Monday, 12 December 2016

QUEBEC NEITHER ENEMY NOR BENEFACTOR SAYS FORMER HYDRO-QUEBEC EMPLOYEE

Guest Post Written by Bernard Lahey

I am a Quebecer, currently retired, having spent most of my career in the Quebec public sector - including two stints at Hydro-Québec.  From my point of view, most discussions of Newfoundland and Labrador’s dealings with Quebec ignore several important factors. 

At the outset, it might be a useful reminder that those who ignore history are destined to repeat it.  The danger in the demonizing of Quebec is that it avoids drawing any lessons from Newfoundland’s own role in the saga of Churchill Falls and prevents Newfoundlanders and Labradorians from considering further cooperation with Quebec. 

In this blog, I want to offer some food for thought.  I don’t speak for Hydro-Quebec. I had nothing to do with Churchill Falls. However, I am concerned about what is happening on the Rock.  

From afar, it seems that the province is betting its economic future on a single project - Muskrat Falls.  The financial and operational challenges of the initiative appear to be almost insurmountable, especially for a small Province already facing a major economic crisis. Thanks to the federal loan guarantees, this is no longer Newfoundland and Labrador's problem.  We are in this together whether we like it or not.  Call me naïve if you please, but I wonder: if Newfoundlanders and Quebecers can achieve a better mutual understanding, perhaps we can discuss cooperation more constructively.  

My goal is to present, as best I can, the other side of the Upper Churchill story – the dark side if you will. 

It is easy to forget the context in which the Upper Churchill project was realized. The foundations of the deal were actually laid in 1953.  Hydro-Quebec's involvement came much later, in the mid 1960’s following the nationalization of Shawinigan Light and Power, which held a minority interest in Brinco.  Premier Joey Smallwood, motivated by his fervor to develop Labrador at all costs, granted exclusive water rights to Brinco, a private Anglo-Canadian consortium for a period of 99 years, renewable thereafter under the same conditions for another 99 years (until 2151).  No doubt Smallwood was anxious to please the shareholders of Brinco who represented the elite of Anglo-Canadian high finance. An article from the New York Times, in 1964, provides an interesting description of Brinco. These are the people who negotiated the Churchill Falls deal: Rothschild, Falconbridge, Bowater, Rio-Tinto, Anglo-American - to name a few of the major Brinco shareholders.  They are not the type of investors who can easily be fooled or intimidated.

Having control of the immense hydro-electric potential of Labrador for a period of 198 years, Brinco was able to offer Churchill Falls energy to contingent buyers at long-term prices based on production costs plus an annuity. The catch was that the project was far too big, even for Brinco. The project  needed financing and in order to secure financing; needed was a guaranteed customer with a reliable credit rating. That was easier said than done. 

Churchill Falls is between 1,000 and 2,000 km from the major markets of Ontario  and the United States.  In the 1960's, Ontario and the Americans were still enamored with the magic of nuclear energy.  There was precious little interest in such a bold plan involving the long-distance transportation of energy over an inhospitable climate.  In any event, the transportation of electricity over such distances was unheard of and indeed, technologically unfeasible prior to the development of 735 kV transmission lines by Hydro-Quebec in the mid-60's.   

The popular narrative is that Quebecers were able to hold Newfoundland hostage by refusing to allow the transmission of electricity through its territory.  The truth is a bit more complicated. Granted, Quebec was not interested in ceding thousands of kilometers of its land for the construction of high-voltage transmission wires to allow Churchill Falls corp (CFLco), Brinco’s newly minted subsidiary, to compete with Quebec in its export markets.  Go figure.  Moreover, a few thousand kilometers of high voltage transmission wires are not a pretty sight.  How would you react if your neighbour asked you to run them through your back yard?




There is also the question of who would pay for the construction, maintenance and operation of the lines.  Transmission costs totalled $500 million, roughly equal to half of Newfoundland’s annual GDP.  Clearly Brinco did not have the financial means to undertake such a project on its own. Meanwhile, the federal government had no interest in intervening in a sector of provincial responsibility to finance a massive electricity transportation grid when neither Ontario, nor the Americans had any interest.

When CFLco required further injections of capital, HQ was the only partner willing to increase its investment.  Much is made of the last-minute, 25 year extension accepted by CFL co given its precarious financial condition.  Much less is made of the fact that Quebec had guaranteed the financing rate of the entire project.  As interest rates rose, Quebec was forced to subsidize the interest cost of the entire project.  Could it be that Quebec’s demands for further concessions were related to the deteriorating economic benefit of the project?  

Those who know don’t talk and those who talk don’t know.  I suppose people will believe what they want to believe.  In any event, lets be clear about one thing:  Hydro-Quebec drives a hard bargain and they assume that their counterpart will do the same.  HQ’s job is to maximize the gain for the Quebec tax and ratepayer, full stop!

When CFL co found itself on the verge of bankruptcy, Newfoundland could have stepped in and nationalized the private sector share of the company - as it eventually did a few years later.  Why the inaction?  Well one reason was that Premier Smallwood was smitten with the project.  Without Hydro-Quebec as a partner, Smallwood wrote in his diary, the project never would have been completed.  Hydro-Quebec was the only entity willing and able to put its money where its mouth is.

One other common misconception relates to the pricing formula, which declines over time.

Recall that the proliferation of nuclear energy meant that the real price of electricity had been trending downward for decades.  At the time, there was no particular reason to expect that to change. Meanwhile, Hydro-Quebec had no shortage of interesting projects within the Province.  In the case of the Churchill Falls deal, Hydro-Québec assumed the same economic risks as it did in projects completed in Quebec.  HQ therefore insisted on benefits and conditions, including a very long-term fixed price of electricity, that was lower than the price it could anticipate from its own facilities.  Most commentators like to point out the dramatic difference between the current price of electricity and the price included in the Churchill falls contract.  However, the same dramatic difference exists for all of Hydro-Quebec facilities completed in that era, such as Manic 5.  Moreover, the point is that if Brinco had insisted on some type of price escalator clause, HQ would have proceeded with projects within Quebec and Churchill Falls would not have been built in the first place.  At the end of the day, CFLco shareholders settled for a guaranteed long-term return with essentially no risk. A win-win!

