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Thursday 17 July 2014


I am writing to take issue with points raised by T.E. Bursey in his article to The Telegram of July 15 (Muskrat Falls is the Right Project for N.L.). Mr. Bursey seems to believe that Muskrat Falls will be the solution to the reliability problems experienced during the past winter.

Nalcor has posited that emergency power will be available from Nova Scotia in the event of a disruption of Muskrat Falls power. We believe that a thermal plant at Holyrood will continue to be needed and that emergency power from Nova Scotia is unlikely to be available when we need it.

The PUB inquiry, particularly phase II, will weigh the evidence on this point but we question the premise that Muskrat power will be more reliable without continued thermal backup on the Avalon.

Mr. Bursey lists experts who provided "supportive reports and comments." Only one of the listed reports was prepared by an independent group, namely the joint federal provincial panel, which was anything but supportive.

In its final report the panel was quite critical of the Muskrat Falls project. The panel concluded that "Nalcor had not demonstrated the justification of the Project as a whole in energy and economic terms… and that Nalcor’s analysis, showing Muskrat Falls to be the best and least-cost way to meet domestic demand requirements, was inadequate." (page13)

Mr. Bursey says that "the cost estimate has now increased to $7 billion, which is some 13 per cent over what was estimated before the detailed planning was completed." The fact is that from 2010 to June of 2014 the cost has increased by 40% (not 13%) and that does not include increased financing costs of $1.330 billion.

Mr. Bursey refers to wind as the alternative and downplays its viability for serving the local market. He discounts natural gas as an option even though the evidence indicates that Grand Banks natural gas can deliver power to Newfoundland consumers at a significantly lower cost than Muskrat Falls, particularly if combined with an LNG facility.

Other options have been overlooked. What about the potential for energy conservation, discouraging electric space heating and encouraging consumers to use heat pumps, solar panels and windmills? What about the Unexplored Alternative (see article by JM on Sir Robert Bond Papers website) of buying power from the Upper Churchill and paying Hydro Quebec the same rate as they are earning in their export markets?

Mr. Bursey bases the case for Muskrat Falls on the flawed concept that this will somehow improve our bargaining position with Quebec. He should understand that the transmission line is sized around Muskrat Falls and much of its capacity of 500 MW will be used to export power to Nova Scotia.

The Maritime Link does not offer an alternative route to sell Gull Island or Upper Churchill power to the Mainland or to the United States. Building 824 MW of high cost power capacity surely weakens the benefit of accessing low cost Upper Churchill power in 2041.

Nalcor admits that development of the Gull Island project will require access to the high voltage transmission lines through Quebec. We do not need the Maritime Link to demonstrate the technical feasibility of an electrical link with Nova Scotia. Mr. Bursey is not alone in rationalizing this project on the basis of the notion that it will somehow give us improved leverage in dealing with Quebec. Indeed we believe that this misguided notion has been a driving force behind this project from the outset.

The amendments to the Electrical Power Control Act (Bill 61) which restrict open access to Nalcor’s transmission lines are in conflict with our historical position that Hydro Quebec should open its lines to carry Labrador power to markets outside the province, without having to sell the power to Quebec as the only buyer. We are telling Quebec: "do as we say, not as we do".

The business case for this project has to be premised on strong and growing demand along with electricity rates that are competitive with those in other jurisdictions. Neither the demand nor the ability to offer consumers rates comparable to those in adjacent provinces and states has been demonstrated.

Mr. Bursey believes it is too late to stop the project. Is it "economic madness" to stop a flawed project? Or is it madness to continue throwing good money after bad. We should not be held hostage to our mistakes.

The large expenditures incurred to date should not blind us to the more cost effective options that have up to now been dismissed, such as energy efficiency and power purchases from Quebec.

David A. Vardy
David Vardy is an economist who served for close to 30 years in a variety of senior positions, including Secretary to Cabinet (Clerk of the Executive Council), President of the Marine Institute, Deputy Minister of Fisheries and Chair of the Public Utilities Commission.