or How to Impoverish Newfoundland while Making a Fortune Selling Electricity to New York
Guest blog by S. A. Shelley: A few weeks ago, at a speech in Washington D.C the Premier of the Canadian province of Alberta, Jason Kenney, promulgated the idea of a North American Energy Alliance.
By 2024, the completion of the Trans Mountain pipeline expansion project to British Columbia will give Canada even more capacity to ship oil to the US, Kenney said in an interview on Bloomberg Television. “My point is, let’s be visionary about this. Let’s have a North American energy alliance, and let’s get another major pipeline done because we’ve got the third-largest reserves on Earth up in Alberta,” he said.
It is funny, how when over a year before that speech in Washington, OWOE editorial staff first formulated a North American Energy Alliance, in a slightly more complete form, no news organizations picked up on our idea.
The OWOE energy policy combines several key elements, including: firm commitment to dramatically reduce dependence on fossil fuels in a planned and rational manner, sustainable investment in renewable technologies, and establishment of a North American Energy Alliance (NAEA) between the US and Canada to aggressively develop and globally sell our existing energy resources.
Within a week following the Premier’s speech, other analysts have started to chime in about the need and merits for such an alliance (see for example, Ms. Francis’ column, North America needs an energy revolution now more than ever). The idea of some sort of coordinated energy alliance or cooperative continued to spread until powerful people in Quebec began advocating for such schemes though on a national level. On May 30, Ms. Sophie Brochu, chief executive of Hydro-Quebec had some thoughts on the creation of a “national energy conversation“.
That’s when I lost my last shred of faith in Canadian peoplekind, for whenever Quebec public figures (Justin Trudeau especially) talk about national benefits, the rest of Canada needs to hide its valuables. One needs to look no further than the disastrous Churchill Falls hydro project in Newfoundland, or the egregious National Energy Policy of the 1980s for confirmation of my thesis.
The History of Churchill Falls Hydro
Churchill Falls is a hydroelectric generating dam in Labrador (Newfoundland, see Fig. 1). Construction for the dam started in 1967 and was completed and operational by 1971. At the time of operation, there was only one route for the excess power to be transmitted to markets and that was through Quebec. Consequently, under some duress, the Premier of Newfoundland and the Newfoundland Utility agreed to a fixed price contract of $2 / MWh. That was the price and IS the price for a hydroelectric facility that is rated at 5,428 MW. There are roughly 365 days per year, and hydropower is generated 24 hours a day. Using a bit of arithmetic, this means that Newfoundland is paid just under $92 million a year for the power produced by the Churchill Falls project. In 1972, $92 million was a substantial amount of money going into the coffers of the less economically fortunate province of Newfoundland. In 2022, $92 million is insignificant to the budgetary needs of the province that struggles to provide good services (education, healthcare) for its residents.
That’s right astute readers, in 1972, Hydro-Quebec with the full backing of the Federal Government of the Liberal Party of Canada with Pierre Trudeau as Prime Minister, locked Newfoundland into a contract for all the electricity generated by Churchill Falls at $2 per MWh, in virtual perpetuity. Newfoundland has tried numerous times to get the contract quashed in the Canadian courts to no avail. The current pricing scheme is supposed to expire in 2041, but by then it is very unlikely that it will change or that Hydro-Quebec will continue to buy power from Churchill Falls.
This is the Arbitrage: Hydro-Quebec sells a lot of electricity to New York state. In 2019, the amount of power sold to New York amounted to about 33.7 TWH at about $67 / MWh, and that looks to increase significantly in the future. Currently, Churchill Falls alone provides about 45.9 TWH to Quebec. Thus, Quebec buys 33.7 TWh (plus more) at $2 / MWH and sells it to New York at $67 / MWH (Figure 1). That’s an arbitrage profit of $65 / MWh. I’m ignoring small transmission losses and some infrastructure costs, but when all physical assets are factored in, this is still a huge arbitrage profit that one Crown corporation reaps at the expense of another Crown corporation. How’s that for equity in Canada?
The excess of power from Churchill Falls feeds into the Hydro-Quebec’s domestic customers and lowers their overall average electricity (hydro) bill.
Is This a Special Case?
Is this just a special case of Hydro-Quebec and the Federal Government shafting Newfoundland? No, there are numerous other cases in which Hydro-Quebec and the Federal Government shaft other constituents in Canada. For example, 36% of all of Hydro-Quebec’s total hydroelectric power is installed on native lands that the Crown corporation and the Crown (The Federal Government in Canada) just outright ignore:
In total, 33 production structures, 130 dams and dikes, 10,400 km2 of reservoirs, tens of thousands of kilometres of transmission, distribution and road lines have been illegally installed.
Again, how is this equity?
Muskrat Falls, Another Hydro Project with Problems
We briefly mentioned the Muskrat Falls Hydro project in the Canada and Energy Blog, Part 3 in 2019. That project is also a fiscal disaster in large part again to Federal Government interference and Federal Government (Liberal Party) insistence on Newfoundland using one federally preferred contractor from Quebec, SNC Lavalin. The residents of Newfoundland and Labrador are kind, hardworking and smart people; they just aren’t smart enough to deal with the political influence peddlers from Ottawa and Montreal.
“Nalcor has indicated that they experienced performance issues with SNC shortly after the contract was awarded, including turnover of key project resources, the failure to complete key project deliverables, lack of adequate systems and tools, and significant organization and alignment gaps.“
More complete reports about the problems with the Muskrat Falls project are available in the documents: “Muskrat Falls: A Misguided Project – executive summary” and “Muskrat Falls Project – A Critical Review“.
When the Trudeau regime crows about providing massive funding support for the Muskrat Falls project, the Trudeau regime simultaneously ignores its culpability that led to the massive project problems. In all likelihood, many of those additional $billions will eventually find their way back into coffers around Ottawa and Montreal.
Is it Just Muskrat Falls?
No, there are far too many problems with big energy and infrastructure problems in Canada. There is the Site C dam in British Columbia, a project started in 1972 and still not complete.
There is the Saskatchewan Carbon Capture Scheme that stumbled in 2015 with the provincially owned utility embarking in a dispute resolution process against contractor SNC Lavalin over serious design deficiencies.
There is the Ottawa Light Rail expansion. “Memo made public Friday confirmed SNC-Lavalin didn’t meet technical threshold”. Additional readings about the Ottawa Light Rail fiasco can be found in Trains.com, CTV News, TVO Today, and CBC.
The foul ups in Canadian energy and engineering projects just never seem to end, and Canadian taxpayers and New York rate payers just keep paying.
It is said that Canada was confederated in order to keep the French in, the Americans out and the Natives down. By the actions of the Federal Liberal Governments of the last few decades, I think it would be better to think that the purpose of the confederation of Canada is to keep the Liberals Governing, Quebec Booming and the Natives Ignored. That is why, for example, 66% of Quebec residents would prefer getting oil from Alberta, but the Quebec government insists instead to get oil from Saudi Arabia because it is better to send money overseas than to confederates out west where nary a Liberal can be found. A North American Energy Alliance can be a very good thing, if it involves all forms of conventional and new energies, and I’m all for such. But when Ms. Brochu or anyone from Hydro-Quebec speaks of a national energy and conversion policy, everyone else in Canada needs to be very suspicious.
Vive l’Alberta Libre!
Shut Down Line 5