Don’t ignore alarm bells again

Brian
Brian Jones
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Newfoundlanders (and Labradorians) who weren’t around or of age during the concocting of the Upper Churchill hydroelectric project in the 1960s can only wonder, “Was there any debate?”

So much has been said, denounced and litigated since that disastrous deal was made, you have to ask — in amazed hindsight — “Wasn’t all that discussed before the deal was signed?”

Obviously, it either wasn’t discussed, or was ignored by the people in power.

Here is an open question to anyone who was around back then and paying attention: did anybody publicly ask, “What about inflation?”

That simple, three-word phrase should have had the power to prevent disaster. There could be only two responses: either put a clause in the Upper Churchill contract to deal with rising prices and costs, or ignore the question. The latter won out, and thus Newfoundlanders await 2041 for redress of their own mistake.

Perhaps a sessional lecturer or an assistant professor in Memorial University’s economics department did dare to ask, “What about inflation?” Even though the Upper Churchill deal was negotiated and signed before the inflationary era began in the 1970s, inflation was a well-known concept long before that.

Surely, in the 1960s, somebody must have asked about it. Maybe someone did, but had their reputation and credibility maligned. That tactic has been put to energetic use by Premier Kathy Dunderdale and Natural Resources Minister Jerome Kennedy the past few weeks.

In 2012, it is almost inconceivable that in the 1960s the possibility of inflation did not set off alarm bells loud enough to prevent the disastrous Upper Churchill deal.

In 2012, alarm bells have been ringing for months about the Muskrat Falls deal, but Dunderdale, Kennedy and the crowd at Nalcor have thrown their heads under pillows to muffle the sound.

Here is an alarm worth attention: whatever happened to “the Quebec corridor”?

When Danny Williams was in his first few years as premier, one of his primary goals was to develop the Lower Churchill and negotiate a deal to run Lower Churchill power through “the Quebec corridor” to markets in the northeastern U.S.

New England and New York were hungry for power, and the Lower Churchill would bring long-awaited hydroelectric riches to Newfoundland.

Even as late as autumn 2010, the energy needs of the northeastern U.S. were the primary focus.

When the Muskrat Falls deal was announced, much was made of the fact that power would be delivered to the U.S. via the island of Newfoundland and Nova Scotia using subsea routes — bypassing Quebec altogether.

Somewhere along the line — no pun intended — the rationale shifted. Suddenly, Williams, Dunderdale, Kennedy, Nalcor, et al, stopped talking about the Quebec corridor and the lucrative energy market in the northeastern U.S.

Seemingly in an instant, and utterly inexplicably, the rationale became local demand. Apparently, Newfoundlanders (and Labradorians, and their mines) were going to need more and more and more power.

Nobody talked anymore about selling electricity to the U.S. for big profits.

It stopped.

Dead.

This should signal a loud alarm bell, for anyone who wants to wake up.

Here’s another significant alarm: the Mackenzie gas pipeline project in the N.W.T., which has been planned since the 1970s, is being scaled back.

The consortium planning to build the pipeline has closed several offices in the North, has cut spending and expects the project to be delayed.

According to a Reuters news report, “The economic viability of the 1,196-kilometre pipeline has become increasingly questionable due to steadily rising costs and depressed natural gas prices as vast new shale gas supplies have been developed much closer to major markets.”

Ignore these alarm bells, and we’ll have another Churchill disaster.

Brian Jones is a desk editor at The Telegram. He can be reached by email at bjones@thetelegram.com.

Organizations: Reuters, The Telegram

Geographic location: Quebec, U.S., Northeastern U.S.New England New York Island of Newfoundland Nova Scotia Northeastern U.S.Seemingly

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Recent comments

  • sealcove
    April 14, 2012 - 09:26

    It,s Williams way or the high way were have you been JOHN Smith

  • John Smith
    April 13, 2012 - 15:47

    Maurice, there is not one word of truth in that last comment you just posted. There is no 2 cent wholesale power anywhere in the US. Oh... and I would like to know how, and where this gas will be"exported" to. Tell us Maurice...a pipe line to mexico perhaps?...LOL You guys come on here and just post whatever you like, completley ficticious, mad up bull crap...

    • mis information
      April 15, 2012 - 08:32

      John, This data is widely provided on the internet. http://www.iso-ne.com/ As I write this comment wholesale electricity in New England is 1.3 cents a kwh (Sunday morning non peak). However a review of the reports will show that natural gas is driving down electricity costs. See excerpt below: The February 2012 New England ‘all hours’ total cost fell by 18% to $35.75 /MWh from its January value of $43.46 /MWh. Lower RT LMPs resulting from decreased input gas prices and lower load levels in February were responsible for this decrease. For the year to-date, the New England average total wholesale load cost averaged $39.74 /MWh, or 3.97¢/kWh No matter which way you want to spin it, numbers do not lie. This is 20% of what Muskrat Falls Power will cost delivered to St. Johns. Check out the RFI-KPL-27 Rev. 1 which shows that MF energy to St. Johns will be 210 $ per MWh or 21 cents a kw hr. This is roughly half transmission and half generation. We may not be able to do Natural Gas more cheaply in Newfoundland. But it should be looked at. This should have been done for Nalcors DG2 decision, in accordance with their own process. If Nalcor did the work when they were supposed to... these questions would not be asked now because the answers would exist.

