Monday, July
22, 2013 will go down in infamy as the date on which the wheels finally began
coming off the Muskrat Falls Project. 

Some would
rightfully argue that the wheels, on this Project, were never properly attached
anyway. Who, except Kathy Dunderdale, Ed Martin, Jerome Kennedy and Cathy
Bennett would disagree.

Likely, at
this very moment, the Dunderdale crowd, in Confederation Building, are enjoying
the relaxation of summer; the House of Assembly is closed, Ministers are off to
their country places and the oppressive heat, wrought by an angry public and pesky
Pollsters, is a distant memory for a battle weary Government.  I doubt that a single one of them appreciate
that the Dunderdale train just got side tracked and is now hanging over a very steep
political and financial precipice.

Ed Martin,
the stone-faced Chairman and CEO of Nalcor, is probably slightly more conscious
than the Premier.  Martin had not
received knowledge of Hydro Quebec’s decision to refer the Water Management
Agreement to the Quebec Court, until just before he entered the news conference, on the Nova Scotia Utility and Rate Review Board (UARB) Decision. The news
must have been a devastating blow to one who, for more than two years, has been
playing a high-stakes game of Russian roulette with public money.  Two successive bullets
were fired, on Monday, from “guns”, the Nalcor Conductor was frequently warned about!       

it is not Ed Martin’s bruised ego that should give us pause.  Martin put the best ‘spin’ he could have  on a very bad decision, for Nalcor.  More importantly, this day of ‘infamy’ is
merely an affirmation that the poor taxpayers, of this Province, are in for a
royal screwing. 

And, just
because I like to note those things, while the UARB Report and the Hydro Quebec
legal action were reported top of the NTV News, it took approximately 23 minutes
for the CBC to realize that these were important issues which also deserved airing.
Yes, the CBC skipped over a whale of a story for a ‘whale’ story; two of them,
actually, and a bunch of others. None was as dramatically important to the future
of this Province, as the UARB Decision.  
I suppose they have their priorities!

Contrary to
anything CEO Ed Martin (or the CBC Web Site) may have stated, the UARB did not approve the application
by Emera
(actually the reference is to Emera Subsidiary “NSPML”).  The approval was “conditional” and that
condition was no minor matter.  

Newfoundlanders and Labradorians need to note, however, is the fact that the
NS UARB wants access to the 40% percent of Muskrat Falls power, deemed surplus
to the Province’s needs. That is in addition to the 20% already committed to
Emera (known as the Nova Scotia Block) offered in return for having Emera fund the Maritime
Link (ML).  Nova Scotia wants the
additional power for even LESS than
it is paying for the Nova Scotia Block. 
It wants more power at a price established by the Massachusetts HUB, where market prices for
the New England States are established; right now, that would be 3-5 cents per KWh, when adjusted for ‘wheeling’ fees and other costs.  
In case you
are unsure, this “surplus” power is the ‘juice’ Premier Dunderdale, Ed Martin
and Jerome Kennedy, all at various times, said would be available for the New
England market, for Labrador Mining including Alderon, for industrial
development within the Province and to meet the forecast increase in domestic
demand .  

For clarity, what we call “surplus power” is called, by the UARB “Nalcor
market-priced Energy”.   The “blended” price is achieved by taking 
Nova Scotia Block (20%) and giving that Province access to the cheap “Nalcor market-priced Energy”. 
This “blended” price is now the price of Nova Scotia’s participation in
the Muskrat Falls Project. It is also the price NL must pay if it is to receive the Federal Loan Guarantee. 
The Nova Scotia Block will already cost their ratepayers less than half the rate, Newfoundlanders will pay for Muskrat Falls power.  But, the UARB wants to lower the cost further.  
What should
Newfoundlanders and Labradorians fear? That CEO Ed Martin and Premier Cathy
Dunderdale will attempt to accommodate Nova Scotia’s demands.

Below, Figure 4-4 Weighted Average Electricity Prices Per MWh – the solid black line depicts the “blended” cost of the power; that is the whole basis of the UARB Decision.   