It is easy to forget how huge the original Upper Churchill project is: just over 5 times the size of Muskrat Falls.  The total cost of the project was about equal to the annual GDP of Newfoundland.  In other words, CFL co, was in no position to assume the risks associated with such a massive project.  To find financing for the Upper Churchill, HQ had to supervise the project and assume all construction risks.  As Nalcor is now realizing, these risks are huge in a project such as this.  Indeed, something as simple as the choice of suppler and quality control on inputs is an art unto itself: experience counts.  

HQ guaranteed and eventually had to subsidize the interest cost of the project.   Since most of the project was financed in US dollars, Quebec was forced to take on a large foreign currency risk which, in those days, could not be hedged.  Finally, HQ alone paid for the transmission of the energy through Quebec, a cost equal to about half the cost of construction of the production facility.  By the way, many of the aforementioned costs are conveniently ignored in any evaluation of relative gains from the project.  

Meanwhile, Newfoundland’s financial risk was limited to its small equity share in CFL co.  It is common to hear that HQ has garnered the lion’s share of the profits from Churchill Falls.  The fact that HQ assumed essentially all of the financial and operational risks of the project is not mentioned quite as often.  Nor is it mentioned that other projects within Quebec such as James Bay were delayed in anticipation of the completion of Churchill Falls.

After years of negotiation, presumably with the full knowledge of Premier Smallwood, after a massive investment in long-distance electricity transportation, and following the completion, on schedule and within budget, of one of the largest hydroelectric projects in the world, it took Newfoundland no more than 2 or 3 years before attempting to renegotiate the 70-year fixed rate agreement and embarking on a series of legal challenges aimed at declaring the contract null and void.  Hydro-Quebec was not amused.  By the way, if you think the contract with Hydro-Quebec was one-sided, wait until Newfoundlanders digest the full implications of the recent agreement with Nova Scotia.

What is the point of this blog?  Well, past is prologue.  Muskrat Falls is in trouble and something has to be done.  We have to stop whistling past the graveyard.  The problem is not simply a question of cost.  The technical and operational risks are equally daunting.  Finally, the power deal with Nova Scotia is almost certain to constitute a major financial burden for Newfoundlanders for a generation.  I happen to think that Newfoundlanders’ future is at stake.

So here is my two cents worth:

·       An independent review of the Muskrat Falls project by a panel of experts should be undertaken immediately to decide whether to continue and if so, what is the plan. 
·      This project was facilitated by the federal government.  They bear the ultimate responsibility for this project and sooner or later, will have to assume a significant share of the cost.  Debt guarantees will not be enough to save the Newfoundland tax and rate payer.

·       So far, there is precious little evidence that Nalcor has the necessary experience to complete a project of this size.  The inconvenient truth is that Hydro-Québec is perhaps the only entity in the world with extensive experience in the construction of massive hydro-electric projects in a sub-arctic environment.  Newfoundland and Labrador’s distrust of Quebec is a major stumbling block to cooperation.  In my view this distrust is unwarranted.    

     If Muskrat Falls ever gets completed, some degree of cooperation may be required to maximize energy production.  Moreover, it would be nice if we could talk to one another sometime before expiration of the current Churchill contract in 2041. HQ has a constructive business relationship with all its neighbours, except Newfoundland and Labrador.  However, Hydro-Quebec is a business.  Any deal would have to entail an economic advantage for Quebec.  That is how these things work.  Quebec is not your enemy but isn’t your benefactor either.

·       The deal with Nova Scotia represents a major financial burden for Newfoundland.  This deal has to be renegotiated.  I would say the federal government should recognize their responsibility for this debacle by assuming the cost of the Maritime Link. 

I hope that Newfoundlanders and Labradorians will understand that this was written in good faith and is meant to spur debate on a subject that is critical for your future, and perhaps ours.

Good luck

Bernard Lahey

Montreal 
______________________________________________________________________
About Bernard Lahey
Bernard Lahey holds a Bachelor's degree in Economics from the University of Toronto and a Master's degree in Economics from the University of Western Ontario.  After starting his career as a member of the Research Department at the Bank of Canada in Ottawa, Mr. Lahey joined the ministère des finances du Québec where he held various positions in the area of finance.  In 1997, Bernard Lahey joined Hydro-Québec where he worked in various capacities ranging from trading, to debt management and gradually rose through the ranks to be named Assistant Treasurer in 2005. Between 2007 and 2009, Mr Lahey oversaw operations on the currency desk at the Caisse de dépôt et placement du Québec. He returned to Hydro-Québec in 2009 as CIO of the pension fund and has been retired since 2014.

81 comments:

  1. Thanks for the history lesson. It puts things into perspective.

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  2. "Newfoundland and Labrador’s distrust of Quebec is a major stumbling block to cooperation."--------- It is not my distrust of Quebec that is the problem. In fact the opposite is true -------I trust Quebec to make the same kind of hard-nosed business deal for their people/province (as they should) and as they did during the Upper Churchill negotiations. ---------- It is NL's track record of negotiating from a position of weakness that bothers me ------- and that is exactly where we are now --- once again........... We should, MUST, focus on fixing our fiscal problems FIRST and look at negotiating with Quebec at some point in the future ----- when we have a level playing field --------- NOT WHEN OUR BACK IS TO THE WALL (that alone, and once again, puts someone else --- this time Ottawa and Quebec, in the driver's seat) ------ Maurice Adams, Paradise,NL

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    1. Worse still --------- Ottawa, Quebec AND Nova Scotia. Anyone recall Nova Scotia sticking it to NL during that Atlantic Accord negotiations? Time for NL to grow up.

