Fortis made the right call

Russell Wangersky
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Newfoundland and Labrador’s other electrical company — Not-Nalcor, or, as it’s better known, Fortis Inc. — just announced its profits for 2015. The number was a quite-staggering $728 million — a banner year for a company that sprang out of Newfoundland Light and Power not that many corporate years ago, and has made a point of increasing its value, and the value to its shareholders, every single year.

Russell Wangersky

Fortis, you may remember, wasn’t interested in getting involved in a joint venture with the Newfoundland government to develop Muskrat Falls.

Here’s how then-Fortis boss Stan Marshall put it in 2011: “In the early days, we were invited — or inquiries were made whether we’d be interested in a minority situation — and we said no. Very straightforward. … Without going into the merits of any project, we wished them well, but we do not get involved with minority situations with Crown corporations.”

(That’s particularly interesting because Fortis was interested in a joint-venture hydro dam in British Columbia. Here’s where the company is with that project, according to company documents: “On April 1, 2015, the corporation completed construction of the $900 million, 335-MW Waneta Expansion hydroelectric generating facility ahead of schedule and on budget while maintaining an excellent safety and environmental protection record. Construction of the Waneta Expansion commenced late in 2010.” Ahead of schedule and on budget. Fancy that.)

But that doesn’t mean that Muskrat Falls isn’t on Fortis’ mind — because the Muskrat Falls project is appearing in Fortis’ end-of-year documentation this year, in the section called “summary of the corporation’s significant business risks.”

Here it is in the company’s Management Discussion and Analysis (MD&A) document, filed as part of Fortis’ year-end: “Future changes in energy supply costs at Newfoundland Power, including costs associated with Nalcor Energy’s Muskrat Falls hydroelectric generation development and associated transmission assets, may affect electricity prices in a manner that affects Newfoundland Power’s sales. The recovery of Muskrat Falls development costs are expected to materially increase customer electricity rates.”

And here it is again, in the company’s Annual Information form: “The recovery of Muskrat Falls development costs are expected to materially increase customer electricity rates.”

But that’s not all: unlike during the debate when Muskrat Falls was picked as the best option for Newfoundland and Labrador’s electrical future, Fortis is anticipating major changes in the electrical distribution systems, and is aware that those changes may make some of its key products less attractive — and less valuable — in the future.

This is also from the Fortis MD&A, released Thursday: “New technology developments in distributed generation, particularly solar, and energy efficiency products and services, as well as the implementation of renewable energy and energy efficiency standards, will continue to have a significant impact on retail sales, which could negatively impact various utilities’ results of operations, net earnings and cash flows. Heightened awareness of energy costs and environmental concerns have increased demand for products intended to reduce consumers’ use of electricity. Utilities are promoting demand-side management programs designed to help customers reduce their energy usage.

“Research and development activities are ongoing for new technologies that produce power, enable more efficient storage of energy, or reduce power consumption. These technologies include renewable energy, customer-owned generation, appliances, battery storage, equipment and control systems. Advances in these, or other technologies, could have a significant impact on retail sales which could negatively impact the results of operations, net earnings and cash flows of utilities.”

Does anyone remember any discussion — except from those quickly dismissed by government as inveterate naysayers — about distributed energy, demand-side management or other risks to long-term energy sales when we were launching our now-behind-schedule, now-over-budget old-school hydroelectric project?

Didn’t think so. Instead, the government trumpeted the fact that we had “world-class experts” building Muskrat Falls.

Perhaps the government should have talked a little more to the other world-class experts — the ones at the Fortis Building in downtown St. John’s.

Even in this big economic and energy downturn, they seem to be getting it right. In fact, $728 million worth of right.

Russell Wangersky is TC Media’s Atlantic regional columnist. He can be reached at — Twitter: @Wangersky.

Organizations: MDA, Newfoundland Power, Nalcor Energy Fortis Building

Geographic location: Newfoundland and Labrador, British Columbia

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Recent comments

  • Aaron
    February 23, 2016 - 09:22

    Geez Louise. Tunnel vision much? First of all, nobody said electricity prices wouldn't go up with massive capital spending, the argument was they would go up less than if you refurbished Holyrood and continued to buy barrels of oil from other countries to burn, and that is still entirely possible. I could go on with other items in this piece but really what's the point with this author as he's guilty as everyone else when it comes to only seeing/hearing want he wants to fit his argument. It's apparently ok to take assumptions at face value when it benefits your argument but when assumptions are made to support MF then it's a no go. I think he thinks he sets a higher standard than politicians but you rarely see it. Now i'm off to crank up the heat in my house so Fortis revenues aren't hurt by all the new technologies being developed that could potentially eat into their sales.

  • Really?
    February 23, 2016 - 08:39

    What a guy you are, SR. So, when are you going back? Soon?

  • Newfoundland and Labrador shafted by Muskrat Falls with NO ability to borrow Long Term!
    February 23, 2016 - 07:51

    I Can feel the mental anguish that must be penetrating the minds of those past leaders of the PC party who orchestrated the downfall of their province through the dastardly deed of building the Muskrat Falls Project at an exorbitant cost of probably 10 times its worth to our province. Newfoundlanders and Labradorians and their province are now completely shafted economically as our province does not have the ability to move foreward through borrowing at the cheapest rate which is long long term.

