The case against Muskrat Falls

Shawn Hayward
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Dave Vardy calls for referendum on hydroelectric project

A long-time civil servant and former deputy minister with roots in Clarenville says there is no business case for Muskrat Falls.

The Muskrat Falls site

Dave Vardy made his case clear at a Rotary Club luncheon at Clarenville Inn on Feb. 26.

Vardy is a former deputy minister of fisheries under the Clyde Wells government, and a former chair and chief executive officer of the Public Utilities Commission. Vardy’s father was from Clarenville and his wife is from Milton, where they own a home.

“The cost of energy is too high, it’s out of line with other sources of energy and it’s not cost competitive with generating plants elsewhere in Canada and in the United States, particularly those using natural gas,” Vardy told Rotarians.

The increased supply of petroleum products from shale over the past six or seven years has changed the energy landscape of North America, according to Vardy.

Vardy quoted a report from TD Securities, one of the Muskrat Falls’ underwriters, to explain why the project got funding. It said that with the loan guarantee the federal government announced for the project in December, the merits of the project itself became irrelevant, because investors were guaranteed a return for their money.

“People who provide the bonds don’t care about the project, because the feds are in there looking after it,” says Vardy. 

The loan guarantee is good for up to $6.3 billion of the $7.8 billion project, anything after which would have to be raised through equity by the Newfoundland and Labrador government, raising the province’s overall debt burden.

Vardy says the $7.8 billion price tag applied to the project doesn’t include the interest that will accrue during construction, which he estimates to be an additional $1.25 billion.

He says the project exposes the province to too much financial risk for a place with a population of just over half a million.

He compared the project to the Keystone XL Pipeline, a major project that will run from the Canadian prairies to Nebraska. It’s expected to cost $2.5 billion less than Muskrat Falls.

“Us half a million people in Newfoundland and Labrador, our project is bigger than the Keystone project,” he says. “To me, this is not scalable, this is disproportionate, for a province of our size to take on something of this magnitude is inappropriate.”

A recent report by the Conference Board of Canada, a Toronto-based research organization, forecast that the province’s population would drop eight per cent by 2035.

“All the trends are going in the wrong direction, so if we’re going to build this project because we’re going to have more people, we have to figure out where these people are coming from,” says Vardy.

Vardy questioned why Fortis Inc., a Newfoundland-based corporation that owns several energy companies around the world, didn’t take the lead on Muskrat Falls.

Vardy was involved in discussions over the Lower Churchill as a civil servant and says he always envisioned any hydroelectric project exploiting it would be a private venture, like the Upper Churchill.

“Never in my wildest imagination did I think the province would embark upon this project themselves,” he says. “We’re building this major project. This is not just a hydroelectric project. This is a very major hydroelectric project for the government to take on.”

The power outage of Jan. 5 put the reliability of energy supply in this province high on the public agenda. Vardy says he’s heard from Nalcor CEO Ed Martin that Holyrood generating station will close in 2021 once Muskrat Falls is producing. Vardy says Nalcor should keep Holyrood running as a backup electricity source.

Both a Public Utilities Board report and a joint provincial and federal public panel found insufficient business case for Muskrat Falls, according to Vardy. The power of the auditor general to comment publicly on Nalcor is restricted, and the report of an independent engineer tasked with examining the project for best practices hasn’t been made public.

Vardy says there is a lack of transparency and oversight on the project, which he says creates similarities with the way former premier Joey Smallwood handled the Upper Churchill hydro project.

“We haven’t learned as a province,” he says. “We should have learned from the Upper Churchill that we should be doing our due diligence.

“When the Public Utilities Board was asked to review this project, they should have been given whatever time they needed and the most up-to-date information; instead they were given incomplete engineering cost estimates and an out-of-date low forecast and told they had to produce the report by a certain date.”

Vardy says there should be a referendum on Muskrat Falls like there was when Newfoundland was considering joining Confederation. Instead, Vardy says the government is pushing the project through, repeating a mistake made 48 years ago when it agreed to sell Churchill Falls power to Quebec for a fraction of its present value.

“As Joey Smallwood did back in those days, he was so anxious to have development take place that it had to happen,” says Vardy. “We should have learned something about that.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Organizations: Rotary Club, Clarenville Inn, Public Utilities Commission TD Securities Keystone XL Pipeline Public Utilities Board Conference Board of Canada Fortis Inc.

Geographic location: Muskrat Falls, Newfoundland and Labrador, Clarenville Milton Canada United States North America Nebraska Holyrood Quebec

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  • Me-old-stick-in-the-mud
    March 07, 2014 - 07:50

    My Quebec teaching colleagues here in Newfoundland, tease me in their terrible French/English accent by saying, we hear the “derriere” of your fellow Newfies is freez ing. What is the prob lem, Johnie? No elec tricity! We can always sell you some elec tricity from “our” Churchill Falls, Labrador.” You (petite) little Newfiefies must not catch cold.” The 1969 power contract, signed 40 years ago, between Hydro-Quebec and the Churchill Falls Labrador Corporation (CFLCo), becomes automatically renewable in 2016 with arrangements predetermined. Thanks to a Mr. Donald Gordon, CFLCo chairman, and CFLOo’s management of the day. The contract reads that most all the power must be sold to Hydro-Québec at an extremely low price. Basically, it amounts to a contract “piggybacked” onto a contract. During the renewal period the price is pre-set at $2 per megawatt hour (MWh). Even in the late 1960s, a price of $2 was extraordinarily low! In 2003, Hyro-Quebec received an average of apx. $85. per megawatt hour MWh! That was the rate 11 years ago! They buy the electricity from Newfoundland for $2. per (MWh), and will continue, after the 2016 contract renewal, to buy it at that rate for another 25 years! Actually, 50-75 years in the future! It is unlikely that Newfoundland will even cover its operating costs at Churchill Falls after the contract is renewed in 2016, making it necessary for us “Newfies” to subsidize Hydro Quebec far into the future! Yes, certainly, Joey Smallwood deserves blame, but, it appears it was CFLCo that sold the shop, and mortgaged its assets. Not to exonerate Joey, whatsoever, but, it appears, Joey was only told about the final contract by Chairman CFLCo Donald Gordon, after a “fait accompli’ - the contract had been signed. The renewal clause has received practically no public attention and has not been an issue in past litigation! Bring on BILL BARRY. He is the man to correct this injustice, I hope. Even Danny, could not rescue us, but, Danny was a townie lawyer, meek and mild. Bill Barry is a bayman, rough and tough. Can he put those Frenchmen’s’ derriere, finally, in their place? Quebec separation talk is surfacing again, as they head into an election on April 7. For me, they can’t separate quickly enough! However, they never, never will separate! They know, well, what side their bread is buttered on, and, a lot of that butter is made right here in Newfoundland and Labrador. Me-old-stick-in-the-mud

  • Rob
    March 07, 2014 - 07:42

    Yes Fortis. lets put a FOR-profit company in charge. That will be sure to save money!