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Nalcor says that Muskrat Falls is being developed for the benefit  of Newfoundland and Labrador.

I can’t dispute this; the revenue from this project will be in the billions of

dollars. What I do object to is that the Newfoundland and Labrador ratepayers will be the ones Nalcor gouges this revenue from. Below is an excerpt from page 59 of the Board of Commissioners of Public Utilities’ report to government, dated March 2012:

“7.2.4.1 Power Purchase Agreement and Cost of Service

“In  general Nalcor  has  used  a  cost  of  service  (COS)  approach  to  determine  the  cumulative present worth  of incremental capital and operating costs incurred in the development of each option. Nalcor has, however, used a power purchase agreement (PPA) approach in relation to the costs for the Muskrat Falls generating facility in the interconnected option. The PPA distributes the costs of the Muskrat Falls generating facility over a 50-year period, the anticipated life of the asset, in a per-unit charge for energy sold to Hydro by Nalcor. This rate is expected to be uniform throughout the future period, adjusted only for escalation.

“In using the PPA approach Nalcor assumed that Hydro would sign a take-or-pay contract with Nalcor for the forecast energy purchases from the Muskrat Falls generating facility. To calculate the PPA prices it was assumed that all of the firm output generated by Muskrat Falls would be sold, that the internal rate of return would be 11 per cent, and that equity financing would be 100 per cent. Since Hydro purchases are expected to be 40 per cent of Muskrat Falls’ firm energy in 2017, the use of this arrangement is forecast to allow Hydro an internal rate of return of 8.4 per cent. Nalcor explained that the take-or-pay contract would mean that, regardless of the amount of energy that Hydro needs, it would still have to pay the contracted revenue.”

Gerry Goodman

St. John’s

Organizations: Board of Commissioners of Public Utilities

Geographic location: Newfoundland and Labrador, Muskrat

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Recent comments

  • Jon Smith
    February 21, 2014 - 13:28

    The simplistic explanation made by FictionOrFact misses the essential differences with the Muskrat scheme from provinces that continue to provide cheap reliable energy to its customers. Quebec is the cheapest in Canada and it is so because it increments its energy base with new energy projects by reasonable increments and for reasonable future time intervals (Romaine is about a 5 % or so increment to the system). Therefore the future outlook for electricity is for normal escalation in rates well into the future for Quebec. What Muskrat does is increases the capacity by about 50% in one giant leap and therefore heaps a 50% rate spike onto its customers which will then escalate at a similar rate to Quebec and other provinces. The result is that we will pay the highest rates in Canada. Unfortunately, the premium cost of going around Quebec represents about 50 % of the power delivery cost ( that, by the way, is why there is no possibility to show that the present Muskrat plan could be the least cost alternative when compared to any other scenario (without spin and slight of hand). Note that Muskrat compares with Quebec’s Romaine at a unit energy cost of about 4 times higher. The bottom line is that we would have been better off waiting to go around Quebec, if we had to, with nearly-free energy from the Upper Churchill in 2041. Muskrat will accumulate a debt (lost opportunity that will rival the lost opportunity for the Upper Churchill 70 year contract life). The money could be better spent- So much for long term thinking.

    • FictionOrFact
      February 21, 2014 - 14:54

      I have to disagree Jon. Quebec is the cheapest because it recognized the advantages of hydroelectric generation years ago and developed absolutely massive projects that, at the time, were debated in the same manner that we are debating Muskrat Falls today. Also, Quebec's rates do not increase at a "normal" rate, in fact they hardly increase at all in comparison to thermal jurisdictions - Stable rates will also be our future once we get off thermal. Muskrat Falls adds a large block of hydro and removes a large block of thermal (Holyrood). Don't know where the 50% rate spike comes from? - nothing in the public domain would suggest anything close to that. Nor have I seen anything to suggest that NL will have the highest rates in Canada - these are baseless assertions that do not add to an informed debate. Waiting until 2041 is interesting, but that's another 25 years of thermal that we will have to pay for and have nothing to show for it - even if we only break even with Muskrat Falls (the actual data points to significant savings) at least we'll have something to show for it (a hydro plant that is essentially paid for) rather than a big stack of bills showing what we paid to oil companies.

  • EDfromRED
    February 20, 2014 - 16:25

    The PC's must have taken secret oaths of loyalty to Nalcor when they took office. Every single dime Nalcor asks for they get, while Health, Wildlife, Education and Justice gets gutted. Ferries and generators are crippled due to lack of maintenance, while executive's treat themselves to free lunches. The PC's must have arranged themselves cushy Nalcor executive positions, to so disregard and neglect the voters.

  • Befuddled
    February 20, 2014 - 13:45

    Does this mean that we are going to pay a certain pre-determined set rate for electricity that is based on cost-recovery for the project and that any money generated by outside sales of "excess electricity" (not used by us or Nova Scotia) will simply be government revenue that will not be used to offset ratepayer electrical costs, but rather used for whatever purpose the government sees fit? (i.e. - reinvesting in Nalcor, giving money away to private industry, etc.) I think that is what it means.... Saying that 50 years is the anticipated life of the asset makes it sound as if when we reach the point that it is finally get it paid off, it's going to be worthless. Is that what they mean by 50 years being "the life of the asset?" Can anyone answer these questions to provide a little light on this subject?

