Twenty answers on Muskrat Falls from the premier

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By Premier Kathy Dunderdale

On Oct. 16, Russell Wangersky wrote a column for The Telegram entitled “20 questions for the premier,” which posed questions about the development of the Muskrat Falls project.
In the spirit of continuing to present the facts about this project, I write to respond to these questions and to address Wangersky’s agenda — does Muskrat Falls make sense for taxpayers and ratepayers?

Premier Kathy Dunderdale. – Telegram file photo

In Newfoundland and Labrador, our demand for electricity is growing and we need a new source.

The Muskrat Falls project is the alternative that will provide safe, reliable, clean energy at the lowest long-term price to the people of the province.

Our alternative is to continue to buy oil to generate electricity. This option is more expensive by a significant margin and would see our ratepayers continue to give their money to foreign oil companies.

On the other hand, we can invest in a renewable energy project that will generate electricity and revenue for as long as water flows down the Churchill River.

By investing in our own project and benefiting from the sale of surplus electricity, this project is also the best option for the taxpayers of the province.

Before answering the questions, I note that Wangersky was dismissive of my comments about the outcomes of the recent meetings of the New England governors and Eastern Canadian premiers related to hydro development and the role it can play in the New England marketplace.

It is important for readers to know that the northeast U.S. electricity market is an important destination for many Canadian power developers, even though this market has not offered the same level of premium prices for renewable energy from Canada as it has to its own domestic suppliers.

The recent decision by the New England governors and their electricity regulator to endorse the import of Canadian hydro power and to study the means to import upwards of 3,600 megawatts (MW) of electricity can be seen only as a fundamental change and a significant opportunity to achieve premium prices for our clean, renewable hydro power from one of the more lucrative markets in the U.S.

In the interest of full disclosure, we have made available online Rhode Island Gov. Lincoln Chafee’s comments from the recent New England governors and Eastern Canadian premiers meeting where he clearly states the available markets for our power in the U.S.

 

Q1: How do comments by Nova Scotia’s newly elected Premier Stephen McNeil affect the federal government loan guarantee for the project? (McNeil told The Canadian Press, “I can be very clear to her that if it’s not in the best interests of Nova Scotia ratepayers, then we would not be supportive. … Until we see something new, Muskrat Falls is where it is, which is on the drawing board.”)

A: The merits of the Muskrat Falls project stand on their own and have been verified and supported by several independent experts. We have always said we designed this project without the notion of a federal loan guarantee and can move forward without it.

That being said, we are very confident we will finalize the loan guarantee and move forward with the support of the Government of Nova Scotia and a favorable outcome from the Nova Scotia Utility and Review Board (UARB).

Q2:  What happens if Nova Scotia doesn’t play? After all, the very start of the loan guarantee agreement states, “It is essential to Canada that the projects have national and regional significance. …” How does that change if Nova Scotia says so long?  

A: We are part of a strong partnership on the Muskrat Falls project. Nova Scotia is a signatory to the loan guarantee agreement with the government of Canada and has also signed an agreement with our province in support of this project.

In addition, Nova Scotia has made specific changes to its legislation to increase its renewable energy requirements — 40 per cent renewable electricity by 2020. Power from Muskrat Falls can contribute significantly to achieving this target. We are confident that Nova Scotia will continue to support this project.

Q3:  Premier Dunderdale has said two other things: one, that the project could go ahead without Nova Scotia, and presumably, without the federal loan guarantee: “This project was planned around the people of Newfoundland and Labrador and could stand on its own merit, only for the people of Newfoundland and Labrador, and it did and it does. … So if in your wildest dreams you had to come to a place that they were not at the table anymore, this project still makes sense for us.” But she has also said the project can’t go ahead without the federal loan guarantee. Which one is true?

A: The decision to proceed with Muskrat Falls was made without the benefit of the federal loan guarantee and was based entirely on the best option to meet the long-term electricity needs for the people of the province. We were subsequently successful in securing a federal loan guarantee which will result in an additional benefit of over $1 billion to ratepayers.

With this benefit in hand, we continue to work with the Government of Canada, the Government of Nova Scotia, Nalcor and Emera to finalize project financing and loan guarantee requirements and we are confident that the process will conclude successfully.

