Completion of Muskrat Falls project and associated power lines will expose Newfoundlanders to several billions of extra costs over the next decades. Muskrat Falls’ electricity alone cannot generate sufficient funds to accommodate those future expenses. Luckily, future revenues from the much larger Churchill Falls’ (CF) electricity production subsequent to 2041 will be able to pay for Muskrat Falls’ extra costs.
Considering its 65.8 per cent ownership in Churchill Falls and its absence of debt on the plant, Newfoundland will dispose of 23 terrawatt hours (TWh) of very low-cost electricity per year from the 34.8 TWh total plant production.
This represents more than three times the Island’s current consumption of 7 TWh and nearly five times Muskrat Falls’ production.
Future revenues from sales of this electricity must however first be transferred into current revenues in order to repay the Muskrat Falls’ debt. This can be managed by using two methods. Neither of those two methods necessitates the sale of commercial assets nor would affect N.L.’s credit rating.
The first method consists in the delayed exchange of electricity with Hydro-Québec (HQ) using the Labrador Island Link. Newfoundland would immediately receive electricity from CF at no immediate cost and use it on the island to replace Holyrood’s production. The rest would be sold to Nova-Scotia through the Maritime Link at a substantial profit as the acquisition cost is negligible.
This would essentially eliminate oil burning at Holyrood and reduce coal burning at N.S. stations for years to come, decreasing greenhouse gas emissions for those two provinces.
In this delayed exchange, the owed electricity (plus interest) would be returned to HQ after 2041. The total owed electricity would be increased yearly using a negotiated interest rate.
For exchanges with Nova-Scotia over the Maritime Link, this current negotiated rate is three per cent and should be similar with HQ. This method could bring an extra of up to 6 TWh of electricity per year until Muskrat Falls turbines start to operate. With an assumed value of $50 million per TWh, approximately $0.8 million per day could quickly be generated for Newfoundland’s use.
Once Muskrat Falls is in service, the level of exchange diminishes to approximately 1.3 TWh per year.
The second method consists in the delayed sale of electricity to HQ with money received now and the electricity returned after 2041. It is mainly a financial operation between the two utilities. This method would be best implemented once Muskrat Falls is in service. The yearly payments for the future electricity would be assumed to be made at a negotiated commercial price.
In turn, this would correspond to a specific yearly quantity of electricity proportional to the size of funds transferred to Newfoundland during that year.
The accumulated owed electricity from delayed exchanges and delayed purchases would be added and increased yearly using the negotiated interest rate. As an example, pre-selling of 10 years of Churchill Falls production after 2041 could bring average revenues of the order of $300 millions to Newfoundland each year until 2041. This would resolve a large portion of extra costs stemming from Muskrat Falls.
With their current ownership in Churchill Falls, Newfoundlanders already possess sufficient resources to manage most Muskrat Falls’ extra costs as long as this large historical asset is cleverly used.
I believe that political parties should include those rate-mitigating schemes in their political platform in order to be prepared for the next elections.