Nfld. & Labrador

6 big problems with cancelling or delaying Muskrat Falls

A confidential briefing note obtained by CBC News lays out some serious problems and no benefits from postponing or cancelling the massive Muskrat Falls hydroelectric project.

Newfoundland and Labrador's massive hydroelectric project hangs in balance as its future is weighed

Opponents of the Muskrat Falls project have called for it to be cancelled or delayed. However, a confidential briefing note says there would be no benefit and plenty of problems with doing that. (CBC)

A confidential briefing note obtained by CBC News lays out some serious problems and no benefits from postponing or cancelling the massive Muskrat Falls hydroelectric project.

Muskrat Falls is a $7.7 billion development — by far the costliest in Newfoundland and Labrador's history — that would tie the province directly to the North American energy grid through undersea cables to Nova Scotia and wean it off oil-powered electricity.

The briefing note was prepared in March for the minister of natural resources and released to CBC News through access to information.

Finance Minister Cathy Bennett has complained that during a time when finances are tight, the province must contribute $1.3 billion to Nalcor to cover the cost of energy investments like Muskrat Falls this year alone.

Some have called on the government to cancel or delay the project.

The new chief executive of Nalcor, Stan Marshall, says he's considering all options, including cancelling the project.

But the briefing note prepared by Nalcor for the minister warns there would be no advantages to cancelling or significantly delaying the project, and doing so would create "substantive legal and financial implications" for the province.

Most of the document was redacted, but the part released lists six major problems.

1. The province needs the power

The province has become increasingly reliant on the oil-fired Holyrood thermal generating station, which is aging and has been prone to mechanical problems like the ones that contributed to the massive DarkNL power outage in January 2014.

The document says the demand for power will outstrip what can be produced by 2018-2019. 

It warns that continuing to rely on Holyrood would have a "significant negative impact on the reliability of the province's electricity system."

The confidential briefing note says without Muskrat Falls Newfoundland won't be able to generate enough electricity by 2018/2019 (Jacques Boissinot/The Canadian Press)

2. A lot of the money has been spent

At the end of 2015, the document says, 50 per cent of the Muskrat Falls work had been completed. Nalcor has spent $4.4 billion and has signed contracts for a total of $6.6 billion in spending (out of the latest cost estimate of $7.7 billion).

Turbines, generators and cables are all being manufactured and officials warn "any delay or cancellation related to the project will only add to the overall cost, including costs associated with cancellation or delay penalties for committed contracts."

3. Ottawa could take over the project

If the project is cancelled or delayed the province would be in default of the federal loan guarantee.

That guarantee from the federal government lets the province borrow $5 billion at lower interest rates.

That agreement requires the province to finish the project.

If that doesn't happen, "Canada has the right to step in and take over the project assets as well as pursue the province for damages resulting from these defaults," the documents warn.

The province (and ratepayers) would still be on the hook for the $5 billion it borrowed, and the federal government would collect the profits from selling excess power.

4. We'd still owe Nova Scotia power

Emera in Nova Scotia is spending $1.5 billion to build a link to Newfoundland in return for some of the Muskrat Falls power.

If the project is delayed "even for a short period of time there are significant remedies to Emera if this power is not provided," the briefing note says. That means Emera could sue Nalcor to recover its costs.

The confidential note also warns Nalcor would still be on the hook for delivering the power promised in the agreement, or provide financial compensation.

5. It would put a lot of people out of work

The construction at Muskrat Falls is putting $9 million a week in to the N.L. economy (Andrew Vaughan/Canadian Press)

Nalcor officials say the project contributes $9 million a week to the economy, so delaying or cancelling Muskrat Falls would put thousands of people out of work, most of whom are Newfoundlanders and Labradorians.

6. N.L. wouldn't be weaned off fossil fuels

With Muskrat Falls the province's power generation would be 98 per cent greenhouse-gas free.

Without it, Newfoundland and Labrador would have to continue burning oil at Holyrood.

The briefing note says "the retirement of the Holyrood thermal generation station will result in the reduction of one million tonnes of greenhouse-gas emissions annually."

No advantages identified

Under the heading "advantages" of cancelling or significantly delaying the project are two words: "None identified."

In fact, the briefing note warns that the ability of Newfoundland and Labrador to borrow money would be in jeopardy, with a "high likelihood of downgrade by the credit-rating agencies and potential that investors would be unwilling to buy future N.L. bond issuances due to concerns over the province's willingness to meet its financial obligations."

The note says the only disadvantage of proceeding is that the province still has to contribute $1.6 billion to finish the project, plus foot the bill for any additional cost overruns, money that will have to be borrowed.

ABOUT THE AUTHOR

Peter Cowan

CBC News

Peter Cowan is a St. John's-based reporter with CBC News.

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