I have written on the need for an independent review of the MOU through the Public Utilities Board (PUB). The PUB should be mandated to review the MOU, to recommend any deficiencies which should be remedied before it is finalized or else to recommend that it should be rejected.
The Utilities and Review Board of Nova Scotia (UARB) played an important role in protecting Nova Scotia ratepayers and this role was enshrined in the November 2010 Term Sheet for the Maritime Link and the Muskrat Falls project. The Government of Nova Scotia (GNS) passed special legislation, The Maritime Link Act and Regulations, to guide the UARB and to give them the powers they needed to deal with Emera Energy and its Maritime Link Project. They were given the authority to accept or reject it and they chose in 2013 to reject it unless it could be improved.
GNL sanctioned the Muskrat Falls project in December 2012 and then discovered that Nova Scotia had not sanctioned the Maritime Link. In fact, the UARB rejected Emera’s participation in the Muskrat Falls project. The UARB concluded that the 20 for 20 principle was not good enough and that Emera should obtain more than 20% of Muskrat Falls power for 20% of the investment. Nalcor renegotiated the power sales agreements along the lines mandated by the UARB.
Energy market projections supplied by Morrison Park showed that only if Emera could lock in a supply of market power from Muskrat Falls then, and only then, would the Maritime Link supply ratepayers with power at the lowest rate. It was this set of energy price projections, tabled at a hearing of the UARB which turned the table for Nova Scotia. Emera reopened negotiations with Nalcor and they agreed to another energy agreement, which enabled GNS to sanction the Muskrat Falls project. This in turn was the trigger for the federal government to release the loan guarantee both to Nalcor and to Emera. The UARB order of July 2013 contained these paragraphs.
“[223] Taking all of the above into consideration, 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. Without the Market-priced Energy, the ML Project is clearly not “robust”. 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. (UARB Decision M05419, July 22, 2013, paragraph 223.)
“[456] “Until 2041, when Newfoundland and Labrador’s Churchill Falls arrangement with Hydro Quebec comes to a conclusion, the availability of Market-priced Energy from Nalcor is an issue of “substantial uncertainty”. This leaves NSPI in the unenviable position of having no contractual certainty of obtaining Market-priced Energy from Nalcor. However, NSPML/Emera have accepted no risk as a result of that contractual uncertainty. As they have structured the deal, that risk falls entirely to Nova Scotia ratepayers.
“[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.
“[458] It is the Board’s obligation to protect the interests of Nova Scotian ratepayers. More specifically, the Board is required in this proceeding to apply the test under s. 5(1) of the ML Regulations. The Board has considered how it should address this significant risk to the viability of the ML Project as against the other alternatives. It could, under the ML Regulations, simply reject the Application, but that would not be the responsible result and would not be a productive outcome of the regulatory process.
“[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.
The cited Figure 4-4 is reproduced below. It is a forecast going 27 years into the future and it was decisive in decisions taken by the UARB. With the Churchill Falls MOU we also need to have electric power wholesale price projections and projections of replacement cost to decide on what is the goalpost we should be targeting and how much of the forecast price and cost we should be receiving for Churchill Falls power. Schedule G of the Churchill Falls MOU supplies forecasts of revenues but no projections of future energy prices. The PUB should ask its consultants to canvass this question and to provide a forecast of electricity prices, as was done in 2013 by Morrison Park for the UARB.
Could the NL PUB play a role like that performed in Nova Scotia by the UARB, if the House of Assembly decides this week to refer the MOU to the PUB? Could the MOU with Hydro Quebec (HQ) be renegotiated to make additional power available to NL Hydro, through additional blocks of power giving NL Hydro (NLH) the right to use the power domestically or else to market the power and to wheel it through Hydro Quebec, at pre-negotiated rights and with guaranteed transmission access. This would give NL Hydro what they need to enter into relationships with other buyers, which would, over time, enable NL to deal directly with customers other than HQ.
The PUB should be tasked to make a recommendation as to whether the MOU has reached its objective and achieved the goalposts identified in advance. Are we obtaining best value as resource owner and as shareholder, both in terms of access to energy for domestic use along with financial and economic benefits. Is the value we receive through the MOU commensurate with the value we would receive through an open competitive bidding process.
Its legislative mandate should allow the PUB to measure the MOU’s $33.8 billion forecast present value against the wholesale market in New England and the replacement cost of the capacity, reliability, dispatchability and annual energy, which Churchill Fall offers.
The fundamental question is: does the MOU provide full value for our resources, and does it enable fair sharing of the benefits, without placing undue risk on the province? The PUB should undertake a full and transparent public inquiry and render its judgement on these questions.
The House of Assembly could amend the motion to make approval subject to review by the PUB and subject to changes which the PUB might recommend, following the UARB model, in whole or in part.
The PUB should be mandated by legislation to conduct a thorough review of the MOU, with pre-filed evidence from the proponents, with all witnesses under oath and full opportunity for cross examination.
Nothing less than full transparency is acceptable. “Sunlight is the best disinfectant,” a well-known quote from U.S. Supreme Court Justice Louis Brandeis, refers to the benefits of openness and transparency. Following best practices of democratic governance, the most credible and respected organizations operate in an atmosphere of avowed openness.
