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 (http://www.aims.ca/en/home/library/details.aspx/3459). 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.