The federal and provincial governments have agreed to open the hood on the financial structure behind the Muskrat Falls project.
On Monday, Premier Dwight Ball, Federal Natural Resources Minister Seamus O’Regan and provincial Natural Resources Minister Siobhan Coady announced the next steps toward preventing electricity rates from taking a sharp increase once the Muskrat Falls project is complete, which is expected by the end of the year.
“No government since Confederation has faced a tougher challenge,” Ball said.
“How is it that a province that is an energy powerhouse could become a province where people are scared to turn the lights on? This is what we’ve been cleaning up since forming government.”
In a letter, Federal Finance Minister Bill Morneau confirmed the agreement, which amounts to a complete overhaul of the money behind the project.
“As guarantor of the projects’ debt, Canada supports negotiating a financial restructuring to reduce the cost of the capital structure of the projects, such that they are financially sustainable over the long term,” Morneau wrote.
“As part of the financial restructuring negotiations, Canada is prepared to consider options to change the Muskrat Falls/Labrador Transmission Assets’ revenue model, such as to a cost-of-service model, and redirecting equity returns from Nalcor to ratepayers.”
While politicians are quick to say the rate mitigation question has been answered, plenty of negotiation between the federal and provincial governments remain to be done.
Under the existing power purchase model, between the project’s completion and 2068, the government estimated the total cost of the project to be $74 billion, when factoring in all dividends and financing costs of the project.
Under the new cost-of-service model, the government estimates a $40-billion cost until 2068. The biggest change to create the new number is taking dividends that were going to Nalcor Energy and turning them instead directly toward subsidies for electricity rates for the project.
“What this does is it mitigates the full impact of Muskrat Falls. We’ve taken this analysis over the 50 years of this power-purchase agreement and we’ve completely mitigated the impact of Muskrat Falls on the rates of Newfoundlanders and Labradorians,” Ball said.
Another element of the restructuring will see the government “monetize suitable assets” for the Lower Churchill Project as a whole, which Ball says does not mean selling off parts of the project to raise short-term money. Instead, future revenue streams could be borrowed against as a way to raise money in the short-term to help keep rates down.
The federal government has agreed to defer sinking fund payments and money being set aside for further cost overruns for the project, should they arise.
Consumer advocate Dennis Browne says the change in the model for the financing is the most important part of the announcement, but there’s still a lot to figure out.
“The restructuring into a cost-of-service model is very significant. That should produce some benefits, ultimately, to the ratepayers of the province. The sinking funds announcement is good,” said Browne.
“We’re off to a start, but there can be no financial restructuring involving the federal government until we have a figure. Right now, Muskrat Falls is still a work in progress. We still have no electricity, we still have the software problem, we don’t know what the final figure is going to be. You can’t go and ask the federal department of finance to refinance 'blank.' We need to know what the figures are and we don’t have them.”
Progressive Conservative Leader Ches Crosbie says the announcement is just smoke and mirrors.
“I’m not aware of an agreement. What I heard talked about is an agreement that in the future there’s going to be an agreement,” Crosbie said.
“They’ve agreed to negotiate. To my mind, this is a non-announcement.”
Crosbie is not alone in wanting more details about what happens next.
“I’m a little underwhelmed. I would have liked to see more details in that,” NDP Leader Alison Coffin said.
“I would have liked a little more quantification. I would have loved to hear the federal government was willing to provide the $200 million that the premier had suggested they would before the last election. That would have been reassuring. At this point, no one has quoted what the rate will be.”
St. John’s East MP Jack Harris says the announcement is “a step.”
“The rest of it is an agreement to agree. An agreement to negotiate a different model. They may need the federal government to make that happen for sure, but I don’t think that’s the full solution,” Harris said.
“We don’t know what the end result of that negotiation will be. Obviously, we hope for the best.”