Nalcor report card

Members of the business community got a first hand report on what the province's (energy corporation) Nalcor has been up to.

President and CEO Ed Martin delivered an overview of the five lines of business Nalcor is overseeing at last week's Labrador West Chamber of Commerce luncheon.

The CEO began his presentation by stressing how safety trumps all priorities in all assets within Nalcor.

Martin explained four and a half years ago he was invited to come into Newfoundland and Labrador Hydro and take the company into a broader energy corporation focused on developing all the energy assets for the province.

"So, shortly following my arrival, we embarked with government on developing the province's energy plan and a big piece of that plan was to breathe life into Nalcor and setting a vision."

Martin explained his team has taken NL Hydro and grown the company into Nalcor, which is made up of five key business units: NL Hydro, The Churchill Falls (Labrador) Corporation [CF(L)Co], Lower Churchill Project, Oil and Gas and Bull Arm Fabrication. He took each asset and offered a general idea of what's happening.

Operating/growth companies

Martin explained the operating companies within Nalcor are NL Hydro, CF(L)Co. and Bull Arm Fabrications and outside the strong awareness on safety, Nalcor must show operating excellence, which is critical when it comes to growth and expansion.

NL Hydro

The company boasts anywhere from 1,600 to 1,800 of megawatts generation on hand, as well as many miles of transmission that have been in operation for over 50 years.

"From a Labrador West perspective, we are embarking now on a significant upgrade to the system," Martin said. "Most people are aware that there has been reliability issues here that have been growing, primarily because of aging assets and load growth. We are investing about $20 million over the next three or four years and we are upgrading the system here from a 4.6 KV to a 25 KV distribution system."

The pricey project, which will go into construction this summer, will take two or three years to complete with the end result allowing for residential and industrial growth. The upgrades, he assured, will have residents seeing an increased level of reliability in the area.

Churchill Falls Upgrades

The power generating facility in Churchill Falls, Martin said, is one of the largest in the world.

"It's the eight largest or ninth largest plant in the world, not sure where we are landing right now with all the work going on in China. But, suffice to say, it's a world-class power-generating facility and being operated on a world-class perspective."

The plant is aging and a long-term refurbishment and rebuilding effort is underway.

"Many areas of the plant are approaching 40 years of age, which is generally the normal time to start your upgrades," he pointed out. "The work has been engineered, costed and scheduled and we are in the process of beginning execution of that work."

Water management agreement

Though sharing a river, Nalcor has to treat the CF(L) Co. and the Lower Churchill as separate entities, but the two needed to complete a shared water management agreement.

Martin explained ownership of CF(L) Co. is 65 per cent Nalcor and 35 per cent Hydro Quebec.

"So, in that particular context, we had to negotiate a water management agreement that looked after the interest of both CF(L) Co. and the Lower Churchill."

The Province, he explained, passed legislation that, for any developments that share a river, the law is you have to put a water management agreement in place to make sure you are maximizing the resource for all parties.

"In the meantime the legislation indicated that you would protect existing contracts and arrangements because it's the right thing to do," he further explained. "If the parties can't come to an arrangement, the legislation indicated that the Public Utilities Board (PUB) in Newfoundland would have the authority to impose an agreement upon the request of one party."

CF(L) Co. chose not agree with the final arrangements hence the Lower Churchill and Nalcor were prompted to go to the PUB. In the end, the PUB imposed a water management agreement that is now in place.

"So, it has been quite a bit of work over the past couple of years, but a successful endeavour," Martin assured. "It's a very solid and fair agreement that actually allows the Upper and Lower Churchill to reasonably share the benefits of the larger reservoir, so that both projects can be maximized with energy out."

Attempting renegotiation

The Province did some legal research and approached Martin about a year and a half ago on developments in the Quebec Civil Code.

"The power contract with the Upper Churchill (between CF(L) Co. and Hydro Quebec) is actually governed by the Quebec Civil Code," Martin explained. "And, in the Quebec Civil Code there's been some significant developments in respect to good faith requirements for contractual arrangements, which of its very essence sets the expectation that the arrangements you enter into at the beginning of a contract, the spirit, thinking and distribution of benefits at that point is what should exist throughout the life of the agreement."

Nalcor, under that piece of Quebec Civil Code, requested Hydro renegotiate the power contract for a more equitable sharing of benefits based on circumstances having changed significantly since 1969. Hydro Quebec declined.

"Therefore we are faced with a situation where we have gone to the courts in Quebec," said Martin. "We are asking the court to enforce the Civil Code legislation and help us get with Hydro Quebec and make sure they come to the table to create a more equitable sharing as you move into the renewed agreement."

Oil and gas

The CEO said the oil and gas business has generated busy times for Nalcor as well.

In the past few years, the corporation has obtained ownership equity interest in three offshore projects as well as one onshore.

"We have an ownership interest in the White Rose expansion project (five per cent interest) and we have a five per cent interest in the Hebron project and 10 per cent in the Hibernia South expansion project," he said. "All those rest in the hands of Nalcor and we manage them on behalf of the provincial government. The fourth is in the Parson's Pond area where we have picked up a 67 per cent interest in three exploration licenses in the Parson's Pond area."

Martin said there is much success with the land well and crews have reached 2,300 metres on the first well, with a target of just over 3,000 metres.

Lower Churchill progress

There's been quite a lot of activity in the Lower Churchill development as well, according to Martin, who explained there have been two significant field programs completed.

"We will be doing more work this summer and that work is primarily focused on the site; everywhere from collecting environmental data to drilling bore holes in the river and the rock in both the Gull Island and Muskrat area," he said. "Also we've been doing a lot of work in respect to seismic work coming across the Strait to the Island and we've also been doing investigative work with vessels in the water going from the Island of Newfoundland to Nova Scotia."

Nalcor has filed for the environmental impact statement for the generation, he said, and public hearings are expected by the summer or early fall.

"We have filed and environmental registration for the Labrador-Island Link and that's in the process of being determined as to what level of environmental review will occur there," he added. "We have also been successful in reaching conclusions of our discussions with the Innu Nation of Labrador and we've landed on agreements between the Province of Newfoundland and Labrador, Nalcor and the Innu Nation with respect to the land claim requirements, the Upper Churchill redress as well as the Lower Churchill impact and benefits statement."

Open access

Martin explained Nalcor also filed for open access in Quebec about four years ago and it was only a few months ago it received any real answers.

"Hydro Quebec gave us the information, some of the information we were looking for with respect to the cost and routing and upgrades required in order to access Hydro Quebec's lines," he said. "We grieved some of that data and disagreed with other pieces The process is that we asked Quebec to change some of their views. If they refused, which they did, our path then is the RÉgie de l'Énergie, which is their PUB. So we complained in there with these requirements and finally a couple of months ago, we had a hearing."

Nalcor is waiting for the RÉgie de l'Énergie to respond.

More energy-Menihek, Exploits

Nalcor has also taken over and acquired the interest in the Menihek generation station and has entered into a long-term (40-year) Power Purchase Agreement with Hydro Quebec to provide Quebec with power from Menihek.

"We have also been successful in getting open access through for about 270 Megawatts capacity on Hydro Quebec's lines to sell whatever we have available for recall," he added. "So we are actually wheeling power through Quebec as we speak from the recall piece of power from the Upper Churchill."

And finally, Martin explained the Province invited Nalcor to operate the Exploits River facility after it was expropriated from Abitibi over a year ago.

Nalcor, he said, has absorbed the Exploits facilities successfully into its operations.