Part Two – Muskrat Falls

Let me turn now to something of particular importance to Newfoundland and Labrador’s economic future.  For better or for worse, Muskrat Falls is a mega-project involving both great financial cost but also great potential gain. If we make the decision to go forward with it, how do we make a go of it?

Muskrat has not been without controversy, notably the substantial cost overruns – the costs of the project have risen from $7.4 billion in 2012 to $11.4 billion in 2016 – and there is still work to be done to meet the concerns of affected Indigenous communities. But the opportunity to put behind us the painful years of ceding control over our hydro resources to the province of Quebec, and to start using our hydro-electricity productively and efficiently to expand our provincial economy and local jobs, is invaluable. So, how do we move forward in a financially sustainable way?

For example, is the latest increase in the loan guarantee from the federal government sufficient to cover the cost overruns to support the scheduled completion by the end of 2017?  Muskrat Falls is, after all, a project of national significance from both the energy and environmental perspectives, and merits substantial federal support. Muskrat is not a narrowly Newfoundland and Labrador project; it is bold idea with broad national impact, and one meriting regional and national engagement and support.

It is arguably far better to join with our provincial Atlantic counterparts and make a strong case to the federal government for the necessary ongoing financial guarantees or assistance than to start skirmishes with Nova Scotia with dubious arguments that NS is getting something for nothing.  Perhaps I am misinformed, but it is my understanding that Nova Scotia negotiated and paid for 20% of the overall capital costs by fully funding the construction of the Maritime Link between Newfoundland and Nova Scotia.

In seeking new markets for our power, would it not be more useful, for example, to collaborate with both Nova Scotia and New Brunswick, and go to Ottawa together.   We could secure federal government support for upgrading of the sub-sea link between Nova Scotia and New Brunswick that could expand the market for NL hydroelectricity exports from Muskrat Falls, including electricity from our large-scale wind projects, to both other provinces and the eastern U.S.? Is this not something for which the business community should lobby aggressively?

The project can  produce about three times the power  used by our province to be transmitted across two new transmission lines – one to Nova Scotia and one to Newfoundland.  Yet the power plant still has no export contracts for the surplus power, especially to the United States market. Newfoundland and Labrador is still unable to transmit electricity by the most direct route from Muskrat Falls to markets in New England because Quebec is demanding too steep a price for crossing its territory. Quebec favours its own hydro projects competing with Newfoundland for the same American markets (La Romaine and expansion of James Bay capacity) and has already delayed Newfoundland’s application to use Quebec transmission lines to export to the U.S. for several years.

Newfoundland and Labrador would clearly benefit from developing transmission routes that bypass Quebec, through New Brunswick. New Brunswick should be open to this collaboration. In this connection, we must remember the reasons why New Brunswick residents fiercely opposed the proposed $3.6 billion Hydro-Québec takeover of New Brunswick Power in 2010.  There can be no doubt that New Brunswick faced, and still faces, a serious energy security crisis, and that obtaining cheaper hydro-electricity from Quebec made some sense.  But by strengthening Hydro-Québec’s monopoly on transmission access to the U.S., the Quebec-NB hydro deal (together with expected parallel hydro deals with Nova Scotia and Prince Edward Island) would have cemented Quebec’s control of Eastern Canada’s power grid, something that New Brunswickers could not support.  The New Brunswick opposition was fortunate from the perspective of Newfoundland and Labrador because the takeover would have increased Hydro-Québec’s ability to extract a greater share of Newfoundland’s profit from Churchill Falls.

Moreover throughout the debate, the federal government remained typically  mute on the sidelines, hesitant to challenge Quebec, as it has done consistently since Pearson and Trudeau in the 1960s. Yet the bilateral Quebec-New Brunswick deal clearly engaged the Canadian national interest in promoting inter-provincial equity in the transmission of electricity across Canada and to the U.S., and guaranteeing all Canadians equitable access to long-term supplies of clean energy.  When New Brunswick finally rejected the deal with Hydro-Quebec, the federal government simply resumed muddling along incoherently, making one-off deals with provinces — a loan guarantee for the Lower Churchill development here, a contribution to the Old Harry oil and gas development in the St. Lawrence there.

In looking to the future, it is clear that Canada needs an integrated national electricity market and, at the very least, an Atlantic Canada grid.  Newfoundland and Labrador should support this initiative. The status quo in the coordination of grids across provincial and international boundaries is particularly absurd and even embarrassing. The federal government needs to step up to the plate and do something about Canada’s hopelessly inefficient and highly politicized electricity business, and fragmented market, that wastes billions of dollars every year, not to mention produces millions of tonnes of avoidable greenhouse gas emissions.

The federal government also should resume oversight of the electrical trade across the Canada-U.S. border.  It is absurd that when Newfoundland is eventually in a position to transmit electricity to the U.S., whether via New Brunswick or Quebec, the terms of transmission will be set not by Canadians authorities, but by the American Federal Energy Regulatory Commission (FERC) that requires owners of power lines (whether Quebec or New Brunswick) to give equal access to competing power suppliers.  Indeed, the federal government has been missing in action for a long time, backing off from energy management so thoroughly after abandoning the deeply unpopular National Energy Program of 1980, that it abdicated even its constitutionally-sound cross-boundary regulatory responsibility.

Focusing on Muskrat Falls and the economic potential of our hydro-electricity is as an example of where we can take action at home in Newfoundland and Labrador, while at the same time as reaching out and collaborating with like-minded Canadians through both our common federal government and provincial governments. Part Three addresses the crucial discussion of how to modernize certain federal structures and operations to better serve both the national interest and all Canadians, including Newfoundlanders and Labradoreans.