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    2. So Maurice, when will be the right time to engage meaningful discussion with HQ? Will it ever be the right timing?

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    3. The right time is when:---------- 1. We do not need to grovel before Ottawa or Quebec to provide a fiscal bailout, or to Nova Scotia to bail us out of or to amend our power contract commitments. 2. When Quebec is closer to the expiry date of the Upper Churchill contract and it is they, more than us, that need a renewal. 3. When we are fiscally strong enough to build, if need be, a higher capacity transmission line parallel to the Muskrat line. 4. When oil prices recover so that our revenues are strong, and 5. When more of our offshore fields begin producing.............. These are good starting points. These and other things would put us on a sound financial footing/level playing field in any negotiation. Instead, at this time, a deal will be struck to save government's political hide --------- a political negotiation not all that dissimilar to the Upper Churchill and Muskrat. Maurice Adams

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    4. Maurice, what chance we had to be in a good fiscal situation seems to have been squandered with the Muskrat boondoggle and outrageous cost.
      Nfld has never in its history been in a position of strength, including more than a century ago when Sir Robert Bond had a treaty with the USA that could not get consent from Canada or Britain.
      Companies divesting from oil company shares now exceed 600 from 76 countries and of 5 billion in value. It doubles in 2015 to 2016, according to 350.org.
      The future of oil wealth is in doubt, and global warming is a much bigger issue that requires reduction of fossil fuel use. We need to be part of the solution with reduced oil production, as bad as that seems for the economy. Japan does ok without oil production.
      The reliability of Muskrat Falls lines through Nfld has considerable risk, and if completed , it will be years before reliability can be determined, and likely at much additional cost. Even Liberty cautions on that.
      2041 is 25 years away, and even you caution on long term predictions of economic conditions that far out.....one of the problems with Nalcors forecasts for power demand long term.
      Sound financial footing for Nfld seems a oxymoron.
      Winston Adams

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    6. Be reading your above 5 conditions, not really sure if the right time will happen soon, if ever.

      In the mean time, "each day that passes adds to our serious debt situation" (quoting Winston below).

      You seem to underestimate the immense potential WIN-WIN interactions with Hydro-Quebec that can be achieved right now.

      Actually, constructive interactions has been occurring between huge HQ and tiny Churchill Falls corp since day one! It's still occurring daily despite past useless/costly court cases, and the secret sales event of surplus CF power to Nalcor - which then exported it to the US, using illegally the HQ grid).

      But it feels so much better to just not do anything, and blames our incompetence to 'evil Quebec'!

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    7. Maurice...you do realize the province is virtually bankrupted.

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    8. Maurice,

      I did not get a chance to comment on this until now, apologies.

      I agree that Newfoundland is not in a good position to negotiate with HQ. The question is whether or not NL can wait for the situation to change. I have my doubts, but what do I know?

      To repeat my recipe:

      The first question is simple: is NL better off continuing with work on Muskrat Falls or not? Isn't it about time for the Ball Government to convince its hard-working taxpayers that they have the answer to that question?

      The rest of my prescription was based on the idea that the federal government is responsible for this mess. Federal loan guarantees lent credence to this plan among ordinary citizens of NL while allowing Premier Williams to proceed with a minimum of scrutiny and against the recommendations of a federal committee and indeed the PUB. How much pain are the feds ready to see inflicted on the NL ratepayer before they feel obliged to intervene.?

      Of course, Maurice, NL is not in a good position to bargain with HQ. My point was that any economic concessions related to cooperation with HQ would have to be more than compensated for by federal subsidies. This isn't grovelling. It is compensation for the critical role of the feds in the creation of this mess.

      I am making this suggestion, not because it is the best solution, but because it is the only solution I could think of. If anyone has a better plan to dig us out of this hole then I will stand up and cheer.


      Regards

      Bernard Lahey

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    9. Bernard,

      How important, do you think, is it to Quebec to have the Southern Boundary issue settled? The arbitrary straight line boundary set unfairly in 1927 by the Privy Council, I understand prevents Hydro Quebec from development of the 5 (?) rivers East of Romaine, and which flow Southward into the Gulf of St. Lawrence

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    10. That is a good question. As you know attempts to redraw the line to provide Quebec with the headwaters of rivers emptying into the St Lawrence while giving up other land so as not to change the absolute size of Labrador have always failed. I am not competent to answer your question but I am sure it is a bargaining chip.

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    11. Thanks Bernard, consider the following;

      The similarities in Newfoundland's current financial state and late 20's to 1934 are astonishing.

      How many here know that at one time, (late 20's), Nfld the colony offered to sell Labrador to Quebec for a few million, and Quebec refused the offer?!

      a) What would Quebec bid today to take this lodestone off the backs of the Avalon Government's hands forever?
      b) Does anyone know what the current government has placed to bid in Quebec negotiations?

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    12. BERNARD;

      Our leaders' are pushing us toward a self-created fiscal cliff --- created in no small part by their continued blind-as-a-bat fixation on this Muskrat Mess.

      Step one is to stop this self-created Muskrat Mess.

      Now is not the time to add to our debt and to further negotiate away Labrador's resources.

      As to the feds.....

      With the additional $2.9 billion loan guarantee, they continue to be enablers of the mess we are in.

      "Friends" (whether they be federal or provincial) do not encourage and/or enable friends to take actions that are not in their own best interest.

      Maurice Adams, Paradise


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  3. "An independent review...".

    Most would agree, logical, well reasoned. I would be interested to know if David Vardy and Bernard have been in contact. This is too important an issue to be dealt with in the political forum, but they have muddied the waters, so to speak.

