In The Press of December 21, Francis Vailles presents an estimate of the value of the hydroelectric installations of Churchill Falls, in Labrador, in the context of the end of the contract between Churchill Falls Co and Hydro-Québec in 2041. The estimation method is flawed and the result of such an estimate is not relevant.
Mr. Vailles adopts the method of comparables to arrive at his estimate. This method commonly used, particularly in the real estate sector, presupposes a certain homogeneity between the objects compared. The recent purchase by Hydro-Québec of 13 small hydroelectric power stations with a capacity of 589 MW does not meet this criterion: these power stations are located in New England and are integrated into the transmission network of this region.
The Churchill Falls plant, which is some 1,500 km from the American border, has a capacity of 5,428 MW and an annual production of nearly 35 TWh. Transporting this energy to the American Northeast would encounter many obstacles.
Completion of the contract signed between Hydro-Québec and Massachusetts for the export of 10 TWh for 20 years is still blocked even though all the approvals have already been obtained from the regulatory bodies of Quebec, Maine and Massachusetts, and it illustrates the difficulties that may arise in this area.
In addition, there is the transmission of this electricity to potential American or Canadian customers; the territory of Quebec offers the least expensive route and an agreement on this subject with Quebec seems inevitable. Even though the Canadian Constitution grants the federal government the power to carry out infrastructure projects for the benefit of two neighboring provinces, the federal government has never exercised this power to erect or cause to be erected interconnections between two provinces since the appearance of electrical industry more than 120 years ago. All of the interprovincial interconnections that exist today have been the subject of over-the-counter agreements between the two provinces involved. It would be surprising if the federal government imposed its presence for the first time on this Quebec and Newfoundland and Labrador file, which is already very busy.
This exercise to assess the value of the Churchill Falls hydroelectric site is irrelevant. The majority share (65.8%) of Churchill Falls Co is owned by the state-owned Nalcor; it is not and will not be for sale. In 2010, an agreement was reached between the governments of Quebec and New Brunswick regarding the purchase of New Brunswick Power by Hydro-Quebec. This initiative, which seemed to ensure lower electricity prices for consumers in that province, proved disastrous for Liberal Premier Shawn Graham: the opposition parties rejected the agreement, which had to be withdrawn, and the government of Mr. Graham was ousted in the following election. Despite the immense setbacks that occurred during the recent construction of the Muskrat Falls project, the government of Newfoundland and Labrador will not dare to part with the ownership of the Churchill Falls power station.
An agreement that will relate to the transmission of electricity and possibly to electricity in whole or in part must be concluded between Quebec and Newfoundland and Labrador for the benefit of both parties. The maximum price that Quebec will agree to pay is the replacement cost of this electricity. Newfoundland and Labrador, as the owner of the site, will want to modify it to obtain the highest price net of the cost of transportation in Quebec among the prices submitted by all potential buyers. The agreement will be long-term and will determine the anticipated sharing of profits. It is the outcome of these negotiations that will determine the true value of this extraordinary site. It is quite possible that unforeseen factors will change the realization of benefits in favor of one or the other party, as is the case following the first agreement. The oil crises of the 1970s and the setbacks of the nuclear electricity industry were unforeseeable during the long negotiations for this first agreement between the public company Hydro-Québec and the private company Brinco; it is a great source of frustration for Newfoundland and Labrador.
Response from Francis Vailles to Jean-Thomas Bernard
I am of the opinion, like you, that Newfoundlanders will not sell Churchill Falls to Hydro-Québec, in particular because of the tense political context on this subject. Nevertheless, a capital contribution from Hydro-Québec cannot be ruled out within the framework of broader negotiations on all the assets of the Churchill River.
I am not the one proposing it. It’s a report commissioned by the Premier of Newfoundland and Labrador, Andrew Furey. The report The Big Resetpublished in May 2021, specifically suggests assembling all hydroelectric assets on the Churchill River and involving private financial partners “to maximize value”, in addition to the federal government.
Among these assets, the report includes Muskrat Falls, the possible Gull Island project, but also the contract with Hydro-Quebec, which expires in 2041.
Am I to understand, from reading your comments, that the suggestions of the select committee of 12 members who made the report are impertinent?
The idea of the report The Big Reset is even mentioned by another committee – Churchill River Energy Analysis Team (CREAT) – whose primary objective is precisely to “strengthen Newfoundland and Labrador’s negotiating position before 2041”.
The committee’s mandate includes assessing the economic potential of the same Churchill River assets set out in the report The Big Reset and in particular to estimate its potential capital cost. Are they, too, impertinent?
As for the value of Churchill Falls, my estimate is certainly very imperfect. I wrote 25 billion, including 16 billion for the portion that Hydro-Quebec does not already hold. Is it more like 10 billion, 15 billion, 25 billion? More ? Less ? The idea is to give an order of magnitude of the values at stake, with the elements available to do so.
Certainly, I am not the only one to get this kind of value. In May 2021, the influential Newfoundland blogger Ed Hollett, ex-assistant to former Prime Minister Clyde Wells, judged that the Churchill Falls power station was worth between 10 and 20 billion.
And in 2018, the judgment of the Supreme Court on the dispute between Newfoundland and Hydro-Quebec also spoke of a value of 20 billion. It was obviously referring to an estimate of the former CEO of Hydro-Quebec Thierry Vandal. Lame, the Supreme Court?
For the rest, your remarks make an enlightened contribution to the debate on the question, which we really need.