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The lowlight of this week's news has been watching Newfoundland and Labrador premier Kathy Dunderdale and Hydro-Québec snipe at each other over the Muskrat Falls project downstream from the Churchill Falls site in Labrador. The ever-flaring tensions over Churchill Falls have prompted a series of unwise decisions that could place both Quebec and Newfoundland and Labrador's future prosperity in jeopardy, and it's time for the federal government to settle the dispute once and for all.
Newfoundlanders have long been furious over the 1969 agreement to supply Quebec with cheap power for 72 years, signed well before the OPEC crisis sent energy prices spiking and generated huge revenue, very little of which made its way to the Rock. As one-sided as it has become, the deal was well-regarded at the time – Newfoundland's then-premier Joey Smallwood certainly wasn't the only one who failed to anticipate the shift in energy markets – and withstood a legal challenge including a bid to divert the water toward Newfoundland that was rejected by the Supreme Court in 1984.
Sticking to the terms of a prescient and lucrative deal is one thing. It's quite another, however, to stubbornly oppose any attempt to ease the friction. Quebec and Newfoundland could have taken the development of Muskrat Falls as an opportunity to renegotiate the long-term power accord before its term ends in 2041. Instead, Newfoundland has forged ahead alone, taking on significant risks such as the cost of a $1.5-billion underwater cable through Nova Scotia, which is still subject to regulatory approval. Worse yet, Hydro-Québec has launched a court challenge to clarify whether the 1969 deal entitles the province to all the energy from Churchill Falls, presumably including the Lower Churchill project at Muskrat Falls.
This ought to be a simple transaction between the province that controls the resource (Newfoundland) and the province that controls the quickest, easiest route to the larger North American market (Quebec). Instead it's a legal morass that threatens both provinces' long-term stability. If the Muskrat Falls project proves uneconomic, either due to cost overruns or competition for cheap energy from shale gas in the U.S., Newfoundland's finances will take a painful hit, one that its burgeoning oil and gas revenue may not even make up for – particularly if energy prices decline. It's also in Quebec's best interest to negotiate a better deal for both parties now to head off an ugly fight in 2041 when the Churchill Falls contract comes up for renegotiation. Newfoundlanders have been waiting decades for their chance to leave Quebec in the dark.
If ever there was a reason for the federal government to intervene in an economic dispute, this is it. Newfoundlanders and Quebecois alike need to suspend their animus and make the best deal for both parties, one that doesn't involve needlessly expensive underwater cables and years of litigation.
Dave Morris is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Dave on Twitter at @morrisdave.