Oh the irony: the upside down assumptions of Muskrat Falls, Churchill Falls
Muskrat Falls boosters believed energy prices would rise; the reverse was assumed 50 years ago
When asked Friday why things have gone so horribly wrong with the Muskrat Falls project, Stan Marshall dredged up another painful period in Newfoundland and Labrador's history — the 1960s era Churchill Falls project — as a comparison.
The new CEO of Nalcor Energy said there were faulty assumptions with both Labrador hydroelectric projects when it came to energy prices, but from completely opposite angles.
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As a result, taxpayers in this province are paying a high price — again.
When Churchill Falls, with a capacity for more than 5,400 megawatts of power, was being constructed a half-century ago, no one expected energy prices to rise.
But when they did, Hydro-Quebec began enjoying the windfall profit because of a lopsided contract that weighed heavily in favour of the Quebec government-owned utility.
"Newfoundlanders didn't have any investment there and didn't get to benefit from (a rise in energy prices). So it lost an opportunity," Marshall explained.
Muskrat Falls the best option?
Fast-forward to the present date, and some 300 kilometres east along the Churchill River, and the irony is gushing like water through a turbine.
The 824 megawatt Muskrat Falls project was sanctioned in 2012, pitched by former premiers Danny Williams and Kathy Dunderdale and former Nalcor CEO Ed Martin as the best option for this province's future energy needs.
Oil, by the way, was at about US$110 a barrel at the time.
The cost of building a generating station at Muskrat Falls, and transmission lines to Churchill Falls and to the island portion of the province, was estimated at $6.2 billion, with Newfoundland and Labrador taxpayers, through Crown-owned Nalcor, picking up the tab.
Hydro Quebec? Not a player this time.
Nalcor reached a deal with Nova Scotia's Emera to build the Maritime Link, which will bring Muskrat Falls power from the island of Newfoundland to Nova Scotia, connecting this island to the North American grid for the first time.
In exchange for building the link, Emera will get 20 per cent of the power for 35 years, and Nalcor can sell excess power on the market.
Sure, Muskrat Falls will generate far more power than the province needs, but the theory was that excess power could be sold at a profit.
One of the factors used to argue the viability of the project was that energy prices would continue to trend upwards, making it the best alternative to oil-fired generating options like the Holyrood thermal plant.
But that assumption has backfired. And in a big way.
Oil collapsed in late 2014, and is now trading at around $50.
If this were Churchill Falls in the 1960s, Hydro-Quebec and its partner at the time, Brinco, would be feeling the pain.
But we're all in. And the cards are now stacked against us.
The price tag for the Muskrat Falls project is now estimated at $11.4 billion, with borrowing costs factored in, and electricity users in this province are now facing "severe hardship" (Stan Marshall's words) in about four years, when the power comes online and the loan payments begin.
So just four years after it was sanctioned, and just two months after occupying his executive office at Nalcor, Stan Marshall says Muskrat Falls was not the right choice for the province's power needs.
Is it a boondoggle? Marshall was asked Friday.
"I would say so," he replied.