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August 31, 1998
(Executive Council)

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 policy review.

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 island."


Heidi Bonnell, Premier's Office, (709) 729-3564

Tara Laing, Mines and Energy, (709) 729-4890




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 local communities.

  • 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 Isle.

  • 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 America.

  • 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 reservoir.

  • 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 lines:



  • 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 Development Act

    - Miscellaneous Financial Provisions Act, 1975

    - Environment Act

    - Environmental Assessment 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.


  • 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.

  • Industry Structure, 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 company.

  • 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 structure.

  • 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 Competitiveness

    - Average vs Marginal Cost Pricing


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;
        - Hydraulic:
                - Small Scale Hydro and
                - Labrador Infeed,
                - Thermal,
                -        Petroleum,
                -       Natural Gas,
                -       Biomass,
                -       Nuclear, and
                -       Wind

- Efficiency Conservation and Demand Side Management
- Regulatory Constraints


  • 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 considered include:

    - Integrated Resource Planning

    - Export and Import Opportunities

    - Industrial Development

    - 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 in 1990:

(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 years.

(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; and,


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                  11:10 a.m.

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