August 31, 1998
Government announces energy
policy review and the suspension of all new small hydro projects pending the
outcome of the policy review
Premier Brian Tobin announced
today government's plans to complete a thorough review of the province's
energy policy and that all new small scale hydro projects will be suspended
pending the outcome of this policy review. The premier noted that the
Northwest and Southwest River Projects will not proceed as a result of this
decision. Premier Tobin also took this opportunity to update the people of
the province on the Churchill River Power Project.
Accompanying the premier at the
news conference were Charles Furey,Minister of Mines and Energy; Bill Wells,
President and CEO of Newfoundland and Labrador Hydro; and, Jim Thistle,
Chief Negotiator of the Churchill River Power Project.
"In light of the profound
changes the electricity industry as a whole is currently undergoing,
government's plans to develop the hydroelectric potential of the Churchill
River and the forecasted energy requirements for the province over the next
decade, I believe this is the opportune time to conduct a thorough review of
the province's energy policy," said Tobin.
The energy policy review will be
conducted by the Department of Mines and Energy, with the department
retaining specialized expertise to advise on specific and technical matters.
The review will look at existing legislation and regulations, developments
in other jurisdictions, existing electricity industry structure, pricing,
electricity supply, and electricity as a tool for economic development.
Mr. Furey emphasized that,
"this review will not raise the issue of hydro privatization. The
industry structure review will examine whether or not generation and
transmission should be held by one corporate entity, but will not
contemplate ownership of Newfoundland and Labrador Hydro by anyone other
than the people of the province."
In undertaking this review,
government has suspended all new small hydroelectric developments on the
island. "There will be no more small private hydro developments on
rivers on the island while this review is being conducted," said Tobin.
"Newfoundland and Labrador Hydro (NLH) has reached an agreement with
the proponents of Northwest and Southwest River projects that the projects
will not proceed. It is government's hope that this energy policy review
will result in a policy which will not require the development of our small
or ecologically sensitive rivers or watersheds to meet the electrical energy
requirements of the province."
"Government recognizes the
need to balance its responsibility to ensure a ready supply of clean,
efficient, and economic power for the people of the province with the need
to protect our small rivers from unnecessary development," said Furey.
Furey noted, "Government
has received many comments opposing the development of small rivers on the
island, citing reasons such as the effect hydroelectric developments may
have on recreational use of the rivers and on fish stocks."
A Request for Proposals (RFP)
for small hydro projects was issued in 1992. Four proposals were selected
for development including Star Lake, Rattle Brook, Northwest River and
Southwest River. The Star Lake and Rattle Brook projects are essentially
complete. These two projects have met all environmental requirements. The
Northwest and Southwest River projects proved to be environmentally
sensitive. Following consultations with Newfoundland and Labrador Hydro, the
proponents have withdrawn their proposals. The Northwest and Southwest River
projects had not been issued any water use, crown land, or other necessary
river development permits, and no such permits will be considered or issued
for these or any other small hydro projects pending the outcome of the
Tobin added, "The
suspension of all small scale hydro projects will not affect Newfoundland
and Labrador Hydro's ability to meet the generation needs on the
Heidi Bonnell, Premier's Office,
Tara Laing, Mines and Energy,
Update on the
Churchill River Power Project
Premiers Brian Tobin and
Lucien Bouchard announced a framework for further development of the
Churchill River on March 9, 1998.
The framework for
negotiations provides for the construction of a 2,264-megawatt
generating station at Gull Island at a cost of $3.2 billion, to be owned
65.8 per cent by Newfoundland and Labrador Hydro, 34.2 per cent by
Hydro-Quebec. In addition, 1,000-megawatts of new capacity would be
developed at Churchill Falls in conjunction with the partial diversions
of the Saint-Jean and Romaine Rivers in Quebec into the Smallwood
Reservoir. This project will cost $1.3 billion.
A new power house with two
500-megawatts turbines would be added next to the existing underground
power house at Churchill Falls. The Churchill Falls expansion would also
be owned 65.8 per cent by Newfoundland and Labrador Hydro, 34.2 per cent
by Hydro-Quebec. The partial diversions of rivers in Quebec would be
developed and owned by a Quebec-based partnership of Hydro-Quebec and
The framework for
negotiations includes details of the construction of new power
transmission infrastructures at a cost of $3 billion. Two 735 kV
transmission lines will be built from Gull Island to Churchill Falls,
and from Gull Island to Montagnais, Quebec.
The framework also provides
for the completion of a feasibility study of the Muskrat Falls site.
An 800 MW HVDC transmission
line will be built from Gull Island to Soldiers Pond near Holyrood, at a
cost of $2.2 billion. The building of this line includes the
construction of underwater submarine cables across the Strait of Belle
Mr. Jim Thistle was
appointed Chief Negotiator for the Churchill River Power Project on
March 9. Since that time, a formal negotiating/coordinating team has
been put in place, and has been meeting regularly with Hydro Quebec.
