A reply to Nalcor’s chairman of the board

Published on April 19, 2014

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.