The two men who lunched together in the Hotel Plaza Athenee on New York’s East Side last week were old friends. But the meeting between Quebec Premier Robert Bourassa and former U.S. energy secretary James Schlesinger, now a private consultant, was strictly business. Its purpose: to discuss the establishment of a highprofile committee, under Schlesinger’s chairmanship, to promote the sale of Quebec electricity in the northeastern United States. Among its members: former U.S. national security adviser William Clark and former U.S. treasury secretary William Simon. It was a successful visit for Bourassa, who won the conditional backing of a syndicate of financiers for a massive new hydroelectric scheme in Quebec. Said the premier: “My New York friends assure me that if we come up with the signed sales contracts, they will back my project.” Bourassa, who led his Liberal party back into power only two months ago, is not the only premier seeking to charge his political future with electricity. In British Columbia, William Bennett’s Social Credit government is also promoting major new hydroelectric exports south of the border. And this week Manitoba Premier Howard Pawley’s New Democratic government is expected to announce a multibillion-dollar deal to sell power to a consortium of midwestern U.S. utilities.
But the drive to mount costly construction projects aimed at American electricity markets has ignited a sharp debate over whether such exports, while yielding impressive short-term jobs and political benefits, carry the risk of serious economic losses in the future. Although industry projections show that the northeastern United States will face electrical power shortages within a decade, Canadian critics claim that uncertainties over pricing and the unreliability of forecasts make long-term hydroelectric contracts a chancy business. Said Winnipeg lawyer Arne Peltz, who has represented the Manitoba branch of the Consumers’ Association of Canada at energy export hearings: “If you make a major investment based on export sales
and demand falls, then domestic ratepayers are left holding the bag.”
There is another risk: if world oil prices, which last week plunged toward the $15-a-barrel mark, remain low, U.S. utilities could return to oil-fired plants as a source of cheap electricity. While no less than five provinces, including Nova Scotia and Newfoundland, have ambitious plans for future electrical exports to the United States, immediate concern is focused on three key projects:
• Bourassa’s vision of a $25-billion second phase to Quebec’s James Bay hydroelectric complex would create up to 130,000 man-years of employment— and thousands of jobs—starting in the late 1980s and would supply up to 8,000 megawatts of power for export to Ontario and the United States.
• Manitoba’s $1.9-billion, 1,280-megawatt Limestone project on the Nelson River, which flows into Hudson Bay. Launched last fall, the project will create an estimated 2,000 direct jobs for four years. And it is likely to be followed in the near future by an even larger Nelson River scheme. Says Manitoba Energy Minister Wilson Parasiuk: “Wisely used and built upon, hydro will provide one of the foundation stones for our economic future.”
• Bennett’s plan for a $3.2-billion
Peace River hydro project, known as Site C, if long-term markets can be found. The project would create up to 2,000 jobs annually at the peak of construction and supply 500 megawatts of power annually for export. “Site C is an attempt to put a north-south grid system together,” says Chester Johnson, chairman of B.C. Hydro. “It would be a very sad thing if we can’t do it.”
The growth in Canadian electrical exports to U.S. markets has been fuelled by many factors—among them, the collapse of the U.S. nuclear industry. As American utilities shelved plans for new nuclear plants in the wake of the 1979 overheating disaster at Three Mile Island, Pa., the demand for surplus Canadian electricity surged. In 1985, 40 million megawatt hours of Canadian power—about 10 per cent of Canada’s total output but a mere two per cent of U.S. consumption—flowed across the border. The combined value of those sales: $1.4 billion.
But the prospect of three new megaprojects, with a total capacity of 14,180 megawatts and launched with a view toward U.S. markets, has raised a host of new objections. In Canada, opponents of hydro exports argue that by exporting cheap energy, Canada is likely to wind up exporting jobs. Critics also blame political leaders for putting short-term job creation projects ahead
of sound economics. With a B.C. election expected later this year and the province struggling to recover from a recessionary slump, Vancouver energy analyst Michael Anderson says Bennett’s Socreds are “really looking for something to keep that financial activity going. That is the essential push for Site C.”
On the other side of the border, the push to increase hydroelectric imports is likely to raise objections from the powerful U.S. coal lobby—unless protests by environmentalists result in legislation to ban new coal-fired plants. Those plants emit sulphur dioxide, which is the principal component of acid rain. Another serious obstacle: American reluctance to become dependent on significant amounts of energy from any foreign source. “If Canada ever did have a major energy shortage,” said Norman VanderNoot, energy adviser to New Hampshire Gov. John Sununu, “Canadians might be tempted to keep any regional surpluses within Canada. We have to ask ourselves to what degree we want to get our various energy demands
from outside the United States.”
Despite the potential difficulties, Bourassa hopes to line up enough contracts in New England and states as far south as Maryland by early 1987 to justify James Bay II. To help him do that, Schlesinger’s high-powered committee—it will include Paul Desmarais, chairman of the Montreal-based Power Corp.—will advise Bourassa on trends in U.S. energy policy and demand.
