Some would
rightfully argue that the wheels, on this Project, were never properly attached
anyway. Who, except Kathy Dunderdale, Ed Martin, Jerome Kennedy and Cathy
Bennett would disagree.
Likely, at
this very moment, the Dunderdale crowd, in Confederation Building, are enjoying
the relaxation of summer; the House of Assembly is closed, Ministers are off to
their country places and the oppressive heat, wrought by an angry public and pesky
Pollsters, is a distant memory for a battle weary Government. I doubt that a single one of them appreciate
that the Dunderdale train just got side tracked and is now hanging over a very steep
political and financial precipice.
Ed Martin,
the stone-faced Chairman and CEO of Nalcor, is probably slightly more conscious
than the Premier. Martin had not
received knowledge of Hydro Quebec’s decision to refer the Water Management
Agreement to the Quebec Court, until just before he entered the news conference, on the Nova Scotia Utility and Rate Review Board (UARB) Decision. The news
must have been a devastating blow to one who, for more than two years, has been
playing a high-stakes game of Russian roulette with public money. Two successive bullets
were fired, on Monday, from “guns”, the Nalcor Conductor was frequently warned about!
Nevertheless,
it is not Ed Martin’s bruised ego that should give us pause. Martin put the best 'spin' he could have on a very bad decision, for Nalcor. More importantly, this day of ‘infamy’ is
merely an affirmation that the poor taxpayers, of this Province, are in for a
royal screwing.
And, just
because I like to note those things, while the UARB Report and the Hydro Quebec
legal action were reported top of the NTV News, it took approximately 23 minutes
for the CBC to realize that these were important issues which also deserved airing.
Yes, the CBC skipped over a whale of a story for a ‘whale’ story; two of them,
actually, and a bunch of others. None was as dramatically important to the future
of this Province, as the UARB Decision.
I suppose they have their priorities!
Contrary to
anything CEO Ed Martin (or the CBC Web Site) may have stated, the UARB did not approve the application
by Emera (actually the reference is to Emera Subsidiary “NSPML”). The approval was “conditional” and that
condition was no minor matter.
What
Newfoundlanders and Labradorians need to note, however, is the fact that the
NS UARB wants access to the 40% percent of Muskrat Falls power, deemed surplus
to the Province’s needs. That is in addition to the 20% already committed to
Emera (known as the Nova Scotia Block) offered in return for having Emera fund the Maritime
Link (ML). Nova Scotia wants the
additional power for even LESS than
it is paying for the Nova Scotia Block.
It wants more power at a price established by the Massachusetts HUB, where market prices for
the New England States are established; right now, that would be 3-5 cents per KWh, when adjusted for 'wheeling' fees and other costs.
In case you
are unsure, this “surplus” power is the ‘juice’ Premier Dunderdale, Ed Martin
and Jerome Kennedy, all at various times, said would be available for the New
England market, for Labrador Mining including Alderon, for industrial
development within the Province and to meet the forecast increase in domestic
demand .
For clarity, what we call “surplus power” is called, by the UARB “Nalcor
market-priced Energy”. The "blended" price is achieved by taking the
Nova Scotia Block (20%) and giving that Province access to the cheap "Nalcor market-priced Energy".
This “blended” price is now the price of Nova Scotia’s participation in
the Muskrat Falls Project. It is also the price NL must pay if it is to receive the Federal Loan Guarantee.
The Nova Scotia Block will already cost their ratepayers less than half the rate, Newfoundlanders will pay for Muskrat Falls power. But, the UARB wants to lower the cost further.
What should
Newfoundlanders and Labradorians fear? That CEO Ed Martin and Premier Cathy
Dunderdale will attempt to accommodate Nova Scotia’s demands.
Below, Figure 4-4 Weighted Average Electricity Prices Per MWh - the solid black line depicts the "blended" cost of the power; that is the whole basis of the UARB Decision.
[Application,
Exhibit M-2, Figure 4-4, p. 92]
The UARB Decision
is clear and unequivocal. I have extracted relevant paragraphs. (The number to the left of a “UARB DECISION” is
the denoted numerical paragraph from which the quote is taken).
(Any
underlining is mine.)
UARB DECISION:
[452] ….. the ML Project (with the Market-priced
Energy factored in) represents
the lowest long-term cost alternative for electricity
for ratepayers in Nova Scotia. In the
absence of Market-priced Energy, the ML Project is
not the lowest long-term cost
alternative.
Comment:
The UARB believes Nova
Scotians are entitled to the "Market-priced Energy" because Emera framed its
Application in a way that assured the UARB that NS would benefit from surplus ‘cheap’
power and thus make the ‘expensive’ NS Block less costly, through averaging,
over the long term. Note the phrasing and the word “underpins” in the next UARB
paragraph:
UARB DECISION:
[455] The fundamental assumption which underpins
the Application is that NS
customers will enjoy a blended rate for electricity
which is comprised of a weighted
average of the costs reflecting the NS Block and the
projected amounts and prices for
Market-priced Energy over the 35 year term.
Comment:
Again, Emera
assured NS access to surplus cheap power; now the UARB is coming to collect and to confirm the promise by way of legal agreement.
