An external review has come out in favour of the controversial Muskrat Falls hydro project, although the finding comes attached with a basket full of conditions and provisos.

Nonetheless, Newfoundland and Labrador Premier Kathy Dunderdale embraced the Manitoba Hydro International (MHI) study Wednesday as an endorsement that has sparked a sharp political debate, and divided opinions about whether Muskrat Falls is a sound energy plan or a boondoggle waiting to happen.

"I'm pleased," Dunderdale told reporters in St. John's.

"I'm not surprised, at all, given all of the information we've had up to this point, and the independent assessments we've had."

Manitoba Hydro was assigned to review Nalcor's plan to tap power at Muskrat Falls on Labrador's Churchill River, and then move the power to Newfoundland.

Specifically, it was asked to determine whether the plan was cheaper or more expensive than generating power on the island through small-scale hydro and also replacing the aging oil-burning plant at Holyrood, outside St. John's.

"MHI finds that the Muskrat Falls generating station and the Labrador-Island link HVdc projects represent the least-cost option of the two alternatives, when considered together with the underlying assumptions and inputs provided by Nalcor," the report found.

Muskrat Falls could be $2.2 billion cheaper than the island-only alternative over the long term, according to the report.

But Manitoba Hydro underscored that its findings could be changed by significant "risks and uncertainties" that could affect the financial results of the Muskrat proposal.

Those include:

  • cost overruns of 50 per cent would reduce the advantage of Muskrat Falls to less than $200 million;
  • a drop in fuel price forecasts 44 per cent below the figures used by Nalcor would mean no difference between the two options;
  • the problems associated with these forecasts are "further magnified" considering the 50-plus year time frame — from today all the way to 2067 — used in the analysis.

The report was delivered this week to the Newfoundland and Labrador Public Utilities Board, and was needed before the PUB can start public consultations leading to a March 31 review deadline.

Nalcor CEO Ed Martin said the decision on whether or not to proceed with Muskrat Falls will take into account the warnings in the MHI report, as well as data collected from other sources, including a September 2011 report by the independent consulting company Navigant. 

"For when we sanction, we will be able to say we've considered all this," Martin told reporters.

"We have taken MHI's information, Navigant's, our own, everybody else's, and here is the fundamental decision we've made."

Natural Resources Minister Jerome Kennedy hailed the report as an endorsement of Muskrat Falls, but agreed more assessment needs to be done.

Liberal MHA Andrew Parsons said the caveats in the report are further proof that a full PUB review is needed.

Meanwhile, NDP Leader Lorraine Michael said the report was too narrowly focused and did not consider all the options.