A reply to Nalcor’s chairman of the board

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In his commentary of April 12 in The Telegram, the chairman of Nalcor, Ken Marshall, responded to the criticisms we and others have made about the failure to provide proper regulatory oversight and independent review of the Muskrat Falls project.

None of the oversight mechanisms he cites give us the protections that Nova Scotians have been given.

What we have requested, from the very beginning of this project, is a full and unfettered review of the project by the Public Utilities Board. What we got was a restricted reference to the board, which was cut short by the provincial government when it refused to grant a six-month extension requested by the board. As a result, the board could not have its technical conference which would have tested the report provided by Manitoba Hydro International and the board could not answer the question posed by the government, as to which was the lower cost alternative. The reference question did not permit examination of other alternatives, nor did it cover the vital issue of reliability which has come to the fore with the recent power outages.

Contrast this with what has occurred in Nova Scotia where its Utilities and Review Board conducted a full review of the Maritime Link, which resulted in the extraction of further concessions from Nalcor. Nova Scotia will now get up to an additional 37 per cent of Muskrat Falls energy, at market prices, far below what we will pay.

A project which was started for the benefit of Newfoundland and Labrador has now become one for which Nova Scotia is the prime beneficiary.

In addition, the Nova Scotia board maintains oversight over the project. Compare this with oversight by a committee of public servants who serve at the pleasure of the Newfoundland and Labrador government.

Ironically, Marshall refers to the quarterly reporting to the PUB on Hydro’s capital program. He does not draw attention to the fact that this PUB oversight does not include the Muskrat Falls project, which has been exempted by government. This is in stark contrast to the vigilant role which the Nova Scotia Utility and Review Board takes in its oversight of expenditures on the Maritime Link.

We believe it is disingenuous to say that the auditor general “has open access to Nalcor.” The fact of the matter is that the Energy Corporation Act (ECA) trumps the Auditor General Act. Yes, it is technically true that the auditor general can audit Nalcor, and we implore him so to do. However, the ECA allows the CEO of Nalcor to restrict the right of the AG to do his work and to report without interference to the House of Assembly. We have asked that these restrictions be removed and that the AG be asked to undertake a full audit of the project.

The only independent review of the project was by the Joint Environmental Panel, which said “Nalcor’s analysis that showed Muskrat Falls to be the best and least cost way to meet domestic demand requirements is inadequate.”

Fundamental questions remain unanswered. These include the following:

1. What will be the cost of Muskrat Falls power to retail customers on the island?

2. We now know that the capital costs have increased. What is the revised cost estimate for completion of the project?

3. How will the project be financed if the project costs exceed the limit imposed for the federal loan guarantee?

4. Why did we commit up to 57 per cent of the output of Muskrat Falls to meet the energy needs of Nova Scotia, at rates below full cost, when the original rationale was to serve ratepayers in Newfoundland and Labrador? This calls into question the fundamental business case on which the project is grounded.

5. In the event of project delay, disruption of generation or transmission, how much will Nalcor have to pay Emera in damages?

6. What recourse does the federal government have to the province in the event of default?

7. What commitments or guarantees have been made to the federal government for which the province is liable? The auditor general points out that “the province has also provided a guarantee to the government of Canada to compensate it for any costs under this guarantee which are triggered by legislative or regulatory actions of the province.”  

8. Why did the province enshrine in legislation the monopoly power of Nalcor and limit free trade in electrical power, thereby contradicting the province’s long standing position in favour of free trade in energy from one province to another (e.g., wheeling power through Quebec) and across national boundaries?

We await with interest the report of Liberty Consulting and the PUB on the outages and, more particularly, the board’s decision on what backup will be required on the Avalon Peninsula post-Muskrat Falls. If there remains a continued need for Holyrood, or a similar facility on the Avalon, then the already tenuous argument for Muskrat Falls will certainly fail and we will be faced with the requirement for ratepayers to pay for both projects.

