THE NEW DEAL WITH EMERA. WHAT WILL NALCOR THINK OF NEXT?

The latest "deal" called the "Maritime Link Compliance Filing" , between Nalcor and Emera, to satisfy The Nova Scotia Utility and Rates Board (UARB) did not get much coverage in the media.  Understandably, it is tough to compete with topics like the disintegration of the NDP.

Nor could we expect the Dunderdale Government or Nalcor might offer the public a “Coles Notes” version and their implications for this Province.  That would look too much like openness and transparency.  We could not possibly expect that, could we.

Next we need Cathy Bennett elected leader of the Liberal Party and our Bibles replaced with copies of Lewis’ Carroll’s Alice in Wonderland. To paraphrase the Author: ‘You would have to be half mad to dream this stuff up’.

The latest Submission to the UARB, compliments of Nalcor, is a strange brew of rewards for Nova Scotia and more uncertainties, costs and risks for us. 

Nalcor has made a noble effort to find $1 billion plus in savings to help make the Maritime Link the lowest cost option.  The deal may still not be enough to satisfy the UARB.

What has Nalcor offered this time?

Let’s take a look.

Nalcor, with approval of the Dunderdale Government, has offered EMERA the equivalent of up to 60% of Muskrat Falls power (incl. the Nova Scotia Block).  NL ratepayers will still assume all the risk of constructing the Project including 80% of the cost overruns on the Maritime Link. 

It permits an arrangement to guarantee “Mass Hub” or New England “market” prices (4-5 cents per KWh) for Nova Scotia. 

It fundamentally changes the relationship between the original agreement in terms of how Nalcor and Emera were to relate as two utilities.  Now Emera a) gains control over the largest block of Muskrat power, b) NL backstops Nova Scotia wind power with 100 megawatts of “firm” energy (remember that Nalcor said more wind power on our grid was not feasible but it’s OK to back up Nova Scotia’s) and c) provides for a Nalcor Balancing Service Agreement with Emera, which for all practical purposes, places Newfoundland Hydro at the ready if Nova Scotia suffers a power drop.

This deal with Emera constitutes the greatest sell-out of Newfoundland and Labrador’s resources in the history of the Province worse even than the Upper Churchill Contract because, unlike that Project, billions of NL’s money is being placed at risk to build Muskrat Falls.

In addition, this latest Emera/Nalcor agreement is entered into without either public discussion or the authority of the House of Assembly.

Let’s look at a few of the details more closely.

You will recall that the UARB, in its initial Decision, demanded access to the surplus or “market-priced power” from Muskrat Falls as a key condition for supporting the Maritime Link (ML). 

The UARB stated (para 216, page 70) that the ML is $706 million to $1.422 billion more expensive than the alternative lowest cost option (even though it receives 20% of Muskrat output at zero cost).

The UARB Decision stated:

Para [225] “the price of future Market-priced Energy is not the real concern…... the concern is that the advantageous opportunity to purchase cannot take place, if there is no Market-priced Energy to buy.”

 

The UARB had determined that, for the foreseeable future, market access to the surplus Muskrat power, not price, was at issue; it had assumed that electricity prices would stay depressed, likely in the 4-5 cents per KWh range, for many years. 

 

The UARB, in crafting its response to Emera/Nalcor acknowledged that the New England electricity market had fundamentally changed.  The UARB had recognized that the shale gas revolution, Canadian (Ontario and Quebec) over- production of electricity and new efficiency efforts were all part of the new energy paradigm.

 

These matters also demonstrate why Muskrat Falls should never have gotten off the drawing board in the first place.  But, I will stick with the issue at hand.

 

In order to repair what it perceives as too high a cost of the Nova Scotia Block the UARB stated on page 73 of its Decision: “(t)he Board will impose a condition relative to the availability of Market-priced Energy …..”

Muskrat Falls is forecast to produce 4.9 terawatts (TWh) of power. Of that amount 40% (1.79TWh) is reserved for island needs, 20% (.895 TWh) for the Nova Scotia Block, a condition of building the Maritime Link, and the balance 40% (1.79 TWh) is defined as “market-priced” power.

What did Nalcor offer Emera this time?

Nalcor will commit to Nova Scotia up to 1.8 TWh  of the surplus electricity, or an annual average of 1.2 TWh.  (The 1.8 TWh figure is almost identical to the amount of so-called surplus power from Muskrat).  A terawatt (TWh) is a billion kilowatts. The deal places no obligation on Emera to take the power though it requires Nalcor to make it available on short notice, except for a 300 GWh ‘variance’. 

The commitment runs until 2041 (a 24 year deal rather than the 35 years demanded by the UARB). 