  • Buffy
    February 22, 2016 - 19:10

    In Quebec private companies like NL power. Can build hydro generation stations. But not own or even build. The lines. The high voltage lines. Are the key. Without ownership of those lines. U can not sell ur power because u can't access lines to move your power. That's the key! Owning the lines. Nalcor should do same NL. Every light poke every high voltage HV line should be NL. Nalcor owned. Controlled.

  • Engineer
    February 22, 2016 - 19:08

    I've done all sorts of things to prepare for going off grid (heat pump, solar evacuated tube thermal, building envelope upgrades, diesel backup, drain water heat recovery, etc.) I could never recommend it to friends because it made no economic sense when electricity was cheap. I did it just for fun. MF changes the economics of conservation and alternate energy completely. Now instead of going solar, I can see people just moving back to oil furnaces in the city and wood furnaces in rural areas. In the city, I see multi-split heat pumps (one head per floor) replacing / supplementing baseboard heating. With serious drop in demand, rates will not be able to be raised sufficiently for cost recovery without causing political fallout. I expect we will be paying for MF via general tax revenues as well as utility bills. I have inquired from within government about why Nalcor doesn't pursue rebates for pellet stoves and heat pumps and questioned their motives. The reaction was startling -- they went after the director above me requesting I be disciplined ! Nalcor behaves like some kind of unaccountable, mafia. I don't understand why Fortis didn't come out and public oppose the project. Did they fell that their fiduciary duty to the shareholders (i.e. the Gov of NL might pass vindictive legislation that would harm shareholder value) outweigh their duty to the public? Fortis coming out against MF would have been like the mayor of London arguing to leave the EU. It would probably have killed the project and saved the province.

  • OTP
    February 22, 2016 - 13:36

    St. Peter don't you call me, I can't go,,,, I owe my soul to the Muskrat Falls Flow.

  • Stephen  Redgrave
    Stephen Redgrave
    February 22, 2016 - 13:16

    When I first moved to the Island it was for a purpose. In my case to help save a life. Now that this has been achieved my attention turns to the health of our Island in every way. I was pleased that we were capable of producing power without any help from the mainland, or Labrador. All we needed was diesel fuel. Great! The Muskrat falls project is tiny by world standards for "mega" projects, in fact it's quite small, yet it has caused us to plunge into a pit of despair over what really started as a minor squabble with Quebec. The Chunnel that links France and the UK is a perfect example of a mega project that was brought to conclusion with the pay off date set well into the 22nd century. Everyone who invested, including the contractors, lost their proverbial shirts. In the case of the English tunnel, the investors were mostly private , and could not bare the thought of losing, or giving up part way through. In our case--stopping now while we still have a chance is a viable alternative to fully explore before we go into debt into the next century as is the undersea link between France and England.

  • Maurice E. Adams
    February 22, 2016 - 12:03

    For the most recent 5-year period (2011-2015) Holyrood was needed to supply a yearly average of 13.5 % of the island's energy needs; 13.1 % in the 5-year period before that; and 23.8 % for the 5-year period before that (and overall total island energy used (even with Vale) still less than in 2004. See for infographic.

    • Gilda
      February 22, 2016 - 20:36

      So what do you make of the date? How well has Hydro managed the thermal resource? Presumably they want to limit usage of thermal to maximize hydro usage (vecause water is free)? Approx 1/3 of the total island generation capacity is thermal and if they used it to deliver only 23% and 13% of the total required GWhrs then I'd day that was excellent. There will be variability given the annual rainfall and total load but that sounds about right.

    • Fred
      February 23, 2016 - 06:41

      I don't think you understand what these numbers mean. It appears that you are implying that Holyrood is unnecessary? The plant is used mostly during the winter to make up for the generation shortfall remaining from bay d'espoir (because water is cheaper) and to support the voltage on the Avalon. Also, if you think the plant is do you explain the power watches when it becomes unavailable?

  • Sam
    February 22, 2016 - 10:51

    Muskrat Falls was nothing more than "Danny's dream" and now it's our nightmare. The PC party under his leadership rammed Muskrat Falls down our throats. They based the economics on oil remaining at around $100 / barrel even though they were advised that the chances of that happening were next to nil. As for Fortis and the view of at least one senior management person there, Muskrat Falls made as much sense as trying to run a power corridor to the moon. Couple this with poor management from the get go and we now have a financial disaster on our hands that will cause s significant financial burden on businesses and residents for decades to come.

    • Muggins
      February 22, 2016 - 13:50

      It would be interesting to know how many of those responsible for MF rushed to buy shares in Nova Scotias' Emera, and are now reaping their bounty.