When Premier Tom Marshall talks about the huge returns from the Muskrat Falls and possibly establishing a heritage fund from those returns, it is important to recognize that any “profits” from Muskrat Falls come from us in the form of even higher electricity rates, which not only provide profit to Nalcor but subsidize exports to our neighbours who will pay market rates far less than our cost of producing power.

We again call upon the government to recognize the need for independent monitoring of this project through the Public Utilities Board or a panel of knowledgeable experts, independent of government. We fear that this project is going badly off the rails and needs the kind of oversight which has been sadly lacking to date.

Ron Penney is former provincial deputy

minister of justice and former city manager for the city of St. John’s. David Vardy is former clerk of the Executive Council and former chairman of the Public Utilities Board.

Organizations: Public Utilities Board, Maritime Link, Nova Scotia Utility and Review Board Manitoba Hydro International Utilities and Review Board Energy Corporation Executive Council

Geographic location: Muskrat Falls, Nova Scotia, Newfoundland and Labrador Canada Quebec Holyrood

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Recent comments

  • NorthERN diSPURsion
    April 21, 2014 - 11:11

    Any room in this frame for Metis community, Inuit science on Methyl Mercury, Carbon Rush anyone? In light of FactorFiction's ramblings, even the insiders don't understand the global concept of green energy contract piracy picking on Indians abroad, or at home. This fed loan sanction is a farce, and will be broken/revoked by Liberals 2015 on grounds of unfairity. That's why the push so hard. They will be selling Gilbert Bennett Bobblehead dolls before it is all over, anything to distract. There is enough knowledge on this that a decent Federal government would put an end to it. Carbon trading is driving this development, it is flawed from the beginning. We need decentralized sources of power..

  • FictionOrFact
    April 19, 2014 - 17:56

    While I don't expect any of the commenters here, or Mr. Penney or Vardy, to even read this post, let alone actually read any of the information that I will point to, I'll still point to some facts that may help others understand that the answers to many of their questions are in the public domain. All they have to do is READ! Q1 - Go to powerinourhands.ca and go to the section on electricity rates. Q2 - Nalcor has stated that, when it will no longer compromise the finalization of the last few major contracts, we will all know. Seems reasonable to wait if it's going to save us money. Q3 - Go to muskratfalls.nalcorenergy.com and under the "Newsroom" section go to "Reports" - ALL the details are there in ALL the agreements, including the very few limitations on how Nalcor may finance additional costs. Q4 - the agreement was and still is 20 for 20 - that is the only commitment for energy from Muskrat to NS. The supplemental Energy Access Agreement is for energy surplus to NL's needs and is NOT tied to Muskrat. Q5,6,7 - same website noted in Q3 and read the agreements, it's ALL there in black and white. Q8 - open access, similar to what NL is promoting through QC, is NOT impacted by Bill 61. Open access is related to transmission rights and nothing in Bill 61 limits that. Franchise rights similar to those granted Nalcor in Bill 61 are quite common in other jurisdictions that have open transmission access - Quebec, New Brunswick, Nova Scotia, and many US states.

