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A look into the history of the Churchill

in Featured/Through the Fog by

In the months and years ahead we are all going to be hearing quite a bit about the upper Churchill and the lower Churchill hydro electric projects. But just the same as its difficult stepping into the middle of any other conversation, if you’re not relatively familiar with the whole story, you’re likely to be lost.

This particular story begins with the development of a hydro electric generating station on the upper Churchill Falls in the 1960’s. Newfoundland and Labrador signed a deal with Quebec which gave our province a fixed dollar figure for energy sold through Quebec’s energy grid – while allowing Quebec to sell at market value (which of course has increased significantly over time) and keep the difference.

We made a bad deal, a deal expires in 2041, and a lot of Newfoundlanders have been counting down the days for a long, long time. The one bright light has been the fact that our province could still develop the hydro resources at the lower Churchill, and that we have been trying to do for many years. But before skipping ahead to 2011, a lot has happened in the 50 years since. 5 years ago this month, The Independent published a piece by Clare-Marie Gosse that summed up the history of the project quite well.

A river runs through it
By Clare-Marie Gosse – August 14, 2005

To the region’s aboriginal people it was known as “Mishtashipu,” which means “Grand River”.

Once called Hamilton River and re-named for British war leader Winston Churchill, the Churchill River in Labrador has proved to be as stubborn and challenging as its namesake.

What should be considered one of Newfoundland and Labrador’s greatest assets has become a big, black political thorn in the side of the province and has been called “Confederation’s greatest failure.”

Although the loss of billions of dollars in hydro revenues through the ill-fated upper Churchill deal will always leave a wound, the Danny Williams government has shown it intends to repair some of the damage by succeeding where every other administration has failed.

By successfully developing the lower Churchill of harnessing 2,824 megawatts of energy from power transmitted from muskrat Falls and Gull Island.

The provinces recently announced it was considering a shortlist of three bids to develop the project – out of 25 submitted earlier this year – but Williams also stated the “option of the province of Newfoundland and Labrador developing the project on our own will be given primary consideration.”

Below is a look back over some of the milestones in the political history of the Churchill River, including information gathered last fall through The Independent’s six-part cost benefit analysis of Confederation and subsequent articles exploring the viability of keeping the lower Churchill development in-province.

Shortly after leading Newfoundland and Labrador into Confederation with Canada, then-premier Joey Smallwood began negotiations with Quebec to develop the hydro electric potential of the Churchill River. Lacking support from the federal government, which refused to use its constitutional powers to force Quebec to allow a power corridor through its province, an agreement was finally signed in 1969.

By 1972 the 5,200 megawatt project came on stream. The long-term contract awarded Hydro-Quebec all of the Churchill Falls power at a low, fixed cost, without the benefit of an escalator clause. Today, Hydro-Quebec continues to resell the power to the United States and since 1972 has gathered an estimated $23.8 billion in revenues; Newfoundland and Labrador has made approximately $680 million.

Construction began on developing Gull Island (part of what is considered the lower Churchill) in 1973, but was cancelled two years and $70 million later, due to problems with marketing and financing.

In the early 1980s during Brian Peckford’s leadership, the Power Authority of the State of New York was desperate for a clean energy source and expressed interest in buying from and partially funding a development of the lower Churchill. The power authority supported using either a power line through Quebec or the more expensive option of transmission via an Atlantic route. Peckford was adamant the federal government should force Quebec’s cooperation and eventually his heated negotiations killed the lower Churchill deal. He tried to regain control of the upper Churchill by attempting to take back the water rights, but eventually lost his case in the Supreme Court of Canada. With time running out, the Power Authority of the State of New York proceeded with other power options.

Between 1972 and 1982, Newfoundland and Labrador lost unknown hundreds of millions of dollars as a result of an equalization inequity. During this 10-year period, the federal government allotted equalization payments as if the province was receiving the full market value of the Churchill Falls electricity. The province has never received a retroactive benefit.

In 1984, Peckford telexed then-prime minister Pierre Trudeau, estimating Newfoundland and Labrador was losing $2 million a day as a result of the upper Churchill deal.

Virtually every provincial government since Smallwood has tried to re-open or re-negotiate the upper Churchill agreement. The issue has been dragged repeatedly through both the courts of law and public opinion, costing the province additional millions.

A 2003 blackout in Ontario and eight U.S. states pushed the potential of the lower Churchill into the international spotlight. Both Ontario and Quebec are serious future power outages. In its Jan. 16 issue, The Independent discovered New York’s power authority was still interested in transmitting lower Churchill energy through an Atlantic grid – bypassing Quebec.

In a Feb. 6 Independent article, Natural Resources minister John Efford said the federal government wouldn’t step in to help the province push a power corridor through Quebec. Hyrdro Quebec’s current transmission lines that run into the U.S. are said to be at maximum capacity. The cost to construct another line is thought to be $1.7 billion.

In April, Williams told The Independent the province would consider undertaking the development of the lower Churchill alone, a project estimated to cost over $5 billion and take 10 years. Issues aside from the high cost involved included environmental concerns, fluctuating electricity prices and aboriginal land claims. Industry experts interviewed both cautioned against and applauded the potential undertaking. Engineer Tom Kierans, who worked on the upper Churchill project, said there was only “one way” to develop the lower Churchill, however: sell Newfoundland and Labrador Hydro’s assets (Holyrood, Bay D’Espoir and the province’s share of the upper Churchill_ to a provincially regulated private investor’s group and let that entity take the risk for developing the project.

After months of consideration, the province is down to three potential bidders for the lower Churchill. A decision is expected to be made within eight months.

2041: the upper Churchill fixed rate agreement signed by Joey Smallwood and Hydro-Quebec expires.



… meanwhile in 2011

Last year, then-Premier Danny Williams and his government eventually decided to go it alone with the lower Churchill project in developing the Muskrat Falls portion of the resource. Not only were they going to go it alone, but they were going to bypass the province of Quebec by partnering with the province of Nova Scotia – to build an undersea link through Atlantic Canada in order to make the power available to the American market.

The merits of this new deal are being attacked by those who say it is too costly to go undersea in order to avoid Quebec, those who feel it is environmentally unsound, and those who feel we are taking far too great a financial risk by undertaking the project by ourselves. However, Nalcor and Williams are steadfast in their defense of the project – saying it is the cheapest and most effective means of future power generation available to us.

In the months and years ahead, especially with an election around the corner this Fall, much will be said about the lower Churchill project. And if you’re anything like me, armed with this basic background knowledge of the project you’re ready to learn more about the current project and to participate in the important discussions and decisions that lie ahead.

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