'Captain Canada' May Pull the Plug To Save Province

For decades Newfoundland, craggy Atlantic home to half a million hardy souls, has weathered high unemployment, devastated cod fisheries - and that "awful contract" with Quebec.

Quebec agreed in the 1960s to buy loads of electricity from Newfoundland's massive Churchill Falls hydroelectric plant, a contract some industry experts now call the deal of the century for Quebec. Quebec still pays a quarter of a penny per kilowatt hour - reselling it for 10 times that price in Quebec and the United States.

But last weekend, Newfoundland's swashbuckling new Premier Brian Tobin declared the old, pre-energy-crisis, pre-inflation deal a dead duck. Mr. Tobin, a populist who earned the nickname "Captain Canada" as federal fisheries minister, is not the first Newfoundland premier to want a new power deal with Quebec. Yet unlike two predecessors, he seems willing to flip a switch and cut the power that flows to Quebec - and New England and New York.

"Honestly what choice do I have," Tobin wondered aloud to Canadian news media last weekend. "Am I going to explain to the province that we're losing money and for the next 40 years we'll borrow, tax, or close down hospitals and schools in the province to pay for the privilege of pumping power to Quebec so they can make a billion-plus [Canadian dollars] a year?" Technically, the deal becomes a money-loser in 2000.

Two Supreme Court of Canada rulings have upheld the contract. Despite this, Tobin plans to travel across Canada to gain support, shooting to win in the court of public opinion.

Tobin has a reputation for skating near the edge. He became "Captain Canada" on a chill day in March 1995 when, as federal fisheries minister, he ordered the Canadian Navy to seize a Spanish fishing vessel scooping up baby fish outside Canada's territorial waters.

Risking a violent international incident, Tobin flouted international laws governing access to the high seas, faced down the Spanish, and thrashed the European Union in the arena of public opinion. The "turbot war" was shortly resolved in favor of saving a few fish.

But the real winner was Tobin. Newfoundlanders, including many out-of-work fishermen, liked the spunky federal minister of fisheries so much they elected him premier early this year. Now he seems set to sail again into murky legal waters.

Mark Graesser, a political scientist at Memorial University in St. John, says Tobin's main aim is to woo Newfoundlanders just as his post-election honeymoon period is ending.

Like the turbot war, "he's playing to the Newfoundland public first and foremost," Professor Graesser says. "This will generate a positive response here, because everyone in Newfoundland regards this contract as outrageous."

Tobin is also not beyond using the delicate issue of Quebec's future within - or outside of - the Canadian federation to make his point. He reportedly informed separatist Quebec Premier Lucien Bouchard of his plan to pull the plug earlier this summer. Mr. Bouchard this weekend called for Tobin to obey the rule of law on the contract. Tobin responded by asking why the law applied to Churchill Falls when separatists, led by Bouchard, say they can proceed with an unconstitutional secession from Canada if the province votes for it.

"I'm in favor of the rule of law," Bouchard persisted. "Ottawa would even have to intervene through its institutions in order to stop Newfoundland from violating the law."

But Prime Minister Jean Chretien is not touching the spat with a pole of any length. He says Ottawa will not intervene.

Hydro Quebec says a deal's a deal, because it put up money to make Churchill Falls viable when no one else would.

Today, losing the cheap Churchill Falls energy for resale would be a financial neutron bomb for the provincial utility. Last year, the company's net profit was US$284 million. Sales of Churchill Falls power (not broken out by the company) nets Quebec an estimated $400 million to $730 million a year.

"Churchill Falls is extremely important to them," says Damian DiPerna, senior analyst at the Canadian Bond Rating Service in Montreal. "Hydro Quebec would have lost money 19 out of the last 20 years without it." If Tobin throws the switch, it could trigger a debt review and possible downgrading for the utility and even the province, Mr. DiPerna warns.

Churchill Falls is also one-sixth of Hydro Quebec's total power-generating capacity and a key to keeping New York and New England well lit. The New England Power Pool, a cooperative that distributes power throughout the region, soaked up 10 terawatt hours from Hydro Quebec last year - the equivalent of two large 600 megawatt coal-fired plants.

Quebec energy analyst Pierre Lamonde believes Tobin will never turn off Churchill Falls. Others, like Graesser, also believe a lot of good poker playing may be involved.

"Tobin's 'Captain Canada' role worked out pretty well for him," he says. "He enjoys the part of the indignant leader of the little guy, ... and he plays it pretty well."