    • concerned
      April 21, 2014 - 06:02

      Fact or Fiction, has propogated what Nalcor have been doing for the past 3 years. Providing partial answers, which demonstrates the appearance that they are open and transparent. The truth is far from it. I have read all the documents mentioned and I would like to offer the following response. I expect the Nalcor staffer who wrote "Fiction or Fact" will read this, and I welcome a reply: Q1) Power in Our Hands provide blended rates from almost 2 years ago. Mr. V and P are asking for incremental, and current rates. What will MF power cost NL'ers on a stand alone basis, calculated from the current inputs? Answer this please. Do not provide the blended rate, which provides no value to the debate about Muskrat. Q2) Commercial sensitivity for competitiveness is a bullshit argument. There are few projects completed that I know of where the proponent will take this approach. To the contrary publically announcing the results of contracts (like Statoil, Petrobras etc) will lead to more competitive tenders. For publically traded companies the updated estimates would be demanded by the shareholders. Nalcor’s position is a easy way to delay the inevitable announcement of over-runs. Q3) You are correct it is very clear in these reports that any debt over 5 Billion will be financed by the Government of Newfoundland. The Government of NL need to provide a guarantee of equity financing. What is not clear is when all this money is ever repaid, which could be 2.5 Billion or more by the time we are done with the project. Also what is not clear is that when Nalcor and the Government talk about the dividends from MF (500 million a year), it does not include the repayment of this equity financing. When the repayment of the equity loads are considered the real returns from MF are less than 50 million a year until 2035 or so. Q4) Your response is not quite correct the province has committed an additional 1.2 TWhr on Average which can be reduced by about 300 GWhr. This is what the UARB insisted on prior to giving approval. Open democracy protecting the tax payers of NS. Q5-7) No one from Nalcor or the Government are talking about the risk imposed on the NL ratepayers in the event of damages from Emera for non delivery, or the Feds in the event of default in FLG. The language is there in the agreements, but not all the agreements are posted, or the commercial tables are redacted in some instances. What Nalcor need to provide a plain English assessment of these Agreements so people can understand them. What worries me most about this contract with Emera is how God Dammed complicated they are. Take for example the discussion on penalties from “First Commercial Power”. Well the ML-JDA and the EAA both had separate defintions of First Commercial Power. This was unbelieveable in itself. However, Emera also have the ability to go after damages at law, and Time is of the essence. So from my interpretation Nalcor really do have exposure to Emera if they can not deliver power in 2017. It may not be “Penalties” but they are exposed to damages at law. Not predefining these damages was a weakness in the Agreement for Nalcor. Q8) Section 14.1 of Bill 61 clearly gives NLH the exclusive right to supply, distribute, and sell electrical power to retailer and/or industrial customers. Not sure how you have arrived at your answer which seems to contradict this clear language. I provide this clarification as a concerned citizen who is totally pissed off how our tax dollars are used, without the real information being provided in the public. Fact or Fiction, if you are a Nalcor or government communications staffer you will one day realize the great fraud on the taxpayers of Newfoundland and Labrador we has been perpetrated by your respective organization.

    • FictionOrFact
      April 21, 2014 - 18:24

      CONCERNED, I too am simply a concerned citizen that is interested in informed debate, and I do not represen Government or Nalcor. I've read a lot of the information and am familiar with how utilities operate and offer the following: On Q1and Q2 I simply disagree with your position. As customers of an electric utility that will inevitably pay whatever it costs for the service, the only numbers that are relevant are the overall blended costs of the service (generation, transmission, distribution and all other valid costs). We do not get to choose what plant our electricity comes from. The only thing that is relevant is what I will pay under one scenario versus another - my opinion. And on the competitiveness argument for waiting a little while longer for updated costs, I happen to agree with Nalcor's position. I own shares of many companies and it is not common practice to release contract details as the contracts come in on major projects. Q3 - as you state, the contracts answer the question asked. Nalcor, who is not an agent of the Crown, will raise the funding necessary to complete the projects. I prefer not to speculate on what is not known so I'll defer on the magnitude of overruns points (2.5 b has NO basis in fact-pure speculation). Q4 - I fail to understand why folks get riled up about the EAA. The agreement simply confirms that NS will get the opportunity to buy NL's surplus energy, as long as they pay as much or more than anyone else. Due to the nature of rainfall, prudent electricity system planning insures that NL will always have surplus energy beyond native load needs, so under this agreement NL always get the highest price. Pretty good deal in my opinion - yet another customer vying for our surplus energy - tough to find downside - again, the energy is surplus and the alternative is to let it go over the dam and get nothing for it! Q5-7. All the information necessary to answer the questions is in the contracts - nothing relevant has been redacted. My read on the First Commercial Power versus Full Power point is that these are two separate concepts and that Nalcor wanted to insure the EAA didn't come into effect until the full MF plant was in service. My interpretation of your point of damage at law is irrelevant since a delay in the in service is not a contract default therefore they have no right to sue. Q8 - I think your interpretation is incorrect and you are reading something into the language that is not there. I stand by my interpretation noted in my original post. The proof is in the operation of other jurisdictions that have the same rights as Nalcor and still operate under open transmission access systems. For example, if a generator built a project in NL and wanted to sell to NS (as long as NSPI would give them a contract) then they would have the right of access to the NL transmission system, as long as they pay for it. Also, a supplier may ship power from QC through NL to NS and that would have nothing to do with Bill 61. One final point, foul language does not help informed debate.

