A former head of Newfoundland and Labrador Hydro says the Crown corporation is being duped by Hydro-Québec, which he believes should pay tens of billions more for Churchill Falls power under a new memorandum of understanding unveiled in December.
“They’ve taken us to the cleaners. Most Newfoundlanders are oblivious to it,” said Bill Wells, N.L. Hydro CEO from 1996 to 2005, in comments roundly rejected by the utility’s current head.
“We have not been wrung dry,” said Jennifer Williams, the current CEO, who led negotiations on the MOU. “This is a very, very fair deal…. We extracted the maximum value.”
When the agreement in principle was unveiled last month before hundreds of local politicians and business leaders in St. John’s, Quebec Premier François Legault said the deal, while promising $227 billion in revenues for the Newfoundland and Labrador government between now and 2075, would also mean $200 billion in savings for his province over the same period.
For Wells, that statement revealed that Newfoundland and Labrador could have squeezed far more money from Hydro-Québec negotiators, while still landing a “win-win” deal for both provinces.
Replacement cost is key metric, says Wells
N.L. Hydro says the MOU, which replaces the much-maligned 1969 Churchill Falls agreement and opens the door to developing new hydro plants on the Churchill River, sets the price for power at the existing plant at 1.63 cents per kilowatt hour in 2025, growing steadily to 7.84 cents in 2041, 19.40 cents in 2056 and 37.24 cents by 2075.
Over the life of the 50-year agreement, the “effective” price for power produced at the existing plant shakes out to 5.9 cents per kilowatt hour, according to the utility. That’s about 30 times more than the bargain-basement fixed price of 0.2 cents that Hydro-Québec currently pays for Churchill Falls power.
But Wells said Hydro-Québec, which through the agreement secures access to affordable power for decades to come, has repeatedly stated that the cost of producing electricity at alternative projects under consideration falls somewhere between 13 and 16 cents per kilowatt hour.
“What you have to look at is that replacement cost,” said Wells, who was for 15 years a board member of the Churchill Falls (Labrador) Corporation, the company that owns and operates the plant. “If there was no Churchill, [Hydro-Québec] are looking at something in the order of 16 cents…. If that’s the case, why are we accepting less than two cents to start now?
“I don’t know how much more we could have gotten,” said Wells. “Somewhere between $100, $125, $130 billion for certain. I’m absolutely convinced that that’s what we’re giving away, that much. And maybe if we bargained hard, we’d get the whole $200 billion.”
Current CEO slaps back
Williams panned the criticism and repeated, as she did during a four-day debate on the MOU at the House of Assembly, that the agreement in principle is the “best deal possible for Newfoundland and Labrador.”
“We are incented and driven as employees of a Crown corporation to deliver the best possible deal and we would not bring anything forward that wasn’t that,” she said.
“There’s going to be naysayers,” she said. “I do think that there are some folks who think we should get 100 per cent of the value and not share the value. This deal has to make sense for both of us.”
Williams said the MOU, once finalized, will replace the existing Churchill Falls deal 17 years before it was set to expire and that if the payments expected between now and 2075 were instead spread out between 2041 (the end of the current deal) and 2075, the effective price would swell to 13.3 cents per kilowatt hour.
“When you consider replacement cost, we got a large portion of the replacement cost, but we’re getting it paid sooner because that’s something that was important to our jurisdiction,” she said.
Long-term deal, long-term safeguards?
Critics of the MOU, such as Wells, have also said Hydro-Quebec will benefit most in the early years of the deal, given the price of Churchill Falls power will remain relatively low in the first decades of the agreement. Meanwhile, Newfoundland and Labrador will earn the most cash in later decades, as the price rises.
The rate at which the price increases depends on a still-to-be-finalized escalator clause, which will be pegged to what Williams has called a “basket” of factors including the market price of electricity in Quebec, Hydro-Québec’s replacement costs and the price of power exports to the northeastern United States.
Critics say those factors may be too hard to foresee over the life of the 50-year agreement.
Williams said, however, that she’s confident the new deal and its escalator clause will incorporate the needed protections and ensure the provincial treasury reaps significant returns.
“We have de-risked the future,” she said.
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