Dividends and Churchill Falls

In the northeast, some of the power that is used comes from north of the border or Canada. Quebec brings hydro from the rivers that flow into James Bay and from the Churchill River or Churchill Falls in Newfoundland. In 1969, the people developing Churchill Falls needed Hydro Quebec’s to sell the energy, they needed Hydro Quebec’s credit to pay for any cost overruns so they signed a fixed contract to last until 2041. In the 1970’s OPEC raised the price of oil which made electricity a viable alternative and since then the price of electricity has risen. The Province of Quebec or Quebec Hydro depends on the difference between the fixed costs and the price paid by the citizens of New York and Boston and people in between. The Province of Newfoundland has been going to court to be released from the fixed contract and be able to sell the hydro to Quebec Hydro for more money.

Recently the highest court in Canada made a decision the fixed contract stays until 2041 because the people who signed the contract were not a group that was considered to be weak or vulnerable in a negotiation. Yes times have changed but a contract is a contract if people have been fair and reasonable during negotiations. Although Hydro Quebec has gained an extra $26 billion, if it was not for Hydro Quebec guarantee the building would not have taken place.

Linking to dividend paying stocks, there are many and will be many examples of a larger company offering assistance and credit to a smaller company, but the key is if the larger company did not offer the likelihood of the project going forth was remote. Times change but who knew? Often the bigger companies are dividend companies because they have a long time frame and can see the potential advantages if even customers use the product. In the case of the hydro plant, the alternative had to change – oil and gas to make electricity. When that changed the utilities need alternatives and looked to Hydro Quebec. We do not know, but larger companies have more options than smaller ones.

There are more questions than answers, till the next time – to raising questions.

 

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