TC Media sat down with Nalcor CEO Stan Marshall to talk about Muskrat Falls and the future of the Crown corporation.
The company’s Muskrat Falls site was recently shut down for 11 days by protesters in Labrador, who said the project is environmentally unsafe.
The provincial government and indigenous groups reached an agreement for Nalcor to increase clearing of vegetation of the Muskrat Falls basin.
TC: With the announcement from the government that additional clearing would be required at the Muskrat Falls reservoir, what kind of costs will that add to the project?
SM: Don’t know, really. Depends on how much clearing we have to do. We welcome the agreement with the government. Under the circumstances, something had to be done to resolve the impasse that was up there. That was being very expensive in its own right, but a lot of the details will be given to us in a directive later on.
TC: How much did this recent labour interruption cost?
SM: We don’t know. To put it in perspective, we’ve lost directly 11 days, totally disrupted. It’s like a runner who has been tripped up in a race. The amount of time he spent on the ground is only a small portion of actual time lost. He tries to get up again, regain the momentum. We’re still not back to normal operation, and that’s our priority right now.
Some work we had planned to do this winter, we deferred to next year. Different elements of work were delayed, some more than six months. Some things we can pick up almost immediately.
With the weather, we had to focus on three or four aspects. One is the conifer dam. I suspect it will be a month or two before we can assess where we are. Then we will have to go back and reprioritize things, draw up new schedules. At this point in time, I’m not planning to give a full update until sometime mid next year. This unquestionably adds to the cost and the delay.
TC: With the ballooning costs of this project over the years, people are concerned that it’s going to be passed along to the consumers eventually. Will it be?
SM: Not directly to consumers. The difference is between what the rate is that, say, Newfoundland and Labrador Hydro has to pay Nalcor for power. That power from Muskrat was going to blend with oil tankers on the island. The last projection we had looked like a 100 per cent increase basically in rates. Rates will double.
We have to take some measures to mitigate that, obviously. One of my priorities here, when we came into this situation, is to try to get the costs under control, and try to make sure that we finish as expeditiously as possible.
As we approach $10 billion in investment, even at three per cent, that’s a million a day in interest costs. So time is important, and consequently delay is very expensive. Our wage bill up there on the site, Muskrat Falls, approaches $10 million a week in direct wages. There’s a lot of costs involved here.
I use all measures to mitigate costs, complete on time, fighting things that appear like this out of the blue. Trying to resolve difficulties, trying to do new things.
One of the things we did early on at Muskrat was separate the generation at Muskrat from the transmission assets. They’re at least two years ahead of Muskrat right now. Then we got thinking about operating the transmission line ahead of Muskrat, taking the recall power from the Upper Churchill. There’s some technical limitations there. Bringing that power in, we’re only getting about $0.02 a kilowatt hour for that power we’re selling. Holyrood is at least $0.11 a kilowatt hour, given any reasonable projection of oil prices. So that’s a big saving just to bring that power in — under current projections, over $100 million a year. So we can use that money to mitigate that rate shock.
We’re doing everything we can and we have four years before Muskrat comes on stream to try to address all these issues and mitigate cost.
TC: Because of the recent labour interruption, there have been some questions around the Muskrat Falls project and whether it will go ahead. Is there a possibility it won’t?
SM: I can’t see any scenario, unless it’s some sort of an edict from the government to stop it, that we would do that. Economically, when you think about it, we’re over half completed, but in terms of the amount of money, if you look at the total project the last update we gave was $11.4 billion. We have probably spent or committed close to $10 billion. We have not paid it yet, but there are bills that have to be paid. When you order specialized equipment, that takes several years to manufacture.
If you cancel the project, you never get your money back. Newfoundland is going to have to pay anyway. In terms of commitment, you’re about 80 per cent committed. You get no value from that if you stop. If you carry on, you get some value.
If you stop, you still need to satisfy two things.
You need to satisfy the on-island demand for electricity, so if we didn’t (bring) the Labrador power here, you would have to rebuild something like Holyrood. That’s a billion dollars.
You have a contract now with Emera, because they’re building the Maritime Link, to supply them, basically, with 160 megawatts of power for 35 years free of cost. So where are you going to get that?
You don’t have to do any studies, really. The magnitude is such that anybody who has ever built anything, when you are so close to completion, will tell you’re not going to stop and tear it down, or abandon it. You’re going to finish it and see what you can get for it. So it’s very similar here. The order of magnitude is so clear that unless something totally out of our sphere of possibility happens, we have to finish it and minimize costs. Try to rethink how you can maximize value. For example, instead of economy power, can you firm it up and sell that power at a higher price?
There are a lot of things that are negatives. But there are some positives, such as the carbon tax, for example. If you’re living in Nova Scotia, they’re burning coal. Now Muskrat Falls becomes more valuable to them. We’ll have conversations with other customers, see if we can’t change those contracts to get more value. That will be used, then, against the cost to mitigate the cost to the Newfoundland and Labrador consumer.
TC: In recent months, people, including some of the protesters in Labrador, have been calling for an audit of Nalcor. Do you think, in the interest of transparency as a Crown corporation, Nalcor should open its books to a senate finance committee, or maybe the auditor general?
SM: I have no problem being audited. I’m used to being audited. I don’t know what the statutes say, but I have a problem with that.
TC: Some of the groups involved in the protests and criticisms, including municipalities in Labrador, feel a lot of these issues could have been addressed if Nalcor had been more communicative with affected groups.
SM: I can’t speak to what happened before my time. But clearly, communications could have been better. All I know is that in my time my door has always been open. I’ve met (NunatuKavut President) Todd Russell a couple of times here. Anybody who ever wanted to see me, my door is open. I try to make myself available to the media, to answer questions directly.
You can’t be out there every day with crises on the go, and there’s been a lot of that since I started here. Yeah, we could have done better and will endeavour to do that.
I do think there are other problems beyond Nalcor, and its Nalcor that gets dragged into all this. I can’t speak for the province. I can only speak for Nalcor. It may have helped, I don’t know. Going forward, I’ve made it clear I want to have better communications, especially with our indigenous people in Labrador. But it takes time. You can only do so much in three or four months, especially when you’re operating in crisis mode.