Muskrat Falls interconnections
Nalcor Energy is an energy corporation and a provincial Crown corporation under the Government of Newfoundland and Labrador.
Nalcor Energy was created in 2007 to manage the province’s energy resources. Also, it is a holding company for Newfoundland and Labrador Hydro which is another provincial Crown corporation generating and selling electricity for and to Newfoundland and Labrador and elsewhere.
Newfoundland Power Inc. is a utility company regulated by the Public Utilities Commission.
The history of Newfoundland Power Inc. dates back to 1896 to supply power to the then St. John’s Street Railway Company and to Petty Harbour Hydro Electric Generating Station in 1898.
Currently Newfoundland Power buys, generates and sells electricity to residents and companies in Newfoundland and Labrador. In 1987 shareholders of Newfoundland Light and Power Co. joined Fortis Inc., the holding company, with Fortis Inc. owning all of the regulated electrical utility. Fortis Inc. is now one of the top 15 utility companies in North America and has grown from just $0.39 billion in assets when it was formed to about $53 billion in 2019. Fortis Inc. is a publicly traded corporation.
In order for the electricity from Muskrat Falls project to be sold to people in this province, it has to be processed through Nalcor Energy to Newfoundland and Labrador Hydro and then to Newfoundland Power, which is owned by Fortis.
Nalcor Energy has already been paid several billion dollars by the provincial government. Newfoundland and Labrador Hydro will want its mark-up. Newfoundland Power has a rate of return set by the Public Utilities Commission. Fortis has to be cognizant of its shareholders. Without government intervention, it seems as if electricity rate payers are going to be paying unnecessarily more than the anticipated project cost ($12.7 billion) by cycling Muskrat Falls electricity through several companies.
Financing $12.7 billion at 3.5 per cent requires an annual interest cost of $444,500,000 (https://investorrelations.gov. nl.ca/default.aspx). Annual cost savings of oil by not using the Holyrood plant would be $189,400,000, assuming the current price of oil, an exchange rate of 1.32 (U.S. $ to Canadian $) and 39 per cent use of Holyrood power, as the Holyrood plant is not in use 100 per cent of the time.
If the price of oil was US$100 a barrel, as it has been many times between 1978 and 2012, the cost savings would be $338,200,000 annually.
The provincial government has made the decision not to increase electricity rates as a result of a transfer of electricity from the Holyrood plant to Muskrat Falls plant.
It is interesting to note that the former CEO of Fortis retired in December 2014 after serving with the company for 35 years.
The current provincial government came to power in December 2015. The new CEO of Nalcor Energy was named April 2016, who was the former CEO of Fortis. In hindsight, Fortis may have been the better and cheaper choice for developing the Muskrat Falls project, bypassing Nalcor Energy and Newfoundland and Labrador Hydro.
Indirectly, assuming the above corporate structures remain the same, after Muskrat Falls produces full power, Fortis (through Newfoundland Power) will benefit from not using expensive energy from the Holyrood plant, except in an emergency, and may advertise itself as a clean energy company.
The former CEO of Fortis, while he was CEO of Fortis, indicated that Fortis would not be interested in a project that it did not have at least 51 per cent control or ownership of the project.
The former provincial government wanted to develop Muskrat Falls hydro project for various valid reasons, but because Fortis did not seem interested or for other reasons, the provincial government of the day used Nalcor Energy for its development.
Fortuitously, Fortis has appeared to have avoided the risks and obtained the benefits of others who have developed the Muskrat Falls project.