In any discussion of how Newfoundland has fared financially since joining Confederation in 1949, the name Churchill Falls will come up. It came up again on the weekend in these pages in an article trying to calculate who owed what to whom. Where should the hydroelectric project on the upper Churchill River in Labrador be placed on this typically Canadian scale of grievance and recrimination?
In the 1960s, Joey Smallwood was nearing the end of his long run from 1949 to 1972 as premier of Newfoundland. He dreamed of projects that would help Newfoundland stand on its own feet. One was the harnessing of hydroelectric power on the upper Churchill, in western Labrador. Since the Imperial Privy Council's 1927 ruling on the Quebec-Labrador boundary had set Churchill Falls within Labrador, an assignment Quebec still refuses to accept, it was Newfoundland's call whether to exploit a resource capable of producing 5,225 megawatts of hydroelectric power.
But there was a catch. Newfoundland had no practical way to get the power to market in the northeastern United States. It needed a power corridor through Quebec. Quebec premier Jean Lesage wouldn't provide it.
The federal government had the constitutional power to force a corridor through Quebec, as it had forced the laying of oil and gas pipelines from Alberta through Saskatchewan and Manitoba to Ontario. It had only to declare the project in the national interest, negotiate the route and compensate Quebeckers for expropriated land. But "only" is a loaded word. For one thing, the electricity would be going to the United States, not to other Canadians. For another, in the Quebec of the 1960s, separatist sentiment was stirring. Terrorists were planting bombs in mailboxes.
Cabot Martin, a senior policy adviser to Newfoundland premier Brian Peckford in the 1980s, wrote in 1996 that Mr. Smallwood once told him of a fateful drive to Ottawa to ask then-prime-minister Lester Pearson to force through a Quebec corridor. Mr. Martin paraphrased Mr. Smallwood's recollection: "And before I could say a word, Mr. Pearson said, 'Joe, I know why you are here and if you ask me I'll have to say yes; otherwise we would not really have a country. But I'm asking you not to ask me because we will not be able to keep the towers up." In other words, the prime minister feared sabotage in the heated political climate of Quebec, and felt unequal to the task of protecting such a corridor militarily. Mr. Smallwood returned to Newfoundland without asking.
Hydro-Québec played hardball in negotiating its terms for buying Churchill Falls' power. In part, it was covering itself; there was talk customers might turn to nuclear power, and oil, at $2 a barrel, was a competitive alternative. But it knew that without a corridor, Newfoundland was in a tight place; unless Hydro-Québec agreed to buy the power, Americans wouldn't buy the bonds necessary to finance the project. The 40-year contract Hydro-Québec insisted on, renewable automatically for 25 years, paid Newfoundland a low price for the Churchill power. Far from being linked to inflation, the price was due to fall during the final 25 years.
Newfoundland stood to receive millions of dollars from the deal, which helped Mr. Smallwood persuade the Newfoundland legislature to ratify the deal signed by the private developer Churchill Falls (Labrador) Corp. But Hydro-Québec has been able to resell the power for hundreds of millions a year, which has rightly stuck in Newfoundland's craw. A bad deal became awful when oil prices and inflation rose sharply and Hydro-Québec reaped the windfall as electricity prices climbed.
Newfoundland could have walked away from the offer, writing off the money spent up to that point. It didn't. It gave away the chance to try for a better deal with future Quebec governments, or to lean on future federal governments. It tried more than once to get out of the contract, but lost in the provincial courts and, in 1980 and 1988, at the Supreme Court of Canada.
Mr. Peckford learned from that error in 1984. When Quebec premier René Lé-vesque's government played a new round of hardball -- an offer to index the electricity price it paid Newfoundland to inflation, but only if Quebec received right of first refusal on all power from any future hydro developments in Labrador -- Mr. Peckford walked away from the table.
So, where do we put the Churchill Falls entry in the Confederation ledger?
It offers no ammunition to those who say Newfoundland should never have entered Confederation. A foreign government would have had even less chance of persuading Quebec, and Canada, to provide a corridor for its power.
The fortune Quebec has received from the exploitation of a resource in Labrador can be counted as money leaving Newfoundland and going to the rest of Canada. However, it cannot be counted as money that Newfoundland would otherwise have received. The Quebec political reality is that Jean Lesage wasn't going to allow a corridor. The Newfoundland political reality is that Joey Smallwood, clinging to his dream, was not prepared to walk away from a bad deal, and saddled Newfoundland with a 65-year mistake. The Canadian political reality is that Lester Pearson, keen not to alienate Quebec, chose Quebec's side over Newfoundland's economic aspirations. And if Mr. Smallwood had not chosen Canada, he would have been no better off.