Three companies — two public and one Crown — have a direct operating interest in Muskrat Falls power. The two public companies are Emera and Fortis. The crown company is Nalcor Energy.
Emera, operating out of Nova Scotia, owns 100 per cent of Nova Scotia Power, the latter being that province’s main electricity supplier. Emera currently invests heavily in new green power projects, hence the interest in Muskrat Falls project. Emera has a sound balance sheet and pays out a decent dividend at 4.7 per cent.
Emera has a 49.2 per cent stake in the Labrador Island Link project, which will transmit power from Muskrat Falls to the island of Newfoundland. Also recently, Emera finished its Maritime Link undersea cable, which will transmit electricity from Muskrat Falls and other plants in Newfoundland and Labrador to Nova Scotia; that project cost $1.6 billion.
The question is, who wants and pays for the 76.3 per cent?
Fortis, operating out of Newfoundland and Labrador, purchases power from Newfoundland Hydro through its subsidiary Newfoundland Power. The latter then sells electricity to customers on the island. Fortis is focused on investments that reduce emissions and water usage and increase customer energy efficiency. The company has stated that it would not be interested in a new project unless it had at least controlling interest in the project. Fortis has a sound balance sheet and pays out a decent dividend at 3.9 per cent.
Nalcor Energy is Newfoundland and Labrador’s energy company. The Muskrat Falls project, which will generate a maximum power of 824 kilowatt hours, is an essential component of Nalcor’s commitment to sustainability and climate change management. Once in service, power from Muskrat Falls will help meet the province’s long term energy needs by providing clean, renewable energy for future generations.
Its installed generating capacity of 1,763 megawatts (including Muskrat Falls) helps ensure Nalcor generates and delivers safe, reliable electricity. Nalcor Energy may sell Muskrat Falls power directly to customers or indirectly through its subsidiary, Newfoundland Hydro.
Although the federal government does not have a direct operating interest in Muskrat Falls, it has a commitment to guarantee a $5-billion loan. Assuming the total cost of the Muskrat Falls project is $13.1 billion, the loan guarantee represents 38.2 per cent of the project.
The provincial government has already committed 23.7 per cent to the project, through the transfer of $3.1 billion to Nalcor. That leaves 76.3 per cent of the project to be financed, including the loan guarantee.
The question is, who wants and pays for the 76.3 per cent?
Emera has already made commitments to buy power and pay for the transmission line to transfer power to Nova Scotia. Besides, Emera is a Nova Scotia company and may not wish to get involved further with Newfoundland and Labrador on account of local negative feeling about the Muskrat Falls project. Also, Emera has development plans of its own elsewhere.
If Fortis expresses an interest in the project, it will want controlling interest — in other words, 50.1 per cent. Assuming Fortis expresses an interest and both federal and provincial governments are in an obliging mood, Fortis will want the federal loan guarantee to get the lowest borrowing cost possible and a further 11.9 per cent, or $1.6 billion. In total, then, Fortis finances $6.6 billion, giving it controlling interest in the project.
That would leave the provincial government $6.5 billion, less $3.1 billion which was transferred to Nalcor, or $3.4 billion to be financed by the provincial government.
If Fortis does not express an interest, then it is up to two levels of government to do the financing with the federal government likely having controlling interest.
Another option is for Nalcor to go public and sell shares on the open market with the federal government purchasing 50.1 per cent of the shares, and absolving itself of the loan guarantee. Newfoundland and Labrador has already made its contribution of $3.1 billion to Nalcor and may not wish to purchase any shares in the new Nalcor or it may demand free shares in the new Nalcor to the extent of recovering its $3.1 billion contribution to Nalcor.
It will be very interesting this year to watch how the financing of Muskrat Falls works out.
Happy New Year to all.
Ian McMaster
St. John’s
