Muskrat forecast now at $7.4 billion

James McLeod
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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.

Twitter: TelegramJames


Organizations: Manitoba Hydro International, NDP, Sheraton Hotel Board of Trade Newfoundland and Labrador Oil and Gas Industry Association

Geographic location: Muskrat Falls, Newfoundland and Labrador, Decision Gate Churchill River Ottawa

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Recent comments

  • Tim Jamison
    October 31, 2012 - 15:00

    Meanwhile, the other options cost a minimum of 50% more than Muskrat. Nalcor is full of skilled and competent people. They're not trying to hurt Newfoundland. All this anti stuff we're hearing now is the same as the anti-Outer Ring garbage. It's politcal garbage. The Outer Ring did not sink Newfoundland. It enhanced Newfoundland. Muskrat will do the same, despite all the naysaying, which was present for the Outer Ring debates as well

    • david
      October 31, 2012 - 16:28

      Intellectually stimualting stuff....yelling down dissent with insults and vitrole. It always works here.....and not much else seems to.

    • Too Funny
      October 31, 2012 - 20:23

      "with insults and vitrole". The voice of experience.

  • DON II
    October 31, 2012 - 13:26

    To John In Whitbourne: It appears that your attitude is similar to that which prevailed when the Upper Churchill contract was signed. Blind acceptance of the opinions of so called "professionals" or "experts" is a very bad idea. Joey Smallwood found that out the hard way! Make no mistake, the Universities are cranking out well educated fools every year. The documented mistakes made by so called experts and professionals could fill a very large book. There is a big difference between paying 14 cents and 25 cents per kilowatt hour. I visited Nova Scotia recently and spoke with people there who told me that many people are having great difficulty paying the current electricity rates.There is talk of having the Government of Nova Scotia buy out Nova Scotia Power Inc. and return it to being a Crown Corporation. I suspect that domestic electricity from Muskrat Falls would surpass 30 cents a kilowatt hour. Nobody will voluntarily pay 30 cents a kilowatt hour for electricity. As for the increase in cost of the Maritime Link, do not forget that under the terms of the proposal, 20 years after the link is built the responsibility for maintaining that underwater power line infrastructure between Newfoundland and Nova Scotia reverts to the Government of Newfoundland which will add even more cost and debt for the people of Newfoundland and Labrador. As currently proposed, the Muskrat Falls development will be the most expensive make work project in the history of Canada! I am totally opposed to having to pay more than 10 cents a kilowatt hour for electricity. It appears that the main beneficiaries of Muskrat Falls will be the big mining companies who plan to develop mines in Labrador. If power from Muskrat Falls is going to cost over 25 cents a kilowatt hour, other sources of power will have to be found and brought on line.

    • John in Whitbourne
      November 01, 2012 - 06:55

      @DonII Joey Smallwood never took advice from anyone. He also never ran a successful business. Williams was his polar opposite. The only argument I have heard that made the CFA look sensible was the one from the 1960's that nuclear power would lower the cost of electricity below that of Hydro. That was one view in the late 1960's. My brother worked 34 years in the nuclear business so I've heard all of the war stories. WRT well-educated fools, most of them were fools before entering University. My house costs four times what it should to heat. That will change this year with R-40 ceilings and R-12 walls. The world is full of numerical/scientific illiterates. People who cannot afford their electric bills should find a way to use less. Insulation is one way, heat pumps are another. My house requires 44 bags of cellulose fill insulation for R-40 insulation. That will cost less than $500 and it can be installed in the attic by hand (add $120 for raft-r-vents). NL Power will finance up to $10,000 to upgrade your home heating system. Interest is prime+4%, term up to 5 years. The Germans pay 28 cents/kWh and they are eliminating nuclear which will be very expensive. The Danes pay 40. WRT submarine HVDC cables: your comments on the 1100km 10,000MW link from Iceland to Scotland? Where you get your 25 cent number ?

  • John in Whitbourne
    October 31, 2012 - 11:20

    @DUPCE If you add in the costs of the Gull Island Dam you will get about 3,000 MW for a few Billion$ more ("The cost of hydropower is relatively low, making it a competitive source of renewable electricity. The average cost of electricity from a hydro plant larger than 10 megawatts is 3 to 5 U.S. cents per kilowatt-hour. ") - BTW you said comparitive cost is 112% but the actual relative cost is 210% (to two signifgicant digits, your arithmetic is sloppy). Construction costs in Labrador are always higher because of the remote location. @DAVID This is a parlimentary democracy. Why would Dunderdale change that? @PROUDNOVA Of course they don't understand it. What part of "New Democratic Party" would make you believe otherwise? The NDP: "We won't steal your money, We'll waste it instead!". I think it's in the party constitution. @FRED This "Decision Gate" process model is widely used in successful engineering companies around the world. I first saw it over twenty years ago. Nortel used it in the nineties and it was one of a few things they did right. Drinking the Bernie Ebbers Internet growth rate (100% per year, forever) kool-ade, was the big thing they did wrong. In the long run. This is the right project at the right time. The only risk is the development of a disruptively cheaper energy technology in the near future. That would affect the economy worldwide and would generate huge wealth everywhere. That energy would still need to be transported and the transmission system would still function.

