Two major new power deals in Atlantic Canada have been announced this week. Both mark milestones in the development of closer electricity relationships in the region.
Premier Danny Williams of Newfoundland and Labrador and Premier Darrell Dexter of Nova Scotia sign a $6.2 billion deal to develop the Muskrat Falls hydro project at a press conference in St. John’s Thursday.
Nova Scotia’s investor-owned Emera and Newfoundland and Labrador’s provincially owned Nalcor have proposed an historic agreement to develop part of the Lower Churchill project and transmit its output to Newfoundland and Nova Scotia.
This agreement marks the end of a lengthy process in which Newfoundland and Labrador has been seeking a way to develop its massive hydro potential. It wants to gain economic advantage and avoid the trap it has encountered in its dealings with Hydro Quebec over its contract to sell power from the Upper Churchill project.
By this new deal, Premier Danny Williams makes a choice for sending his power to the Maritimes over continuing to struggle with Quebec.
To be sure, the Muskrat Falls portion of the project is the smaller of the two parts of Lower Churchill, leaving the Gull Island portion for later development. It also leaves the province’s options open for sending power from the next phase either to the Maritimes or to Quebec.
Perhaps most importantly, the project, due to come online in 2016, will end Newfoundland’s isolation from any Canadian power market.
At almost the same time as the Emera-Nalcor deal, Maritime Electric, the investor-owned utility on P.E.I., has agreed to a five-year power supply arrangement with NB Power. The P.E.I. government also plans to take direct responsibility for wind power development on the Island as well as for promoting energy efficiency measures.
Both deals will involve significant new high-voltage transmission lines, much of it underwater.
New lines will be built from Labrador to Newfoundland and from Newfoundland to Nova Scotia. Emera will be a big player in both additions to the grid.
Given the age of its current cable connection with New Brunswick, P.E.I. will also need to install a new transmission line.
These new initiatives are positive signs of a desire in all four provinces to become more aggressive in developing regional energy resources to promote economic development across Atlantic Canada. Given the relatively small size of the provincial markets and the obvious concern about domination by Quebec, the region’s big and powerful neighbour, they can only be seen as sensible moves.
But the provinces and utilities need to be sure that these deals work for consumers. It appears that the Emera-Nalcor arrangements will be subject to regulatory review. If regulators in both provinces are allowed to make binding decisions on the prudence and costs of the proposals, that can only benefit consumers.
The P.E.I.-New Brunswick deal bypasses regulators. In fact, the agreement between the two utilities has not been made public. Such a deal, imposing costs on consumers, should be public and subject to regulatory scrutiny.
Both arrangements underline the need for the development of an Atlantic Canada power market and some form of regulatory scrutiny of interprovincial transactions.
With the linking of Newfoundland and Labrador to the rest of the region, a regional market could assure the most economic use of generating resources. Instead of each province seeking profit, often at the expense of its neighbours, resources could be deployed to provide the lowest cost, reliable power across the entire area.
In addition, without a loss of revenue to any transmission owner, an integrated system could result in lower costs for many customers. Today transactions must pay for charges on each system they cross. In industry terms, that’s called pancaking.
In nearby New England, the six states have a single transmission tariff, which greatly reduces pancaking.
Furthermore, the grid could be managed by an independent entity, not subject to any single government or utility. It could insure that all transactions could use the grid on the basis of open and nondiscriminatory access. It would also be responsible for maintaining reliability – making sure the lights stay on. There are two such managers in New England.
While the Nalcor-Emera deal is subject to regulatory review, there will be considerable political pressure to approve it. There may be some risk of one regulator trying to gain an advantage at the expense of the other.
There’s a strong case to be made for a regional regulatory reviewer of such interprovincial transactions, as I have discussed recently in a paper published by the Atlantic Institute for Market Studies. This need not be a new bureaucracy; regulators from each province could serve on a joint board.
The two new agreements signal a new spirit in Atlantic Canada, one intended to replace talk by action and to move ahead independently of Quebec.
They can be the beginning of a process to create a true regional power market and integrated transmission system. Each province is likely to benefit more from such an outcome than from any further efforts to profit at the expense of other provinces.
It may be an old saw, but it is still true: “A rising tide lifts all boats.”
Gordon L. Weil is president of Standard Energy Company in Maine, and author of several papers on the Atlantic power market for the Atlantic Institute for Market Studies (www.AIMS.ca), a public policy think-tank based in Halifax.