Muskrat Falls is best option despite $1.2 billion hike in costs, premier says

ST. JOHN’S, N.L. – The Muskrat Falls hydroelectric project is the best plan to meet Newfoundland and Labrador’s future energy needs, Premier Kathy Dunderdale said Tuesday even as her government raised the predicted price tag by $1.2 billion.

The megaproject in Labrador is now estimated to cost $7.4 billion, up from the $6.2 billion the government calculated when it announced plans to build it two years ago.

“The simple fact is Muskrat Falls stands on its own merit,” Dunderdale told a news conference packed with government supporters in a St. John’s ballroom.

“Its benefits will be felt throughout the Atlantic region, across the country, around the globe, but most importantly by the people of Newfoundland and Labrador.”

Provincial Crown corporation Nalcor Energy said it’s recommending the province sanction its plan with Nova Scotia private utility Emera (TSX:EMA) to harness power from the lower Churchill River in Labrador.

It released an arm’s-length report from Manitoba Hydro International on Tuesday that says Muskrat Falls would cost $2.4 billion less over 50 years than if Newfoundland relies on its oil-burning plant in Holyrood and other power sources.

The province’s Progressive Conservative government is expected to decide later this year whether to approve the project capable of producing 824 megawatts. It says it expects first hydro to flow in 2017, if sanctioned.

But critics of Muskrat Falls pounced on what they called a public relations stunt meant to gloss over yawning information gaps.

Nalcor included in its new numbers assumed benefits worth hundreds of millions of dollars from a promised federal loan guarantee — even though that deal is not final.

It also shaved a contingency fund in case of cost overruns to $730 million, down from about $1.1 billion earmarked in 2010, saying that half the engineering work is now done so cost estimates are more certain.

And it did not offer a clear per kilowatt-hour rate for Muskrat Falls power. But Nalcor has posted an online calculator that it says allows customers to see how their utility bills would be cheaper over the long term under this plan.

Nalcor president and CEO Ed Martin said Tuesday that higher Muskrat Falls capital costs are for completed engineering work and the price of various improvements, including a repositioned power house to enhance water flow. Stronger transmission towers built to withstand fierce ice and wind storms have also been upgraded.

Dunderdale said the project would eventually generate enough revenue to cover its costs, including the repayment of debt. At peak construction, it would employ 3,100 people, she added.

But Emera’s cost to fund a subsea transmission link to bring power to Nova Scotia has not been updated pending a regulatory review. That is expected to exceed $1.2 billion.

Asked about missing or unpublicized data, Dunderdale said Muskrat Falls is the most scrutinized project in provincial history.

She also downplayed recent criticism aimed at Manitoba Hydro International after the Wuskwatim hydroelectric project on the Burntwood River in northern Manitoba mushroomed to an estimated $1.7 billion from its projected cost of $900 million. Manitoba Hydro, parent company of MHI, was a co-partner in the development that came online last summer.

Dunderdale said Muskrat Falls was also endorsed by global energy analyst Navigant Consulting and the provincial consumer advocate. Navigant used 2010 data from Nalcor to conclude that Muskrat Falls is the cheaper energy option by about $2.2 billion over the 50-year life of the project.

“Our commitment to the sanction decision remains the same,” Dunderdale said. “We will make a decision that is truly in the best interests of Newfoundlanders and Labradorians.”

Opposition parties will have a chance to review the latest cost estimates along with reports on wind power and natural gas before a debate on Muskrat Falls in the legislature.

Liberal Opposition Leader Dwight Ball said he’ll keep pushing for a chance to question expert witnesses, and NDP Leader Lorraine Michael said Tuesday she won’t take part without details from a final federal loan guarantee.

“We have a responsibility to the people of the province to make sure that we are really debating from full knowledge,” Michael said.

Emera spokeswoman Sasha Irving said ratepayers in Nova Scotia will get full disclosure on costs for the Maritime link of the project at hearings before the Nova Scotia Utility and Review Board. The company is waiting on the loan guarantee before filing its numbers with the regulator, she said.

Dunderdale has been saying for weeks that talks are in the final stages.

In an email Tuesday in response to an interview request, federal Natural Resources Minister Joe Oliver said Ottawa supports Muskrat Falls as an economically viable project that will cut greenhouse gases and create jobs.

“We will continue to review the project in consultation with our independent financial adviser.” No timeline for a deal was provided.

Nova Scotia Premier Darrell Dexter said higher labour costs will likely raise his province’s share for the Muskrat Falls subsea link. It’s expected to deliver 170 megawatts of energy a year or about 10 per cent of the province’s total needs for 35 years.

Dexter said the real question for Nova Scotians is whether the project remains the cheapest option as the province weans itself from coal-fired generating plants. He said he believes Muskrat Falls is the best alternative but provided no figures to back the claim.

Under legal contracts signed in July, Emera has until July 2014 to opt out of Muskrat Falls.

Nova Scotia Liberal Leader Stephen McNeil said the province needs to know the costs for power bills before it signs on.

“(Dexter) keeps talking about this being the lowest cost option yet he can’t tell you the number. How does he know that?”

The project has been on the drawing board in one form or another for decades. In 1980, it passed an environmental assessment but was set aside due to market access and financing issues.

Concerns over loss of animal habitat and effects on traditional native lands have also stalled progress in the past and are the subject of ongoing protest.

But Dunderdale said the time to move forward is now.

“It’s taken us all a long time to get to this place. But during the last 10 years we have made remarkable progress. This is not the time to rest on our laurels. Now is the time to build on our momentum.”