    • Maurice E. Adams
      February 20, 2014 - 15:05

      Answer to 1st question --- YES. There has been no commitment to spend revenue from outside sales to reduce rates for NL ratepayers (in fact Nalcor and government have often spoke of moving quickly to then develop Gull Island). ... The life of the underwater cables is forecast to be about 35 years (and experience shows that it could be 20 years or less). So when we get ownership of the Maritime Link it will already need replacement (perhaps by then at a double digit billion dollar figure). The 50 year time frame was used mostly because that is the only way that the numbers could be manipulated to show a so-called least-cost for Muskrat and only then by taking the costs and spreading them long term 50 years into the future ---- on the backs of our children and grand children).

    • Fiction OrFact
      February 21, 2014 - 10:32

      A little perspective on Mr. Adams' comments... Answer to question 1 --- Yes. Rather than saying that lower electricity rates are the "right" place to invest the returns from Muskrat, the Government is saying that making that decision should be done at the time that the returns come in (rates, hospitals, roads, pensions, public sector wages, seniors, etc.). YOU get to make the decision by the way YOU vote in the future. On question 2 --- The quotes in the letter have NOTHING to do with the Maritime Link. Also, I'm not sure where the facts that support the 35 year life comes from (global experience would suggest lives much longer than 50 years) but in any event, in the case of the Maritime Link, Emera is obligated to return to Nalcor an asset that is well maintained and serviceable - the agreements between Nalcor and Emera that provide a lot of detail on this are all online. The generation plant at Muskrat Falls will be paid for in 30 years - not bad for a 100+ year asset! Ask Hydro Quebec, Manitoba Hydro, BC Hydro (the jurisdictions with some of the cheapest electricity rates in Canada) about the benefits of investing in hydroelectric assets. By the way, the only reason our rates here in NL are still some of the cheapest in Canada is because our forefathers invested in hydro - otherwise we'd be in the same boat as the more heavily thermal based provinces that have the highest rates in Canada. This same debate was had when Bay d'Espoir was built. Don't know about others, but I'm pretty happy that we are now benefiting from largely paid for hydro assets. Now, if we could only get rid of that fuel burner at Holyrood --- hmmmmmm.

  • Tony Rockel
    February 20, 2014 - 12:21

    NALCOR = No Accountability, Little Credibility, Our Ruination.

  • Jon Smith
    February 20, 2014 - 12:04

    Nalcor and the PC government have an impressive track record of making deals with themselves (probably a norm for incestuous relationships). Government insists it believes in long term thinking and not being swayed by sissy short term ideas. But so far the thinking track record is suspect. Examples, falling to the same trap as Joey on the Upper Churchill-proceeding without the details being hammered out; letting the feds dictate the loan guarantee thereby giving Nova Scotia/Emera the upper hand; waiting for the Quebec courts to review how they can mess with the Upper Churchill contract. Nalcor and the PC’s have what every gambler longs for A GREAT GAME DEALING OTHER PEOPLES MONEY –(our’s the taxpayer/ratepayer’s).

  • Maurice E. Adams
    February 20, 2014 - 10:05

    How would you like to pay for 3 houses when you only need, will use and can only afford one? That is what this government and Nalcor has foisted on ratepayers ---- for at least the next 50 years. How will those with kids, high mortgages, university tuition fees, etc. deal with that? It will be too late to speak up in about 4 years time when electricity bills jump to $400, $600, $800 a month.

    • saelcove
      February 20, 2014 - 10:35

      In 4 years, my january bill was $345, 15 hundred square feet house well insulated

    • Morry
      February 20, 2014 - 12:12

      The ship has sailed; the horse is out of the barn; it's circling the bowl, well you get the the picture - It's already too late.

    • a business man
      February 20, 2014 - 13:59

      Yes, Maurice, you are right. Newfoundland ratepaters will pay excessively for energy from MF, but I am okay with that because my buisness in Nova Scotia will get cheaper energy. You are also right in that it will be too late to speak up in 4 years because it is already too late to speak up now. The ship has sailed, MF will be built, and Newfoundlanders will pay the lion's share for the energy that will be used to benefit many other jurisdctions outside of Newfoundland. I agree with almost everything you say, and I am happy that areas outside of Newfoundland will benefit greatly. That is what I want from a government - policies and decisions that benefit me.

  • Crazy
    February 20, 2014 - 06:44

    In other words, suck it up ratepayers we got you.

    • a business man
      February 20, 2014 - 14:00

      yes, but that the kind of government I hoped for when I voted for this government.

  • Tony Rockel
    February 20, 2014 - 06:21

    I wonder whose turn it will be to respond to this letter.... Gilbert , Ed , or "John"?