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Newfoundland, Nova Scotia sign 13 Muskrat Falls deals

Price tag for hydro power plan expected to top $6.2 billion.


August 1, 2012
by CANADIAN PRESS

ST. JOHN’S, NL: Contracts signed July 31 between Newfoundland and Labrador and Nova Scotia were cast as a step toward the proposed multibillion-dollar Muskrat Falls hydro project despite big questions on costs and rate hikes.

Newfoundland Crown corporation Nalcor Energy and private Nova Scotia utility Emera Inc. signed the 13 deals spanning 50 years based on a term sheet announced with fanfare in November 2010. They include 1,500 pages of legal detail nailed down over 20 months and two missed self-imposed deadlines.

The plan to harness power from the lower Churchill River in Labrador before transmitting it to Newfoundland and then Nova Scotia using subsea cables is expected to top $6.2 billion. But updated costs that were expected two weeks ago weren’t yet complete as the formal agreements were signed.

Those details are now expected later this summer or fall before politicians in Newfoundland and Labrador debate the development and the Progressive Conservative government decides whether to go ahead.

Still, Newfoundland and Labrador Natural Resources Minister Jerome Kennedy said he believes Muskrat Falls will be the cheapest solution for his province’s energy needs with the added potential of selling excess power to the Maritimes and New England. He said a power gateway through Nova Scotia is also the answer to transmission blocks put up by Quebec.

“We will finally be able to escape the geographical stranglehold that Quebec has had us in for almost 50 years,” Kennedy said.

Kennedy said successive governments have tried to work with Quebec since the signing of a woefully lopsided deal on the Upper Churchill hydro site in Labrador.

The 1969 agreement to ship power from Labrador to Quebec for sale has reaped about $20 billion in profits for Quebec, versus $1 billion for Newfoundland and Labrador, Kennedy said. The deal did not reflect rising energy values and does not expire until 2041.

Nova Scotia Energy Minister Charlie Parker called Muskrat Falls a “game-changing project” that will help wean his province off coal while creating jobs.

In exchange for funding a subsea link between Newfoundland and Nova Scotia and providing transmission rights, Parker said his province will get 20% of Muskrat Falls power for 35 years. After that, Nalcor assumes ownership of the Maritime link.

Nova Scotia will get extra power from the Maritime link over the first five years of that 35-year period – slightly less than 25% of Muskrat Falls energy – to reflect the project’s 50-year life span, said Nalcor president and CEO Ed Martin.

Overall, Nova Scotia’s share of the 824 megawatts to be produced at Muskrat Falls starting in 2017 is expected to meet between about 10% and 30% of the province’s needs depending on demand.

Newfoundland and Labrador is expected to need about 40%, with the rest available for sale in the Maritimes and New England. A big question is how much that power will cost and whether it will be competitive as new sources of natural gas transform US energy markets.

Gordon Weil, former director of the Maine energy office who led the national group of state energy agencies, said prices in New England are dropping thanks to shale gas supplies that will likely last for decades. Delivered power costs about 12 cents per kilowatt hour, he said from Harpswell, Me.

If Muskrat Falls power costs more than that, plus transmission, the price won’t be competitive, Weil said. But he added that no one can forecast energy prices into the future, and that he thinks Muskrat Falls “is not a bad idea” in Atlantic Canada.
It can replace oil- and coal-burning plants with cleaner hydro, but its costs should be more widely shared, he said.

“What is missing, in my view, is any kind of regional co-operation which spreads the benefit and the cost across Atlantic Canada.”

Martin said in an interview last year that Muskrat Falls is a cost-effective project whether or not its power is ever sold outside the province. But as part of the agreements, Nalcor also gets transmission rights in New Brunswick and New England plus the chance to invest in existing and future Emera projects.

The dam and generating station on Labrador’s lower Churchill River would also replace an aging oil-fired plant in Newfoundland, meaning the province would be 98% powered by renewable energy.

Nalcor and Emera signed the agreements in what they said is a necessary step toward a utility review in Nova Scotia and a decision by Newfoundland and Labrador on whether to sanction the development.

Officials said the deals allow for flexibility should those reviews raise unforeseen concerns.

© 2012 The Canadian Press