22 April 2019

Restoring Power - Mitigating the Impacts of Muskrat Falls #nlpoli

Left untended, the Muskrat Falls project threatens the financial well-being of the government and people of Newfoundland and Labrador. The threat cannot be removed merely by directing money from one pot or another to offset the impact the mismanaged project’s costs would have on electricity rates in the province.  

The threat from Muskrat Falls can only be removed by concerted action that addresses the project’s financial burden, restores integrity to the system of electricity regulation, and that breaks, once and for all time, the fundamentally corrupt relationship between the provincial hydro-electric corporation and the provincial government. This is the only way to restore power to the province’s people so that they may control their own future.

Electricity rates should be set by a new Energy Regulatory Authority that would be responsible for regulating both electricity service and onshore oil and gas exploration and development.  The ERA’s electricity division would manage the electricity system as set down in Part II the Electrical Power Control Act, 1994.

The ERA would set rates to provide electricity service to provincial consumers at the lowest cost consistent with reliable service.  As proposed by Jim Feehan, rates would be set in a way that ensures that neither consumers nor service providers are subsidized.  Rates of return would not be guaranteed but would be the result of efficiency within the service providers.

Nalcor and Newfoundland and Labrador Hydro would not have a monopoly on wholesaling electricity.  Newfoundland Power would be able to obtain electricity from any source. 

To pay for Muskrat Falls, Nalcor and the provincial government would first assess the financial requirements, eliminate unnecessary costs, and reduce what can be reduced before developing a payment plan.  Consumers would pay only for the portions of the Muskrat Falls project that supplies electricity to them in rates set by the ERA.  The provincial government would pay for the “equity” portions of the Muskrat Falls debt through general revenues, possibly following a third federal loan guarantee that reduced the interest costs of the debt.  Operations and maintenance costs of Muskrat Falls would be apportioned between rates, as described above, and Nalcor’s own revenues.

The balance owed would come from Nalcor and the provincial government.  One of the potentially  most valuable revenue sources would be a new tax on electricity production that could yield upwards of $450 million a year. The bulk of the tax would be paid by Emera and Hydro-Quebec, both of which currently profit from free or near-free electricity through two patently unfair agreements. Federal assistance in the form of moral suasion may be required to ensure that the two companies assist the people of Newfoundland and Labrador in a fashion that is modest compared to the financial windfalls they have reaped through Churchill Falls and Muskrat Falls.

Lastly, the provincial government must change its relationship to Nalcor/Newfoundland and Labrador Hydro.  Ideally, the government would divest entirely of the corporation in the most financially advantageous way possible. This would likely produce sufficient revenue to address some or all of the Muskrat Falls debt. 

Failing that, the provincial government would fundamentally alter the relationship with the Crown corporation, treating it like private sector corporations.


Read the complete mitigation proposal.