Too early to judge Muskrat’s cost?

James McLeod
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Opposition politicians are asking how expensive Muskrat Falls could get before the government walks away from the project. Apparently, at a price tag of

$8 billion, Premier Kathy Dunderdale would still consider the project.

On Thursday of last week, at the tail end of question period, NDP Leader Lorraine Michael asked if $8 billion is too much to pay to build the hydroelectric dam in Labrador.

“No,” Dunderdale responded.

Monday, Dunderdale was saying it was a “throwaway” question, and Michael was being “too cute by half.” She said it’s not as simple as yes or no.

“How can I agree or disagree in the absence of any other information? So we will have to see what Muskrat Falls is going to cost in terms of Decision Gate 3 numbers,” Dunderdale told reporters.  “Only then will we be able to make a decision whether $8 billion is too much or not.”

The final cost estimates at Decision Gate 3 — the government’s formal decision on whether or not to sanction the project — will come together over the summer or early this fall.

Dunderdale warned that those cost estimates are going to be higher than the $6.2-billion cost estimate that the government has used up until now.

“Labour costs have gone up, capital costs have gone up, so the numbers are certainly going to go up, but don’t forget, all the alternatives are going up for the very same reasons,” she said.

As the costs increase, she said, it’ll be important to look at the other benefits of the project.

For one thing, she said, the Muskrat Falls plan allows for the province to connect to the North American energy grid, and set up a transmission corridor through the maritime provinces to the northeastern United States.

Dunderdale said that’s critical to developing future electricity projects.

“We have to find a way to get our power out of this province. There’s only a half million of us, and right now we are so dependent on non-renewables for our future,” she said. “We’re not going to be able to fill the treasury selling energy to a half-million people. I mean we’ve got over 5,000 megawatts of wind in Labrador.”

Up until now, the government has sold the project almost exclusively as a domestic power project.

The government has based its case for Muskrat Falls on whether the province needs the power, and whether the dam in Labrador is the cheapest option for electricity.

Now, however, Dunderdale is saying other factors need to be considered as well.

She talked about mining project in Labrador needing the power, and about the value of having the electricity corridor through the Maritimes as part of the project.

She said when the provincial cabinet is making the decision, they’ll be looking at more factors than just whether Muskrat Falls is the cheapest source of electricity for Newfoundland.

“There’s a lot of benefits that we get through our deal with Emera and having that other block of power, and the loan guarantee that we have never used defence of this project, and explaining this project,” she said. “If the numbers go up, then those benefits will certainly serve to mitigate that increase in costs.”

Michael didn’t like what she was hearing from Dunderdale, especially when she heard that the government would still look at the project if it costs more than $8 billion.

“I was quite disturbed by the answer, actually,” she said. “I think we’re going to be really shocked by what we see with the figures when they come out in the fall some time.”

Liberal Leader Dwight Ball said that if the cost estimates come in that high, the government needs to seriously look at other options.

He said even the original $6.2-billion figure seems too high.

“We will really seriously need to consider what Muskrat Falls does to our energy prices here in Newfoundland,” he said. “There’s so many questions about Muskrat Falls, and the $8-billion number certainly  raises a lot more questions and a lot more concerns for us.”

Twitter: TelegramJames

Organizations: North American

Geographic location: Newfoundland, Decision Gate

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Recent comments

  • winston adams
    June 05, 2012 - 15:47

    Maggie say s imagine the cost if we used enrrgy efficiency---well , it's about one fifth the cost - see my presentation at the PUB

  • Maggy Carter
    June 05, 2012 - 14:28

    Dunderdale is ridiculing Michael for asking as simple, straight forward question. Would a price tag of $8 billion cause your government to back away from this insane project. “Too cute by half” replied Dunderdale "how can I agree or disagree in the absence of any other information?" Didn't Dunderdale, Kennedy and the clan insist that the PUB had all the info it needed to make a momentous decision that would impact every Newfoundland family for the next 60 years or more? Haven't they and their John-Smith pit-bulls attacked anyone who dared suggest that this thing hadn't been properly researched and evaluated? Dunderdale, Kennedy and Martin are getting ready for the fight of their lives - getting this thing past the House of Assembly and past the noses of an increasingly wary public. What, if anything, are Dwight Ball and Lorraine Michaels doing to get ready for that debate? The parties should be pooling their resources to get someone competent to assemble the information that is already out there on the public record. It needs to be summarized in a straight forward logical manner and then distributed to the public in the same way that the government and NALCOR are planning to flood households with their whitewashed version. The basic facts will speak for themselves. The bottom line is that, assuming this project can be capped at $8 billion which is extremely unlikely, the cost before interest to every household in the province is over $42,000. Since householders are not willing or able to pay that amount up front, their share of the cost is being amortized over a period of 57 years. Assuming an average rate of interest around 5% (there is no guarantee that the rates won't go much higher as time goes on), then the total cost for each household is more than $122,000. Bear in mind that these costs are on top of the electrical rates that households will pay for every other aspect of Newfoundland Hydro's operation as well as that of Newfoundland Power. In other words, even with this absurd, unheard-of, amortization period of 57 years, the electrical bill will easily outstrip the mortgage or rent for many families. Imagine what even a fraction of that expenditure could achieve in terms of greater energy efficiency and investment in environmentally friendly alternatives.

