Is Muskrat Falls fit to eat? The proponent of the hydroelectric project, Nalcor, says it is.
This week, The Telegram’s publisher and a team of senior editors and reporters spent almost 90 minutes questioning officials from the energy corp about the development.
Grilled on every conceivable aspect of the $6.2-billion project, the Nalcorians did not waver.
They maintain their analysis shows that putting two dams at Muskrat Falls on the lower Churchill River is the best way to meet the province’s future energy needs.
“We feel comfortable with the project and the business case,” said Dawn Dalley, corporate communications manager.
If it goes ahead, Muskrat Falls will generate 824 megawatts of electricity.
That juice will flow over transmission lines from Labrador to the island.
An estimated 40 per cent of that power will be used to meet this province’s needs.
The remainder will be redirected over a maritime transmission link.
Nova Scotia’s Emera — a 29 per cent partner on the transmission link but not the generating plant — will take 20 per cent of the power.
The excess electricity — initially about 40 per cent — will then be put up for sale, mostly in New England, where it would be traded like a commodity.
The need for a project like Muskrat Falls is being driven by increasing domestic demand and the future cost of maintaining the status quo.
“We’re at the point where we have to do something,” Gilbert Bennett, vice-president of the project, told The Telegram.
In the short term, the biggest driver of demand for energy is the nickel processing plant Vale is constructing at Long Harbour.
Besides that, residential consumption of electricity is on the rise.
Then there’s the projected price and environmental cost of continuing to burn Bunker C oil at the Holyrood generating plant.
The officials acknowledge power rates will rise if Muskrat Falls proceeds, but they caution the cost of electricity will rise even higher if the project doesn’t go ahead. (To see how much, see Electricity Rates graphic with this story in The Weekend Telegram).
“I guess the most fundamental question is, if we don’t want to build the project, then we want to pay more,” Bennett said.
The potential success of Muskrat Falls does not hinge on the sale of excess power.
In fact, the officials say not one kilowatt needs to be bought stateside for the project to be viable.
No revenue has been budgeted from selling extra power, which means that any that is sold is basically gravy.
“This is an upside opportunity that we have not forecasted into our analysis,” said Bennett.
“If we get a minimal amount of cash for that, it’s still an upside opportunity. It comes at no cost, no incremental cost, to the project.”
But the upside opportunity is there. Bennett said if the New England market bought 2 million kilowatt hours at today’s prices, it would be worth $100 million.
“Significant upside,” he said. “But we’re not putting a revenue requirement on it. We’re not saying to our lender that we can guarantee that amount.”
That’s not the only gravy associated with the project.
The Conservatives committed to a loan guarantee during this spring’s federal election.
That backing would help offset the cost of construction by lowering the interest rate by about two per cent.
But the loan guarantee wasn’t factored into Nalcor’s analysis either, so those savings would be passed on to electricity consumers, who’d save about six per cent on their bills.
It didn’t come up during the sit-down with The Telegram, but Dalley later explained the Muskrat Falls project is a self-financing project, with the revenue stream paying off the debt.
The money borrowed to make it happen will not affect the province’s net debt, she said.
Cheaper than the alternatives? Potential power sales in the millions? Federal backing that could make it sweeter? Self-financing?
It might seem too good to be true, but Nalcor believes this is the province’s cheapest energy alternative.
“We’re paying a lot of attention to this,” says Bennett.
“This is a big call. And we’ve got a large team — over 100 people — focused on this particular issue, trying to make sure we’re making the right decision and the right recommendation moving forward.”
The Public Utilities Board is also reviewing the project to ensure it is the cheapest option. It hopes to have a report on that by Dec. 31.
Rob Hull, Nalcor’s general manager for commercial and financing matters, said the banks will also scrutinize the deal before committing to financing.
“Another test, and a big one, will be the lenders,” he said.
Bennett pointed out that Nalcor’s mandate is not a political one, but rather its job is to provide safe, reliable energy at the lowest cost.
If the deal doesn’t go ahead, Nalcor said the lights will still stay on, but the power will come at a higher cost.
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