Muskrat Falls debt burden? $15,600 per person

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With Nalcor’s announcement of the updated costs for Muskrat Falls on June 26, the Muskrat Falls project has broken the $10 Billion threshold.

The Newfoundland and Labrador components (including generation, the Labrador Island transmission link, the Strait of Belle Isle crossing and the transmission lines from Churchill Falls to Muskrat Falls) have broken the $8-billion limit.

Further escalation beyond the $8-billion threshold is inevitable, given that we are at an early stage in construction.

The DG 2 capital costs were established in 2010 at $5 billion and these costs were hiked in October of 2012 to $6.2 billion. With the announcement last week, the new cost projection is $7 billion, an increase of 40 per cent in less than two years.

These data do not include allowance for funds used during construction (AFUDC, which is principally interest during construction) and other financing costs identified by Nalcor. These amount to $1.2 billion, bringing the total cost to $8.2 billion. AFUDC on the $800 million in cost escalation also adds a further $130 million, bringing the total to $8.33 billion. The $1.8 billion ($1.6 billion plus AFUDC) for the Maritime Link brings the total to $10.13 billion.

Our 2014 population is 525,000 and forecasts reveal likely continuing decline.

This burden works out to $15,600 per person, which is approximately equal to our per capita public debt, which has also been increasing with recent budget deficits.

To argue that borrowing for this capital project will not impact on our financial position is preposterous.

We have a narrow, fragile resource-based economy which has to support this doubling of our public debt. The fiscal limits facing this province are real.

Our province is responsible for sharing cost overruns on the

$1.8 billion (including AFUDC) Link with Nova Scotia. Overruns on the Maritime Link beyond $1.8 billion must be added to the $8.33 billion to calculate the actual cost to Newfoundland and Labrador ratepayers.

Furthermore, the amount of revenues expected from export sales will not come close to recovering full costs.

The unit costs of this project compare badly with several projects currently under construction in Quebec and Manitoba. Comparisons with Churchill Falls are most invidious. Adjusting for inflation, the unit cost of Muskrat Falls power is 10 times that of Churchill Falls.

If the Public Utilities Board concludes that Holyrood will continue to be needed to supply emergency power after interconnection with Muskrat Falls, then the cost will mushroom even further.

In that event the Muskrat Falls project would not have been the least-cost option even when the choices were limited to Muskrat Falls or the isolated Island alternative.

What does all of this mean for ratepayers?

It means that dramatic rate increases are in store for all of us. This will lead consumers to substitute other forms of energy.

When this happens the viability of this project will be placed in jeopardy.

The fundamental proposition that underlies our stance toward Muskrat Falls is that the cost per kilowatt hour will be out of line with other jurisdictions and we will be locked into the highest rates on the continent, doubling by 2020.

If you fast-forward into the future, for three generations, you may find that inflation will eventually lighten the burden, but for quite a long time the weight of the albatross on our children and grandchildren will be crushing.

While some may be “comfortable” with these numbers we expect ratepayers will not share this level of “comfort.”

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, Executive Council

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

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Recent comments

  • Just Sayin
    July 07, 2014 - 13:01

    15,600 per person is about $63,000 per family, with the result being about 80 percent higher power bills. 3000 dollars per years will be 5400 dollars. The alternative of robust efficient heating would cost about 9000 dollars per family, but save 30 percent on annual power bills, so is self financed. The reduction in demand for winter heating from this would allow Holyrood to close, and other island capacity additions would likely see some modest rate increases, reducing the net reduction of power bills from 30 to about 10 percent. An assessment by a Energy Efficiency consultant would likely verify this..... something Nalcor avoided and the PUB has not undertaken. Has Wade Lock crawled out from under the rock yet to comment on the new figures of over 8 billion? Wonder why not?

  • rate payer vs taxpayer
    July 07, 2014 - 07:44

    I could never understand why people make such a big fuss over MF but couldn't give a rats a$$ about public debt. But the answer was simple - it's their mindset of Rate payer vs taxpayer. The taxpayer doesn't give squat over our massive public debt, the illusion that it's government debt or a burden for future generations. But when they put on their rate payers hats then they finally see the affect of public debt. They'll see it in their monthly bill - something that hits them, something they can't pass onto their children. The rate payer sees "$15,600" and wonders how much that will be on their monthly bill. The taxpayer see "$15,600" and says that's only $400 a year for the next 40 years - the kids are good for it.

  • chris
    July 06, 2014 - 19:51

    the Williams legacy

  • Maurice E. Adams
    July 06, 2014 - 10:34

    Just want to go on record as a ratepayer not "comfortable" with Nalcor's new numbers. Muskrat Falls is a total waste of 10,000 MILLION dollars -- all of which (and thousands of millions more) will have to be paid for a very few NL ratepayers --- for 50 years or more into the future (all when near-ZERO cost Upper Churchill power will be available in half that time), and this debt only impedes our access to what has been long on coming.

  • Corporate Psycho
    July 05, 2014 - 13:07

    I am switching to wood supplemented with solar.

    • Too Funny
      July 07, 2014 - 07:50

      Solar in NL, good luck with that. And unless you own your own forest then good luck with wood. Government owns that source of fuel and you can bet they will discourage people from using alternative energy sources.

  • Cyril Rogers
    July 05, 2014 - 10:34

    Thank you, Mr. Vardy and Mr. Penney, for continuing to highlight the folly of the preposterous debacle known as Muskrat Falls. If Mr. Martin were as straightforward with his numbers as you gentlemen, we would have been able to see the how incomprehensible this nonsense was, from the beginning. Is it too late to abandon Muskrat Falls, as many so-called soft critics seem to believe.? Absolutely not….. and, indeed, those of us who voiced concerns early on…..need to be joined by a growing chorus of dissenters. Where is the general populace? Anybody who claims ignorance of the gory details of the project right now…... has not been taking the time to examine all of the evidence pointing to the fiscal catastrophe it will become. It is incumbent on all ordinary citizens to get behind a movement to stop this development in its tracks. I don't advocate this lightly…..for I realize it will be messy and cumbersome to stop a loaded freight train…..but what alternative is there? To let it go forward will bring severe economic consequences! To stop it now will be very expensive….but nowhere close to the economic costs of letting it continue on its runaway track! It is time to put a halt to it and, at a minimum, let the PUB do another full analysis….. before any further public dollars are wasted. I call upon Premier Marshall and Minister Dalley to start looking out for the welfare of the people of the province rather than that of the corporate interests who stand to be the only beneficiaries of such a project.