Preliminary work has taken
place during the spring and summer field seasons. To date over 30
individual contracts have been awarded accounting for some $9 million of
environmental and engineering work on site. Ninety per cent of the
companies working on the project are either Newfoundland and Labrador
firms, or have a presence in the province. And, while the numbers do
fluctuate, there are already over 300 individuals either directly or
indirectly working on the project.
This summer has been a busy
one for environmental work, both in Labrador and on the Island. Since
May, scientists and archaeologists have been conducting preliminary
studies. The data which the scientists collect will be used to
characterize baseline environmental conditions. This information will be
used in project planning and future environmental assessment.
Several studies are
underway, including analyzing the fish populations, fish habitat and
fish movement on the river, as well as water quality and forest
resources. There are also archaeological surveys underway in Labrador,
and training has been provided to several Innu archaeological
researchers to participate in this study.
Field work and analysis will
continue into the fall, and during the winter season moose population,
ice formation, etc., will be studied. Much of this kind of work will
need to be performed again, perhaps on a seasonal basis, in order to
attain more accurate data.
Time frames identified
earlier this year for the project are still on track. By the end of
1998, parties hope to sign a Memorandum of Understanding with respect to
the project, and by the end of 1999, formal agreements should be signed.
From 1999 to 2001, detailed environmental, engineering and financial
work would be completed, allowing for an official project release date
near the end of 2001 or the beginning of 2002.
Actual construction would
begin in 2002, with first power expected in 2007.
This province is committed
to pursuing a true partnership with the Innu Nation, who have already
participated in the design of environmental studies and are monitoring
activities in the field this summer.
The project's goals also
include securing the energy needs of the region, through development of
what is believed to be the least-cost hydro site in all of North
The project is being
developed in a manner which is sensitive to the needs of the
environment, and which takes advantage of existing infrastructure and
The Government of
Newfoundland and Labrador also wants to maximize the economic benefits
for Newfoundlanders and Labradorians first. With an investment of $10 -
$12 billion over 10 years, this project will be one of the largest
construction projects in the world - a project that will provide clean,
stable power and account for up to 15 per cent of Canada's Kyoto
commitment to reduce greenhouse gas.
Energy Policy Review
The electricity industry
across North America is currently experiencing profound changes.
Electricity sector restructuring and reform are being led by the
electricity competition and open access policies applied by the United
States Federal Energy Regulatory Commission (FERC). The old captive
market/regulatory structure is being replaced or complemented by
enhanced competition. Utilities that formerly enjoyed captive markets
and controlled generation, transmission, and distribution are now being
forced to accept competition.
These changes are also
directly affecting Newfoundland and Labrador. For example, the new open
access trading environment in North America has facilitated recent
discussions with Quebec concerning the further development of
hydroelectric potential on the Churchill River.
In light of these
developments, it is necessary to examine the province's entire
electrical energy policy in detail, and as a complete package. This was
also the conclusion reached in other jurisdictions; e.g., Ontario and
Quebec, as they attempt to manage change in their electricity sectors.
Government is in the process
of commissioning a comprehensive review of the entire spectrum of its
electricity policy. External consultants will be engaged in areas where
specialized expertise is required. Government expects to have a report
for its consideration by the end of the year.
At this point, the primary
focus of the energy policy review will proceed along the following
1. OVERVIEW OF EXISTING
LEGISLATION AND REGULATION
The policy review will
assess the various Acts and Regulations currently applicable in the
province with a view to identifying any changes that may be warranted,
and to recommending any necessary changes for Cabinet consideration.
The Electrical Power Control
Act (EPCA), 1994 is currently the central element of the province's
electricity policy. It sets out the current provincial policy with
respect to electric power rates, the management and operation of
facilities for the production and distribution of power and for the
general management of the electricity sector.
Other important aspects of
the province's electrical power policy are contained in several other
Acts. These are:
- Public Utilities Act (PUA)
- Hydro Corporation Act
- Newfoundland and
Labrador Power Commission (Water Power) Act
- Lower Churchill
Financial Provisions Act, 1975
- Environment Act
- Lands Act
All of these legislative and
regulatory instruments will be reviewed.
The policy review will also
assess the electricity restructuring and related developments in other
jurisdictions with a view to determining their applicability to, and
impact on, this province.
2. EXISTING ELECTRICITY INDUSTRY
The policy review will
examine current electricity industry structure and the roles of the
various agencies in the electrical policy field and recommend any
changes for Cabinet consideration.
Generation, Transmission, and Distribution: This aspect of the review
will not relate to ownership in the industry and will not deal with
whether or not we should continue with the Crown Corporation approach we
currently have in Newfoundland and Labrador. Rather it will focus on
whether or not generation and transmission facilities should be owned
and operated by the same Crown Corporation. This will not include any
examination of public vs private ownership, but whether the public
interest is best served by having these functions discharged by the same
Department of Mines and
Energy: The lead agency for energy policy matters within the province is
the Department of Mines and Energy.