  • Cold future
    June 05, 2012 - 12:06

    If your're going to have a giveaway of electrical power to eclipse all giveaways, what's another billion or two. After all, dry holes or paper mill bailouts- the money is going to go anyway- what a new mindset we are taking on. To hell will the grandchildren and great grandchildren, at least we won't be around to have to pay up. If the government cannot make a logical decision, I think its time they do nothing-it will be in or best interests. Hopefully the next batch of polititions may have the ability to do something right.

  • Bernard
    June 05, 2012 - 11:35

    There has to come a point that this project will be too expensive to justify. Let us hope it arrives soon before this disaster that will ruin generations to come is sanctioned by this bunch. I am sure Cathy Dunderale will suffer a big drop in the coming poll!!

    June 05, 2012 - 11:01

    'Muskrat or Bust' seems to be the mantra of this government. A more accurate assessment would be 'Muskrat then Bust'. It is absolutely incredulous that Ms. Dunderdale and her cabinet are still clinging to this financial and economic abomination. So far she has managed to stifle the growing skepticism among her backbenchers but before this is over we will undoubtedly hear from those government MHAs who are not bound by cabinet solidarity and who are more worried by the day that their political careers will be tainted by their leader's blind commitment to this project. Unfortunately there are divisions among the opposition benches. While some are adamantly opposed to the project, others appear to have fallen prey to the lobby by NALCOR, their corporate buddies, and groups like NOIA and the Board of Trade that are cheerleaders for any big project - no matter the long term economic consequences. Liberals in particular have a big problem. They fear that if they oppose Muskrat, they will be blackballed by their new leader-in-waiting, Dean MacDonald. Others see it as an omen that a MacDonald leadership would leave the Liberals in the same dead-end circumstance of their federal counterparts. Michaels doesn't know which way to go. She doesn't have much background or in-house resources when it comes to making sense of large, complex projects of this type. Her party has traditionally endorsed direct government spending and high levels of borrowing as a sop to its unionized and public sector base. Moreover her federal counterpart Jack Harris has already expressed his staunch support for his former law partner's swan song mega madness. Still her instinct tells her - as it should - that there is something terribly wrong with this thing. The disarray in the political ranks of the province has meant that the principal opposition to this project has had to come from intelligent, knowledgeable, conscientious objectors in the population at large. We have seen a long queue of well-regarded professionals - people with no axe to grind - who are doing their best to warn government of the folly of this project. Invariably they have been vilified for their troubles, if not always by official government spokesmen then by their pseudonymous stooges like John Smith. Even people with limited technical expertise have come to understand that this project is deeply flawed and that it could well amplify and extend for many more years the horrendous burden already borne by the citizens of this province as a result of the Upper Churchill fiasco. The question is whether that public angst will translate into an effective campaign to bring this runaway freight train to a halt before it becomes unstoppable.

  • Alouishis
    June 05, 2012 - 09:06

    I just read that Ed Martin said the long-term opportunity with export potential will "put this area of the world as one of the highest value places to live in the world". Why can't the Lorraine share this vision?

  • Premier Dunderdale please allow us to see what the cost of the Alternative Energy sources would be, please entertain bids
    June 05, 2012 - 08:17

    Premier Dunderdale please do your electorate a big favour and ask a Norwegian Company to give us an estimate of what a pipeline from our Hibernia Oil well would cost to transport gas to our province. A session I attended at the Angus Bruneau Center a couple of months ago, conducted by Stephen Bruneau pointed out that there are scores of gas pipeline installations in the waters servicing the Oil Industry of Norway. He also gave the cost of laying down these gas pipelines in waters similar to ours that ran anywhere from $1 Billion to $2 Billion dollars for the distance involved. By the way John Smith pointed out that if the cost of Muskrat Falls goes up so will the price of the alternatives. That is the same message that was read in this morning's radio news coming from the Confederation Building, so Mr. Smith is is voice of the Government. I will add the statement is not necessarily true. If we are quoted on a contract that might have "corruption" costs built in and if the alternative contractor simply would want to have the pipeline contract at a reasonable dollar value that will keep their operation going, we might be pleasantly surprised with the quotes we get from the alternative. Premier Dunderdale is doing our province a disservice by not having the alternative energy sources investigated. We, the people of Newfoundland and Labrador, want matters to be conducted properly with honesty and integrity. If we get a bid from our province that is equal to what the alternative is asking, well then we have no other choice but to accept our own native bidder, otherwise we are not going to spend Billions of dollars more to provide the same service to our people.