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  4. excellent history fitting with the known facts and blowing away much of the rhetoric

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  5. I found this most interesting and I cannot disagree with anything stated. In particular:
    This project has large technical and operational risks (besides costs). The latest Liberty Report also comments on this. This has not even been acknowledged locally.
    Nalcor has demonstrated its incompetence in management of this project.
    The Nova Scotia contract will be a burden. I believe that both Nova Scotia and the federal government need to take considerably more of the costs of this project.
    That a review should be done to see if it is even worthwhile to proceed. This agrees with Uncle Gnarley`s proposal to put this ON ICE
    That a good working relationship with Quebec and Hydro Quebec is in our best interest, as well as theirs.
    I am sure there are many private Nfld companies doing business with Quebec companies to their mutual benefit.
    We are in deep trouble with Muskrat. Maybe a good relationship with Quebec can aid this situation. Maybe a Muskrat Panel will conclude that part or the whole project should be cancelled or delayed.
    Each day that passes adds to our serious debt situation.
    It is good of Mr Lahey to reach out. We are one country afterall.
    Winston Adams

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  6. Thank You Bernard. Finally, a clear rational explanation of the real circumstances surrounding the Churchill Falls contract. NLers have been spoon fed a narrative by successive govt's that 'evil Quebec' was our enemy. In reality, the fault lies with our own gov't. Que took all the risk & so reaped most of the rewards. NL do get some reward - albeit a paltry sum - which costs us nothing. The real bad deal is the one signed with Nova Scotia. Ratepayers/taxpayers in NL will be paying NS to accept electricity from Muskrat. The intellectual geniuses who signed that deal have burdened us all for the rest of our lives.

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    1. Just read again the article by Paul Sparkes, "Haunted by Lord Amulree" from The November 7, 2016 edition of The Telegram. We are hardly fit to govern ourselves.
      Keith

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  7. Nothing was said about the ratio of monies that Quebec gets compared to what Nfld gets...It's astronomical!!

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    1. Quebec also has nearly eight million people, compared to half a million for Newfoundland. (What about Labrador?)

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    2. Correction: Quebec has well OVER eight million people!

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  8. I have heard the HQ side of the story many times and always from HQ employees executives and it has been consistent if nothing else.
    I would suggest that if you want a more accurate and less biased history lesson on this subject, read "The story of Churchill Falls by Philip Smith".
    Brian Mulrooney said in a speech in Quebec circa 1981, " The present contract between Quebec and Newfoundland for electric power from Churchill Falls does not reflect in any way the new economic and energy realities that have developed since the OPEC crisis.
    The inequality and and absence of fair play in the contract in question is obvious.
    Simple decency and the most elementary spirit of justice demand its immediate renegotiation"
    Newfoundlanders and Labradorians are still waiting for Quebec and Hydro Quebec to rise to that level of 'simple decency and the most elementary spirit of justice'.

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  9. Correct me if I am wrong but in very recent years did not Quebec Premier Jean Charest and HQ attempt to purchase New Brunswick Power for $4.8 billion in order to control access to power sales into the US market, while we were negotiating with NS and NB over the Muskrat Falls Project.

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    1. That is so. But government who negotiated in "good faith", was thrown out at election time, killed the deal. New Brunswick voters could not entertain transfer of generation plants, Lepreau, Mactiquak, etc. falling into "foreign hands".
      I am in favour of the electrical grid remaining in public hands, which is New Brunswick's current situation. NS gave their grid to private concerns, (Emera), and the ratepayers are not happy. The benefits of public ownership of the grid would, (Churchill, through Quebec, New England, Atlantic, etc.) are quite apparent. Government sell off of public assets is a real problem, hence NL's power development and transmission dead end. Pipelines for petroleum, (Alberta, BC), is a similar dilemma.

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    2. Good try, but NO, it would NOT have affected the access to the US market in anyways:

      "Under the deal (NB Hydro sale), Hydro-Québec would have acquired most of the province's power-generation assets, but New Brunswick WOULD MAINTAIN CONTROL of transmission and distribution."

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    3. Perhaps that is why Quebec did not go ahead with the deal? or did NB back away?

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    4. Point Lepreau was not part of the deal either.

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    5. Interesting, was there not some clause in the prospective deal which would grant HQ rights of transmission through NB to NS and Maine? How is it that excess HQ power say at Edmonston was not made available through NB to NS to reduce dependence on coal fired generation? Also, why was HQ not interested in Lepreau?

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    7. FWIW:
      "An economic analysis (commissioned by the Graham government) to Washington's NERA Economic Consulting estimated that the tentative deal would save New Brunswick ratepayers $5.6 billion over a 30-year period compared to the status quo. The study also showed that residential, commercial and wholesale customers would reap 60% of the savings, but the savings would happen later than the discounts granted upfront to large industrial customers."

      But hey! Luckily NB avoided that some of its power generating capacity fell into "foreign hands"!!!

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    8. Robert: I don't remember (nor could find) any provisions for HQ for such transmission through NB to NS or Maine.

      What I do remember thought is that NB Hydro power generation was not too flexible: it produced to much power off-peak than it could store (thus some was wasted), and its peak power production was somewhat costly.

      HQ immense set of reservoirs were the ideal complement to those NB base production assets. "Evil" HQ was therefore the best fit to serve NB clients, at a lower cost.

      Pointe Lepreau refit project was then considered too risky. (And this was not really HQ's core expertise)

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    9. In Quebec, that deal was more and more perceived as giving away 100% of the cost savings to NB Hydro clients (well, "subsidizing" was the term used), while taking over crumbling assets that will need huge repair investments.

      I personally believe NB missed a golden opportunity here. (That smells like a similar knee jerk reaction as in MF...)

