Consultant calls for more oversight on Muskrat Falls

Ashley Fitzpatrick
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New policy paper argues for protections for rate payers, taxpayers

Muskrat Falls, site of Nalcor Energy’s proposed hydro dam build, as seen looking upstream, in the direction of Churchill Falls. — Photo by Ashley Fitzpatrick/The Telegram

Taxpayers in Newfoundland and Labrador should be offered more information and more protections when it comes to the Lower Churchill development, according to energy consultant Gordon Weil.

In a report released this morning, “The Muskrat Falls Hydro Project: Opportunities and Risks,” Weil stated the estimated project costs have not been made public, while spending on the project has gone on with a sense of privacy typically seen in business to business transactions, but rarely in local utilities.

“Nalcor approaches the Muskrat Falls project as a business development, possibly akin to its oil projects. It is not regulated as are public utilities engaged in similar operations,” Weil notes.

The Crown corporation is using independent consultants “in lieu of regulatory review,” he stated, in an attempt to be sure the costs associated with the major project are reasonable.

For numbers, Nalcor Energy has released totals for to-date spending periodically. However, details including both the engineering, procurement and construction management (EPCM) contract with SNC-Lavalin and the amounts awarded in supply contracts to date are not being released.

The provincial government has yet to release background studies and the “DG3” estimates — the final cost estimates for the project.

“The project should be subject to review either by a regulator or by the government meeting the same standards as would a regulator,” Weil stated, echoing points made in the public debate over the project by Opposition members, the 2041 Energy group opposing the project and individuals.

“The purposes of this review would be to impose normal regulatory standards to the project analysis, because at its core this is a utility arrangement. To be sure, generators and marketers in other jurisdictions are not regulated, but they are exposed to competition. In Newfoundland and Labrador, Nalcor, as generator and marketer, would not face competition for serving the provincial market, so the regulator would serve as the traditional ‘surrogate for competition.’”

The taxpayers will ultimately be responsible for any financial shortfalls in building Muskrat falls and the associated transmission lines, he notes. This will be either through a hit to the provincial treasury and/or Nalcor losses, where it would mean less money available for the Crown corporation in other operations, for example oil and gas or Newfoundland and Labrador Hydro.

In a typically review of utility spending, a determination would be made on the most that should be spent on the construction, with the utility only permitted to charge customers accordingly.

On the other hand, Weil also questioned where profits, once the project was completed and Lower Churchill power was being sold, as predicted, to markets off-island. Nalcor, he stated, would determine where profits flow.

“To the degree that customers would contribute to the cost of the project through their rates, they should receive some protection. At the same time, if the system for which they are the core customers produces substantial income from off-system sales, they ought to be allowed to share in the benefits through revenue offsets to rates,” he writes.

That said, Weil stated he believes the development has the potential to benefit Newfoundland and Labrador.

Regionally, energy interconnections with Atlantic Canada could allow for “more economic use of generating resources, reduced GHG, and a more efficient use of transmission,” he added.

His analysis was published by the Halifax-based Atlantic Institute for Market Studies and is available online ( The institute is a non-profit group providing independently researched materials on public policy relevant to the region and the country.

Read more in Wednesday’s edition of The Telegram.

Organizations: SNC-Lavalin, Atlantic Institute for Market Studies

Geographic location: Falls, Newfoundland and Labrador, Atlantic Canada

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Recent comments

    October 11, 2012 - 22:06

    I do not know the cost to build the muskrat Falls or the lower Churchill but with all of those sites that can be developed, Then one should be developed, The Holyrood oil fired Generating power plant is consuming so much oil it is in the top ten air poluters in Canada or the world, Its burning many millions of barrels of oil per year, the smoke from its stacks can be seen for miles & people living close to this generating plant within a couple of miles the soot or discharge from the stacks is ruining the paint on peoples cars, I do not Know what it is doing to their Health, I would say its doing no good, When one of those sites are developed, Muskrat or the lower Churchill its transmission line should be built to carry the upper Churchill power when the contract now in place expires in 2041, if NFLD does not build the Muskrat Falls or another Power source and have its own transmission line to to the island then on to the mainland of Canada,Then Quebec will always be in control of the Churchill Falls or any other development that would need to use their Transmission grid to transport their power . The cost of oil will increase every year, wind power is not reliable,Natural gas will also increase in cost as supply decreases but the churchill river will flow at no cost forever, "for as long as water runs and Grass Grows." as the old people say,

