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Premier Brian Tobin
Address to
Canada - U.S. Energy Trade and Technology Conference
Boston - November 7, 1997


The following Speech was delivered today by the Honourable Brian Tobin to the Canada - U.S. Energy Trade and Technology Conference in Boston:

Environmentally Friendly Hydro Electric Power from Labrador
to Supply Growing U.S. and New England Energy Markets

Thank you Mr. Keegan (Robert Keegan Co-chair of the Conference)

Good Afternoon - Robert Whitney - President of the New England-Canada Business Council, Trigen-Boston Energy Corporation and Co-host of Hockey Evening; Richard Terrazas - Vice President, M&N Management Company
and Robert Keegan (Partner, Keegan, Werlin & Pabian) Co-chairs of the Energy Conference; Mary Clancy - Consulate General - Canadian Consulate; Valerie LaTraverse - Executive Director of New England-Canada Business Council; all the sponsors of this Conference, distinguished guests, ladies and gentlemen.

It is a pleasure for me to be part of the Canada/U.S. Energy Trade and Technology Conference. As I review the topics for your Conference, and the impressive list of attendees from the energy and utility sectors, I realize that this Conference is very timely.

The energy sector in both our countries is truly living in challenging and interesting times. In the electricity sector we are just entering the era of market de-regulation, and meeting all of the challenges and opportunities which it presents.

In the energy sector generally most of us are focussed on the Climate Change Conference which will take place in Kyoto, Japan in early December.

Global warming is a fact. President Clinton has set forth the targets for the US, and Prime Minister Chr�tien will shortly be doing the same for Canada.

We all recognize the need to reduce Greenhouse Gas emissions to sustainable levels. That will be a particular challenge for the energy sector. There is no doubt that the energy sector faces the greatest challenge in meeting these targets. But these challenges also present opportunities. I will outline one of these opportunities in my remarks today.

The latest U.S. Department of Energy forecast calls for a 58 percent, or 6.8 billion kilowatt hour increase in electricity generated from petroleum by 2010 in New England alone. This demand will require an increase of over 10 million barrels of oil per year in petroleum use, and will add over 4 million tonnes of greenhouse gases.

The same Department of Energy forecast predicts that by 2010 only 2 percent of New England's electricity will come from environmentally friendly and long-term, competitively priced hydro imports from Canada.

This forecast also predicts that 28% of New England's electricity demand in 2005 will be supplied from nuclear. While the forecast does see a decline in nuclear supply to 15% by 2015, there is reason to believe that this decline may be more rapid. The closure of 4000 megawatts of nuclear capacity in the US since 1992, 40% of which has been here in New England, and the recent removal of over 4000 megawatts of nuclear generation in Ontario are signs of reduced nuclear supply in the future.

The possibility of a more rapid decline in nuclear supply was identified a year ago by the Washington International Energy Group. In its 1997 industry survey, the Group reported a significant increase in the number of survey respondents expecting a large number of nuclear plants to be shut down prior to the end of their expectant useful life.

The forecasted very modest hydro electric supply for New England includes an assumption that regulatory and related barriers would contribute to the reduced hydro imports from Canada. While this assumption may have been reasonable in the past; it is, I am pleased to say, no longer reasonable under today's new market structure.

For decades we all accepted the concept of electricity as a natural monopoly. As a result, there was little competition and limited consumer choice in the electricity industry. There was little incentive for producers to lower costs and increase their market share. There was no capability for the consumer, residential or industrial, to demand a lower price; or, if they were so inclined, to choose to pay a premium price for environmentally friendly energy or "green power" as it has become known.

Seeing the benefits of competition in other industries, the Federal Energy Regulatory Commission (FERC) seized the initiative and established rules permitting the operation of market forces that reward risk and offer increased consumer choice to enter the electricity industry. Openness and freedom of choice have finally come to the electricity industry in North America.

With the vision and leadership shown by U.S. regulators at the FERC, long standing regulatory barriers affecting electricity trade between the U.S. and Canada have now been removed. FERC Orders 888 and 888A have established a fair and sustainable means of securing open and non-discriminatory trade in electricity at the wholesale level. In this way the FERC has provided the new deregulated market environment, and thereby allowed the benefits of technological change and economic advantage in the electricity industry to get to the end consumer. As a consequence, more of the vast power resources from Canada in general, and from Newfoundland and Labrador in particular, will now be available to U.S. consumers.

Utilities all across North America are responding to the challenges created by FERC and the new market environment. I am pleased to see that Canadian utilities such as TransAlta, Powerex, and Hydro Quebec have been successful in receiving U.S. power marketing licences. Ontario Hydro, as well, seems to be preparing for the new market. Just recently the corporation announced its intention to facilitate open access by separating its generation and transmission assets.

I congratulate these Canadian Utilities for their initiative in responding to the new market forces. I also congratulate FERC for the wisdom of its decisions which have created this new market. We in Newfoundland and Labrador look forward to meeting the demands of the new market.

I must add at this point that U.S. leadership in electricity deregulation is also prompting reforms in Canada. In July of this year, Energy Ministers in Canada supported a report calling for "Electricity trade within Canada on no less open and no less favourable terms than that available to provinces trading with the United States".

The new market forces and the new industry structures have opened the door for us to develop and bring to your markets the vast hydro resources of Labrador. This is the main purpose of my remarks today - to tell you about the hydro electric potential remaining on the Churchill River system in Labrador. There are in excess of 3000 megawatts of undeveloped hydro electric potential on the Churchill River. This project alone, can increase the forecasted Canadian hydro electric supply of New England's needs in 2010 from 2 percent to 14 percent of your total use of electricity. It could avoid altogether the need for any of the forecasted increase in petroleum fuelled production in New England. In addition, it could cut New England's dependence on coal fired generation in half, from 15 percent of its total needs today, to about 7.5 percent of your total needs in 2010.

