Impact on Nova Scotia ratepayers of Muskrat Falls project expected to be minimal
Ratepayers in Nova Scotia are likely to feel little impact from potential cost overruns from Nalcor Energy's Muskrat Falls hydropower project since they can be protected in a forthcoming review by the province's regulatory agency, energy expert Gordon Weil said in an October article published by the Atlantic Institute for Market Studies.
The Nova Scotia Utility and Review Board will be reviewing the agreement between Nalcor Energy and Emera Inc., the parent of Nova Scotia Power Inc., according to terms announced by the Ministry of Energy on Oct. 5.
The amount of energy that Emera will be getting from the project will be only 8% of total Nova Scotia Power supply, so the rate impact, "either up or down, could be small," Weil said in the article, titled "The Muskrat Falls Hydro Project: Opportunities and Risks."
The impact of the project and its costs will be felt more heavily by Newfoundland and Labrador, which is the sole owner of Nalcor Energy, Weil noted. Nalcor Energy acts more like an investor-owned enterprise with a clear profit motive than a regular utility, he said.
The cost of the project will "undoubtedly be higher than the [C]$6.2 billion" that has been used in Nalcor's cost estimates, and if the costs are higher than planned, "ultimately, the NL taxpayers, either through Nalcor or directly, or utility customers are responsible for revenue shortfalls," Weil said.
In a look at the 13 agreements totaling about 1,500 pages that spell out the Muskrat Falls project, Weil concluded that the project has benefits not only for the proponent, Nalcor Energy, and its partner Emera, but for Atlantic Canada, with the potential for creating a regional grid.
An Atlantic power pool would dispatch electric power to load at the least cost for the greatest reliability, Weil said. The pool, as envisioned by Weil, would be similar to the New England Power Pool, the predecessor of the current independent system operator in the U.S. The pool would be run by an independent manager, have a single transmission tariff and give Nalcor a steady revenue stream, Weil said.
The Muskrat Falls project calls for Emera to receive 20% of the 824 MW generated at Muskrat Falls in Labrador for 35 years, in return for building a subsea interconnect transmission line between Newfoundland and Cape Breton, Nova Scotia. Emera also will assist in the funding of the interconnection transmission line between Labrador and Newfoundland, which gives the company access to Newfoundland and Hydro-Québec in Labrador.
Nalcor will gain access to the New England markets by use of Emera's rights to transmission of 260 MW in New Brunswick and 300 MW on the line to Maine. Though this is a concession to Nalcor, "it can reasonably [be argued] that the benefits [to Emera] outweigh the costs," Weil said.
Furthermore, "there is no reason to believe that the transmission system will remain as it is over the coming decades, so Emera may be able to overcome the long-term effect of the concessions it would make," Weil said. Nova Scotia and New Brunswick have previously discussed enlarging the transmission capacity between the two provinces.
The cost of the project remains the biggest unknown with the potential to derail the project, Weil said. To keep the project on track, a review of potential revenues from off-system sales of excess power should be made, he said, adding that export sales are needed and without those revenues, "costs are likely to fall on NL customers."
The review "should go beyond the expectation of revenues from spot market sales" and look at longer-term arrangements with its excess power, Weil said.