The province will be on the hook for the vast majority of cost overruns for the Muskrat Falls hydroelectric project, says former MHA Danny Dumaresque.
Dumaresque said Nalcor’s track record isn’t great on this sort of thing.
He pointed out it recently went 50 per cent over budget on an oil drilling project at Parsons Pond, despite only doing two-thirds of the work.
“Realistically, (Muskrat Falls) is a seven-year project; in three months we blew the budget up in Parsons Pond,” Dumaresque said.
“ Who knows what’s going to happen there, but the potential for major unknown expenses in that particular situation is very very ripe indeed.”
Part of the concern is that Nalcor is shouldering the majority of the risk for construction costs.
On the $3-billion hydroelectric dam, they will be responsible for 100 per cent of any cost overruns.
On the transmission lines that run across the Straits of Belle Isle and across the island, Nalcor will also bear 100 per cent of the cost overruns, despite the fact it will only own a 71 per cent stake in the infrastructure.
Finally, on the transmission cable running from Newfoundland to Nova Scotia, Nalcor will be on the hook for 50 per cent of any cost overruns, despite the fact Nova Scotia utility Emera will own that portion of the project for 35 years.
Nalcor CEO Ed Martin said if you look at the larger picture, all of this makes sense.
In exchange for taking the risk on transmission lines, Emera is guaranteeing access to New England and giving a better rate on tariffs for wheeling power through Nova Scotia.
If transmission lines were to go down between Nova Scotia and New England, where Nalcor wants to sell excess power, then Emera would have to pay this province for the energy it would have sold.
Moreover, Martin said Nalcor has done detailed engineering and field work, so cost estimates are very precise, and should be very accurate.
“ We’re building transmission lines; we’ve built those for many many years. We understand the business from top to bottom,” he said. “ We have a tremendous amount of engineering completed for the stage we are at on this project.”
Martin said any risks also have to be measured against the alternative – keeping the Holyrood thermal generation facility online and replacing it in the next 20 years or so.
Maintenance, plus eventually replacing Holyrood would cost around $3 billion, and under that scenario the province would still have to buy fossil fuels to power the facility.
Martin said no matter what the cost overruns are on Muskrat Falls, they’re no worse than potential cost overruns on a new thermal generation facility.
“As costs went up or down on one, we’d expect them to go up or down on the other,” he said