Churchill Falls MOU 'a good deal' that remedies past inequities, says energy consultant
Consultants defend their independence as Opposition calls for more oversight of framework agreement
An expert energy consultant who helped N.L. Hydro negotiate the historic Churchill Falls MOU says the tentative agreement announced on Dec. 12 is a "good deal" that rights the wrongs of the lopsided 1969 contract with Hydro-Quebec.
"I think N.L. Hydro and the government are doing a good job in terms of lessons learned," Jason Chee-Aloy told reporters Wednesday after emerging from two hours of questioning in the House of Assembly.
Chee-Aloy is the Toronto-based managing director for an electricity management consulting firm called Power Advisory. He's one of six experts – three economists and three engineers — from the firm who were contracted by N.L. Hydro to assess the potential market for electricity from Churchill Falls and other proposed developments on the Churchill River, the value of that energy, and ensure the province gets the best possible return for that energy in any future contract with Quebec.
Chee-Aloy and another member of his team, Brady Yauch, appeared before MHAs during a special four-day session of the House of Assembly on Wednesday to answer questions about the MOU, which is being touted by the governing Liberals as a transformational opportunity for the province — one they say will generate more than $225 billion in new revenue over the next 50 to 60 years, create thousands of construction jobs over the next decade or so, and kick-start more growth in Labrador's critical mining industry.
Opposition politicians have offered lukewarm support for the MOU, but have been demanding an independent review of the framework agreement before any vote in the legislature.
PC MHA Lloyd Parrott accused the Liberals of "ramrodding" the MOU through the legislature, while Premier Andrew Furey again offered assurances Wednesday that the MOU and any potential contracts will undergo rigorous independent review.
Both sides motivated for a deal
When asked whether the MOU was a positive step toward definitive agreements, which are scheduled to be signed by April 2026, Chee-Aloy said both provinces are "motivated" to reach a new power deal, and such a circumstance usually results in good outcomes for both sides.
Quebec, he said, has some big needs for new power generation because of the surge in sales of electric vehicles and domestic economic growth.
And he said Newfoundland and Labrador is also motivated because of a deep desire to rip up the 1969 contract — a deal Quebec Premier François Legault admitted last year was unfair — that sees Hydro-Quebec purchase vast amounts of essentially free electricity from Churchill Falls for just 0.2 cents per kilowatt hour.
Under a proposed new deal, Hydro Quebec will pay 5.9 cents for electricity from the existing Churchill Falls power station, beginning in 2025, which is 16 years before the 1969 contract is set to expire. That's 30 times higher than the existing price, and is forecasted to inject $17 billion in revenue into the Newfoundland and Labrador treasury, at an average of $1 billion annually, by 2041. Under the existing contract, the province receives roughly $20 million annually.
The MOU also proposes that the existing Churchill Falls plant undergo a 550 megawatt expansion, that a new 1,100 megawatt power station be developed nearby, using the same reservoir, and that the 2,250 megawatt Gull Island project further downstream on the Churchill River will also be constructed. The developments will also require the construction of new high-capacity transmission lines in Labrador and Quebec.
'This is the right time'
Hydro-Quebec will pay N.L. Hydro $3.5 billion in today's dollars for the right to build Gull Island, and that money will be used to cover N.L. Hydro's equity stake in the new developments.
Hydro-Quebec will assume the risk of cost overruns on the Gull Island and Churchill Falls expansion project, while N.L. Hydro will have majority ownership.
Furey and N.L. Hydro officials have promised they won't repeat the mistakes linked to Muskrat Falls and the original Churchill Falls agreement, and Chee-Aloy said the right protections are baked into the MOU.
He also said the timing for a deal is ideal, and that Hydro-Quebec is the most obvious choice for a partnership.
It is our opinion the time is right for such an MOU.- Jason Chee-Aloy, Power Advisory
"Based on our assessment of supply needs, there's only so many points in time where it's opportunistic and there's an ability to execute a deal. Because of the situation in Quebec, married with the ability to supply Quebec, it is our opinion the time is right for such an MOU," Chee-Aloy said.
When asked if the proposed new price to be paid by Hydro-Quebec for Churchill Falls power is fair, when compared to other markets in places such as Ontario, New York and New England, Chee-Aloy replied: "Simply put, I do."
"(Hydro-Quebec) sells electrons on the daily spot market for a price. That price based on our analysis has been less than 5.9 cents," Chee-Aloy explained.
"This was an opportunity to make sure we have learned from the past, and it's a good deal," he added.
Chee-Aloy's appearance before the legislature came on Day 3 of the Churchill Falls debate, which has so far seen MHAs ask questions of top officials from Newfoundland and Labrador Hydro, including CEO Jennifer Williams, and Power Advisory.
Experts from the international financial services firm J.P. Morgan, who also assisted N.L. Hydro's negotiating team, will appear before the legislature on Wednesday evening, with MHAs scheduled to vote on Thursday on a motion to allow N.L. Hydro's negotiating team to continue talks with Quebec toward formal agreements.
Chee-Aloy, meanwhile, has been analyzing electricity markets and advising major utility companies in North America for a quarter-century, and said N.L. Hydro has been "very prudent" in its negotiations, while keeping in mind the mistakes of the past when it comes to unfavourable deals on the Churchill River.
Under questioning by PC MHAs about the need for more independent oversight, Chee-Aloy also defended his firm's reputation.
"It's about integrity. At the end of the day reputation is everything," he said. "We are independent. It's that's simple."
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