Quiet Confidence

Move ahead without Quebec

CF(L)Co’s most recent financial statements value the existing plant and transmission lines at roughly what it cost to build them a half century ago, not considering inflation.

Let us remove Hydro-Quebec’s shares in Churchill Falls, pay the company fairly for its stake, and then move ahead to develop Labrador energy, minerals, and other economic boons for the good the people of Labrador and Newfoundland.

There is not reason for HQ to hold shares in the largest generating plant it runs outside its provincial borders.

Its presence forms a corrupting conflict of interest that harms the interests of Newfoundland and Labrador.

Did in 1969 and has been doing it ever since, most obviously since 2023.

Both Newfoundland and Labrador and Quebec can co-operate instead to mutual benefit without the political fictions of 1927 or 1969 that remain even with this pending deal that continues the real harm of both events.

The Furey deal, no matter whatever minor tweaks Tony Wakeham manages to get in the next few days, betrays Newfoundland and Labrador’s best interests by continuing the principles of the 1969 contract and by granting Hydro-Quebec unconscionable control over Churchill Falls and future development in Labrador, all in exchange for nothing financially or in any other way.

The prospect of a sovereignist government in Quebec this fall only makes that situation all the more naive and foolish. Rather than plough ahead as everyone including Tony Wakeham wants to, we should stop now. Scrap the Furey deal. Start over. After all, any future agreement on Churchill Falls with the Parti Quebecois will not get better. The PQ already plans to make the 1927 border part of its program once elected, even though Quebec has already recognized countless times. Better to stop this Furey mess now rather than give the PQ the control they would get from his deal with the Wakeham fiddles.

The cleanest way to deal with all of the issues bound up in Churchill Falls is simply to remove Quebec from the equation except as welcome potential customer for Labrador energy from Newfoundland and Labrador’s energy corporation.

The first step would be a political decision to do it, that is to get Quebec and Hydro-Quebec out.

That may be the hardest thing to achieve given the powerful interest in this province that have already sold out to Quebec. Most of the drive within Newfoundland and labrador for this deal is greed and their personal self-interest: it keeps them in power and, as managers love, nothing changes.

But it is also coming from the incredibly weak understanding in Newfoundland and Labrador of its own interests, especially among the ruling class. The managers struggle to manage and lack the strategic insight to realise that there is no way to secure the province’s future by merely balancing ratios or whatever other meaningless managerial mumbo-jumbo they are using to justify this deal.

But if we got over that hurdle, the rest is astonishingly easy.

Second, we would need a piece of legislation nationalising CF(L)Co and continuing the company and all its existing contractual obligations, due to expire in 2041. Easy to draft. We have smart lawyers.

Third, we’d need to figure out what to pay HQ for its shares.

Fair market value is the common term used but figuring out what that is might take a bit of work. A bit but not much.

There are two ends of a range. The low end would use how Churchill Falls (Labrador) Corporation values its physical assets, which would be a mere $1.1 billion. That’s just $374 million for HQ.

That’s all.

On the other extreme, the $20 billion figure floated by a former HQ chief executive during the fairity court case gives you a value of the HQ shares of $6 billion or so.

Again, not much at all.

In other words, worst case, we are talking two or three annual deficits under Furey or Wakeham. And if we make that part of a new sales agreement with Quebec over the typical 25 years of such an agreement, you could easily build in that extra $250 million a year and not lose a penny.

Not a problematic amount, in other words.

Put it this way.

Even allow we endure the next 15 years until all the current agreements expire and punt HQ on 01 September 2041. A 25 year power purchase agreement at that point, with HQ for almost all Churchill Falls’ output at market rates today would bring in at least $1.8 billion. Give them the $250 million discount.

We still have more than $1.5 billion in cash, guarantee, all for Newfoundland and Labrador, which is better than anything we have seen of this new deal. Although the Furey boys claim the new deal is a billion a year, even the deal they released doesn’t give that, ever.

Ever.

It’s $33.8 billion over 50 years.

That’s only $678 million a year from Quebec alone.

Then you lop 34% off.

And of the Newfoundland and Labrador electricity share on a maximum year, you’d give Quebec 34% of that as well.

So yeah. A simple thing financially and obviously better.

Except you have folks in this province who would not have the same easy world to live in where they imagine they are a junior partner of HQ when they act like a subsidiary of HQ instead.

But really, there’s no need to talk about the value of the output from the plant because under the 1969 deal and the Furey-Wakeham extension on it, the shareholders have decided the value of the output is negligible. A couple of cents a kilowatt hour, fixed price, as in 1969. Quebec would have a hard time arguing to get that into the value of their share without getting into the knotty problem of what’s wrong with the 1969 deal and the extension agreement and at the same time claim any money at all for border “reparations.”

In fact, if Newfoundlanders and Labradorians were bloody-minded enough, they would just say that the share value and the “reparations” are covered in the 1969 windfalls and the insane rent-split that sees Quebec get 92% of the difference between the cost of producing the electricity and the market value of it. Call it a wash. End of discussion.

Kick ‘em out now but keep the 1969 contract running until it dies along with all the other schemes and scams.

The lawsuits - if any - would start on Duckworth Street, a place HQ has carefully avoided and under the new deal the Newfies who negotiated it agreed to settle disputes in Ontario. The fools. If we chucked Quebec out today, the Supremes hanging out on Duckworth looking for a hobble in both the General Division and the Court of Appeal know the law as well as anyone. They’d happily fill up a court docket with the Montreal lawyers pleading both sides of the case.

That would spike the ball into Quebec’s political court.

They could negotiate for a contract to start in 2041 in which the electricity from Churchill Falls went across the border for the market value over the next 25 years. Or they could let the current contract slide and Newfoundland and Labrador would put the block of electricity on the market to start delivery 01 September 2041 to whoever wants it.

Again, market prices.

We don’t lose.

And we fling off the weight of Hydro-Quebec once and for all.

Masters of our own house, to borrow a phrase, instead of letting Quebec be masters of our house, which is what the Furey deal does.

Either way, all the transmission capacity currently carrying the Quebec deal would still be there so there’d be no shortage ways to get our electricity to market anywhere. If Ontario wanted to snap up the electricity we have and more besides, they could help with the transmission if the federal program didn’t cover it anyway.

As for Gull Island, HQ can make an offer again like 2005 with or without Ontario as a partner. Build the plant. No shares in it. 100% owned by Newfoundland and Labrador. And a rate for the electricity that pays off the construction costs, covers operating expenses, and delivers a profit… to Newfoundland and Labrador.

Or someone else might want to build it.

Basically, treat HQ like any other paying customer.

Amazing no one in Newfoundland and Labrador looking to the future thought of that before they agreed to give Quebec in a new deal even more than they have now.

All it would take to make a very different, far more prosperous future for Newfoundland and Labrador would be a willingness among politicians and the rest of us to show some quiet confidence in ourselves.

For a change.