Exhibit M-2, Figure 4-4, p. 92]
 So again,
what is the UARB decision all about?  It
is about securing a low price for 60% of Muskrat Falls power for Nova Scotian
ratepayers.  We pick up most of the cost and virtually all of the
financial risk.
The UARB Decision
is clear and unequivocal.  I have extracted relevant paragraphs.  (The number to the left of a “UARB DECISION” is
the denoted numerical paragraph from which the quote is taken). 
underlining is mine.)
[452] ….. the ML Project (with the Market-priced
Energy factored in) represents
the lowest long-term cost alternative for electricity
for ratepayers in Nova Scotia. In the
absence of Market-priced Energy, the ML Project is
not the lowest long-term cost
The UARB believes Nova
Scotians are entitled to the “Market-priced Energy” because Emera framed its
Application in a way that assured the UARB that NS would benefit from surplus ‘cheap’
power and thus make the ‘expensive’ NS Block less costly, through averaging,
over the long term. Note the phrasing and the word “underpins” in the next UARB
[455] The fundamental assumption which underpins
the Application is that NS
customers will enjoy a blended rate for electricity
which is comprised of a weighted
average of the costs reflecting the NS Block and the
projected amounts and prices for
Market-priced Energy over the 35 year term.
Again, Emera
assured NS access to surplus cheap power; now the UARB is coming to collect and to confirm the promise by way of legal agreement.
For this purpose, the UARB uses the phrase “enforceable covenant”. See para 457 below:
[457] The Board concludes that the availability of
Market-priced Energy is
crucial to the viability of the ML Project proposal as
against the other alternatives. More
importantly, the Board finds that without some
enforceable covenant about the
availability of the Market-priced Energy, the ML
Project does not represent the lowest
long-term cost alternative for electricity for
ratepayers in Nova Scotia.
Guarding against the risk that the Nova
Scotia Government or Emera might fail to understand its position, the UARB laid
down a specific condition for approval of the Maritime Link: 
[459] Accordingly, the Board directs as a condition to
its approval of the ML
Project that NSPML obtain from Nalcor the right to
access Nalcor Market-priced Energy
(consistent with the assumptions in the Application as
noted in NSUARB IR-37 and
Figure 4-4) when needed to economically serve NSPI and
its ratepayers; or provide
some other arrangement to ensure access to
Market-priced Energy.

Note the words, in para 459 above, “or provide some other
arrangement…”  Even Ed Martin noted
the “other” UARB reference, in his Press Briefing. 
There is no “other” provider of ‘cheap’ energy to secure the Muskrat plan.
Note, in para 460, that such a “condition” should be a simple matter, because it is only arranging to give “effect” to the deal Emera and
Nalcor has already entered into:
[460] In the Board’s opinion, such a condition should
not create any practical
difficulty because it would simply codify what NSPML
asserts is the effect of the
arrangement in any case. It would also confirm what
NSPML already states is Nalcor’s
view of their future relationship.

[461] This is a simple remedy to the fundamental risk
underlying NSPML’s
Application for approval of the ML Project. If no such
condition was imposed, the Board
would fail in its regulatory oversight by approving an
application that could potentially be
commercially disadvantageous to NS ratepayers.
The UARB is treating the
matter of Surplus or “Market-priced Energy” so seriously that it is not
prepared to leave the issue, to the discretion of the Nova Scotia Government.  The UARB is demanding, not just that Nalcor’s
(or an alternative proposal) be submitted to it again, but that the Interveners
will be given another opportunity to comment on whether such an agreement
meets the Conditions it has prescribed. 
also tells Emera how it will assess the acceptability of any
‘alternative’ pricing mechanism on which the parties may agree.   See Paragraphs 230 and 231 below:
[230] The Board will make
itself available on an expedited schedule to review
commercially reasonable
terms submitted by NSPML and Nalcor and for comments by
the Intervenors. 
[231] The Board notes that
NSPI will be required to act prudently in the
acquisition of
Market-priced Energy as it would with all other fuel related decisions.
Decisions related to the
purchase of Market-priced Energy will be subject to the
provisions of NSPI’s Fuel
Adjustment Mechanism and the oversight that occurs under
that mechanism. 
In summary, if the UARB is
to approve the ML, Nova Scotia must be given, not just access to 20% of the
power from Muskrat Falls, it must have access to 60%.  The 40% ‘surplus’ block must be cheaper than
the first 20% Block.  Nova Scotia wants
more power for less money. 
Remember the Upper Churchill deal where
Hydro Quebec gets a lower price for the nest 25 years than it received during the first 40 years of the
Contract?  Nova Scotia wants its Upper
Churchill Deal.  And, while you nod in
agreement, it wants you to pay for it!  
That was just the early
part of yesterday!
In the afternoon, Hydro
Quebec (HQ) reacted. It has filed a lawsuit in the Quebec Court. Likely, the
only person surprised was Ed Martin, though he should not have been.
Ed Martin was warned about
the matter of the Water Management Agreement, by Members of the 2041 Group, and of the likelihood that HQ would
contest an Agreement its Members, on the Board of CFLco, refused to sign. 

asks the Court whether it should be the only Party possessing the right to
“operational flexibility” under the Upper Churchill Contract.  “Operational flexibility” is a euphemism for
water management.
Nalcor Vice President, Gilbert
Bennett, could not resist attacking 2041 Group Member, St. John’s lawyer
Bernard Coffey, when Coffey counselled that the Water Management Agreement
should be submitted for Judicial Review, before the Muskrat Falls Project
commenced, because “legal certainty” was required.
Coffey wrote in the
Telegram newspaper, “Based on the data and scenarios in Nalcor’s own Pre-Filed
Evidence, without a working water management agreement Nalcor would be limited
to approximately 175 MW of continuous delivery in a long-term power purchase
agreement for Muskrat Falls.”
Coffey might well ask again:
should the Muskrat Falls Project continue, in the absence of that “legal certainty” and
given that, in return for $7.6 billion, we will get a mere  175 MWs and all the penalties for non-delivery of electricity that will be brought by NS and Emera?
While the patience of all
Newfoundlanders and Labradorians is stretched to the limit, with the
intransigence of Quebec, it would be silly of us to get back at Quebec by
pointing the gun at our own head.      