Q4:  What about new and cheaper power sources? This province has no regulatory mechanisms to allow the sale of power and, with Muskrat Falls, has actually moved to make it illegal for companies to generate and sell power into the grid. Does this mean we are going to turn our backs on innovative methods to generate power in order to prop up Muskrat Falls and more expensive electricity? And does that make sense?

A: We have been in discussion with alternative energy proponents and they are currently under consideration.

However, it has been demonstrated time and time again that the Muskrat Falls project is the lowest-cost option to meet the long-term energy needs of the province.

While Bill 61 provided NL Hydro with exclusive rights to supply power to retailers and industrial customers, this does not necessarily preclude NL Hydro from entering into other power purchase arrangements. We would need to ensure that any such arrangements are of benefit to Newfoundland and Labrador ratepayers.

Q5:  What is the status of the province’s search for lenders for the project?

A: Nalcor started its request for financing process for $5 billion in debt financing for the Muskrat Falls project in June 2013, and major Canadian and global financial institutions were invited to submit proposals. Through the federal loan guarantee, this debt financing will benefit from Canada’s AAA credit rating and, as a result, it was well received in the financial markets.

Nalcor has received competitive proposals and they are currently being evaluated.

Q6:  What interest rate are those lenders being told to expect to make?

A:As a result of Canada’s AAA credit rating, it will solicit interest rates that are benchmarked off the Government of Canada long-term bond rate. As noted above, Nalcor has received competitive proposals from the financial markets and they are evaluating these responses. Lenders were asked to provide their best and most competitive terms.

Q7:  Nalcor has yet to release whether or not there is a power purchase arrangement (PPA) with Newfoundland Hydro — that arrangement will require ratepayers to pay for electricity whether it’s used or not. Will that PPA continue to be in limbo until all the bills come in?

A: Nalcor has stated that there will be a power purchase agreement in place between Nalcor and Hydro for power from the Muskrat Falls project. We anticipate this being finalized in the near future, and it will then be made publicly available.

Q8:  The federal loan guarantee requires full insurance of the project. Has Nalcor obtained insurance?

A: Nalcor is reviewing proposals from insurance underwriters and will have coverage in place as required by the federal loan guarantee.

Q9:  What’s the rate for insurance, and what kind of risk are the insurers concerned about?

A: Insurance costs were included in the Decision Gate 3 (DG3) estimate. Nalcor is reviewing proposals for third-party liability insurance, as well as construction insurance to cover the assets under construction.

Once assets are placed in service, similar coverage will be provided as part of Nalcor’s overall coverage. No unique or unusual risks have been identified as concerns. The insurance market in general has stated that they see the project as being quite attractive from a risk perspective. Nalcor’s early engineering and site-preparation work focused on minimizing risks early in the project through extensive planning, detailed design and engineering.

Q10:  How much has it cost to find a solution to the quick-clay landslide threat of the north slope?

A: The concerns that have been publically raised about the north spur have been addressed through engineering feasibility studies.

From its perspective of project developer, Nalcor is confident that the geotechnical conditions at the north spur are well understood, with the final details being confirmed following a field program completed this year. Nalcor is confident in the approach for the north spur and the cost estimate for this was included in the DG3 project estimate.

Q11: Overall, are the bids that Nalcor is receiving in line with its expectations?

A:  The Muskrat Falls project has attracted significant provincial, national and international attention from companies interested in providing goods and services. Nalcor’s procurement process ensures that best value is achieved in the contracting process and value attained in this process results in savings to ratepayers.

Nalcor is very pleased with the level of participation it has received and it has resulted in a very competitive bidding process on major and smaller contracts. To date, the bidding process is in line with Nalcor’s expectations. Project costs are addressed in Question 13 below.

Q12: Why can’t taxpayers know what individual bid prices are?

A:  To date, Nalcor has been able to receive competitive bids for contracts, in large part by not releasing estimates for work in advance of the bidding process and keeping the bids from contractors confidential. While this might seem like secrecy to some, this process allows Nalcor to continue to get competitive bids, ensuring best value for the project and Newfoundland and Labrador ratepayers.