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  10. I am a Newfoundlander, and I got some of my information on the Churchill Falls deal and the history of dealings with Quebec and Hydro Quebec from the following:
    1.Brinco The Story of Churchill Falls by Philip Smith
    2.Smallwood the Unlikely Revolutionary by Richard Gwyn
    3.The Memoirs of Brian Mulrooney
    4.A Gilt Edged Life Memoir of Edmund De Rothschild
    And I respectfully disagree with the story presented here by a former employee and executive of Hydro Quebec. All these people so close to the deal and the dealings can't be totally wrong.

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    1. Dear Anonymous, please entertain us with any discoveries you found in those references.

      More importantly, please explain us how exactly you disagree with the point of view of Mr. Bernard Lahey. (It would be great to have a constructive exchange of facts)

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    2. Well I don't agree that past is prologue? but I agree that those who ignore history are doomed to repeat it and I am not sure that this didn't happen to some degree on the Muskrat deal.

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    3. Dear "Anonymous Newfoundlander", we are still waiting; what are the specific points (that Mr. Bernard Lahey brought us) you disagree with?

      Maybe you should read the different court case decisions; they are actually very easy to read, and are all documented facts. (The last one - of this past August - explains very well the actual CF historic context; very informative).

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  11. Correct me if I am wrong but didn't Quebec, who receives approximately 10 billion in transfer payments from the government of Canada this year, and HQ object to the loan guarantee arrangements with NL and NS on the Muskrat Project.

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    2. Not sure about those 10 billion, but are you saying that Quebec has been receiving more transfers $ per capita than Nfld?

      Do you realise that Nfld receives more revenues per capita than Quebec? (even NOW, despite low petroleum prices)

      So, despite relatively higher revenues than our neighbours, Nfld find ways to a run huge deficits; very responsible indeed!!! (And blame Quebec for it, why not!)

      Now, are you really wondering why HQ objected to this Fed loan guarantee (that allowed the go ahead of this MF boondoggle!)? This boondoggle will eventually lead to the "dumping" (ie below cost) of MF power into the already depressed US electricity market, depressing it even further? If you are still wondering, than maybe some economy 101 is required here...

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    3. Yes $10 billion this year or $1205 per capita for Quebec and for NL, zero according to the federal budget 2016-17.
      I understand also that Quebec is looking for a multi-billion dollar bailout from the feds for Bombardier also.
      I guess, hypocracy has no bounds for some.

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    4. Source: https://www.fin.gc.ca/fedprov/mtp-eng.asp

      For 2016/17, Nfld will received a total federal support of $1,364 per capita (not zero - as you said).

      Now, those federal support payments are calculated from what provinces can (or actually can't) raise in revenues.

      Nfld collects more revenues per capita (petroleum royalties, even now) than its neighbours (QC, NB, PEI or NS), => therefore it gets now less transfer payments than those same neighbours <= (we actually demanded more, wanted it both ways)

      Actually, in the Maritimes/Quebec, Nfld is THE well off province with its petroleum revenues. It just can't manage a budget (nor an Hydro project we now know)

      About Bombardier, it's not about a "multi-billion dollar bailout", but about a one Billion dollar investment - for the new CSeries.

      BBD has reimbursed about all of its past repayable subsidies it received from the Feds (CRJ being the most profitable one). We can't say the same thing about the Feds auto bailout - where we actually lost Billions, and that, to American corporations doing little or no R&D here.

      Bombardier is the LEAST subsidized aircraft manufacturer among its competitors (Airbus, Boeing Embraer, Irkut, COMAC etc). Those countries might know something we don't...

      Now your above "hypocracy" comment might represent some maturity aspects (or lack of) we might discuss later...

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    5. As a side note, as an investor, I am entirely into Canadian corporations. I prefer banks, telecom, aerospace and one industrial, about 6 companies. I have had some luck and some losses, but can`t complain. 3 companies are Quebec based. National Bank, does really well, given they are small compared to the big banks, so well run and can compete. Bombardier, I have loss a lot, and the industrial likewise. But I have stuck with them. I see them as innovative. For a skidoo company to compete against Airbus etc, is no mean feat. They have designed a very efficient new aircraft, and are big in train technology. I believe they have had as many as 25,000 employees. Not bad from starting with the first skidoo. The other industrial company makes coatings for solar panels etc. I look at these as companies that are helping to solve the energy crisis where more efficient transport slows climate change. For the same reason I shun oil companies. The Quebec companies are innovative and at times deserve support.........I side with Ex-military engr.

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    6. Sorry Ex- Mil but I was talking equalization payments and not total federal major transfer payments. That would be as you say $1366 per capita for NL and just $2571 per capita for Quebec. We must compare apples with pommes don't forget.
      I personally never liked the Skidoo snowmobile but preferred the American Arctic Cat snowmobiles. Saw too many Skidoo snowmobiles bogged down and stuck in Labrador.

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    7. "Saw too many Skidoo snowmobiles bogged down and stuck in Labrador"

      Ya, "BRP" (the actual new owners of the Skidoos/ Seadoos/ CanAms/ Evinrude/ Rotax lines - since more than 15 years now) messed up Skidoos a few years ago. But now, they are back in the lead I guess...

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    8. "Anonymous12 December 2016 at 18:23

      Yes $10 billion this year or $1205 per capita for Quebec and for NL, zero according to the federal budget 2016-17."

      Every province receives federal transfers. Equalization is just one of several transfers.

      "I understand also that Quebec is looking for a multi-billion dollar bailout from the feds for Bombardier also.
      I guess, hypocracy has no bounds for some."

      Very true, just like Newfoundland wants Ottawa to fill St. John's full of federal civil servants and "cost-share" everything that the province builds even if it's purely provincial in nature.


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  12. Just to correct my prior comment that divestiture from oil company stocks, which I said was 5 billion, was actually reported as 5 trillion. A small difference!
    And on the TV news I hear that Premier Ball is signing on to the federal plan for carbon pricing. This, I think, is good news, for for the environment and maybe for Muskrat and other hydro that may get developed. And Hickey in Goose Bay is looking for the Labrador coast and Vosey Bay to be connected to the grid. Seems loon overdue.
    Winston Adams

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  13. I am afraid that NL media will ignore this letter from Bernard Lahey posted in today’s Uncle Gnarley.