  • Maurice E. Adams
    April 13, 2012 - 14:22

    The U.S. will be a net exporter of natural gas by 2016, and is expected to triple its exports within 3 years after that. Natural gas now bringing wholesale electricity prices in the U.S. down to 2-3 cents per KWh. The only ones not benefiting are those utilities that have been locked into take or pay contracts like Muskrat Falls/Nalcor plans for us for the next 50 or more years.

  • John Smith
    April 13, 2012 - 12:41

    Cyril, Niagra power, located in southern Ont., in the heart of the natural gas zone, with all the needed infrastructure for gas in place, on land, not an island, just finished a two billion dollar expansion to their hydro generating station. Don't you think if these guys, who have natural gas right in front of their noses, thought that gas was the answer they would have built a gas turbine? They don't have half the issues with gas we have, they have pipelines running right by their front door. They don't have to worry about pressuizing, and depressurizing, or drying wet gas for pipeline transportation, or any other of the myriad problems that we would have. Yet they still chose to invest heavily in hydro. You, and those of your ilk want us to persue gas???Give me a break.

    • ceyoung
      April 13, 2012 - 18:28

      Sir, Well said. Respectfully, c.e.young

  • Cyril Rogers
    April 13, 2012 - 11:10

    Not only has the emergence of shale gas torpedoed their supposed markets for the 40%(actually more like 60%) of the electricity they won't need, it has altered the dynamics of energy pricing as well. The glut of natural gas has blown the cost electricity from Muskrat Falls out of the water but they are going blindly forward, despite all kinds of evidence to the contrary. Just like Harper and his prisons, wouldn't you say? To add further insult to our intelligence they have slammed the door on natural gas, despite their supposed upcoming review. They will very likely manipulate these numbers to suit whatever ends they have in mind for this project. Where are the principled people inside the PC party? Where are the NHA's with any backbone? The only ones we hear from are the few flunkies who blindly spout the propaganda of the "Leader" and NALCOR. It reminds me of an article I was reading on North Korea yesterday and the obvious propaganda their citizens are required to share with the outside world. It is not quite as obvious here but ultimately achieves the same ends. It is not about "power" for the people; it is about "power" for the government. What a failed "democracy" this is! The only difference is that we are, at least at this juncture, still free to express an opinion, although even those opinions are subject to government ridicule.

  • John Smith
    April 13, 2012 - 11:07

    Well, Mr. Jones, the PC government under Mr. Williams spent more time and money trying to negotiate with quebec than any other previous government. They did everything they could, took contracts to various courts, went to the feds, bent over backwards to try and get quebec to come to an equitable arrangement. However, quebec simply gave us the middle finger. So if that is an alarm bell re. muskrat falls than I simply don't see the connection. We tried and tried to go through quebec, but they won't have it without controlling the whole thing...which is what the Roger Grimes gov. proposed in 2000.Thankfully the people of NL turfed Grimes, and his give away out on their rear ends.Mr. Jones, I know the only way you can get anyone to read one of your poorly researched, and puposely inflammatory pieces of tripe is to degrade this development, but I wish your verbal diarrhea had some miniscule basis in fact. Sad that you are trying to make money by putting a negative spin on a project that will, if anything, rectify some of the past's mistkes. As well, you should take a look at who was involved with BRINCO, and who was on the board of QH, and who ACTUALLY signed the documents pertaining to the UC. You will not find Premier JR Smallwoods name anywhere on the document. The UC contract was a bamboozle between QH, and BRINCo, and what Grimes tried to do in 2000 was very much the same thing. Thank goodness most rational sane, thinking Newfounlanders and labradorians can see through the crap, and understand what you are trying to do. As I said before...it's just sad...

  • penny
    April 13, 2012 - 08:50

    Here's a clue to the change in tack - the project itself changed from a 3100mw development to a smaller 800 mw development. That's why we're not hearing about the U.S. anymore. Gull Island would have satisfied the bulk of U.S. demand while Muskrat Falls capacity corresponds largely with demand in the province and the Maritimes. It's amazing that Brian Jones didn't consider this at all.

  • They Government and Orchestrators of the Muskrat Falls Contract are too stubborn to listen to the voices of reason on the risks involved
    April 13, 2012 - 08:41

    Inflation has been around since the beginning of trade in the world, so why then did somebody connected with the Upper Churchill Contract or our government not think about adding an "Escalator Clause" to the Upper Churchill Contract, that subject to an increase in electricity rates, the same increase would apply to the electricity coming out of the Upper Churchill Project. A few years ago I heard an economist from Memorial University crazily addressing that very matter by saying "electricity rates were stable for so long, we never thought that electricity would increase the way it did so that was the reason for no escalator clause being included in the contract. As an economist, he should have known that the very reason such clauses are constructed in the first place is so that they can be included in contracts so as to protect the contract's economics and feasibility.

  • Geoff Meeker
    April 13, 2012 - 07:29

    Yes, to this. Well said, Mr. Jones.

    • Paddyjoe
      April 14, 2012 - 10:05

      The Upper Churchill power contract was one thing. The development of the project was quite another. Yes, the contract turned out to be inequitable when the 1970's inflationary spiral hit. But, as far as I can tell we have not lost money on it---just get a pittance of what Quebec gets. But, here's the difference. The Upper Churchill was developed by a private consortium led by the Rothchilds. It was one of the most massive projects ever undertaken at the time and in one of the most difficult environments. It was completed on time and under budget. The government of the day did not finance any of the project. The taxpayers were not on the hook for cost overruns or other unforeseen consequences. With Muskrat, the present government, through Nalcor is on the hook for Billions if this project runs into large cost over runs or other problems. Our Provincial bebt could balloon and our grandchildren saddled with an albatross....