Nfld. & Labrador

Nalcor downsizing an 'important,' money-saving step, according to former PUB chair

David Vardy, former chair of the Public Utilities Board, says folding Nalcor into its subsidiary Newfoundland and Labrador Hydro will save tens of millions of dollars, and potentially as much as $50 million per year.

David Vardy claims folding Nalcor into N.L. Hydro could save ultimately $50M a year

David Vardy says folding Nalcor into Newfoundland and Labrador Hydro is in line with recommendations from the PUB and the Greene report. (Terry Roberts/CBC)

A vocal critic of the troubled Muskrat Falls hydroelectric megaproject is pleased with the decision to dismantle Nalcor Energy and fold the Crown corporation into its main subsidiary, Newfoundland and Labrador Hydro.

David Vardy, former chair of the Public Utilities Board, says it's an "important step to take" to help address the province's stark financial issues.

"It's very significant that this major step was taken early on and it's a signal that other changes will follow and this is all part of a plan to bring us back into fiscal balance," he told the St. John's Morning Show Thursday. 

During a news conference Wednesday, Premier Andrew Furey said folding Nalcor into N.L. Hydro will save taxpayers a significant amount of money, but there was no estimate of just how much will be saved by combining the two entities.

Vardy said in a 2020 report on electricity rate mitigation, the PUB indicated that by downsizing the division of Nalcor responsible for constructing power generation projects, it could save about $20 million in the next year or two.

That figure could rise to between $48 million and $50 million by 2030, according to Vardy.

"You're going to end up with savings down the road, which will accumulate," he said.

"That's well identified by the consultants that reported to the Public Utilities Board, they've got a pretty good handle on that, that's not just speculation."

Savings will also come through the elimination of administrative costs and executive salaries, as Vardy said there is a lot of duplication between Nalcor and Newfoundland and Labrador Hydro.

Vardy said eliminating Nalcor falls in line with recommendations from the Public Utilities Board (PUB) and the premier's economic recovery team, of which he was a member. 

On Wednesday, Furey said the move was not being made solely because of the Greene report, and called its recommendation a coincidence.

Contacted by CBC News for an interview, former Nalcor CEO Ed Martin responded that he had "nothing to discuss" on the topic.

A spokesperson for former premier Danny Williams told CBC he was not available for comment on the issue.

An 'orderly transition'

Nalcor Energy was created in 2007 during the Danny Williams administration, to oversee the province's hydroelectric and oil and gas assets. The corporation developed and managed Muskrat Falls, a project first projected to cost $7.4 billion, which has now ballooned to $13.1 billion.

The process will be an "orderly transition," Vardy said, with the Muskrat Falls project being completed before the switch takes place.

"You'll end up with the people who were involved with building Muskrat Falls moving on to other things, and then the entity, the utility, will sort of refocus on its ongoing operations, and that will require a smaller compliment," he said.

But Vardy said those cost savings probably won't make for lower energy costs anytime soon, as rate increases have been mostly driven by costs at Muskrat Falls.

"This is only a part of the overall equation in terms of bring power rates in line, because once the Muskrat Falls project is completed, the biggest costs you've got is going to be capital costs, and that is the cost of principle repayment, the cost of interest," he said.

"Those are costs that we will continue to be obliged to pay."

Read more from CBC Newfoundland and Labrador

With files from The St. John's Morning Show

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