  • Cyril Rogers
    April 19, 2014 - 11:47

    Thank you, Mr. Penney and Mr. Vardy. In my opinion, it was both utterly stupid and utterly incomprehensible for Mr. Ken Marshall to try and put both of you gentlemen in his cross hairs. That his arguments and rationale are spurious, to say the least, does absolutely nothing to enhance his credibility or the credibility of the head honchos at NALCOR. Their reluctant admission earlier this week that the project is exceeding its budget and creeping ever closer to that huge $10 billion dollar figure us "naysayers" have predicted, only goes to show how out of touch with current energy realities and requirements they…and all supporters of Muskrat Falls…really are. One can only conclude that it is entirely within the vested interests of someone, some group, some businesses, etc…..that they continue to promote such a failed concept. Some day, the truth will emerge!

  • Maurice E. Adams
    April 19, 2014 - 09:42

    Dwight Ball says “If this project doesn’t work, we all lose...It’s no sense in standing here today and coming to the people looking for support to be the next premier of Newfoundland and Labrador to find yourself with a project that is really not going to be able to provide the benefits for the people of the province.” -------- yet he supports Muskrat Falls and can't wait to start receiving the so-called "benefits" from Nalcor (even though practically all so-called revenues will be out of the pockets of NL ratepayers in the first place).........Why is the Liberal Party willing to throw good money after bad? If Ball cannot see the risks to this province as outlined in the above article, then how is he any different than the current Conservative government? We are about $1B -$2B in, why throw away a further $8B, most of which we will have to borrow for a project that is not economically beneficial to this province ?

  • Corporate Psycho
    April 19, 2014 - 08:31

    Good luck getting a response from Marshall. He has to check in with Danny first.

  • Concerned
    April 19, 2014 - 08:04

    Mr. Vardy and Mr. Penney have yet again provide solid arguements to counter what has been offered by Nalcor and Mr. Marshall. These are very valid questions. The People of Newfoundland and Labrador the risk that Nalcor, their Board, and the Government has placed upon the taxpayers. We need to understand what WE will be paying Nova Scotia in the event that we can not deliver power for some reason into the future. We need to understand what the imdemnification means with the Government of Canada. We need to understand if we will be burning oil in the new 100 MW generators to supply the 167 MW to Nova Scotia. We also need to understand the long term risk if Bill 61 limits our ability to sell power into the US as the result of FERC reciprocity. If in 2041 when the province will rescind Bill 61, to sell UC power into the US, what will we owe Emera, and Canada as a result of this government action. Marshall was critical of Penney and Vardy. These 2 men are only seeking the truth. Why are Nalcor afraid of it?

    • Cyril Rogers
      April 19, 2014 - 15:25

      CONCERNED….Mr. Vardy and Mr. Penney have no vested interest in seeing this project fail. Their concern is for the future of the province…a future that will be much more complicated with the financial albatross that is Muskrat Falls. My question to the politicians of all parties is this…….Why is NO politician of ANY political party willing to stand on record as saying we need to STOP this project now and at least subject it to the full and unfettered scrutiny of the PUB?? If there is a politician out there who is truly concerned about the province's future…please stand up NOW!