Churchill Falls Power Agreement
Newfoundland and Labrador have won a rare victory in their long-standing battle with Hydro-Québec over a 50-year-old agreement to sell Churchill Falls Power, a long-standing battle for the province. WITHOUT a guaranteed electricity market, BRINCO was unable to obtain financing for the plant. In 1963, Quebec nationalized all of its hydroelectric facilities and proposed to Newfoundland that the same be true with the Hamilton Falls project, which was rejected by Smallwood.  BRINCO studied alternatives to shipping electricity to neighbouring Quebec, including shipments to New Brunswick and requests for federal intervention. But the only practical solution was to negotiate an agreement with Quebec. In 1969, after 16 years of attempts to finance the project, BRINCO found itself in a difficult financial situation, while Quebec was inundated with money, which further strengthened Quebec`s negotiating position. In the end, BRINCO would sell 90 per cent of the electricity to Hydro Quebec at a fixed price, renewable for more than 40 years for another 25 years. What was CFLCo`s anticipation? It did not have to prepare a model for the approval of the Newfoundland government and it appears that CFLCo did not make a financial forecast beyond 2016 when the contract expires. However, if inflation were above 4%, operating costs would be higher than revenues during the extension period.
CFLCo understood this problem as well as the other reasons not to expect a chance to win. As CFLCo pointed out at the March 1 meeting, facilities, equipment and other structures would tend to wear out and be replaced over time. At the beginning of the renovation phase, parts of the plant, the retaining lake, transmission lines and other structures that have not already been replaced would be between 40 and 50 years old. As the physical installation ages, there is a good chance of replacing larger components during the renewal phase. In addition, various tax exemptions, as well as protection against tax increases and new taxes that had been made available by the State Government, did not cover the extension period. Similarly, the State`s commitment to reverse the increase in the federal tax rebate did not extend to the extension period, so CFLCo would be subject to the full federal corporate tax rate if it did not make a profit on the renewal contract.