfoundland and Labrador itself, for example, will be 98 per cent green if and when the project becomes a reality. This past summer, power companies in Nova Scotia and New Brunswick agreed to look at doubling the electrical transmission capacity between the two provinces. The premiers of both provinces recently re-affirmed their support for a new intertie between Nova Scotia and New Brunswick, something that would help both meet their power needs.

Dexter said co-operation between provinces, and increased integration of the Atlantic energy system, could help solidify the economic foundation of the entire region. “I have always said that what is good for Newfoundland is good for Nova Scotia, what is good for Nova Scotia is good for New Brunswick,” he said. “Having success on the East Coast benefits us all. This agreement … takes the idea of Atlantic co-operation off the pages of speeches and into action.”

The other two Atlantic premiers have also expressed enthusiasm for the Lower Churchill project, at least in principle. New Brunswick Premier David Alward said his province was “very supportive” of the agreement. “Because of its strategic location, New Brunswick has a key role to play as this project develops in terms of the increased transmission and export of electricity,” Alward said in a statement. “New Brunswick, and indeed the entire region, will also benefit from the new source of clean renewable energy which will flow through Atlantic Canada when this project is developed. This announcement is very positive in terms of lowering greenhouse gas emissions and promoting increased renewable energy in Atlantic Canada.”

Meanwhile, Prince Edward Island Premier Robert Ghiz said his province could ultimately purchase Labrador power when it comes on-stream. “The more competition there is, the more likely our province is to get a better price,” Ghiz told reporters after the deal was unveiled.

Ghiz added that the development could open the door for additional wind power initiatives in his province. “It’s a great green energy mix that we now have coming out of Atlantic Canada. Once we see the market conditions improve, you’ll see more wind development in the province.”

Muskrat Falls is by far the smaller of the two generating sites on the Lower Churchill. Gull Island, if developed, would boast nearly triple the capacity of Muskrat. But Gull Island remains stuck on the drawing board, at least for now.

While Emera and Nalcor are looking for aid from Ottawa ($375-million to help defray the costs of the trans-gulf cable linking Newfoundland and Nova Scotia, and federal loan guarantees to help lower interest costs) the proponents insist the project is a go, regardless.

First commercial power is expected to flow from Muskrat Falls in early 2017.

It’s an ending, but also a beginning.

Danny Williams may no longer be premier of Newfoundland and Labrador. But he has expressed hope his final deal “marks the beginning of a new era of Atlantic Canadian co-operation,” and provides competition in the hydroelectric marketplace.

“This is a day of great historic significance to Newfoundland and Labrador as we move forward with development of the Lower Churchill project, on our own terms and free of the geographic stranglehold of Quebec which has for too long determined the fate of the most attractive clean energy project in North America,” Williams said.

 Muskrat Falls, Williams noted, should help salve the wounds of the Upper Churchill. Provincial officials have contended that Newfoundland and Labrador nets roughly $63-million a year from that project, while Quebec rakes in up to $1.7-billion.

“It’s a huge milestone,” Williams noted. “It’s the day, hopefully … when Newfoundlanders can finally let go of the Upper Churchill and say, ‘Done. It’s over’.”

It’s a beginning, with that ending yet to be written.