There are two remaining high class hydro electric sites on the Churchill River - the Gull Island site and the Muskrat Falls Site. The National Energy Board of Canada has ranked the 2200 megawatt Gull Island site the lowest cost undeveloped hydro electric site on the North American continent. Just a few miles down stream, the Muskrat Falls site has been ranked as the fifth lowest cost hydro electric site on the continent. Together, these two sites are capable of producing 17 billion kilowatt hours of environmentally clean, stable, and competitively priced electricity.

As a large energy producer, Newfoundland and Labrador understands that bringing this power to market presents both an opportunity and a challenge. The major opportunity for us is that of supplying the Northeast U.S. market with the environmentally friendly, or "green", electric power from Labrador. That is also our major challenge - to bring this power to market in the new competitive environment.

FERC Orders 888 and 888A, and the open transmission access they provide, have presented the opportunity. It has also presented us with two challenges, both of which are financial. First, we must finance the project; and second, we must deliver the power at a competitive price.

In the old regulated markets, long term sales contracts were the staple of capital financing for large hydro projects. In the new deregulated market such contracts are no longer the norm. But, given all the positive features of this project, the new forces of creativity that have been unleashed in these markets will be more than capable of meeting this challenge.

These same new forces of creativity and competition will also drive us in our efforts to bring this power to your market at a price that is competitive with your other sources. If we fail to meet these challenges, the alternative is clear, you will not buy the power and we will not finance the project.

Newfoundland and Labrador is already a significant and growing energy economy, and is no stranger to challenges. In fact we welcome them. First crude oil production in our province will begin in a few weeks. Production from the Hibernia field also represented technical and public policy challenges that had to be overcome. The giant Hibernia production platform is now completed and is being referred to as the eighth wonder of the world. Oil production from Hibernia and other fields is forecast to increase rapidly to one-third of Canada's total conventional light crude oil production in the early years of the new century. In addition, my Province also has discovered resources of 8 trillion cubic feet of natural gas.

The long run potential for Newfoundland's natural gas resources was recently recognized by North Atlantic Pipeline Partners, represented by Tatham Offshore Canada Ltd. Tatham has assessed the economic and technical feasibility of building an offshore natural gas pipeline to collect and transport natural gas from the Grand Banks and Scotia Shelf to the Eastern Seaboard of the United States, a distance of about 2400 kilometres. This proposal is visionary in that it is currently the only pipeline proposal which would provide sufficient capacity to transport the significant gas resources of all of Atlantic Canada to US markets.

As we have met the challenges of offshore oil production, and as we will meet the challenges of producing offshore gas and bringing it to market, so too will we meet the challenges and opportunities of the deregulated electricity market.

The traditional entry barriers to electricity markets were not technical. They were institutional; and the new deregulated market has removed these barriers. Deregulation has created the opportunity for our province to become a full energy service provider in petroleum, gas, and electricity.

In Labrador we already have the single largest hydro electric generating station in North America. This station at Churchill Falls produces the equivalent of three quarters of Canada's net electricity exports to the U.S.A. So, Newfoundland and Labrador is already a major supplier to the North American electricity market.

As I have noted, the National Energy Board of Canada has ranked the Lower Churchill as the lowest cost source of hydro electric power on the North American continent. This, combined with the long term competitive price position of hydro electric power, places a special premium on this power.

Three weeks from now, delegates of the world's nations will be assembling in Kyoto, Japan, to finalize an agreement on greenhouse gas emissions. On October 22, President Clinton announced your country's negotiating position which would require reductions below 1990 levels by the 2013 to 2018 budget period. The United States is also interested in emission permit trading, credits for joint implementation with other countries, and involvement of developing countries. Regardless of the details of any agreement, it appears that if there is an agreement forged, the cost of using fossil fuels will increase; and North American hydro electricity supply will become all that more attractive.

The developments I have described on the Churchill River system in Labrador will not produce any greenhouse gases. The equivalent amount of power produced by coal would emit more than 14 million tonnes of greenhouse gases each year - every year. Even using natural gas to produce an equivalent amount of electricity, the most efficient plant would send 6 million tonnes of greenhouse gases into the atmosphere each year - every year.

As future restrictions on emissions tighten, the advantages of Labrador power will only increase.

Another important advantage of these Churchill River projects, both from a cost and an environmental perspective, is its location. Being downstream from the existing Upper Churchill dam, it uses the same water storage. Thus, there will be no vast flooding of Labrador territory associated with this project. This project will be essentially a run-of-the-river hydro project. It will flood only a small fraction - about five percent - of the area typically flooded by a hydro project of the same magnitude, and even that level of flooding will be confined to the steep walled river valley.

This project has already been subjected to, and cleared by, the Environmental Assessment process in Canada. This, however, was in 1980; and because of the elapsed time, the project will have to be assessed again. Therefore, before this power reaches your markets, the consumer will have the unique benefit that the project has been subjected to two environmental assessments.

When we bring the power to your market it will be competitively priced, as it must be in order to enter the market. This price will also be stable over the longer term because it is hydro power and therefore not subject to the fluctuations of petroleum and gas prices. But in addition, it will be "green power", which will have passed two environmental assessments in Canada.

I am confident that the forces of competition, and the skill and ingenuity of our financiers and engineers can move the 17 billion kilowatt hours of power from the Lower Churchill River with negligible environmental impact, and deliver this power to you at a competitive price. An added premium is that it will reduce greenhouse gas emissions by millions of tonnes each year.

Thank you.


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