Rising falls

In June 2004, Nalcor Energy CEO Ed Martin announced that the total cost for the Muskrat Falls hydroelectric project had jumped by $800 million.

It wasn’t entirely unexpected, although the new price tag was curious: $6.99 billion.

Not $6.9 billion or $7 billion, but $6.99 billion. It’s the kind of pricing gimmick you’d expect on a pair of sneakers at Walmart, not a giant dam across the Churchill River. But here’s the real kicker. For months, journalists, opposition politicians and members of the public had been pressuring Nalcor for fresh numbers. At the time, Martin said he wanted to make sure all major contracts had been awarded first.

And so they were, supposedly. Martin said contracts signed to that point were unit-cost contracts or fixed rate agreements, so they won’t suffer overruns.

“I believe that we have narrowed down the risk of additional cost increases very, very, very significantly,” he said. For the record, that was three “very” s. Fast forward to Tuesday. Nalcor has now added another $660 million to the bill, pushing the total tally to $7.65 billion.

Why? Primarily because bids for major contracts are coming in much more expensive than Nalcor expected.

“What we’re seeing in these bids when they come in, they’re higher — much higher — than we have budgeted for,” he said, “even though we’ve done the work, we’ve had independent people help us do the work in terms of what this type of thing should cost.” Hold the phone. Last year, the big contracts were in place and were fixed rate agreements. Remember? No overruns.

This alone is enough to shatter the faith of even the most devout Muskrat boosters. But it doesn’t begin to scratch the surface. First, there’s the matter of interest. Muskrat Falls is a revenue-generating project, so its cost is not calculated like regular government infrastructure. The province builds a school and the cost goes on our capital debt.

But Nalcor, through Newfoundland and Labrador Hydro, has to absorb the cost of interest on loans. And it can only do that on the backs of ratepayers.

So the total cost of Muskrat Falls, interest in, is actually now in the $9 billion range. That puts it squarely in territory staked by a number of Muskrat doomsayers right from the beginning.

As well, will there be penalties for a full year’s delay in completion, also announced Tuesday?

And how will Nalcor meet its obligation of 900 gigawatt hours of power to Nova Scotia if the Maritime Link is completed on time — especially during a blackout-prone winter?

Most importantly, how long has Martin known about pending problems? Because all we’ve received until now are patronizing pats on the head.