Ratepayer versus taxpayer: Stan Marshall raises subsidization question in latest talk on Muskrat Falls

Nalcor Energy CEO Stan Marshall says the Crown corporation will do what it can to alleviate power rate increases when Muskrat Falls is fully energized in about two years, but he also raised the question of outright rate subsidization by government on Tuesday.

Will government use oil and gas money, as some have suggested, to blunt the pain? Perhaps dip into general revenues in a province already in the grips of a financial crisis?

Marshall wouldn't say if he believes that should happen, but he referenced such a scenario in a speech to the Atlantic Provinces Economic Council in St. John's.

'Not for me' to say, says Marshall

He made a point of differentiating ongoing rate mitigation efforts by Nalcor, and subsidization of power rates, which are expected to double from the current rate of just under 12 cents per kilowatt hour.

When asked later if he believes government should subsidize rates, he replied, "That would be a public policy decision. Not for me. It's for the government. It's doesn't matter if I agree or disagree."

The province has not offered a clear strategy on how it plans to address the "rate shock" that will hit the province when the bills starting rolling in for the Muskrat Falls, only to say it's important that rates remain on par with other Atlantic Canadian provinces. 

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But so-called rate mitigation and Atlantic Canadian parity won't be easy.

It will cost anywhere from $60 to $70 million a year to reduce the domestic rate by one cent, Marshall explained, and the price is expected to surge to about 22 cents per kilowatt hour in a few years.

That's considerably higher than prices currently paid in Nova Scotia, New Brunswick and Prince Edward Island.

And Marshall acknowledged the annual "all-in" cost to operate and pay for Muskrat Falls will range from $600 to $800 million.

Marshall calls Muskrat Falls a 'scheme'

So where will the money come from?

Marshall said Nalcor is doing all it can, but again cautioned utility customers to brace for "substantially" higher rates.

He said rate increases were inevitable "the moment you commissioned the project," which he referred to Tuesday as a "scheme."

The scheme is based upon the Newfoundland consumer being on the hook to pay for the cost of it, and that the rates would go up substantially to do that.- Stan Marshall

"The scheme is based upon the Newfoundland consumer being on the hook to pay for the cost of it, and that the rates would go up substantially to do that," said Marshall, who took over as Nalcor CEO two years ago and almost immediately labelled Muskrat Falls a boondoggle.

Muskrat Falls is a taxpayer-funded project that was sanctioned in 2012 at a construction cost of $6.2 billion, and estimates at the time predicted rates would jump from 11 to 15 cents per kilowatt hour.

But a lot has changed in six years. Construction costs have since ballooned to $10.1 billion, with nearly $3 billion more in financing costs. Electricity sales in the province will be lower than first projected. And the market for Muskrat Falls power outside the province has weakened because of an abundance of cheap natural gas in places such as the United States.

All this burden will fall on the shoulders of Newfoundlanders and Labradorians, said Marshall, who hinted that the provincial government may be forced to start writing cheques to keep power bills manageable.

"When we talk about mitigation it's about using our assets to accrue some savings and giving it back to the customer. Anything beyond that in terms of public policy decisions on subsidization is up to government, not up to us," he said.

Project more than 90 per cent complete

Meanwhile, Marshall gave his standard update on the controversial hydroelectric project Tuesday.

More than 90 per cent complete. Roughly $8.2 billion of an estimated $10.1 billion spent to date. Transmission lines from Churchill Falls to Muskrat Falls, and a historic line from Muskrat Falls to Soldiers Pond on Newfoundland's Avalon Peninsula, all but complete, and testing now underway.

Electricity from Labrador is expected to be powering homes and businesses on the island later this year, a full two years ahead of the planned completion of the 824-megawatt generating station in Muskrat Falls.

The plan is to put the Holyrood generating station out of business, and replace its expensive oil-fired electricity with much cheaper power from the iconic Upper Churchill, saving roughly 10 cents per kilowatt hour.

'Disastrous' wind and solar projects

Marshall said it's possible to bank as much as $175 million in savings over a two-year period, with this money being used to help lessen the burden as rates climb.

He said Nalcor will also pursue power sale agreements elsewhere, noting that rates are also expected to rise in places like Ontario, where what he called "disastrous" wind and solar projects have forced the government to subsidize power rates in that province.

"All we can do is use our best efforts to save as much as we can and try to give it back to consumers in the way we think it must be done," he said.