Eventful Day for Eastern Canada Electric Power Industry

July 22, 2013 was an eventful day for Canada’s eastern provinces, with two noteworthy developments concerning the future of their electricity industries, including the Nalcor Energy Lower Churchill mega hydroelectric project and its 824 MW first phase Muskrat Falls hydroelectric project.

First, Hydro-Québec, Québec’s electricity utility, filed a motion with the Québec Superior Court for a declaratory judgment challenging two recent positions taken by Churchill Falls (Labrador) Corporation Limited (CFLCo) with respect to the May 12, 1969 Churchill Falls Power Contract (the Power Contract).

CFLCo is a subsidiary of Newfoundland and Labrador Hydro, itself a subsidiary of Nalcor Energy, Newfoundland and Labrador’s energy corporation (with a 65.8% equity interest), and of Hydro-Québec (with a 34.2% equity interest). CFLCo owns the 5,428 MW Churchill Falls generating station and, pursuant to the Power Contract, must make available almost all of the facility’s output to Hydro-Québec at what is generally qualified as a very beneficial power purchase price for Hydro-Québec. The Power Contract will be automatically renewed in 2016 for a 25-year period ending in August 2041 at a lower power purchase price.

In its proceeding, Hydro-Québec claims that it has an exclusive right to purchase almost all of the output generated by the Churchill Falls generating station until the expiry of the Power Contract and that it has the right to control the facilities to optimize the management of its own power needs.

According to certain commentators, including Mr. Tom Adam, an electricity consultant, “Hydro Quebec’s court application responds to a plan by the NFLD government’s crown utility Nalcor to take a large block of power from Upper Churchill during the winter, replacing that power with excess production from the downstream Muskrat Falls project during the spring run-off.” His views on this developing story can be found in the following column published on the Financial Post's website: Muskrat madness: Quebec motion puts Newfoundland’s multi-billion dollar magaproject at risk.

Second, the Nova Scotia Utility and Review Board released its decision granting its conditional approval for the Maritime Link — the subsea electricity transmission cable designed to transport electricity from the Muskrat Falls project to Nova Scotia. Emera Inc., the public electricity company that owns Nova Scotia’s provincial utility, is involved in the Muskrat Falls project as sponsor of the Maritime Link. Currently, 20% of the output of the Muskrat Falls project is committed to Nova Scotia at a fixed price. The Board's approval for the project is conditional upon the commitment by Nalcor Energy that power surpluses at the Muskrat Falls project will be made available at market price to customers in Nova Scotia (up to an additional 20%) to meet Nova Scotia's needs. If this commitment is not obtained from Nalcor, the Board is of the view that the Maritime Link will not be the lowest-cost option for Nova Scotia’s customers. The initial response from Nalcor appears to be a refusal to provide this commitment as Mr. Ed Martin, Nalcor Energy’s CEO, stated in a July 22, 2013 press release that the Muskrat Falls project is first developed for the benefit of the Newfoundland and Labrador. A link to the decision of the Board can be found here and a link to the Nalcor Energy press release in response to the decision can be found here.

Churchill Falls Churchill Falls (Labrador) Corporation Ed Martin Lower Churchill Maritime Link Muskrat Falls Nalcor Energy Newfoundland and Labrador Hydro Nova Scotia Utility and Review Board subsea electricity transmission Tom Adam



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