  • Tim Jamison
    October 10, 2012 - 14:37

    Another layer of bureaucracy to make it even more expensive and politcal? No thanks. Nalcor is doing a fine job

    • James G. Learning
      October 11, 2012 - 01:08

      No Tim this would not be another layer of bureaucracy, it would be accountability, something we have not had from Nalcor on this project, it has dodged the opposition, not hard to do given the level of intellegence in this group, it has faced a toothless PUB. So in fact we have only Nalcor's deciet to guide us on this one. As Weil points out because there is no competition for Nalcor, public regulation is necessary. Of course that would only be true in a democracy. This is not the case in Newfoundland.

  • Maggy Carter
    October 09, 2012 - 14:38

    As Maurice Adams points out, the federal economic analysis of the 'Lower Churchill Hydroelectric Generating Facilities' is not recent. It might have been released in May but clearly it was done sometime in 2011. More to the point, the analysis is incomplete - a fact acknowledged right in the report. The report states the following: "The Project does not include the transmission lines to carry the power to the Island nor from the Island to Nova Scotia. However, the costs associated with these transmission projects are an important input to the economic analysis of the Project." ----- Exactly! -----The federal conclusions are based on a capital cost of $2.2 Billion as opposed to the current $6.2 Billion estimate - soon to be increased to $8.5 Billion or more. No doubt (for purposes of the loan guarantee) the feds have already plugged these new numbers into its model and the results aren't pretty.

  • Winston Adams
    October 09, 2012 - 14:08

    Cold Future, Muskrat for Millionaires, Efficiency for Everyone, especially the Elderly. Studies show that energy efficiency(EE) is 1/3 the cost of ANY new generation source. And that's the answer to all of John Smiths arguments he makes.

  • Cold Future
    October 09, 2012 - 13:38

    John, the isolated island option is less risky and more than likely more manageable and more cost effective. Holyrood can be cleaned up and should be because it has a lot of useful life left in it. Recall of labrador power at Upper Churchill would be feasible and cost effective if we want to build the intertie to the island. The tie to Nova Scotia can be built for import of power which will likely be more cost effective than building muskrat. Why build Muskrat to provide power at twice the price? The blanket statement that the power is going up anyway does not cut it. We have built power sources when we needed power before as we needed and it has worked. Why go for the big white elephant in one chew? Muskrat needs a fabricated justification to even consider it. It is not economically viable at $6.2 billion and now the government says it will be at least $8.2 billion.

  • RJ
    October 09, 2012 - 13:27

    Because the Muskrat project is not a Liberal idea, the losers are saying it is a bad idea just like they said about the oil.

  • Maurice E. Adams
    October 09, 2012 - 13:24

    Isn't it strange that the Muskrat dam portion of this project has been going full speed ahead since Danny (as premier) announced it 2 year ago?..... What is NOT clear is --- 1) that there will be the construction of any kind of link to Nova Scotia (Emera has 2 year to 'opt in') and 2) that the island needs the power......... What is clear is that if it is determined that Emera does NOT 'opt in' and it is shown that either the island does NOT need the power or that it becomes TOO expensive to construct the Labrador/Island link, then the Labrador mines will just happen to be the only beneficiaries of 800+ megawatts of power that cost island ratepayers billions in debt --- and no market only the Labrador mines. ---- This project will mean that island ratepayers will have to take whatever PENNIES we can get from the mining companies, while the mining companies will be in the drivers seat.

