The UARB’s
job was to ferret out whether there was a justification for the Maritime Link
(ML) proposal, and whether the project made sense in terms of the cost per KWh,
to NS ratepayers.
In every sense, the UARB’s narrative is inextricably
linked to the entire Muskrat Falls Project.
Nalcor and the Provincial Government have had a hard time, from the very
beginning, justifying the investment. The
independent UARB analysis has cut a trail to certain fundamental reasons (untruths)
which made their job so difficult.
Whether one
agrees with the conclusions of the UARB or not, it has provided a far more
independent glimpse of how essential facts have been altered to obtain Newfoundland’s
approval than is likely to emerge from any other source.
Where are the conflicts in Emera’s and Nalcor’s story?
One of these two scenarios must be wrong.
Nalcor had to have run
those numbers, just as Emera did. Neither
company could have expected to get such a proposal past the Interveners,
Consultants and Members of the UARB. They both must have known that the
original deal would have to be changed.
Where are the conflicts in Emera’s and Nalcor’s story?
I recognize
four significant issues. There may be others.
1.
The
chief assumption, on which the $7.6 billion Muskrat Falls Project is based, is
that the price of a barrel of oil, in 2013, was expected to be $122.50 and forecasted
to “have a compound growth rate of 3.5% to 4.5%...for the period to 2025” or
$162.80/barrel in that year (page 46, NL PUB Report on Muskrat Falls Project). Beyond 2025, the PUB Report continues to
state Nalcor’s assumption regarding oil prices, as increasing “2% annually in
line with general inflation to 2067.”
In such a high price world, MF was said to be cheaper than the
Holyrood plus a bit of wind and hydro option. I should note that an oil price
of $150 implies an energy equivalent natural gas price of $25 per thousand
cubic feet.
In contrast, the UARB is
forecasting New England “market-priced” electricity, over the next 35 years, in
the 5-7 cent range per KWh a low rate determined by projected low shale gas
prices which, on that basis, would see the price of natural gas, in North America,
around $5 (or less) per thousand cubic
feet long term.
One of these two scenarios must be wrong.
So how did Nalcor come to
choose such a high oil price forecast ?
How could Emera’s energy
price forecast (as adopted by the UARB) be so different?
2.
The
UARB states (para 216, page 70) that the Maritime Link (ML) Project is $706
million to $1.422 billion more expensive than the alternative lowest cost
option without the addition of twice as much extra power as originally
contracted for i.e. the new , and very cheap, “Market-priced Energy”.
We need to know, when
Nalcor was aware that the ML Proposal was deficient and for how long it has it known
that the other 40% of Muskrat power might have to be given up as the price for
getting the UARB’s approval.
What false and misleading
information has Nalcor allowed the Premier and other Ministers to provide the
House of Assembly? Or, is the Premier
and her Ministers in on the secret, too? The Opposition Parties should be in the Media
asking those questions!
3.
On
the availability of power when the Upper Churchill Contract expires, in 2041,
you may recall the following direct quote from Nalcor’s Submission, to the PUB. It was made in defense of its Muskrat Falls
strategy and its refusal to construct a Plan that recognized the availability
of cheap power from the Upper Churchill, at that time. Nalcor said:
“There is inherent uncertainty around
guaranteeing the availability of supply from Churchill Falls in 2041 because it
is difficult to determine the environmental and policy frameworks that will be
in place 30+ years out. There are other issues surrounding the CF asset with
respect to HQ, as Nalcor is not the sole shareholder of the Churchill Falls
operation.”
You will
also recall that the then Minister of Natural Resources, Jerome Kennedy,
released a document, entitled "UPPER CHURCHILL: Can We Wait Until 2041?”
in response to critics who said the Ministers’ and Nalcor’s statements, regarding
the “certainty” issue, were pure bafflegab. (See More Bafflegab on the Upper Churchill).
What did the
UARB say?
First, the
UARB quoted Emera’s Subsidiary which testified, before the Board (para 189,
page 62), as “to other sources of available energy from Nalcor”. Among those sources, the UARB noted, as
follows:
“In 2041, the Upper Churchill reverts
to ownership of Newfoundland and Labrador”.
Later, the
UARB concluded:
Para 200
(page 65) QUOTE: “….the evidence clearly
shows that there should be no shortage of Market-priced Energy when the
Churchill Falls arrangement with Hydro Quebec comes to a conclusion in 2041.”
Para 201
(page 66) QUOTE: “However, until 2041
arrives, there is, as Morrison Park described it “substantial uncertainty”
about the availability of a supply…..” Underline added.
For the UARB,
but not for Nalcor, there is complete certainty about the availability of additional
power from the Upper Churchill in 2041.
4. On the matter of the availability
of Market-priced Energy (again, that’s the cheap 40% surplus power Nalcor has successively
committed to Labrador mining, to domestic power needs and for the US export
market, the UARB says, (para 226 page 73) that “(t)he Board will impose a condition relative to the availability of
Market-priced Energy over the 35 year term.”
In para 227,
it goes on to say “…such a condition
should not create any practical difficulty because it would codify what NSPML (Emera)
asserts is the effect of the arrangement in any case”. (Underline
added)
The UARB confirms,
based upon the evidence it received, that Nalcor and Emera had an “arrangement”;
its report details numerous Nalcor/Emera meetings on that subject.
That
phrasing is formal and deliberate.
The UARB, by
implication, is suggesting that the parties have not provided full disclosure.
Indeed, it is convinced that the evidence is sufficient to
conclude that Emera’s and Nalcor’s “arrangement” was strong enough to entitle
it to make very precise demands of Nalcor.
Emera’s claims were such that repeatedly, throughout the Decision, it demanded
the savings offered through the “certainty” of a contract for 40% of Muskrat
Falls power (or 200% more) at a ‘levelized’ rate of 10 cent per kwh flat over
the long term. Only with those savings
from “surplus” Market-priced Energy, the UARB repeated over and over, could the
ML become the lowest cost option for Nova Scotia.
All that is
needed, it said, is for Nalcor to “codify” its existing bargain with Nalcor by
putting it in writing.
Conclusion:
Nalcor had
one story for Newfoundland and Labrador.
It allowed Emera
to tell a very different story in Nova Scotia.
The UARB is
having none of it. It’s basically saying
that the Nalcor / Emera tango must stop.
It wants
Nalcor’s promises to Emera “codified”.
Newfoundland
must pay 80 % of the cost of a project that sees 60% of its output dedicated
and delivered to NS.
And NS must get
that Muskrat Falls power at prices way below that which Newfoundland will pay
for its “minority” share.
Does this
sound familiar?
The
inconsistencies and contradictions, noted by the UARB, alone, are enough to
bring a halt to the Muskrat Falls Project.
Nothing less
than a completely independent review, of this Project, should be acceptable to
the people of this Province.