    • dupce
      November 02, 2012 - 09:52

      @John you are right in part of your statement, but I’m not saying the same thing that you are saying. This is my statement is: That is the Muskrat Falls project will cost “112% more” to build for each Mega Watts as compared with La Romaine. Let me repeat myself again: “112% MORE”, “112% MORE” in case you can’t read English I’ll write it in French “112% de plus” This is simple arithmetic: 212% -100% (which is the same cost of both projects) leave a difference of 112% more.

  • dupce
    October 31, 2012 - 09:56

    Facts that may put the Muskrat Falls Hydro project into perspective. Muskrat Falls (1 Dams) will produce 834 MW at a cost 7.2B$ (7,200,000,000$), opening date unknown. La Romaine Hydro Project in Quebec which started in 2009 (4 Dams) will cost 6.5B$ (6,500,000,000$), by 2020. It will produce 1550MW of electricity. If we do a comparative cost of the two project: - Muskrat Falls will cost 8,872,901$ (8.9million$) for each Mega Watts - La Romaine will cost 4,174,694$ (4.2million$) for each Mega Watts That is the Muskrat Falls project will cost 112% more to build for each Mega Watts as compared with La Romaine. Q. Who is going to pay? A. Newfoundlanders.

  • David
    October 31, 2012 - 09:09

    This is truly a tragic day for democracy are watching a very brazen end to even the disguising of a dictatorship...and a highly incompetent one at that. But there is one pillar virtue of democracy that we do still enjoy here in Newfoundland...we do indeed get what we deserve.

    • Tim Jamison
      October 31, 2012 - 14:56

      I voted conservative and I voted for Muskrat Falls. If you wish to see what a real end of democracy looks like, go to Pyongyang and voice your opposition to the government. We can all take bets on the method they use to execute you

    • derek
      October 31, 2012 - 16:26

      Wth intellectual giants like you, Newfoundland's future is truly set.

  • Proud NovaScotian
    October 31, 2012 - 09:03

    The projection could be 10 billion and it wouldn`t make any difference here. Our present NDP government has swallowed Emera`s dream hook, line, and sinker. This government truly doesn`t have a clue what our estimated power rate will be and doesn`t want to know as it has already instructed our PUB, a bunch of lawyers, to review and approve the NS sublink without any outside independent study. Still can`t understand why Nalcor just doesn`t build the Labrador subsea link + power lines and buy cheap surplus power from Upper Churchill until your province takes it over. Holyrod would make an excellent backup power source.

  • DON II
    October 31, 2012 - 08:41

    Would you sign a contract with a developer to build a house without knowing what the final cost of that house would be? That is exactly what the Government of Newfoundland is prepared to do! It no wonder that the fiscal state of Newfoundland and Labrador has always been in jeopardy. The Government of Newfoundland did not reveal what the increased cost of the Maritime Link portion of the project would be and did not state what the final price of electricity per kilowatt hour delivered to the residential customer would be. Would the people of Newfoundland and Labrador be willing to pay up to 25 cents a kilowatt hour for electricity from the current 11 cents? The people of Nova Scotia are going to be on the hook for 20% of the cost of the proposed project and should be asking questions too. Ask questions and demand answers before you allow your Government to sign any more contracts for hydro-electrical developments in Labrador! What about the control of water rights and diversion of water from the Upper Churchill to Muskrat Falls over which Hydro-Quebec has legal veto power as enshrined in the 1969 contract? Lots of questions and no answers. If Hydro-Quebec wants to stop the Muskrat Falls project all it need do is refer the matter of water rights to the Court. It may take years to sort that mess out. A bureaucrat friend told me recently: "What is the point of researching and preparing a comprehensive briefing note for Ministers who either don't read them, don't understand them or will just do what their lobbyist cronies tell them to do anyway?"

    • John in Whitbourne
      October 31, 2012 - 11:38

      @Don II There are weakneses in several of your arguments. First of all, the project is being developed by professionals who have many years of successful projects behind them. The CFA was approved by Joey who never ran anything other than an election with any amount of success. He was a blunder of Biblical proportions. The cost of the CFA is in the hundreds of Billions of dollars. The Maritime link costs belong to Emera and Nova Scotians pay almost 14 cents per kWh. The advantage to NL customers of 25 cents per kWh is long-term rate stability. Muskrat Falls fuel is free. Hollyrood fuel costs are not and both Natural Gas and Fuel Oil are not guaranteed into the future.

  • Fred
    October 31, 2012 - 08:05

    What the heck does "It's a robust process" mean? Explain to us mere peasants. We'll be paying for it. And so nice to see the trained seals Board of Trade clap their support again. Just sickening. Of course the business and resource interests are so firmly behind it.

  • Eli
    October 31, 2012 - 08:00

    I stoppded watching this propaganda circus when my wretching got out of control.

    • ILE
      October 31, 2012 - 20:27

      Stopped watching?! Hell, you became a part of it.

  • Cold Future
    October 31, 2012 - 06:41

    Incredible-the NL captive taxpayer gets to spend 24 % more but it will be more robust. The isolated island option will also go up by that much-reorientaion of its dams we suppose. No reason given why the most costly of the two options is now $2.4 billion more wheras it was neck and neck before-the closure of Corner Brook mill with its 120 MW would have tipped it in favour of isolated island then. And the loan guarantee is figured in: which we assume means that the assumed $600 million from Harper makes the least cost option a measly $8 billion. Holy jumpins, the sudsidy from the taxpayer to sell this energy at discount prices on the mainland is getting astronomical.Its amazing that some of the commenters in this acticle are not suffering from eye irritaion from the wool that's in them.