By Cabot Martin
The decision by Nova Scotia’s Public Utilities Board equivalent, the Nova Scotia Utility and Review Board (UARB), reveals startling insights into Nalcor’s Muskrat Falls deal with Halifax-based Emera.
The original 2010 Nalcor/Emera deal gave Emera:
1. Twenty per cent of the output from Muskrat for 35 years; in return Emera would finance the estimated cost of the Maritime Link. Nalcor will pay 80 per cent of Maritime Link cost overruns above the estimated level.
2. A 29 per cent ownership share in the Labrador to island transmission link and the revenue stream associated with it. This represents the privatization of a big chunk
of Newfoundland and Labrador Hydro’s provincial electrical system. Certain ideas just won’t go away.
For that 29 per cent share, Emera is responsible for financing 29 per cent of the line’s cost estimate at project sanction. That’s their limit; Nalcor will be responsible for 100 per cent of the cost overruns on the line. We are due to hear how big our exposure is in early October; pencil in a big number.
And Emera’s 29 per cent share will be based on a high guaranteed return on the full cost of the transmission line (Nalcor paid overruns and all) under a 50-year take or pay contract. Emera can acquire the 29 per cent interest even if it does not build the Maritime Link.
In financial terms, this is called a “sweetener,” as is Emera’s preferential right to take control of the whole Muskrat project should the province want (or need) to sell control of any part of the project.
And, in a big change from the original transmission plan of splitting the Labrador infeed line at Deer Lake (with one branch going east to the Avalon and the other south to Nova Scotia), now all the high-voltage, direct current (HVDC) Muskrat power will go directly to the Avalon; Emera will buy regular old AC power from the general island grid at Granite Canal in the Bay d’Espoir system.
This new plan effectively detaches Nova Scotia from the Muskrat project; quite beneficial to Emera if the Labrador infeed line goes down.
All great for Emera but not, according to the UARB, the “least-cost option” for Nova Scotia ratepayers. They say the original Nalcor/Emera deal is between $700 million to $1.4 billion more expensive than N.S.’s best option — a combination of wind generators and natural gas fired turbines in N.S.
The UARB’s solution to the calculated shortfall is simple, if brutal:
• The amount of energy dedicated to N.S. must rise from 20 per cent up to 60 per cent.
• The long-term average price paid by Emera must fall from about 16 cents per kilowatt hour (kWh) to 10 cents.
And to get to a blended cost of 10 cents per kWh flat for 35 years, the UARB says Emera can only pay Nalcor from five to nine cents per kWh for the extra 40 per cent.
The essence of the UARB’s position is set out in Figure 4-4 at page 14 of its decision.
Moreover, the UARB takes the position that Nalcor has really already agreed to the extra 40 per cent power deal, citing Emera testimony regarding “conversations” and “direct discussions” with Nalcor and saying:
“In the board’s opinion, such a condition should not create any practical difficulty because it would simply codify what (Emera) asserts is the effect of the arrangement in any case. It would also confirm what (Emera) already states is Nalcor’s view of their future relationship.”
Bill Black, a well-known N.S. commentator and senior businessman, recently wrote in the Halifax Chronicle Herald that given the UARB decision, Nalcor’s out-of-pocket project expenditures and Nalcor’s need to have N.S. on side to get a federal guarantee, any Newfoundland protest about the proposed new deal would be “overplaying a weak hand.”
Emera, he says, should take Nalcor into a private room for “an adult conversation.” That’s tough talk that Nalcor should have seen coming.
As Nova Scotia Premier Darrell Dexter told the Nova Scotia Legislative Assembly back in November 2010, the just signed Emera/Nalcor deal put Nova Scotia in the “driver’s seat.” Looks like we’re out of the Quebec frying pan and into the Nova Scotia fire.
View the UARB decision at nsuarb.novascotia.ca/sites/ default/files/decisions/m05419_decision_maritime_link_project.pdf
Cabot Martin writes from St. John’s.