If you thought our
troubles over Muskrat Falls, ended upon Project sanction, the events of Monday
serve to confirm otherwise.  In the
immortal words of Sir Winston Churchill, whose very name is invoked with most
every reference to hydro power in Labrador:
This is not the end
This is not even the beginning
of the end
But, it is perhaps, the
end of the beginning.
Des Sullivan
Des Sullivan
St. John's, Newfoundland and Labrador, Canada Uncle Gnarley is hosted by Des Sullivan, of St. John's. He is a businessman engaged over three decades in real estate management and development companies and in retail. He is currently a Director of Dorset Investments Limited and Donovan Holdings Limited. During his early career he served as Executive Assistant to Premier's Frank D. Moores (1975-1979) and Brian Peckford (1979-1985). He also served as a Part-Time Board Member on the Canada-Newfoundland Labrador Offshore Petroleum Board (C-NLOPB). Uncle Gnarley appears on the masthead representing serious and unambiguous positions on NL politics and public policy. Uncle Gnarley is a fiscal conservative possessing distinctly liberal values and a non-partisan persusasion. Those values and opinions underlie this writer's views on NL's politics, economy and society. Uncle Gnarley publishes Monday mornings and more often when events warrant.


Bill left public life shortly after the signing of the Atlantic Accord and became a member of the Court of Appeal until his retirement in 2003. During his time on the court he was involved in a number of successful appeals which overturned wrongful convictions, for which he was recognized by Innocence Canada. Bill had a special place in his heart for the underdog.

Churchill Falls Explainer (Coles Notes version)

If CFLCo is required to maximize its profit, then CFLCo should sell its electricity to the highest bidder(s) on the most advantageous terms available.


This is the most important set of negotiations we have engaged in since the Atlantic Accord and Hibernia. Despite being a small jurisdiction we proved to be smart and nimble enough to negotiate good deals on both. They have stood the test of time and have resulted in billions of dollars in royalties and created an industry which represents over a quarter of our economy. Will we prove to be smart and nimble enough to do the same with the Upper Churchill?


  1. Des

    People will rightly focus on the HQ legal challenge. But the UARB result was devastating to the project. Having Martin suggest that he welcomed it really undermined the last credibility he has in my opinion.

    The House of Assembly should be recalled, and a PUB judicial review be held as permitted by the Electrical Power Control Act.

    For Nalcor to continue would be negligance.

    The PUB should also be involved as if Nalcor meet the Emera requirements the final rates to Newfoundlanders will increase.

    This is a disaster created by arrogance and by ring fencing of the PUB 2 years ago.

    700 million of tax payer's money.

    Heads should roll…

    • Heads should roll and a PUB judicial review should be convened…but it will not happen. Muskrat Falls is the political death knell for the PC's but nothing in their behavior thus far suggests they will ever admit to having made a mistake, especially one as monumental as pushing this project forward in the face of all kinds of signals to pause and re-consider.

      I understand that it is difficult to admit having backed the wrong horse but…when the price to be paid is borne on the backs of your constituents…the only honorable thing to do is to take your lumps. However, the arrogance and "bubble" mentality of this administration has taken them completely out of touch with reality….. and they cannot admit to the fatal flaws in this scheme.

      This project is the worst scam ever foisted on the people of this province but we, the people who presumably own the resource, are powerless to stop it.

  2. You write good articles, but keep missing the boat on this one. You are focusing on what they want you to. I have been guilty of that as well in the past. However, Quebec's move is to gut the Water Management Agreement while not attacking it in name. The reason for that is, as a corporation, they can't attack it until it becomes operational – which isn't until Muskrat Falls is built. As the government finally admitted yesterday, their goal is to take about 1500 mw a year from the Upper Churchill under the WMA using the terms of the renewal contract. However, they are completely wrong on those terms, which is why I launched my charter challenge. What they are doing is illegal and will leave us with a no bargain position and Hydro Quebec hokding a knife to our throats. This is the real game at hand, and they and Hydro Quebec know it. Today marks the beginning of the eigth week waiting for my decision from the Suoreme Court of NL.

  3. Either the Water Management Act is ingenious to legally get around HQ rights, or (as Cabana argues) is cunning and illegal. I think Cabana is right and either his or HQ court action will prove it is illegal. I look forward to the Nfld Court decision. Even if Cabana loses, I commend him for his courage as this is a critical issue for the future of our province, and required certainty,even before project sanction. Winston Adams