I would also note that this same process is followed for all major projects in our province and elsewhere.

Every month, Nalcor releases a benefits report that states the monthly expenditures for the entire project, as well as the year to date, and is broken down by where the money is spent and the type of work it is spent on.

This information is available online on Nalcor’s website at www.muskratfalls.nalcorenergy.com.

Q13:: Is the project on budget?

A:  The value of the Muskrat Falls and Maritime Link project is a combination of costs and overall revenue to the province. Costs are primarily comprised of capital, operating and financing costs. Some of these elements are lower than budget, some are similar and some are higher.

From a revenue perspective, budgeted revenue is conservative, and we continue to see upside potential as external markets are tending to improve.

Overall net value to the province is currently trending positive, but frankly, it is early days — cost and revenue projections will continue to change. That being said, the overall value of this project is clearly very favourable to the province, and will continue to be so over the long term.

We continue to aggressively manage the cost profile. At this point, we are generally on budget.

Q14:: How have the project’s economics changed with the dramatic weakening of long-term oil prices?

A:  Nalcor’s final DG3 detailed cost analysis showed that building the Muskrat Falls project and the transmission link from Labrador to the island was the lowest-cost option to meet Newfoundland and Labrador’s future electricity needs with a preference of $2.4 billion over continuing to burn oil at Holyrood.

While forecasts do demonstrate a short-term downturn in market prices, over the long term these forecasts are virtually unchanged and continue to reflect rising fuel costs.

Also, if we were to continue to burn oil at Holyrood, customers would continually be subject to volatility in the markets and ultimately higher electricity rates than they will have from the clean, renewable power from Muskrat Falls.

Q15: With ratepayers in this province responsible for the full cost of the dam and transmission line, how will electricity prices be kept competitive for industrial users?

A:  Muskrat Falls has been demonstrated to be the lowest-cost option to meet the long-term energy needs of the province, and we are confident that rates paid by industrial customers in the province will continue to be competitive as compared with other jurisdictions.

Q16: If industrial prices remain competitive — something that’s now, post-Muskrat, set by the provincial cabinet — how much will other users have to pay to make up for industrial discounts?

A: This government has not put in place any policy that will change the way industrial electricity rates are set on the island. The board of commissioners of public utilities will continue to set electricity rates for both residential and industrial consumers.

Q17: How low will rates for the mainland sale of power have to be to be considered “cost-effective” by U.S. governors?

A:  In the U.S., electricity prices (like other market commodities) are largely set by open market influences similar to the price of oil. In order for electricity to be sold in the market, it must be price competitive. In addition, there are many states offering to pay a premium to purchase renewable energy.

We are pleased with the New England governors’ recent endorsement of importing renewable energy from Canada. Removing some of the barriers to Canadian hydropower is a fundamental change in the northeast U.S. energy market and one that is truly welcomed by Newfoundland and Labrador.

Q18: Have negotiations to “sweeten the pot” to match the expectations of Nova Scotia’s power regulator taken place?

A:  The agreement completed by Nalcor and Emera does not sweeten the pot for Nova Scotia, rather it supports our long held position that there is significant demand for our surplus power.

In this agreement, we see tremendous benefits for Newfoundland and Labrador. Emera has provided Nalcor with a market for power that is offered only when it’s not required by the residents of our province.

The power sold will be at the same prices that Nalcor would have obtained if the power had been sold in the lucrative U.S. market. This arrangement secures another market for N.L. surplus power and creates value which can be used for the people of Newfoundland and Labrador.

Q19: What’s on the table in those negotiations?

A:  In the agreement between Nalcor and Emera, we have agreed to make power available to the Nova Scotia market that is surplus to our needs and, in return, Nova Scotia has an opportunity to meet their power demand at fair market prices. As I noted above, the power sold will be at the same prices that Nalcor would have obtained if the power had been sold in the lucrative U.S. market.

In summary, Nalcor will offer power that is surplus to our needs; Emera can accept power from Nalcor up to a pre-determined amount each year; and the sale price of the power Emera purchases from Nalcor will be at market prices.

Q20: Why is there so much we’re not allowed to know?

A:  Never before in the history of this province has a project undergone such scrutiny, and never before has such detailed information been publicly available — a testament to the project’s openness and transparency.