For this purpose, the UARB uses the phrase "enforceable covenant". See para 457 below:
UARB DECISION:
[457] The Board concludes that the availability of
Market-priced Energy is
crucial to the viability of the ML Project proposal as
against the other alternatives. More
importantly, the Board finds that without some
enforceable covenant about the
availability of the Market-priced Energy, the ML
Project does not represent the lowest
long-term cost alternative for electricity for
ratepayers in Nova Scotia.
Comment:
Guarding against the risk that the Nova
Scotia Government or Emera might fail to understand its position, the UARB laid
down a specific condition for approval of the Maritime Link:
UARB DECISION:
[459] Accordingly, the Board directs as a condition to
its approval of the ML
Project that NSPML obtain from Nalcor the right to
access Nalcor Market-priced Energy
(consistent with the assumptions in the Application as
noted in NSUARB IR-37 and
Figure 4-4) when needed to economically serve NSPI and
its ratepayers; or provide
some other arrangement to ensure access to
Market-priced Energy.
Comment:
Note the words, in para 459 above, “or provide some other
arrangement…” Even Ed Martin noted
the "other" UARB reference, in his Press Briefing.
There is no "other" provider of 'cheap' energy to secure the Muskrat plan.
Note, in para 460, that such a "condition" should be a simple matter, because it is only arranging to give “effect” to the deal Emera and
Nalcor has already entered into:
UARB DECISION:
[460] In the Board's opinion, such a condition should
not create any practical
difficulty because it would simply codify what NSPML
asserts is the effect of the
arrangement in any case. It would also confirm what
NSPML already states is Nalcor's
view of their future relationship.
[461] This is a simple remedy to the fundamental risk
underlying NSPML's
Application for approval of the ML Project. If no such
condition was imposed, the Board
would fail in its regulatory oversight by approving an
application that could potentially be
commercially disadvantageous to NS ratepayers.
Comment:
The UARB is treating the
matter of Surplus or “Market-priced Energy” so seriously that it is not
prepared to leave the issue, to the discretion of the Nova Scotia Government. The UARB is demanding, not just that Nalcor’s
(or an alternative proposal) be submitted to it again, but that the Interveners
will be given another opportunity to comment on whether such an agreement
meets the Conditions it has prescribed.
The UARB also tells Emera how it will assess the acceptability of any
‘alternative’ pricing mechanism on which the parties may agree. See Paragraphs 230 and 231 below:
UARB DECISION:
[230] The Board will make
itself available on an expedited schedule to review
commercially reasonable
terms submitted by NSPML and Nalcor and for comments by
the Intervenors.
[231] The Board notes that
NSPI will be required to act prudently in the
acquisition of
Market-priced Energy as it would with all other fuel related decisions.
Decisions related to the
purchase of Market-priced Energy will be subject to the
provisions of NSPI’s Fuel
Adjustment Mechanism and the oversight that occurs under
that mechanism.
Comment:
In summary, if the UARB is
to approve the ML, Nova Scotia must be given, not just access to 20% of the
power from Muskrat Falls, it must have access to 60%. The 40% ‘surplus’ block must be cheaper than
the first 20% Block. Nova Scotia wants
more power for less money.
Remember the Upper Churchill deal where
Hydro Quebec gets a lower price for the nest 25 years than it received during the first 40 years of the
Contract? Nova Scotia wants its Upper
Churchill Deal. And, while you nod in
agreement, it wants you to pay for it!
That was just the early
part of yesterday!
In the afternoon, Hydro
Quebec (HQ) reacted. It has filed a lawsuit in the Quebec Court. Likely, the
only person surprised was Ed Martin, though he should not have been.
Ed Martin was warned about
the matter of the Water Management Agreement, by Members of the 2041 Group, and of the likelihood that HQ would
contest an Agreement its Members, on the Board of CFLco, refused to sign.
HQ
asks the Court whether it should be the only Party possessing the right to
“operational flexibility” under the Upper Churchill Contract. “Operational flexibility” is a euphemism for
water management.
Nalcor Vice President, Gilbert
Bennett, could not resist attacking 2041 Group Member, St. John’s lawyer
Bernard Coffey, when Coffey counselled that the Water Management Agreement
should be submitted for Judicial Review, before the Muskrat Falls Project
commenced, because “legal certainty” was required.
Coffey wrote in the
Telegram newspaper, “Based on the data and scenarios in Nalcor’s own Pre-Filed
Evidence, without a working water management agreement Nalcor would be limited
to approximately 175 MW of continuous delivery in a long-term power purchase
agreement for Muskrat Falls.”
Coffey might well ask again:
should the Muskrat Falls Project continue, in the absence of that “legal certainty” and
given that, in return for $7.6 billion, we will get a mere 175 MWs and all the penalties for non-delivery of electricity that will be brought by NS and Emera?
While the patience of all
Newfoundlanders and Labradorians is stretched to the limit, with the
intransigence of Quebec, it would be silly of us to get back at Quebec by
pointing the gun at our own head.
If you thought our
troubles over Muskrat Falls, ended upon Project sanction, the events of Monday
serve to confirm otherwise. In the
immortal words of Sir Winston Churchill, whose very name is invoked with most
every reference to hydro power in Labrador:
This is not the end
This is not even the beginning
of the end
But, it is perhaps, the
end of the beginning.
