The implications of Muskrat Falls enabling legislation

Ron Penney & Dave Vardy
Ron Penney and Dave Vardy

There are a number of issues arising out of the recent sanction of Muskrat Falls and the enabling legislation which are the cause of grave concern.

The first is the granting of a monopoly to Newfoundland and Labrador Hydro on the island over the generation and transmission of electricity.

Unless all of us pay for the project it cannot be financed. However, the legislation runs afoul of rules which require that there be open access if we want to sell into the American market.

Those rules have been imposed by the Federal Energy Regulatory Commission (FERC) and require that suppliers who generate energy and transmit it on their lines open their lines to others.

Nalcor is proposing to avail of open access to sell up to 330 MW of surplus power from Muskrat Falls to customers, other than Emera, in the eastern United States and Canada.

Open access is also the argument we are using to access transmission lines through Quebec. Does this legislation defy FERC rules on open access?

When asked about this, the minister of natural resources said the following: “There would be or could be potential arguments on that but we’ll have to wait and see if they arise.” There isn’t much comfort to be taken from that.

One of the major arguments for the project is access to the American markets, without having to go through Quebec, but, without open access, that opportunity may well be lost.

The second issue is the further erosion of the authority of the Public Utilities Board (PUB).

While the term sheet for the federal loan guarantee requires that rates be set sufficiently high to recover its high costs, the amendments to the Electrical Power Control Act go far beyond that and allow cabinet to decide if there is to be a hearing and, if there is one, to terminate it.

The effect is to place the PUB under the thumb of cabinet and negate its traditional independent role as the protector of the ratepayers.

The minister of natural resources has also stated that government will look at the PUB after Christmas, re-examining the structure and effectiveness of the board.

It would appear that the PUB is about to be punished for its answer to the reference question on whether Muskrat Falls is the lowest-cost option.

This sends a chilling message to our independent regulatory bodies, which are one of the most important hallmarks of a fully functioning democracy.

Our final point is to ask the question as to what will happen if Emera reverses its sanction decision, which it will have to do should the Nova Scotia Utility and Review Board reject the project — which it has the right to do, unlike our own PUB.

The loan guarantee is contingent on the Maritime Link, which is far from certain at this stage. If it doesn’t happen surely the loan guarantee will not proceed, which means financing costs will increase by $1 billion. How we can proceed with the project without certainty on the loan guarantee?

The question has to be raised: why is government prohibiting competition? If Muskrat Falls is the least-cost option then they will have no fear of lower-cost alternatives.

Does this regressive legislation betray lack of confidence in the wisdom of this sanction decision, in the same way as does the denial of a full regulatory review through the PUB?

We remain extremely concerned about the effect this project will have on the future of the province.

We are convinced that the more sensible approach would be to use a combination of conservation, energy efficiency and much smaller projects until we get to the end of the power contract in 2041, when we will have unimpeded access to very inexpensive power from the Upper Churchill.

Ron Penney is a former Newfoundland and Labrador deputy minister of justice and former city manager for the City of St. John’s. Dave Vardy is former chair of the Public Utilities Board and former clerk of the Executive Council.

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