It’s great to hear the chairman of Alderon Resources, Mark Morabito, say that Muskrat Falls power is crucial to the future expansion of the Labrador iron ore industry. Because somewhere in that statement lies the seeds for a much better economic argument for the project moving ahead.
That may sound strange coming from someone who has had questions about the project’s economics for months now, but it shouldn’t. Here’s why.
More electrical customers mean spreading the costs of a major project over more users, and in the process, lowering the cost to power users on the island.
But there’s a big “if” in that equation.
Because right now, it’s just talk, and what companies like Alderon have to do is to actually put their money where their mouths are.
It sounds a lot like they’re just talking out of both sides of their mouths.
Big companies are fond of pointing out that they are going to be big players in the province’s economic future — yet, at the same time, while they are often big electrical customers, there’s no evidence they plan to pay their own freight.
Industries regularly argue that they should get discounted power, because they use so much and because their operations benefit the economy. In fact, right now, industrial users pay a special rate for power on the island that can see them paying less than the cost of producing power, meaning Nanny running her dryer in Pouch Cove can end up subsidizing oil refineries, nickel smelters and their international owners.
It’s a tidy argument, but one that could equally be made by any taxpaying citizen of the province: just as a mining company contributes to provincial coffers, so does anyone who pays taxes. So why should one citizen get cut-rate power, and another, not?
You might be able to make that argument if the Labrador mining companies that wanted power were firms that could locate anywhere in the country, and needed to be attracted, lured here, by competitive power rates.
Jerome Kennedy has suggested that is exactly the case with potential miners, saying in the House of Assembly on May 30: “These new developments will require an adequate supply of electrical power at competitive rates to proceed.”
On May 31, he said, “We do not have the industrial rates developed at this point, Mr. Speaker, but we know that as a province we have to be competitive with Quebec and Manitoba who produce the lowest rates in the country.”
He’s also said that mining companies were unwilling to pay for Muskrat Falls.
It’s not clear whether he means that the companies are unwilling to pay for the project’s costs on their own, or whether they are unwilling to pay for power at the price it would take to pay their fair share of the project’s costs.
But there’s a fundamental difference with the iron ore miners: they can’t move their ore deposits to another town or another province. So the only purpose for “competitive” power rates is to either make the mining fiscally possible, or else to fill the pockets of shareholders.
There’s nothing wrong with filling the shareholders’ pockets — at least, not as long as we’re not emptying the pockets of other power users in the province to provide the gravy.
And if we are asked to ante up the gravy?
In the words of Danny Williams (remember that guy?), just leave it in the ground. As he said about delaying the Hebron project until a deal was struck to benefit the province, “I’m prepared to stand my ground and take the consequences. If that means leaving a project … and not getting the benefit of the royalties until some time down the road, then this government is prepared to wait."
There’s even a suggestion that, horror of horrors, the mining companies might buy cheaper power from Quebec, so we should build Muskrat Falls to cut that off at the pass. Strangely, Mr. Williams, now on Alderon’s board of directors, is one of the people who is concerned about that.
Talk about cutting off your nose to spite your face: the mining companies are talking about the huge fiscal benefit this province would get from their operations.
Why would we want to cut into those benefits from our resources simply to spite a neighbouring province that, even if Muskrat Falls is built, can supply power more cheaply than we can as a result of the last horrendous mistake we made in hydroelectricity?
If Muskrat Falls is built (to follow the apparent logic), we would have to supply them power for less than Hydro-Québec would charge.
And that truly is a mug’s game, a kind of economic take-my-ball-and-go-home that makes “no more giveaways” the most empty of possible promises.
“We’ll sell you power at less than Quebec will sell it to you, just so Quebec can’t sell it” — that’s ludicrous, especially if the cost of producing the power is more than the price it’s being sold at.
More than anything else, it sounds like the mining firms want two prospective sources of power, all the better to play one off the other to get the lowest rates possible.
Here’s an option: Nalcor wants its subsidiary, Newfoundland Hydro, to sign a take-or-pay contract that would see ordinary ratepayers — you and me — pay for Muskrat Falls power at a set rate, even if we don’t use the power. We don’t need the power yet, but Nalcor thinks we’ll need it later. And you can’t finance the construction of a dam on forecasts: you need contracts, like the take-and-pay contract with Hydro, to raise the necessary funds.
If the Alderons of the world are so keen on their need for Muskrat Falls, ask them to sign a take-or-pay contract for their block of Muskrat Falls power under the same terms as all the little people are supposed to accept, or at the very least at a price equivalent to the full cost of production of the power they intend to use. (Because, after all, Alderon wouldn’t agree to sell iron ore for less than it cost to produce.)
Spreading the risk to companies that clearly intend to benefit from exploiting our resources could go a long way towards lowering the cost that everyone else has to offer up.
And it could do nothing but make Muskrat Falls more attractive — and its power costs far closer to a reasonable price for all users.
Russell Wangersky is The Telegram’s
editorial page editor. Email: email@example.com.