From bad to worse: Churchill contract renewal means even less revenue for N.L.

With the province of Newfoundland and Labrador earning less than ever from the Upper Churchill power contract, which renewed Thursday for another 25 years,Premier Dwight Ball is considering his options.

"It's very difficult to wake up this morning and not think about what could have been," Ball told reporters.

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"September 1, 2016 could have been a much different day if not for that contract."

He said the province, which has lost in two recent court decisions related to terms of the contract, may appeal to the Supreme Court of Canada, and is evaluating what that process would cost.

The Sept. 1 renewal clauseextends the notorious 1969 deal until 2041, with prices paid by Hydro Quebec dropping from $2.20 per megawatthour (MWh)to $2.00 per MWh.

That's agreat deal for the Quebec utility, according toDavidVardy,an economist and former chair ofthe Newfoundland Public Utilities Board (PUB).

"They're making a billion dollars from the export of the power from Churchill Falls and that's a lot more than we're making."

Harsh history lesson

Vardyand Memorial University economics professor Jim Feehan told CBC Radio's On The Go Wednesday that Hydro Quebec played hardball when the contract was signed 40 years ago.

Feehansaid originallythe contract was for a shorter period, and the renewal clause was meant to be a chance for theparties torenegotiate terms, quantities and prices.

But just before the contract was signed with the Churchill Falls (Labrador) Corporation, "Hydro Quebec demanded a change," he said, asking for a two-dollar fixed rate for 25 years.

We were just so desperate.- David Vardy

"That was really cheap, in 1968," saidFeehan. "It was just incredibly good price, even at the time."

But CFLCO and its parent BRINCO were running out of time andmoney as they rushed to complete the $650-million ($6 billion in today's dollars) project. The province had not contributed anymoney, and had transferred water rights.

"The government of Newfoundlandwas essentially a bystander at the time," saidVardy.

"We did not exercise the prudence we should have exercised because we were the owner of the resource We were just so desperate."

Court losses

In early August, the Quebec Court of Appeal upheld the 25-year renewal clause, rejecting Nalcor's claim that the terms were unfair.

A week later, the Quebec Superior Court ruled thatHydro Quebechas the right to buy all of the power produced at the Churchill Falls plant, except for two fixed blocks.

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Vardysaid there was an expectation that Newfoundland would have access to more power in 2016 and that Hydro Quebec's rights to that power would be capped.

Both he and Feehanare encouraging Premier Dwight Ball to continue fighting in court.

"I think the appeal should be done.The size of the pie we're talking about is quite large," said Feehan.

"We have to take it to the Supreme Court of Canada," said Vardy. "The only thing we have to lose are the court costs."

Ironic twist

Had the Upper Churchill contract been different, the economists said, there would be no need for the Muskrat Falls project now underway.

With a reservoir that is600 times bigger than Muskrat Falls, the Upper Churchill could supply the needs of the province and more.

The finalcost of theMuskrat Fallsproject will be "astronomical" according to Vardy. "At least $15 billion."

He said with competition fromnatural gas and other cheap sources of power,Nalcor will not be able to charge enough to recover costs once the project comes online.

"We will be stuck on the island of Newfoundland and Labrador, unfortunately, with these enormous costs from Muskrat Falls power and I think it's going to reach a point whereratepayersare not going to be able to absorb that cost," said Vardy.

"It will end up having to be some kind of a bailout, so it's a very difficult situation."