Worrying numbers

We have been told by Ed Martin, the CEO of Nalcor, that the new cost for Muskrat Falls (MF) will be $6.99 billion, this is an increase of about a third from the 2012 sanction of the project. When the sanction was announced, it was rumoured that MF would produce revenue of $20 billion.

At Martin’s news conference he said that MF would produce $30 billion to $35 billion. I have added below an excerpt from the PUB report of March 31, 2012.

The power purchase agreement (PPA) distributes the costs of the Muskrat Falls generating facility over a 50-year period, the anticipated life of the asset, in a per-unit charge for energy sold to Hydro by Nalcor. This rate is expected to be uniform throughout the future period, adjusted only for escalation.

In using the PPA approach, Nalcor assumed that Hydro would sign a take-or-pay contract with Nalcor for the forecast energy purchases from the Muskrat Falls generating facility. To calculate the PPA prices it was assumed that all of the firm output generated by Muskrat Falls would be sold, that the internal rate of return would be 11 per cent, and that equity financing would be 100 per cent.

Since Hydro purchases are expected to be 40 per cent of Muskrat Falls’ firm energy in 2017, the use of this arrangement is forecast to allow Hydro an internal rate of return of 8.4 per cent. Nalcor explained that the take-orpay contract would mean that, regardless of the amount of energy that Hydro needs, it would still have to pay the contracted revenue.

The way I read this, Nalcor is going to get a rate of return of 11 per cent for MF, and NL Hydro and Emera are going to get 8.4 per cent for the link connecting MF to Soldiers Pond. This is a total of 20 per cent the island rate payers will be charged on top of paying 100 per cent of the cost of the project. We can take solace in that the Liberal party and the PC party will give back to the ratepayers the revenue from the power we sold to N.S.

Martin put this at $11 million, or $2 million a year. This doesn’t make up for the $500 million a year we will be paying to Nalcor.

I hope that I am wrong about this, and if I am someone will set me straight. Gerry Goodman St.John’s