Now that Nalcor and the Dunderdale Government has committed us to MF, you might suggest if the power is surplus, it may as well be sold to Nova Scotia.

That might be true except:

1. Nalcor advanced the proposition that 3TWh of power will be needed on the island by 2030.  (As noted above NFLD. takes 2 TWh from Muskrat initially.) That means, by 2025, the commitment of up to 1.8 or even the average 1.2 TWh, to Nova Scotia, could cut into the amount of electricity in-feed needed for the island. It is unclear whether this additional 1TWh requirement becomes what the deal calls “Native Load”.  Indeed, if another full TWh is taken by Nfld. by 2030, under “Native Load”, the question must be asked where Nalcor intends to find the additional power to satisfy the UARB demand and comply with the intent of its Agreement with Emera. Is this where the case for retaining Holyrood begins?   Figure 23 below indicates Nalcor's own forecast demand on the Island.  Note the steady increase to 2030 and beyond.
   
   
   
2. The forecast in-feed, into the island system, is integral to Nalcor’s version of the economics of the Project.  Nalcor’s revenue projections, for amortising the cost of Muskrat, are tied to an increasing demand profile.  It assumes NL ratepayers will be paying the higher Newfoundland rate per KWh, for more of the power.  If this power has to come from another source it will simply mean higher costs for our ratepayers.
3. The deal requires that NL bid its surplus power into the “Mass Hub” pricing mechanism which establishes electricity pricing in the New England states.  NS receives the lowest possible “market price” for a very large block of power to meet its long term needs.
4. The commitment of up to 1.8 TWh (1.2 TWh average annually) makes it impossible for Nalcor to commit the energy as “FIRM” power to NL mining or to new NL users (remember when Alderon was supposed to be the first customer for surplus Muskrat power). While the “market-priced” or surplus power is not offered to Nova Scotia as “firm” power the Agreement contemplates that the electricity will be available to NS.  The upshot of the deal is that Nalcor will be able to engage only in short-term or ‘spot-market’ sales of the surplus power.   Yet, the deal gives Emera the flexibility to “…not accept Nalcor’s bid if taking the energy is not in the best interests of NS Power customers.“

5. If the UARB deems this deal to make the cut, Nova Scotians will know their electricity costs after 2017 right away; Nflders will have to wait until all the bills come in and be ready to pay 80% of the cost overruns on the Maritime Link, too.

While the “economics” of Muskrat Falls never made any sense in the real world,  Nalcor having now committed all the surplus power as well, has essentially cut the last legs out from its own rationale for the Project. 

There is more.

The new agreement fundamentally integrates the NL and Nova Scotia electrical systems, at NL’s cost and risk.  It amalgamates them! This is where the proposed “Nalcor Balancing Agreement” comes in. 

Emera uses one and a half pages of its nineteen page Submission to inform the UARB of Nova Scotia how Newfoundland’s power system will be changed to accommodate that Province.  THE IDEA DOES NOT EVEN GET MENTIONED IN THIS PROVINCE LET ALONE EXAMINED BY THE PUB!!!!!!   NL’s “firm” energy will, if the UARB allows the deal, become the ‘battery back up’ for Emera’s proposed wind power project.  The PUB was never advised of this plan nor was it contemplated at Sanction.

This is a major public policy issue.  It goes beyond the construction of a hydro project, even a reckless one.    It needs to be dealt with in the House of Assembly. It needs an independent analysis of an NL Agency like the PUB.

Beyond the issues outlined lies the risk that Nalcor will lose Hydro Quebec’s challenge in the Superior Court of Quebec of the Water Management Agreement.  There is the issue of cost overruns and the complete lack of oversight on the Project by our own Department of Finance.

Finally, I have added the contractual commitment found on page 132 of Emera’s initial Application to the UARB.  This one should keep your mind off the problems of the NDP.  It states:

(para 437) “NSMPL (Emera) confirmed that there were no risks to ratepayers from the non-delivery of energy by reason of any legal claim respecting the flow of water, or arising from the reduction of water flow itself on the Churchill River:

The contractual arrangements between Emera and Nalcor do not allow for non-delivery of energy.  If energy is not delivered, Nalcor is liable to pay compensation damages to Emera.  If the non-delivery is as a result of Government Action, the Government of Newfoundland and Labrador has guaranteed payment by Nalcor the compensation damages.  Risks relating to Muskrat Falls are borne by Nalcor.”

I don’t think that clause requires any further interpretation. Do you?

Meanwhile, the Government can’t talk with you and the opposition politicians are all busy.

It’s simply not good enough.