Officials of Hydro-Québec, the giant provincially owned utility, have a pressing reason for promoting exports. With about half of the corporation’s $19-billion debt load borrowed on American capital markets, new multimillion-dollar sales in the United States would bring badly needed U.S. dollars to the province. For his part, Bourassa is confident that declining petroleum prices will not affect demand for Quebec’s energy. “Our competitors are nuclear power and coal,” he said recently, “so falling oil prices do not endanger our project.” The oil-price slump, the premier added, may be temporary, and “it is unlikely that the Americans will return to oil, knowing that in two years or less the fall in prices might be arrested because of some uncontrollable event.”
Some Quebecers bitterly oppose Bourassa’s plan. Former premier Pierre Marc Johnson’s opposition Parti Québécois says that the James Bay expansion is impractical, while the Inuit of northern Quebec say that it will bring ecological damage to the region—with no lasting economic gain. “James Bay does not yet have enough customers to justify itself,” complained Mark R. Gordon, president of Makivik, the corporation that handles the Quebec Inuits’ business affairs. “And now Bourassa is willing to put the province deeper in debt for the sake of short-term jobs.” Inuit leaders have also voiced fears about the environmental impact of another Bourassa project involving export of water: the Grand Canal. The brainchild of Newfoundland consultant Thomas Kierans, the still-speculative 10-year scheme involves building a huge dam that would isolate James Bay from the salt waters of Hudson Bay. That would turn James Bay into a freshwater lake, the waters of which would then be channelled for sale to arid U.S. markets. A report prepared last year for the Library of Parliament concluded that such a plan would have largely negative effects on fish and animal life.
But expansion of markets in the United States has been a tradition for governments and their agencies. In 1984 Manitoba Hydro chairperson Marc Eliesen resurrected a 1979 plan for the Limestone project and began an aggressive pursuit of U.S. business, earning himself the nickname “Limestone Cowboy.” With construction of the Limeboy.” With construction of the Limestone project now under way, Pawley’s government will have a solid accomplishment to boast about in the provincial election, expected to be announced this week. In March, 1985, Ottawa’s National Energy Board approved Manitoba’s plan to sell 500 megawatts of power annually to the Minneapolis-based Northern States Power Co. starting in 1993. With anticipated revenues from the Limestone deal of $3.2 billion a year over the life of the 12-year contract, Manitoba is now negotiating with power corporations in Saskatchewan and Ontario and three utility groups serving the midwestern states for further sales. According to Manitoba Power officials, success in any of the negotiations could justify construction of the 1,400-megawatt Conawapa generating station. Its estimated cost: $3.2 billion.
Still, there is some uneasiness over Manitoba’s growing reliance on electricity exports. “If you look at the track record of long-term deals,” said University of Manitoba economist George Chuchman, “you don’t find many where 20 to 30 years later both parties are happy. And usually it is the party with the resources that is unhappy.”
Adds Winnipeg resource economist David Young:
“It is very difficult to see ahead in the energy business. Imagine making a 40-year deal in 1946.”
But Eliesen, 44, insists that Manitoba’s agreements will provide built-in protection. “I see very little risk,” he says. “We have hit upon formulas that make both sides happy. There are all sorts of escalators in these contracts to protect us.” The Manitoba agreement with Northern States Power involves a “take or pay” contract, under which the U.S. utility must pay for the 500 megawatts even if demand falls. In return, the province agrees to provide power at 80 per cent of NSP’s costs at its newest coal-powered generating plant.
On the West Coast, where Bennett is intent on finding American markets for the proposed Site C project, critics claim that British Columbia has suffered from earlier export experiences—including a deal put together by Bennett’s father 22 years ago. Under the 1964 Columbia River Treaty, then-premier W.A.C. Ben-
nett’s Social Credit government agreed to sell 30 years’ worth of hydroelectric supplies to 13 U.S. utilities in the Pacific Northwest for just $273 million. By the late 1960s one study estimated that rising energy costs meant that cheap B.C. power was attracting $500 million annually in new investment in the U.S. aluminum smelting industry alone—at British Columbia’s expense.
British Columbia is already exporting eight million megawatt-hours of power annually to the United States, some of it from its $2-billion Revelstoke project, completed last year. The younger Bennett must now find a way to penetrate new markets in California to justify Site C. To do that, British Columbia must rely on grid facilities provided by the Bonneville Power Authority based in Portland, Ore. But the BPA prefers to buy B.C. power and distribute it itself.
Moreover, critics say that California is an uncertain market. By law, the state must use the most cost-effective source of power supply. If other sources suddenly became cheaper than the contract price of B.C. energy, the state might be forced to break the contract. Said Vancouver analyst Anderson: “California is really looking to cut a deal. The whole basis of this is not need, but price.” Added Anderson: “They are just trying to get us to spend $3.2 billion to build a project they can use.”
Prime Minister Brian Mulroney’s energy minister, Pat Carney, is trying to help out. Carney, who supports expanded exports of Canadian electricity, raised the issue with California Gov. George Deukmejian during a visit there last November. But Richard Gathercole, executive director for the B.C. Public Interest Advocacy Center, says he is concerned that Bennett’s government has yet to produce figures showing how the project “makes economic sense.” Given the criticism his proposal has provoked and the regulatory problems looming in the United States, it may take Bennett some time to arrange for yet another charge of Canadian electricity to surge across the international border.
-MARK NICHOLS, with DIANE LUCKOW in Vancouver, DOUG SMITH in Winnipeg, ALISON HARE in Ottawa, BRUCE WALLACE in Montreal and IAN AUSTEN in Washington
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