03 May 2012

Why we are Muskrat Fallsing #nlpoli

Natural resources minister Jerome Kennedy explained it all in the House of Assembly on Wednesday:

…let’s be clear on why we are developing Muskrat Falls, if we develop it. It is to satisfy our need at home; to allow for a link to Maritime and Eastern US markets; and to provide electricity for mining developments in Labrador. So, essentially, Mr. Speaker, what will happen is that we will use the energy we have available, until we need to recall, on the spot markets. We are not looking, Mr. Speaker, for power purchase arrangements. There is, by the way, as Mr. Weil said in the CBC interview, markets in the Maritime area.

Note the order of priority:

  1. “to satisfy our need at home;
  2. “to allow for a link to Maritime and Eastern US markets; and,
  3. “to provide electricity for mining developments in Labrador.”

On that last one, note that a year ago, Kathy Dunderdale wasn’t talking about using Muskrat Falls for Labrador development:

Now, Mr. Speaker, we have recall power from the Upper Churchill that is now available for industrial use in Labrador.

That was then. This is now. Stories change.

Then notice the added bit:

“…we will use the energy we have available, …, on the spot markets…”

Kennedy noted a wee bit after he said those words that Nalcor is selling power now to the United States through Quebec.  Funny how Jerome sometimes remembers that Labrador electricity isn’t blocked by Quebec.  Funnier how he forgot to mention that Nalcor loses money on the transaction any time it sells power in that wheeling deal..

Notice what we are not looking for:

We are not looking, …, for power purchase arrangements.

We are not looking for them because we cannot get them.  The only power purchase agreement Quebec has managed to sign lately was with Vermont for less than six cents per kilowatt hour.  Even allowing the Nalcor costing that pushes the cost of Muskrat to the distant future, Muskrat Falls will cost seven cents per kilowatt hour. 

And that is before you add on the cost of getting it through Newfoundland, Nova Scotia, New Brunswick and however many American states before it gets to the customer.  If they can’t make money selling Churchill Falls power to the Americans, then they won’t make any money selling them juice from much more expensive project.

Kennedy understands this:

“There is a market, Mr. Speaker. The price is another thing because, remember, the Emera link gives us transmission access to the American markets without paying undue tariffs.”

There is a market.  Unfortunately, there are so many tariffs between Muskrat and the end user that Nalcor can’t sell power and make money at it.

The price is not another thing.

It is the only thing.

That’s why the only revenue Nalcor knows it will get for Muskrat Falls is what they will get from local rate payers.  Jerome knows it too.  Remember the first priority he listed.

- srbp -