    • Willi Makit
      June 05, 2012 - 08:58

      Good idea. Government also needs to factor in the effects that building natural gas infrasturucture will have on our transportation future. Conversion from gasoline and diesel to natural gas is picking up pace in North America, in other parts of the world it is already well underway. How many millions (billions?)would consumers save by fuelling our transport trucks and passenger vehicles with natural gas, not to mention the reductions in emissions? We won't have the opportunity unless we develop the necessary infrastructure, and may very well be disadvantaged compared to the rest of North America should we elect not to. This is a golden opportunity to achieve two goals with one spend. Someone has to look at the broader picture.

  • Brad
    June 05, 2012 - 08:13

    It's not just Labrador that has wind, there's another 5000 MW of wind right here on the island portion, right up there on Confederation Hill, from all the political parties combined.

  • dennis burden
    June 05, 2012 - 07:44

    10 to 12 billion is more like it.....and the idiots will still build if we let them....and the price of wind stays the same!!

  • Elim
    June 05, 2012 - 07:19

    I watched in astonishment last nite as the premier practically waltzed up to the cameras to casually announce another 2 billion dollars would just be an acceptable pittance. I first wondered what has she been smoking but switched my vote to a dose of laughing gas. For the good of the province one of her flunkies should follow her when she goes into her private washroom

  • John Smith
    June 05, 2012 - 06:48

    If the costs for Muskrat go up, the costs of the alternatives also go up as well. Maurice, as usual what you say is nonsensical. In 1994 oil was at 18 dollars a barrel, today it is just below a hundred. The thing to remember is that it was never 6.2 or 8 billion. That is the total cost of the project, but Emera will kick in almost 2 billion of that cost. The cost to build the dam itself is around 3.5 billion, the rest is in transmission, and sub-stations ect. Muskrat will always be the lowest cost option because it doesn't involve paying to burn expensive hydrocarbons.Then if you add the loan guarantee, the low interest rates etc...the deal looks even better. What does Lorrain propose we do? Wait around till the cost of the project is ten billion before she finally realizes that it makes the most sense? Yeah...that sounds about right for the NDP...

    • McLovin
      June 05, 2012 - 07:32

      John Smith and the Premier are forgetting one very important alternative. There is always the option to do nothing, which costs us nothing and that cost never goes up. If and when the power from Muskrat is needed, the money will be there to develop it. What's the rush? We are in a position of power (Pardon the pun). We don't need to cater to the needs of the mining industry. Also, do we even have an agreement with Emera yet and does this agreement even include a power corridor? Finally, where's the loan guarantee from the Feds? At the end of the day, there are still too many unknowns involved with a project of this magnitude to be blindly endorsing it.

    • Willi Makit
      June 05, 2012 - 08:52

      Isn't it funny how some people will turn themselves inside out attempting to defend the economics of this uneconomical project? Let's reiterate: The cost of Muskrat Falls power is beyond what can be recovered in the energy markets outside on NL's captive market. The cost differential between doing nothing and building the dam was $2.2 billion over 50 years. $1.7 billion of that advantage just disappeared with the latest forecasts - you can bet that there will be cost overruns even with the higher cost estimate. That leaves, at most, difference of $500 million over 50 years, or $10 million a year. Our last remaining paper mill will cease operations within the next 10 years, returning 130 MW of power to the grid, dramatically reducing the demand on Holyrood (as along with it, increased pollution. At that point, the cost advantage to Muskrat Falls disappears entirely. Factor in that 65% of Churchill Falls power will be available for use in 2041, and the economics of building Muskrat Falls are shot to pieces. The business case simply isn't there. Why risk billions of public dollars on a venture that has no upside? Cancel the project, use the money already earmarked for it to develop our natural gas resources and pay down our debt, and count our lucky stars that we made the right decision. To proceed now would be disastrous!

  • Maurice E. Adams
    June 05, 2012 - 06:29

    About 70% of what Nalcor forecasts is the so-called cost of those other island options is oil ---- and oil is not going up, it is going down.