The main focus of our intervention on the Muskrat Falls project was to have a robust and independent review of the project before it was sanctioned. We now see how such a review can protect the ratepayers of Nova Scotia, at our expense.
It is problematic when Newfoundland and Labrador ratepayers learn more about our project from the Nova Scotia regulatory process, rather than from our own, and when Nova Scotians are better protected than we are.
On Nov. 29, the Nova Scotia Utility and Review Board (UARB) approved the Maritime Link. The renegotiated agreement brings the share of Muskrat Falls power going to Nova Scotia to a range of 44 to 57 per cent, up from the original “20 for 20 principle,” where Nova Scotia would pay 20 per cent of the cost for 20 per cent of the power. Emera and its subsidiaries were successful in enriching the benefits of the Maritime Link for Nova Scotia ratepayers.
In negotiations with Nalcor, Emera achieved the concessions required by the UARB in its decision of July 22, 2013. Nova Scotians were well served by the robust regulatory regime in Nova Scotia. Sad to say, Newfoundlanders and Labradorians are not so well served by their publicly owned, but self-governing Crown corporation, Nalcor, and by the province’s weakened and ignored Public Utilities Board.
The UARB has been empowered to protect the interests of consumers against their public utility, Nova Scotia Power Inc. (NSPI), a wholly owned subsidiary of Emera. Emera is a publicly traded corporation working in partnership with Nalcor Energy, a non-regulated Crown corporation, to build the Maritime Link. The government of Nova Scotia allowed the UARB to balance the interests of ratepayers and the proponent, a privately owned company, at arm’s length from government.
The government of Newfoundland and Labrador took a divergent course of action. They joined hands with their Crown corporation and made it immune from regulatory control.
They took away the powers of our own PUB, so it could not protect the interests of ratepayers. They sanctioned the Muskrat Falls project prematurely and weakened the ability of Nalcor to negotiate a better agreement with Emera. The result is that we are exposed to a one-sided agreement, tilted in favour of Nova Scotia and decidedly disadvantageous to this province’s ratepayers.
Intervenors in Nova Scotia told the UARB that the proposed Energy Access Agreement was not strong enough and that the obligations imposed on Nalcor were too imprecise, that the commitment of energy was insufficient and that the price charged by Nalcor was too high.
They also argued that “forgivable events” relieved Nalcor of obligations to supply power if the power was required in this province due to its own load growth or due to insufficient rainfall. Emera argued that such events would not relieve Nalcor of its responsibility to supply power. The UARB reviewed a host of objections from intervenors, along with the rebuttals provided by Emera and NSPI. These rebuttals provided assurances that the Energy Access Agreement was designed to protect the interests of Nova Scotia ratepayers and that the alleged “loopholes” did not exist.
The Energy Access Agreement (EAA) presented to the UARB was submitted with the understanding that it was not final and that its language was subject to further refinement.
The board’s approval of the Maritime Link was subject to the condition that the interpretations given by the proponent during the
hearings would be accepted and enforced by the UARB and that the interim agreement would take precedence over the final agreement. The UARB will be the “enforcer” auditing the agreement to ensure compliance with the “representations” and “clarifications” in the interest of Nova Scotia ratepayers. The new government in Nova Scotia has announced amendments to the Maritime Link Act to give it the full authority to ensure compliance with all board conditions.
The energy commitment to Nova Scotia has risen dramatically. But more significant is the fact that the Energy Access Agreement will be interpreted by the UARB of Nova Scotia. The UARB will be guided by the representations given by Emera during the recent hearings.
Not only has Nova Scotia succeeded in enriching the original agreement; now they will interpret how the agreement is implemented. This UARB interpretation of the draft EAA will supersede any contractual improvements which Nalcor will negotiate before Oct. 1, 2014, which is when the agreement is to be “finalized.”
To make matters worse, Nalcor is obligated to share in cost escalation of the Maritime Link, for which Decision Gate 3 costs won’t be available until Dec. 15.
Emera will not be sharing overruns on the capital cost at the Muskrat Falls site, the Strait of Belle Isle sub-marine transmission project or the other transmission costs in Labrador and on the island, up to the transfer point at Granite Canal, from which Emera will take Muskrat Falls power. Ratepayers in this province will bear the risk of cost escalation.
The UARB has directed Emera to file with the board all reports submitted to the federal government, including financial and engineering reports.
Reports from the “independent engineer” appointed under the federal loan guarantee agreement must also be filed with the board, including: revised project costs, compared with those budgeted; the status of the work schedule, in relation to the completion date; and the conformity of the work completed with technical and contractual requirements.
This provides Nova Scotians with the transparency and accountability which we do not enjoy.
It is time for an immediate review of the project by an independent panel, not Nalcor’s consultants.
The panel should have access to the reports of the independent engineer, which Nalcor to date has refused to release. It should be a public review by the PUB or a similar objective panel, with open public hearings, and Nalcor should have to appear before it. The review should examine actual costs compared with those budgeted and receive updated overall project costs.
It should also review major changes in global energy economics and the economics of the Muskrat Falls project. It should also recommend the level of transparency and accountability which the people of Newfoundland and Labrador should expect from Nalcor, along with the reporting requirements with which Nalcor should comply. The report should be submitted to the House of Assembly and made available to the public.
Ron Penney is a former deputy minister of justice and former city manager of the City of St. John’s. David Vardy is a former clerk of the Executive Council and chairman of the Public Utilities Board.