    I do not know Lahey and had never heard of him before but I believe his letter is important. Government has chosen to remain quiet about what is happening on the hydro front. They are not doing anything to focus public attention on the Muskrat Falls debacle or our relationship with Quebec. Premier Ball has given Stan Marshall a blank cheque. Once again the public is being left out of major decisions that will impact us into the future.

    Government is dealing with the following three wild cards, a veritable Unholy Trinity: the price of oil, the return of equalization payments and a New Deal with Quebec. The price of oil will be kept in check by shale wells that will return to production when Brent hits $60 US.

    Our fiscal capacity exceeds the national average so return of equalization payments is unlikely in the next five years.

    Is Gull attractive to Quebec? I do not know. The cost estimates for Gull are outdated and neither Ontario nor Quebec is short of power. My hope is that we can do a narrow commercial transaction with Hydro Quebec, one which supplies us with a small amount of power (250-300MW tops) at HQ’s opportunity cost.

    If instead we are going to enter into another grand imperial set of negotiations embracing Churchill Falls, Gull Island and Muskrat Falls then we will be negotiating from a position of weakness and Ottawa is unlikely to be an ally. We should first attempt to do a simple commercial deal with Quebec before engaging in high level negotiations which will open up all past wounds and grievances. If we cannot first consummate a small commercial agreement with HQ for the purchase of power from Churchill Falls then the prospects of some kind of Grand Alliance, perhaps encompassing both hydroelectric development and transportation, would seem remote. Certainly we should not agree to setting aside the Court Cases as a pre-condition.

    I think Lahey’s article is important in adding perspective on our position and informing the public that we should be prepared to talk with Quebec. His most important advice was to reiterate what Ron Penney and I have been saying for a long time, which is that the generation project should be placed on hold pending a full cost benefit analysis of the costs of continuing, versus stopping work at the site. The transmission line will be a useful asset. The generation assets are, on the other hand, highly problematic. Most disturbing is the fact that we have no idea what this project will cost and completion by 2020 is uncertain at best. Without a completion guarantee from the federal government it is unlikely that our borrowing capacity will allow us to complete the project before we declare insolvency.

    I hope that somebody like Russell Wangersky will report on this letter and take it into the main stream media. In fact, Russell is probably the only local reporter who can do it.

    David Vardy

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    1. Ref the court case; do you really believe we can win that thing at the Supreme Court? I read the whole decision narrative of last August, and believe me, it was solid, and contained quite a few more documented facts that goes even beyond what Bernard kindly brought us today.

      Also, by maintaining this costly court process, that may prevent any meaningfull proposals/discussion from HQ, as it may be used against it later in court. What do you think?

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    3. Let the court case continue. We need the opinion of the highest court in the land even though some might say that this court with 3 from Quebec and 3 from Ontario is not exactly a level playing field. The Quebec court was never a level playing field.

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    4. "The Quebec court was never a level playing field"

      That's your impression, but I'm not so sure how real that is. Quebec's Court of Appeal decisions are not overturned more often than other Province's Court. (And none were overturned concerning the 1969 CF contract)

      Anyways, one of the findings of last August decision was:

      "Given the factual conclusions of the lower court that the parties knew that future prices were a ‘known unknown’ and that CFLCo assumed the risk of price increases, the Court of Appeal ruled that Hydro-Québec did not have a duty, based in contractual good faith, to renegotiate the power contract"

      =>That finding touches THE major complaint that’s causing all this drama.
      It has been demonstrated in court that inflation/deflation clauses were PURPOSELY NOT INCLUDED in the 1969 contract. (It was then wrongly believed that electricity prices would continue to decrease, particularly due to new “more efficient” nuclear plants). BRINCO/CFLCo just could NOT afford the possibility of a any revenue decreases while having to pay big monthly payments.

      I don't understand why we're spending this colossal amount of money in this court case.

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    5. Are the rest of NL journalists handcuffed with mouths taped shut? Forget the mainstream media they are NOT the Fourth Estate as demonstrated by the pathetic but accurate claim about RW.

      David has the Muskrat Falls fiasco not convinced you that the age of remote, expensive generation is past? It will never be the 60's again. The future is widely distributed local generation, a thousand points of light if you will. The age of 2000 km extension cords is past, they will never again compete with wind and sun and battery storage.

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  14. First, thank you to Des Sullivan for lending me his tribune. Let me thank you all for your comments. In general, even those who disagree were respectful and courteous as per Newfoundlanders well-deserved reputation for civility.

    I won't be drawn into a debate on how hypocritical Quebec is. I am not anybody's spokesman. My goal was simply to express, with the utmost respect, a Quebec point of view that, frankly, I have never seen in print before. I don't pretend to be unbiased and indeed I hesitated before agreeing to publish this because I know how emotional this issue is for Newfoundlanders. This was meant as food for thought. We can agree to disagree.

    In my opinion, the weakest part of my argument concerns what went on between the letter of intent in 1966 and the final agreement in 1968. Within that period we know that Quebec demanded an automatic renewal clause. We also know that having guaranteed the project's capital costs, the economics prevailing at the time of the letter of intent had deteriorated for HQ as interest rates rose. Besides that, most of what I have read is hearsay and innuendo. Did HQ drive a hard bargain? - no doubt. Was it unethical? You don't need me to decide that. Let me simply add two further points:

    First, any price negotiated in 1968 is going to look ridiculously low from today's perspective. Moreover, at the time, the real price of energy had been declining for decades. I don't have a history of electricity prices because markets did not exist. However, the real price of oil was certainly trending downward at the time, as shown in the following link.
    http://www.macrotrends.net/1369/crude-oil-price-history-chart

    Second, if there had not been an automatic renewal in 2016, then Churchill Falls would probably not have been the lowest cost alternative for Quebec because other projects completed around the same time, such as Manic 5 or James Bay, are fully amortized yet still pumping out electrons at minimal cost to HQ. In any event, Quebec is not the only Province to change its mind. Newfoundland went from praising God for Hydro-Quebec in 1969 to attempting to annul the 70 year contract a couple of years later.