The Muskrat Falls project has been extensively studied for years. Nalcor has made public hundreds of reports, studies and tens of thousands of pages of information and analysis. This information has been presented to all government parties, the PUB, independent consultants, regulators, the public, critics and many more.

Nalcor has released, and will continue to release, information as requested, as long as it does not impact the commercial sensitivities of the project and doesn’t compromise Nalcor’s ability to obtain competitive bids. Nalcor is committed to being as open and as transparent as it can be on this project and in all its operations; however, the company must also balance its commercial interests.

We welcome the interest of Newfoundlanders and Labradorians regarding the Muskrat Falls project, which will provide tremendous benefit to our province, the Atlantic region and Canada as a whole.

Simply put, Muskrat Falls is the best project for the taxpayers and ratepayers of the province.

Organizations: Government of Nova Scotia, Canadian Press, Nova Scotia Utility and Review Board UARB NL Hydro AAA Newfoundland Hydro

Geographic location: The Muskrat Falls, Newfoundland and Labrador, Nova Scotia Canada U.S. New England Churchill River Rhode Island Decision Gate Atlantic

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Recent comments

  • Brad Cabana
    November 11, 2013 - 09:25

    Not one word about the five lawsuits, 3 by native groups - the loan guarantee requires NO lawsuits and that all Aboriginal issues be dealt with to the satisfaction of the federal government. The loan guarantee expires 31 December, 2013. Hydro-Quebec's suit isn't even heard until 20 January 2014. The Water Management legality, etc. This story is really quite an empty shell that appears to have been answered by Nalcor with Dunderdale's name put o the bottom.

  • Alec C
    November 10, 2013 - 15:41

    Q2: NS 40% commitment to renewable energy requirements was the brainchild of the NDP whom were slaughtered in the general election. Q3: Long term forecasts that include continued thermal generation past 2041 when Upper Churchill expires are disingenuous and a straw man argument. What is MF credit rating WITHOUT the FLG and has a single financial institution agreed to proceed without? Q14: Why was continued use of Holyrood using Bunker C fuel EVER considered V hydroelectricity? Why was the 60-70% cleaner natural gas( V bunker C) entirely taken out of the alternatives to Holyrood? 14B - won't demand decrease with increasing energy costs due to rise in fuel costs? This is a gradual upward curve whereas MF will induce rate shock post first new bill. 15: Long term demand forecasts include the possibility of NLs last paper mill and Come By Chance refinery closing down? Was this contingency ever mapped into the demand equations? How about double digit residential demand decrease due to +50% energy costs in 2017? 16: Industrial rates will remain competitive? 4 cents industrial kWh power will increase to 8 cents kWh by 2015. Meanwhile Quebec earmarking 1000s of excess GWhs energy to lure new businesses V selling at the current low export prices. What is the current blended rate for residential ratepayers including MF? 16.4 cents kWh is the oft quoted number (astronomical increase BTW) but these numbers are over 3 years old. Why will the DG3#s be released AFTER the HoA sits for the 'fall' session?

  • Ken Collis
    November 09, 2013 - 15:54

    I understand that you will have to give a sweetheart deal to businesses because that's who gets the benefits anyway, but why not legislate that all money earned from the sale of excess power go towards paying the cost of the project instead of being used to fund Nalcors next project. Please let us pay for one project at a time. How much do you think we can afford?

  • John Smith
    November 09, 2013 - 15:26

    Muskrat Falls is a well thought out, intelligent answer to our future energy needs. Unfortunately there are many, here and abroad, that want nothing more to see the project fail, and are working to muddy the waters with false information, innuendo, and lies at every juncture. Bravo, premier...for once again answering the questions that have already been asked and answered a dozen times...and we all know they will have to be answered again...because railing against this project has become a cottage industry for many, such as the 2041 group, sad but true...Kudos to the Government and Nalcor...keep up the great work...

    • Tony Rockel
      November 12, 2013 - 16:14

      Please pass me the Gravol! Yet another nauseating piece of drivel from KD's lapdog. Or is this one from her court Jester? Surely no one in his right mind could write such shameless nonsense with a straight face.