Public Utilities Board: The
Public Utilities Board (PUB) is an independent quasi-judicial regulatory
agency. The general powers and regulatory authority of the PUB is
derived from the Public Utilities Act. Current electric utilities
regulated by the PUB are: (1) Newfoundland and Labrador Hydro, (2)
Newfoundland Power, and (3) Deer Lake Power.
Newfoundland and Labrador
Hydro: Newfoundland and Labrador Hydro (Hydro) is a Crown corporation.
The corporation is responsible for the generation, transmission, and
distribution of power within the Province of Newfoundland and Labrador.
The bulk of Hydro's generation is sold to Newfoundland Power and to
several industrial customers.
This section of the Report
will review the price setting methodology and the current price
structure, with a view to recommending a rationalization of the price
Electricity pricing, both on
the Island and in Labrador, is presently characterized by a complex
array of structures, conditions, and policies. Prices are different for
the same service in Labrador than on the Island; customers on the grid
are charged differently than customers not on the grid; in Labrador the
same class of customers are charged different rates depending on
location; and cross subsidization exists where some customer classes are
not charged their full cost of service while other classes have to make
up this difference, etc. This policy review will assess these and other
related matters, including a review of:
- Existing Pricing
Methodologies and Practices
- Current Pricing
Structures, both on the Island and in Labrador
- Future Prices and
- Average vs
Marginal Cost Pricing
4. ELECTRICITY SUPPLY
Newfoundland and Labrador has a
total electrical energy supply capacity of about 7,700 MWs. Of this amount,
Newfoundland and Labrador Hydro controls about 95 per cent - including the
5,400 MW plant at Churchill Falls. On the Island, Newfoundland and Labrador
Hydro controls about 81 per cent of the generating capacity. Its largest
generating stations are at: Bay D'Espoir (604 MWs); Holyrood (505 MWs); Cat
Arm (127 MWs); Upper Salmon River (84 MWs); and, Hinds Lake (75 MWs).
While the source of electricity
supply in Labrador is virtually all hydraulic, the Island's electricity
demand is met by a significant portion (39 per cent) from thermal sources.
The largest of these is the Holyrood plant.
Recent discussions with Quebec
concerning the further development of hydroelectric potential on the
Churchill River now offer the prospect for a transmission link between the
Island and Labrador.
In light of these particularly
significant developments, this policy review will consider a variety of
supply-related issues, including:
- Current Electricity
Demand and Forecasts
- Future Supply Options;
- Small Scale Hydro and
- Labrador Infeed,
- Natural Gas,
- Nuclear, and
Conservation and Demand Side Management
- Regulatory Constraints
5. ELECTRICITY AS A TOOL FOR
Safe, reliable, and
competitively priced electricity is an important component for economic
development. As such, this policy review will assess the role that
electricity can play in contributing to the creation of income and
employment opportunities. In this context, some of the issues to be
- Export and Import
- The potential to
capture economic rent through royalties and taxes.
Small Scale Hydro
In 1990, Government adopted a
policy to encourage the development of private sector small scale
hydroelectric projects to help stimulate economic activity and supply the
future energy needs of the island portion of the province. Under this policy
Newfoundland and Labrador Hydro (NLH) relinquished its franchise right for
any potential hydroelectric development, up to 15 megawatts (MW). This
policy was amended in 1997 to remove the 15 MW capacity restriction.
As a result of the small scale
hydro policy initiative, Newfoundland and Labrador Hydro, in 1992, requested
proposals from proponents of small scale hydro projects to supply the
anticipated growth in island electricity demand.
Four projects, for a total of 38
MW, were selected by Newfoundland and Labrador Hydro to deliver power and
energy by 1998. These projects are Star Lake (15 MW), Rattle Brook (4MW),
Northwest River (12 MW) and Southwest River (7 MW). The Star Lake and Rattle
Brook projects have obtained all necessary approvals, and construction is
well advanced to meet the planned fall 1998 in-service date. The Northwest
River and Southwest River projects, however, have not been released from the
province's environmental assessment process, and the proponents have
recently withdrawn these projects from further consideration.
Two very significant
developments have occurred since the small scale hydro policy was announced
(1) Discussions between
Newfoundland and Labrador Hydro and Hydro Quebec have raised the
potential for an 800 MW electricity transmission interconnection
between the Island and Labrador. When completed this will be the
source of the island's electrical energy requirements for many
(2) There has been a
strong negative response from the environmental community to small
scale hydro developments on the island, especially as it relates to
developments on salmon rivers, or in proximity to protected areas;
These developments have raised
the possibility of a policy change that would exclude future hydroelectric
projects on the island from consideration in meeting the future power and
energy requirements of the province. This possibility will be considered in
detail in the upcoming review of the overall electrical energy policy of the
province. It is government's hope that it will be possible to meet the
future energy requirements of the island without developments on small
ecologically sensitive rivers and watersheds.
1998 08 31