Nalcor posts $90M loss for 2020, as outgoing CEO calls for Gull Island development
Offshore oil tumult blamed as cash slide extends into first quarter of 2021
Outgoing Nalcor Energy CEO Stan Marshall has delivered a warning for the future of Newfoundland and Labrador's energy corporation and is calling for further hydroelectric development, on the heels of the release of Nalcor numbers that show its finances sliding.
Marshall spoke to reporters shortly after Nalcor's annual general meeting Thursday, in which the company outlined how it ended 2020 with a loss of $90 million, with the red ink continuing for the first three months of 2021.
2020's loss stands in stark contrast to the year prior. In 2019, the utility racked up a $126-million profit — a $216-million difference from the pandemic-plagued year that followed.
A pandemic-fuelled collapse in oil prices, alongside a production war between Russia and Saudi Arabia, rocked the global oil industry early in 2020. That contributed to a financial hit known as a non-cash impairment charge on Nalcor's oil and gas assets, which ended up responsible for a chunk of its 2020 loss.
Other oil and gas companies were dealt similar impairments in 2020, said Carla Russell, Nalcor's chief financial officer —Suncor had a $425 million impairment charge related to its Newfoundland assets and projects last year.
Despite the impairment charge, Russell said, Nalcor's oil and gas revenues actually increased in 2020 from the year before, generating $221 million for the utility through cash sales and royalties.
Nalcor's financial woes have so far continued in 2021, albeit to a lesser extent. It lost $57 million in the year's first quarter, a comparative improvement over the same time frame in 2019, when it lost $171 million.
Muskrat Falls: From 'absolute crisis' to nearly complete
Nalcor did save in 2020 on capital projects compared with the year before, thanks to construction on the Muskrat Falls hydroelectric megaproject that's "now complete, for all practical purposes," Marshall said.
Marshall, who ends his tenure at Nalcor's helm Tuesday, reflected on coming into the top job in 2016, when he infamously termed the Muskrat Falls project "a boondoggle."
"The thing was on the verge of collapse. It was absolute crisis. You had a hole in the ground, basically, with the main contractor within weeks of abandoning the project," he said, adding that about $8 billion had been spent with "nothing to show for it."
Turning that around dominated his contract, Marshall said, and kept him from tackling other aspects of the utility. Fast-forward to 2021, and Muskrat Falls "should be pretty straightforward now to bring to a finish," Marshall said.
Forking out a full year of interest payments on Muskrat Falls also affected Nalcor's bottom line in 2020.
The project remains on target to be fully operational in the fall at an expected final bill of $13.1 billion, said Marshall — the pandemic stalled work last year from mid-March until June. Much of the work left is with software to handle delivering the power from the dam to Soldier's Pond in Newfoundland. At the moment, the system can handle lower power loads, but the tweaks are ongoing to get it running close to or at capacity.
Once up and running, Marshall said, the Holyrood thermal generating station should stay on for a year or two as backup before being decommissioned.
Gull Island, and the Greene report
While Marshall wouldn't comment on what rate mitigation measures may lie on the horizon for the province's electricity consumers — saying it's an area he hasn't been involved in as CEO — he did have strong words for the future of Nalcor Energy itself.
The recently released report from the premier's economic recovery team chaired by Moya Greene recommended abolishing Nalcor, citing its expensive operating model, size and complexity.
If that entails simply changing corporate structures and names, that's fine, Marshall said, but the highly skilled engineers assembled at Nalcor in recent years should be kept intact.
"The future of this province depends on hydroelectric resources.… You're going to need the expertise that's at Nalcor. It's nowhere else in this province," he said.
That hydroelectric resource, specifically, is Gull Island, the next phase of the Lower Churchill Project after Muskrat Falls. Marshall said that is key to developing the Atlantic Loop regional energy grid and weaning Nova Scotia and New Brunswick off coal.
"If you want to do GulI Island, now's the time to do it. We have all these highly skilled people available to us," he said.
Marshall said he had meetings with the Innu Nation last week in which they asked about the idea of developing Gull Island, a change from the protests against Muskrat Falls.
"Things change. And again, you got to have the confidence to do these things, and do them right. and learn the lessons of the past," he said.
"You just can't sit back and say, 'We can't do anything because we messed it up last time.'"
Marshall advice now appears to be his only contributions toward that future.
"I never wanted to work with government, and I'll never work with government again," he said, although he noted he's not following that advice, and after a summer off will be working on the Trans Mountain Pipeline.
Jennifer Williams, the president of Newfoundland and Labrador Hydro, will become the interim CEO of Nalcor Energy when Marshall retires.
With files from Carolyn Stokes