Now for a little history lesson. Years ago, in the ’80s, looking for a little relief from high-riding interest rates, the provincial government decided to find low rates in strange places.
Instead of the usual borrowings in Canadian and American dollars, the government of the day went to a new source with a quite attractive rate.
They felt they could beat the money market at its own game, and borrowed millions in — wait for it — Swiss francs and Japanese yen. The rates were indeed low. In fact, to government bureaucrats, they must have looked startlingly advantageous.
We got out from under the last of those borrowings in 2003 — a $162-million payment on a 150-million Swiss franc offering known as 1991/2003 S7 — but in the process, we also ate plenty of costs by what could only be described as poor timing in currency speculation. Money borrowed in francs and yen, you see, had to be paid back in the same currency. And as those currencies strengthen against the Canadian dollar, the effective rate of the borrowings grew and grew.
It was a foray that ended up being a bit of a rude awakening.
Why mention this now? Well, governments still like to fancy themselves “players” in everything from oilfield deals to electricity speculation. Electricity speculation?
Well, that’s a new one, but apparently it’s another piece of the Muskrat Falls/Maritime Link puzzle, and one that hasn’t generated much discussion yet.
There’s news — in the paper today in a front page story by Telegram reporter James McLeod — that, once the Maritime Link is up and running, the province’s virtual energy monopoly plans to use the system as a two-way link. The idea? That we might stockpile water to generate electricity by buying and importing cheap power, and then turn around and let the turbines flow when electricity is more dear. It is the hydro equivalent of “buy low, sell high,” and included in the mix is the idea that, should power actually run short, we could import power instead of using costly oil-fired generation, the way we do at Holyrood right now.
It is an interesting idea — it does however, involve a couple of hurdles. First of all, to efficiently stickhandle water resources, you have to be able to control water flow rates. The provincial government has a water management agreement (WMA) to allow it to do just that — important, because the biggest power generator, Muskrat Falls, has limited storage. One problem? Hydro-Québec is questioning the legality of the WMA in court.
The second issue is one the government has soft-pedalled, but it has a crucial role to play in any future wheeling and dealing of electricity across borders — especially when it comes to “wheeling.” In order to sell power into the U.S., you have to follow U.S. federal energy regulations. One of those is that you have to have, in your electrical transmission system, something called open access transmission tariffs or OATTs — OATTs let power move both ways. Presumably, they would allow such things as having Newfoundland Power buy and import power from somewhere else, if it was cheaper than buying from Muskrat Falls and Newfoundland and Labrador Hydro. We have no OATTs, and the provincial government has legislation in place blocking power transmission. They’ve said they’ll cross that bridge somewhere down the road.
Looking ahead to being a “player” may be fun. However, you can learn the hard way that it involves playing by the rules.