Major energy development in Canada involves a huge level of government commitment, where one province making a large upfront capital investment to develop its endowment of natural resources. It involves exporting that natural resource to foreign markets where it is becoming increasingly valuable. And It involves transporting that energy through an adjacent province that doesn't have much to gain from the project, but due to geography is needed as a middleman. And I am not talking about Enbridge Northern Gateway!
I am talking about the proposed Lower Churchill Falls hydroelectric plant in Newfoundland. This project has not received much attention in Western Canada but it it should as it is remarkable how many similarities there are between it and some of the proposed pipeline projects here in the west.
First, a little bit of background. Newfoundland and Labrador is a province with much more hydroelectric potential than it needs to meet its own electricity needs. Furthermore, most of that potential is in Labrador while most of the electricity demand is on the island of Newfoundland; there is no interconnection. Newfoundland first capitalised on the hydroelectric resource in Labrador by building the Churchill Falls generating station in the early seventies. Churchill Falls is the second largest hydro generating station in Canada but due to it being in Labrador, Newfoundland could only use the power by selling it to Quebec. The two provinces entered into a 65 year contract at a fixed price that has turned out to be much lower than market power prices have been recently. To this day, if you mention Churchill Falls to a Newfoundlander they will proceed to tell you how the contract is the biggest injustice of all time and that Quebec should pay whatever the going market rate is despite what the contract says.
Lower Churchill Falls is Newfoundland's proposal to build another hydroelectric plant further down the Churchill river. This is analogous to BC Hydro's plan to build Site C further down the Peace River than the Bennet Dam (Site A) and the Peace Canyon Dam (Site B). However, this time Newfoundland has learnt their lesson and they are refusing to sell the power to Quebec. Instead, they would ideally like to export the power to the US via Quebec's transmission system. Quebec is refusing to play ball and this is where it gets interesting.
Newfoundland is proposing to bypass Quebec altogether by transmitting the power north through Labrador, under the sea to the island of Newfoundland, under the sea again to Nova Scotia and finally into the US. From an engineering perspective this makes no sense. It involves a large additional investment in transmission infrastructure and is more risky due to the subsea sections. Despite this, the federal government has come out in support of Newfoundland's project and is even providing federal loan guarantees to cover the billions of dollars of investment that will be needed to finance the project. The fact that these loan guarantees were announced during the 2011 federal election should give you some idea of whether these loan guarantees were justified on political or economic grounds.
There are some similar issues with Enbridge Northern Gateway. There is a perception that Alberta has the most to gain while BC takes all the risk. Just as Newfoundland is avoiding Quebec to get its product (electricity) to market (US), Alberta could conceivably avoid BC to get its product (oil) to market (Asia) by going through Alaska or possibly even through the US. By providing the federal loan guarantees to Newfoundland, the federal government has set a precedent for intervening in energy projects that span more than province.
What could the federal government do to facilitate pipeline development in western Canada? Premier Clark has said that B.C. need to share in the economic benefits but Premier Redford has said royalty sharing is not on the table. Could the federal government bridge this gap somehow? Alternatively, perhaps the federal government could use its size and balance sheet to insure against some of the more extreme but unlikely risks associated with an oil spill similar to how they are insuring Newfoundland against the unlikely event they default on their loans to build lower Churchill falls.
The Canadian constitution clearly carves out natural resources as an area of provincial jurisdiction. However, as energy projects grow in size to span multiple provinces and as international energy markets become more integrated, there is an increasing role for the federal government to play in developing Canada's natural resources to their full potential. They have already done so in the case of Lower Churchill Falls and there is plenty of opportunity for them to do so amongst pipeline projects in western Canada.
