Nalcor and MHI recommend government sanction the project
Newfoundland and Labrador Premier Kathy Dunderdale released details of the Decision Gate 3 cost estimate numbers for the Muskrat Falls hydroelectric project, and findings of a report by Manitoba Hydro International Ltd., at the Sheraton Newfoundland hotel Tuesday afternoon. She was joined by Minister of Natural Resources Jerome Kennedy (left) and Nalcor Energy president and CEO Ed Martin. — Photo by Joe Gibbons/The Telegram
Premier Kathy Dunderdale and her officials laid out detailed cost estimates Tuesday, and made it clear that all the data shows Muskrat Falls is the best option to meet Newfoundland and Labrador’s electricity needs.
Dunderdale insisted the massive hydroelectric project — now estimated to cost more than $7.4 billion — is not a done deal, but her rhetoric suggested a different story.
“Muskrat Falls sets the stage for us to finally take control of our destiny and achieve the enviable position of total energy independence in the international marketplace,” Dunderdale said at a news conference in St. John’s. “This project will have a tremendous impact on the people of Newfoundland and Labrador for years to come.”
Nalcor, the government’s Crown energy corporation, drew together all of its final cost estimates into a package of data — the so-called “Decision Gate 3” or “DG3” numbers — which will be used by the government to make a final decision on whether or not to formally sanction the project.
Based on its data, Nalcor says Muskrat Falls will be roughly $2.4 billion cheaper than the next-best option based on a “cumulative present worth” analysis that calculates the total costs of both projects over the coming decades.
Nalcor is formally recommending the government sanction the project, and that’s a recommendation which is endorsed by Manitoba Hydro International (MHI), an independent contractor hired by the government to review and analyze all of Nalcor’s assumptions and methods.
The revised cost estimate of $7.4 billion represents more than a billion-dollar increase in the forecast cost of the project.
Nalcor CEO Ed Martin explained that when it drew up more preliminary Decision Gate 2 numbers in November 2010, it had only done five per cent of the engineering work on the dam and transmission lines from Muskrat Falls on the Churchill River in Labrador to Soldier’s Pond near St. John’s.
Now, with more than 50 per cent of the engineering work done, and bids received on the major tenders associated with the project, Nalcor has a much better sense of how much the whole thing will cost.
Tuesday’s numbers included a smaller contingency for cost-overruns — a $730-million margin of error compared to $1.1 billion in wiggle room at Decision Gate 2 — but Martin said again, that’s because they have a more refined sense of what everything wil cost.
The overall cost estimate also included forecast savings in financing costs from a federal loan guarantee, despite the fact that the terms of that guarantee have not been finalized with Ottawa.
“We know we’re getting a loan guarantee, but until all the terms are firmly negotiated and signed off and approved by the federal cabinet, we won’t go to sanction without that,” Dunderdale said. “We expect that piece of work to be concluded in the next couple of weeks.”
The loan guarantee will likely be the last piece of the puzzle for the provincial government cabinet; after that, they will sit down and make the ultimate decision of whether to sanction the project.
The government is also planning a special debate in the House of Assembly before the project is sanctioned, but political fighting with opposition parties may prevent that from happening.
Neither the Liberals nor the NDP were particularly impressed with the Decision Gate 3 numbers laid out Tuesday afternoon.
“There’s still quite a bit of information that we’ve been waiting for,” Liberal Leader Dwight Ball said.
He said the Liberals have written letters to MHI, Nalcor and other independent contractors hired to review the Muskrat Falls work, and they haven’t received answers.
“Guess what? We’ve got a goose egg again,” he said. “There’s nothing in response.”
New Democrat Leader Lorraine Michael said she’s troubled by the fact that there’s no forecast cost to ratepayers in the package of estimates delivered this week.
“Something that did disturb me was that the people of this province are not going to know how much their electricity is going to cost because of Muskrat Falls until the electricity starts running,” she said.
But the audience at the news conference at the Sheraton Hotel was also stacked with supporters, including business groups and members of Dunderdale’s PC caucus.
St. John’s Board of Trade vice-chair woman Sharon Horan was happy with what she saw Tuesday.
“I think as a business community what we were waiting to hear today is whether or not the numbers would demonstrate that Muskrat Falls would continue to be the best-cost option, or the lowest-cost option,” she said. “I think as a business community we really appreciate that.”
Robert Cadigan, the president and CEO of the Newfoundland and Labrador Oil and Gas Industry Association, said he appreciated Nalcor’s process.
“It’s a robust process. This (decision) gate process that Nalcor is following is the process for international, large-scale projects and I think, if the right process is followed, then you get to a place where you’ve got reasonable assurance that you’re going to get through it on budget, on time and so on.”
Tuesday’s announcement looks like it will be the first of a parade of information from the government supporting the Muskrat Falls process.
This morning, Natural Resources Minister Jerome Kennedy will release a report by MHI dealing with wind power in the province; the report is expected to detail why wind is not viable to meet Newfoundland’s electricity demand.
The government is also expected to release a report on natural gas in the coming days.