    As for Brian Mulroney's comments, I certainly don't think he ever repeated those comments in french. I don't know how to define what common decency is in a financial agreement. If I understand correctly, a long-term fixed price contract is fine as long as prices don't change very much. I can guarantee you that if those were the terms at the outset, HQ would have left the table and developed James Bay in the 1960's rather than in the inflationary 1970's. Moreover, the bond holders who financed CFL co with long term debt lost their shirt as interest rates rose to 20% through the 1970's. I don't remember CFL co offering to share the pain. Enough said.

    Finally, I am honoured by the comments of David Vardy. I have been an avid reader of his posts and I totally agree with his comments.

    Kind regards,

    Bernard Lahey

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    1. It is not easy for the old memory banks to call it all up in a short time and it was a long drawn out negotiation over a protracted period. You left out the part where Premier Lesage nationalized the Shawinigan Engineering shareholding in CFLco within weeks of being told by Smallwood that he had a tentative deal with Consolidated Edison of New York for the power from CF. Smallwood's attempt to bypass the Quebec blockade via the Anglo Saxon route ( now known more politely as the Maritime Route ) failed because the underwater cable technology just wasn't up to scratch at the time. Smallwood and Brinco were forced to negotiate from their knees and Brinco made the mistake of proceeding in good faith before all the i's were dotted and the t's crossed and were facing bankruptsy.
      In more recent history didn't HQ dump SNC from the Romaine Project because they were involved with the Muskrat Project and not because of their suspect business practices?
      I don't which official language Mulrooney used but I suspect there were many in the room with a command of both official languages.
      Sorry but respectfully, with friends and neighbours like the province of Quebec who needs enemies.
      Even though I never swallowed any of the many lies told in support of sanctioning the Muskrat and I disagree heartily with the incompetent management that has plagued and continues to plague this project, we owe it to our children and grandchildren to plow a road around our friends in Quebec and make it large enough to carry all the power from Labrador to the benefit of NLers. That will be our best negotiating position for the future regardless of the route chosen to access markets.
      We do however have a hell of storm to weather in the interim.

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    2. "Lesage nationalized the Shawinigan Engineering shareholding in CFLco within weeks of..."

      I don't subscribe to this conspiracy theory here.

      Hydro-Québec acquired MANY private electricity distributors/power generators in those years, and that included Shawinigan Power. => That was actually the first life project of "Evil" Rene Levesque...

      Anyways, can you explain how acquiring a 20% minority stake in this Anglo/Canadian private company ("CFLCo") affected Smallwood's decision process?

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    3. Dear Mr Anonymous,
      I would have thought that you owed it to your children and grandchildren to do what provides a maximum economic advantage for NL. Revenge feels good, but you might want to be careful when the size of the project is so large that failure can compromise your economic future. I am not sure your children and grandchildren will thank you for Muskrat Falls anytime soon. Meanwhile, HQ will continue to favour solutions that provide maximum economic advantage for its shareholders. I prefer it that way.

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    4. Well, now with 34% shares in CFLCo.. it sort of put the fox in the henhouse don't you think. Must have made for some interesting board meetings during the contract talks.
      Consolidated Edison got fed up with the delays and nonsense and walked away to provide their requirements by other means.

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    5. The Anglo Saxon route failed because the underwater cable it was primarily extremely too costly, and CFLCo would have ended up losing money in selling power to Con Ed.

      Underwater cable technology was also extremely risky, but surprisingly, not immensely worst than carrying it overland at the time. (Ie before the 735kv transmission technology)

      Underwater was just extremely costly. Still the case now, as we will lose our shirt with Emera...

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    6. "Con Ed got fed up with the delays and nonsense and walked away to provide their requirements by other means".

      I'm not sure what you are talking about here. Con Ed was still around after HQ arrival.

      Con Ed offer to purchase power was so cheap that it barely covered the cost of carrying it all the way to the NY state border - even via 735kv lines. (That also tells you that the prices in the 1969 CF contract was then close to market value, and there was nothing to become rich in exporting it).

      Con Ed only withdrew LATER, when the US government put road blocks into importing so much power.

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    7. Sorry Bernard but I just now saw your 1PM comment, I was out shovelling snow to clear the driveway. I needed a rest from shovelling the other stuff anyway.
      Just trying to inject some of the many other sides of a long and complex story that has so many twists and turns and quirks and quarks about it.
      I hope that NL can survive the Muskrat and move on to develop Gull Rapids and find a better deal from the upper either with or without Quebec whichever provides the best opportunities for the people of NL.
      I also know that HQ does not need many outside of Quebec to stand up for it.

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    8. No need to apologize. We are both seeking solutions to what looks like a difficult situation.

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    10. "...owe it to our children and grandchildren to plow a road around our friends in Quebec and make it large enough to carry all the power from Labrador to the benefit of NLers..."

      Wow Mr Anonymous! Somehow, I totally missed that part of your comment yesterday. I'm just out off words to qualify this.

      What's more depressing is this may be representative of the majority of Nfld voters and leaders.

      Not only we needs technical and financial support, but maybe also some on anger/depression...

