Don't hold your breath for a Muskrat Falls bailout, analyst says
MUN prof thinks N.L. is on its own when it comes to paying for maligned hydro project
Based on federal commentary this week, the chances of seeing a big bailout from Ottawa for the costly Muskrat Falls hydroelectric project are slim, says a Memorial University analyst.
After Monday's restructuring announcement, which saw both provincial and federal officials agreeing to forge a new financing deal, mathematics professor Tom Baird says it'll likely be up to the province to pay off its own debt.
Finance Minister Bill Morneau on Monday hammered home the federal expectation that Newfoundland and Labrador will pay for the project, Baird noted. Given higher electricity rates in other provinces, Baird said, he doesn't expect a bailout any time soon.
"It just doesn't make sense for the federal government to do that," he said. "But it does make sense for the province to do it. I just think we're going to have to pay for it ourselves."
Baird said the province's best bet will take the form of cash transfers to pay off Nalcor's loans. He's estimating that will require $200 million a year for the next decade.
"Ultimately that will be paid for by taxpayers — austerity measures, cutbacks in services, salary stagnation in the public service."
'First step in a thousand steps'
Government outlined four parts for rate mitigation on Monday, which included a cost-for-service model, monetizing assets from the Labrador link, reducing cash requirements with a $150-million deferral from Ottawa into a sinking fund and switching schools and hospitals from oil to electric heating.
Former Public Utilities Board chair David Vardy told CBC Radio's CBC Newfoundland Morning a cost-for-service model means paying for electricity as you use it, but it isn't evident how that system would actually lower rates.
Vardy added he has no idea what monetizing assets from the Labrador link even means.
"What we have is an agreement to negotiate. Really, it's not a detailed agreement. What I was expecting was that there would be some money put on the table, but there's no evidence of that at this stage," he said.
The $150-million deferral is in place to ensure the money is there to meet the payment obligations. Vardy said it's a low amount of money, over a long period of time, which won't amount to a lot.
"So that's not really a big deal. They're kicking payments down the road," he said.
"There's no real relief there. This is really tinkering with the financial arrangements from Muskrat Falls. It really doesn't involve the injection of new money."
As for electrification of schools and hospitals, Vardy says it's a good idea, but is wary of making it happen right away until the power generated from Muskrat is "sufficiently reliable" before forcing the switch.
He also said it would be better to burn oil in home furnaces, schools and hospitals if the PUB finds that Holyrood must remain online where an influx in electrification would ultimately end up burning more oil at the generating plant.
"The good news is they realized the existing arrangements are not going to work — they're not going to lead to affordable power and they're going to renegotiate them," Vardy said.
"But we're a long ways away from the end of that. This is the beginning of a journey. This is a journey and this is the first step in a thousand steps."
Raised rates in Labrador would be 'devastating'
While the island wrestles with keeping rates to 13 cents per kilowatt-hour, Labrador's rates remain low despite threats of increases in recent years.
This week's news has Wabush Mayor Ron Barron concerned the growing provincial debt will increasingly affect Labrador.
"The devil's in the details," Barron said. "We have to know what this is going to cost us."
Barron defended Labrador's rates, and said raising them could damage an already fragile economy.
"I think we're paying enough. It's a resource here in our backyard. We need to benefit from that, not lose from that," he said.
Increases to commercial rates, especially, would harm locals, he added. "That would be devastating. The industry here, it's cyclical anyway.… It's all tied to the price of ore," Barron said.
"If you're going to add a substantial increase to hydro here, operating costs are going to go [up] ... that's going to come back to communities here."
With files from The St. John's Morning Show and CBC Newfoundland Morning