Challenges to Muskrat Falls produce opportunities

Last week produced two major challenges to the Muskrat Falls hydroelectric project.

The Nova Scotia Utility and Review Board ruled the Maritime Link between Newfoundland and Cape Breton could proceed only if Nalcor provided Emera with enough market-priced power to yield a reasonable cost for customers.

And Hydro-Quebec went to court to block Nalcor’s plan to divert some flows from the existing Upper Churchill Falls to Muskrat Falls when needed at the new facilities. The Quebec utility insists on what it claims are its rights to that water.

It waited to lodge its challenge until after Muskrat Falls was under construction, potentially leaving Nalcor no choice but to seek a settlement that could continue its dependence on Quebec for Churchill development.

Like most other challenges, which may seem daunting at first, these issues can almost certainly be resolved and possibly with real benefit to Newfoundland and Labrador and all of Atlantic Canada.

Before getting to the possible solutions, it should be noted that these issues arose largely because the Newfoundland and Labrador government had ruled out any regulatory review. That meant the Hydro Quebec claim, already known at the time Muskrat Falls was proposed, could not be objectively examined before ground was broken.

It also left the Nova Scotia Board as the sole regulatory body in the region, capable of extending its reach into Newfoundland and Labrador.

The effect of the N.S. UARB ruling will be to require that Nalcor divert to Nova Scotia some power held back for later local economic development or open market sales.

The economic result could be just the same, and the risk to Newfoundland and Labrador ratepayers would actually be reduced.

Alternatively, Nalcor could keep the power and subsidize Emera’s market purchases if they exceed the Nova Scotia utility’s target price.

The UARB’s action was in line with recommendations I had made in a paper published by the Atlantic Institute for Market Studies (AIMS).

It allowed the Maritime Link to proceed, while providing protection to Nova Scotia customers and lowering the risk to ratepayers in both affected provinces.

As for the Hydro-Quebec problem, Nalcor would probably like to find a way to keep Muskrat Falls free of any influence by the neighbouring utility, should it not prevail in court battles over water flows.

The answer may be in flowing power rather than water. Nalcor is entitled to 300 megawatts of power from the existing Churchill Falls facilities, which it now sells in the U.S. market.

It could try to shift that electricity entitlement to flow through the transmission lines built for Muskrat Falls east and south. It would then be able to maintain full power output from the new project as planned.

There would be some financial loss to Nalcor in those hours when the power had to flow from Churchill to Muskrat Falls instead of to the U.S., but it would remain free of any new Hydro-Quebec influence on its Labrador hydro projects.

Even more important, when not used to support Muskrat Falls, the power could find a market in Atlantic Canada.

In a second AIMS paper, a colleague and I proposed that the four Atlantic provinces consider creating a power pool.

Thanks to the Maritime Link, a pool would allow Nalcor’s hydro power to flow to the other three provinces whenever available, lowering energy costs throughout the region and guaranteeing sales by Nalcor.

An incidental effect would be to deprive Hydro-Quebec of the revenues it gets from allowing Nalcor to transmit its 300 MW across its lines.

Seen in this light, the two developments last week, fraught with unwanted problems for Nalcor and possibly endangering the Muskrat Falls project itself, could yield positive results.

The Maritime Link issue would be resolved. The region could be assured of a reliable supply of Nalcor hydropower, which would at the same time provide an assured revenue stream to Nalcor.

To accomplish these goals, the four Atlantic Canada provinces would have to move ahead from their prolonged discussions about electric co-operation to action.

With a power pool, they could do so without giving up any ownership or control over their own generating resources.

In the process, Newfoundland and Labrador would have found a way,

admittedly at some relatively small cost, to have turned away from its ongoing difficulties with Quebec and toward a more co-operative relationship with its Atlantic neighbours.

Newfoundland and Labrador might have to trade its hopes for serving a future provincial market for an assured regional market with less risk.

In other words, the notion of “recall” might give way to “region.”

In Nova Scotia itself, where the UARB has proved to be an effective regulator, both allowing the project and protecting customers, it should be given the full range of regulatory supervision over the Maritime Link that it has sought but has thus far been denied to it.

At the same time, the restoration of some regulatory overview in Newfoundland and Labrador would also make sense.

Gordon L. Weil is the author of Atlantic Institute for Market Studies publications on regional electric matters. He is a former chair of the U.S. national organization of state energy agencies and Maine Public Advocate.