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  15. Ok, do not let this goodwill die. I am ready to have Nlfd and Lab and Quebec join forces and be one province. Eventually get the tunnel across the straight. We are both distinct societies with decent civil people. Imagine power rates in St Johns at 7 cents instead of 27 cents. Bury the hatchet, I say. Together we can be a province equal to Ontario, or the Maritimes. Power up coastal Labrador and shut the diesel plants. But who to bring this about I wonder. Ah, but I hear that old chant...beware the Canadian wolf. Let the wolf mate the Labrador Retriever and Nfld dog, and have the best of all three: courage, gentleness, loyal, faithful, fearless.
    I can hear it now...Traitors all says Danny Williams.

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    1. Of course, the best way forward, would be inclusive of the people, who have lived on the Quebec North shore, with the Labrador Coast, and all in between. What are their thoughts at this time of hang wringing? Can this media not get a sense of how they see a future without boundary squabbles over natural resources, and language?

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  16. Take it to the main media says Dave Vardy. Ah, yes, The Peoples Paper. As I see it, Uncle Gnarley is the Main Media. It depends on how you define Main, as Bill Clinton might say.
    Russell, just last week, severely limited online comments at the Telly. Had to do it I suppose to shut up John Smith, that internet troll, promoting Muskrat even at 25 billion. But the move also reduces costs to monitor many silly comments from many silly people, that bothers Russell. And who can blame him. Hear they could be closing shop any day, and Russell is putting out feelers.
    Given Uncle Gnarley`s uptake in readership, why not do a fund raiser and bring Russell to Uncle Gnarley full time. Hear Russell is developing an interest in the kayak, and is already doing survival flips. There is one hang up on this idea. Russell`s first piece in The Peoples Blog must read :Muskrat A Gigantic Blunder, Must Be Put On Ice. Got to show some backbone to get a promotion to Uncle Gnarley.
    WA

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  17. Very informative......Keep it going.

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  18. I miss Bruno........is he ok.

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  20. It would be a courtesy on this Blog, if people would use their given names. Why are some of us reluctant to do so? Messers Lahey, Vardy, and some others use their given names, and have given us wise and significant counsel. Why not, out of respect, do the same?

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  21. Paul Davis asked in the house about changes in the operation of Nfld Hydro. Minister Coady replied there was nothing substantive, asking why should there be. Did she read the Liberty Report.
    Liberty says that operation of this new DC system requires essentially a new Nfld Hydro in terms of technical knowledge for reliable operation. There are few DC systems in North America.We will have AC going to DC and back to AC again, where issues taking more than one half a second to resolve can take down the grid. They need to ramp up and have expertise with this type of system.
    Meanwhile Liberty say Hydro has not changed their culture of having insufficient regard for high reliability. If this does not change than we are headed for more blackouts and operating problems, even after the DC line becomes operational. Davis,of course was unable to ask specific questions, and Coady in obviously not on top of this risk. Business as usual. Expect more rotating outages in the future, acceptable to Hydro and our government , but nowhere else in Canada or the USA. This may become apparent at the PUB reliability investigation in 2017. Build first, sort out reliability after spending 7 or 8 billion. Is this rational.
    Winston Adams

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  22. A new blog TOWNIE ELITE came to my attention, mentioned by Ed Hollett today. Peter Jackson was with the Telegram until last year, and hosted a live chat thing for about a year, and wrote for the Telegram for 25 years.
    I was not impressed with Jackson. For one thing he thought aboriginals in Canada were too demanding, and treated fairly. Other thing, he was not very critical of Muskrat and its promoters.
    His first piece as a blogger is titled The Blizzard. A satire piece, I guess, making fun of of the storm forecast which was no big deal. He suggested Holyrood unit 2 might blow up or something. Suggests to me that the Power boys are right on top of things and nothing to worry about.
    Granted, no major storm last night, and a beautiful day. My heaters shut down on the south side from solar gain. Temperature I hear got to Minus 10. Peanuts. No test for the Power boys, I suggest. And is it satire to imply that our power system is just fine when we know otherwise.But what do I know on that, or on satire. Just an opinion...and all a..holes have that , they say. Jackson......no Ray Guy. But see where he goes with it.It was enteraining, and we can do with that at times. The Telly must have considered him non essential. Tough business.

    Winston Adams

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  23. I believe that the positive support to Bernard's post, should be formalized and presented (David, Maurice, Bernard ?), as a Citizen's Request to enable the House to consider, publicize for public support, and act on the call for a project pause and review.

    Any takers?

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    1. Dear Robert,
      I am sincerely flattered that you would think to include me in such a distinguished group and I certainly agree a review is warranted. However, I think it would be presumptuous of me to participate. I don't consider myself an expert on the subject and I can't think of anything I could add over and above the contribution of people of the caliber of David Vardy among others.

      Good luck



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  24. I meant to include you also Winston, my fellow Engineer.

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  25. I salute you too, dear Robert , fellow engineer. Pity so many stay silent.
    I would sign any such formal request as you propose, as it should be obvious that this thing needs to be put on ice for a proper review. But as John Adams (my relative probably) said to Jefferson, as to why Jefferson should write the Declaration of Independence, John told Thomas that he was just a better writer. Maybe Adams feared for his head if the Revolution failed, and Jefferson would get the blame.
    So I would suggest Maurice might do it. Now I would call a halt on both the plant and the transmission line, whereas Maurice and Dave Vardy see value in the line. My engineering instincts suggests the line will be have serious reliability issues, and should be put on ice pending the PUB review in 2017.
    Winston

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  26. The few in Canada who stand up for truth and justice, (Indigenous are listened to), seem to bring about progress, (Trans Mountain, Site C, Muskrat, etc). Could a coalition protest work with the First Nations at this critical time? (Peaceful protest, occupy, idle no more).

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  27. I make comments on this post in the context of other recent developments surrounding Muskrat Falls here: http://www.tomadamsenergy.com/2016/12/21/rethink-muskrat-madness/
    The main thrust of my case is to endorse Mr. Lahey's recommendation for a comprehensive review of whether completing the project can be justified and if so how.

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