Comments by Natural Resources Minister Siobhan Coady and former premier Paul Davis, in Kenn Oliver’s story on the economic value of Muskrat Falls (“Pennies on the power,” Jan. 23), require clarification.
Minister Coady and Mr. Davis noted sales of surplus power. The price of electricity in the market is so low outside Newfoundland and Labrador that electricity sales from Muskrat Falls outside the province will not generate enough revenue to make any meaningful difference to repaying the cost of the project. This is made clear in the story in the same series by James Risdon called “Muskrat markets go poof!”
Nalcor’s project update in June 2017 indicated that it will cost seven cents per kilowatt hour of domestic rates in 2021 to cover the cost of making the electricity at Muskrat Falls. Transmission costs would add more. Yet, as Minister Coady noted, the current and anticipated market rate for electricity in the United States is about two cents a kilowatt hour. Nalcor will not make much selling electricity for one third the cost of making it.
Put another way, the potential revenue from export sales of all Muskrat Falls’ surplus will add up to about $56 million using Nalcor’s own figures. That is less than 10 per cent of the minimum needed in the first year of repaying the cost of building the Muskrat Falls plant and the transmission lines that go with it. The cost of repayment goes up every year after that, while sales are not expected to increase accordingly.
As for savings on transmission to which the minister referred, Nalcor information in support of its 2017 general rate application (NP-NLH-115 Rev. 1) suggests the cost to transmit electricity from Labrador to Newfoundland will be five times the rate Nalcor has paid to wheel electricity to the United States from Labrador.
With respect to the rate of return Mr. Davis mentioned, he refers to a dividend the provincial government expected Nalcor to deliver from electricity rates in the province. According to Nalcor documents, this dividend would have produced about $45 billion over a 50-year period. The provincial government will have to eliminate that dividend entirely to mitigate rates after Muskrat Falls enters service. Eliminating the dividend will still not be enough to mitigate fully the electricity rate to domestic consumers starting in 2021 that will be needed to pay for Muskrat Falls.