  • WInston Adams
    February 22, 2016 - 10:43

    Russell, this word `material` is popping up in your and Uncle Gnarley pieces this morning, when quoting from the power company documents. It`s legalize for the word large or huge, or significant , but intended not to attract too much public attention. Like using 19 times more diesel fuel than normal to offset a shortage of rainfall `may be material`. Material enough to look to ratepayers for an extra 33 million dollars. And here you quote Fortis: Muskrat Falls costs may be material to increase power rates to customers... that it may be detrimental to the bottom line of Nfld Power. How about using the word large or huge, which you know is the reality. Rather late to be alarmed by this. Liberty demanded transparency... let the public know the meaning of the word Material, and demand the power companies call a spade a spade.

  • Errol
    February 22, 2016 - 10:00

    Yes, and I think it was also Stan Marshall that wisely said, if anyone asked I would have said that you don't build an isolated hydro plant 1100 km from the demand. If anyone jumps to comparing Churchill Falls to that 5400MW capacity...even they did not have to go that far to connect into the HQ grid. To try to justify an 824MW plant 1100 km from demand was lunacy from day one. But, the mushroom politics of the day got the masses to somehow, believe.

    • Dolf
      February 22, 2016 - 15:44

      No Errol, the masses didn't "believe". It was shoved down the throats of Newfoundlanders and Labradorians by the majority government of Dunderdale and her front man Jerome Kennedy. Kennedy has since been rewarded for his obedience and obstinacy. Danny's curse endures.

    • Errol
      February 23, 2016 - 06:57

      I agree with you to a point Dolf. Yes, MF was sold by complete deception. The vast majority of the Public did not understand the project well enough to make an informed judgement. When I asked people why they supported Muskrat, at the time, all they could come up with was, ' well, it was the cheapest option'. When I asked what were the 'options'...they did not know. Also, most people didn't know that the project could not raise one penny of financing in the private markets. No one would touch it of course, unlike CF. Conditions are very different in the requirements for a Federal Loan Guarantee, than they are in the private markets. Stan Marshall was absolutely correct. This was exactly the effect desired by the Dunderdale incompetents. When I said the masses 'believed', no one held a gun to their heads when they elected Dunderdale, who, of course was under instructions from dear leader to get MF sanctioned. MF is a complete disregard of the public good, a travesty. After all, the shale oil and gas revolution in the US that occurred in 2008... and lead to today's prices, was ignored by Nalcor. Their first indication that things were changing was the huge decrease in wholesale electricity prices due to shale gas production and a 40% drop in NG prices in the US at the time. Nalcor simply ignored all that in their blind efforts to justify a very bad political imperative.

    • Dolf
      February 23, 2016 - 14:15

      Points well taken. But no one held a gun to the masses heads when they elected Dunderdale? Unless you discount all the Williams' cabinet appointed bobbleheads she was anointed, not elected.

  • Fred
    February 22, 2016 - 07:18

    Do you think that the mandate of Nalcor might be slightly different from Fortis? Apply your prescience to a map of the distribution system in NL and tell me your conclusions.

  • Fred
    February 22, 2016 - 06:50

    The core argument for the construction of MF, which you don't mention at all, is the replacement of Holyrood. Given the "power watches" and Power alerts" that we have ben subjected to over the past while, don't you think that warrants at least a mention?

    • DGS
      February 22, 2016 - 08:59

      Fred. MF will be NOT replace Holyrood. Its being kept on and will need to be replaced.

    • Ken Collis
      February 22, 2016 - 09:24

      Fred, The core argument was the cost of oil to supply Holyrood. As well, the power watches and alerts are due to Management at Hydro being complacent in their maintenance duties. When Holyrood IS replaced it will be replaced by additional generation other than MF.

    • Errol
      February 22, 2016 - 10:11

      Yes Fred, and two week ago, we had NL Hydro moaning about not having enough water in reservoirs for the upcoming season remember? Today we have a tiny, quiet warning of controlled releases of water from Granite Canal. Nalcor communications at work!

    • Fred
      February 22, 2016 - 10:51


    • Sam
      February 22, 2016 - 11:02

      Holyrood will not be shut down. What was suggested and ignored was to install turbine generators that have the capacity to go from a cold start to maximum generating capacity within 15 mins. Even though it would consume oil, it would only be on an as required basis and not 24 - 7 as it is with the exiting thermal plant. Such an installation would reduce oil consumption and have a lesser impact on the environment, not to mention the cost of which would have been much more viable.

    • Errol
      February 22, 2016 - 13:02


    • Stephen  Redgrave
      Stephen Redgrave
      February 22, 2016 - 14:13

      Sam's theoretical systemic problem solving seems to be right on the money. During the war WW-II Mum and Dad learned to prepare for the worst, and hope for the best. Being prepared trumps everything. This applies to the production and delivery of power. BTW--Great Briton produced dozens of power stations during the war, in the very likely event that one or two per day would be bombed by Germany. They had more in reserve--Brilliant people for sure.

    • Fred
      February 22, 2016 - 20:42

      Holyrood will be shut down; absolutely no question about it. Sorry. Newfoundland and Labrador Hydro (Hydro) has been clear with its plans to decommission the Holyrood plant in 2021. Hydro plans to keep the plant available for service in the early years following full commissioning of the Muskrat Falls hydroelectric generating facility and the Labrador-Island Transmission Link.