Muskrat Falls Revisited

Premier Dunderdale of Newfoundland and Labrador has announced that Nalcor and Emera have a satisfactory response to the UARB’s requirements for Muskrat Falls approval. Well, let’s wait and see.

The lead up to the original Muskrat Falls application was preceded by vast quantities of spin from both Emera and the provincial government. Most of it turned out to be inaccurate or misleading.

“Nova Scotians will get 20% of the power for 20% of the cost.” Not true. We get 20% of the power for 35 years, after which Nalcor owns all of it. That is a very big difference. And of course that does not make the price right anyway, any more than your car dealer telling you that you are getting “employee pricing.”

More to the point it disguises the fact that Nova Scotian ratepayers are asked to pay for a long stretch of transmission on the Island of Newfoundland, and investments in Nova Scotia primarily to facilitate Nalcor exports to the United States.

“We have to do this to meet Federal environmental requirements.” The essence of those requirements as promulgated is that coal-fired plants have to be shut down after 45 or 50 years of service. If that was the only rule the Muskrat Falls application would not have gotten to first base. The province also created a requirement that 40% of electricity come from renewable sources by 2020.

Although this is never mentioned in the province`s communications it is this requirement that eliminated several lower cost alternatives from consideration. In fact, given the loss of demand from pulp and paper plants, and from efficiency initiatives, the best near term alternative is probably to create no additional sources of power.

“The Maritime Link block of power will be provided at a stable rate.” Actually ,the rate varies from $125 to $180 per megawatt-hour (MWh). That does not include the continuing cost of paying off viable but unused coal-fired plants. The marginal cost of power from those coal-fired plants is $60 per MWh.

“The inexpensive market-priced surplus energy makes the average price very attractive.” The big problem is that the availability of that surplus energy was forecast by Nalcor to start diminishing almost immediately, and to reduce to nothing after twenty years. On its July 22 decision the Utility and Review Board (UARB) required the proponents to solve this problem as a condition of approval.

There has been silence since that was released, until now. It is curious that the first pronouncement should some from Newfoundland and Labrador Premier Dunderdale, speaking at a PC party convention there.

There are only two ways that Nalcor can meet this requirement itself. One is to use less of the Muskrat Falls power than it planned. The other is to build additional generating capacity. At the forecasted market prices Nalcor will lose money building new supply, whether wind or hydroelectric.

Premier Dunderdale seems to have precluded both possibilities. She is quoted as saying that her “…office made clear to Nalcor that Nova Scotians weren’t to receive subsidized power rates and that Newfoundland and Labrador would be able to keep electricity for use in the province if it was required.”

Some observers have speculated that other sources, of which Hydro Quebec is the only realistic possibility, may provide power to help solve the problem. This seems unlikely given the inter-provincial politics on electricity.

It would also contradict the proponents’ application which stated “…that there is no existing or potential agreement in place with a third party to deliver the combination of firm renewable energy and  the opportunity to purchase additional energy at market prices.”

Since providing market priced additional power is the cheapest part of that deal, why would it be available if the combination was not? If in fact, it is available perhaps we should buy that instead.

One can’t help wondering whether Dunderdale’s intervention was intended to influence the vote in Nova Scotia. After all, if there is a change in government, she will lose a relentless advocate for the proposed financial arrangements. It is troubling that the NDP platform includes the promise to build the Maritime Link without adding the words “subject to UARB approval.”

There is a real risk that the UARB will receive an amended application, dressed up as a positive response to the Board’s requirement. That is unacceptable.

Whichever party forms government after the election should make it a priority to clear the air. Nalcor and Emera have had ample time to discuss this. They should be instructed that they must, by the end of the year, provide an impeccable guarantee that the full amount of market-priced power will be available via the Link for the thirty-five years. If not the current process should be terminated.

The government should then consider whether a focus on reducing greenhouse gases is more appropriate regulation than an arbitrary goal for renewable generation. Secondly it should require an updated assessment of demand and supply, against which new applications can be evaluated.

Premier Dunderdale has said that the Link will be built even if the current financial proposal is rejected. That would be a welcome outcome. Nova Scotia would then be able to negotiate much more suitable terms than have so far been presented.