JUST DON’T TELL THE NEWFOUNDLANDERS

The decision of Nova Scotia's Utility and Rate Review Board (UARB),  on Muskrat Falls, was a good example to Newfoundlanders and Labradorians of how a full independent review can play a key role in giving protection to the public.

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?

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”.

 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. 

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.

How many other untruths were required to hustle through the Muskrat Falls sanction, I wonder?

Nothing less than a completely independent review, of this Project, should be acceptable to the people of this Province.