  • Cold Future
    October 09, 2012 - 12:43

    Muskrat project is a money losing giveaway.The risks, the excess cost, the impact on domestic rates, the hardship to consumers, the huge sudsidy which will turn into benifits for mainland consumers including Quebec are too much. End this insanity now and avoid the huge newfy joke in the making. It is a good project for the banks,Canada, Quebec, mainlanders including the US but has no benefit for a single Newfoundlander (except those who come in for the short term benefits from the construction).

    • John Smith
      October 09, 2012 - 13:15

      So...are you saying we don't need the power...or are you saying that Muskrat is not the best way to produce that power? Is it both? Neither? What are you denying? It has been show again and again and again that we will need more power in the future, by many different agncies and sources. It has also been shown again and again and again that Muskrat is the best, lowest cost, long term solution. So Cold future what is it? muskrat was never put forward as a way to make was never ever ment to make money. Our rates are going up you think it's better to stay tied to oil??? Then they will go up forever. Muskrat is the only hope we have to stableize rates, get off foreign oil, get rid of Holyrood and connect to the mainland.Let's hear your alternatives? Oh, you don't have any...right I forgot...

    • Seeing through the smoke
      October 09, 2012 - 14:27

      Who is this 'we'' that needs the power John Smith? Certainly not residential users who will end up paying the shot so that power can be given away below cost to mines in Labrador. So much for 'no more giveaways'. Let the mines buy their power from Quebec, the provice's ratepayers will be in the money if that happens. This whole project is a joke, and it's at our (the ratepayers) expense!.

  • proud newfoundlander
    October 09, 2012 - 12:35

    We have to keep reminding Dunderdale and her cronies that they are employees of the taxpayer and their responsibility is to the taxpayers no one else.

  • John Smith
    October 09, 2012 - 12:06 far today we have had two independant reviews, the federal review, and this Atlantic Canadian one...both say a bunch of gobbdigoop...then at the end say...Muskrat would be of benefit to the province, and would be the lowest cost option. Can you imagine the uproar from the naysayers had these reviews come back stating the opposite??? I'm sure now the Naysayers will continue with the usual, how this was limited and used Nalcor's numbers. Because remember...the naysayers want us to think that Nalcor is out to get us...they are the enemy...LOL Anyway naysayers have at it...your useless, mindless, nonsensical lunitic fringe raving is very entertaining.

    • Ashley Fitzpatrick
      October 09, 2012 - 12:24

      John, just wanted to let you know what's come out today is not "gobbdigoop." Gordon Weil reiterates an important question about project oversight that has been put to the government again and again recently. The Telegram has asked for response on the subject and will be including more in tomorrow's edition. The questions and answers are continuing on this project John. It's been a long time since it was first announced, but it's a tremendous project and the exchange remains important.

  • Maurice E. Adams
    October 09, 2012 - 11:49

    As I understand it, that so-called 'recent' economic analysis by NRC was released last May --- again using Nalcor's numbers and theri "2-option only" comparison. Also their bottom line was/is with "low demand" Muskrat Falls is NOT the lowest cost option. Instead, it is recall power from the Upper Churchill or small, incremental hydro, wind, conservation and efficiency.

  • tickle-arse
    October 09, 2012 - 11:49

    Wouldn't the public of Newfoundland and Labrador love to see some to-date spending numbers regarding the EPCM contract between Nalcor and SNC-Lavalin. Perhaps they could even include how the majority of people involved in the engineering phase of this project are highly over-compensated, primarly french speaking employees directly from SNC's Montreal, Quebec office. Throw that out there in your next news conference...

  • taxpayer
    October 09, 2012 - 11:48

    taxpayers better go to a kindergaten class and look for answers on muskrat falls. if taxpayers are waiting for politicians to give them a honest answer, then they are will be waiting along time. these politicains remind me of the snakes in another telegram story. they the snakes are slimy, slittering around waiting to bite the hand that feed them. GET THE MESSAGE POLITICIANS.

  • Fred Penner
    October 09, 2012 - 10:51

    See the attached link from Natural Resources Canada for recent economic analysis: