Muskrat mitigation 'a good work in progress,' says N.L.'s consumer advocate

After four days of study and discussion, consumer advocate Dennis Browne says he's cautiously optimistic about efforts to keep electricity rates affordable in the Muskrat Falls era.

"This is a work in progress. But it is a good work in progress," Browne told reporters during a 45-minute presentation at his St. John's office.

Browne was reacting to a highly anticipated event at MUN's Signal Hill campus on Monday, in which Premier Dwight Ball pledged "your rates will not go up as a result of Muskrat Falls."

Browne said he's encouraged by Ottawa's willingness to overhaul the existing financial model for the hydroelectric project, which is billions over budget and years behind schedule.

"From a ratepayer perspective, I would have to say yes … ratepayers will be better off," Browne said.

But many people are still trying to make sense of what Monday's announcement really means. 

Will tearing up the original financing arrangement for Muskrat and replacing it with a so-called cost-of-service model keep rates affordable?

Will Ottawa provide enough of a bailout to allow rates to stay below 14 cents per kilowatt-hour in 2021, and only increase at the rate of inflation in future years?

Questions like those have not been answered with great detail, because it's still unknown exactly how much revenue will be needed each year to pay for financing charges, operations and maintenance and other costs.

"That's why there is this uncertainty about numbers.… They didn't give numbers because they couldn't give numbers," Browne explained.

Ball and St. John's South-Mount Pearl MP Seamus O'Regan, Newfoundland and Labrador's representative in the federal cabinet, announced Monday that the existing power purchase agreement for Muskrat will be replaced with a more traditional cost-of-service model.

According to government officials, the change will reduce the revenue requirements by $30 billion over the coming decades, largely because massive dividends that would have gone to Nalcor will no longer be collected.

One of the downsides to the new structure is that it will require higher upfront costs, and that's where the uncertainty remains.

The funding gap is estimated at $4.8 billion over the next two decades, and a study by the province's utility regulator determined that rate mitigation measures such as electrification and dividends from the new transmission line from Labrador to the Avalon Peninsula can generate up to $200 million annually.

The words Muskrat Falls will be used for decades to come to warn of the dangers of political folly, extraordinary financial risks, and implausible projects.- Dennis Browne

But that still leaves a gap of hundreds of millions every year until revenues and expenses merge sometimes in the early part of the 2040s.

So Ottawa and the province are trying to figure out the exact numbers before Muskrat is commissioned, perhaps later this year.

And there's hope Ottawa will be able to bridge the gap, perhaps through upfront payments that will be repaid in future years, when Muskrat is expected to start earning money.

"It will take a gutsy political decision," Browne said of federal Finance Minister Bill Morneau's commitment to negotiate a permanent, long-term solution for the financial challenges of a hydro project that will forever be a cautionary tale.

"The words 'Muskrat Falls' will be used for decades to come to warn of the dangers of political folly, extraordinary financial risks, and implausible projects," he said.

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