On July 28, the industrial fans in the corners of the gym at the College of the North Atlantic in St. John’s were turned off. Everyone was sweating. Hair became matted through the speeches on $10-a-day childcare, with a lectern at centre court and a backdrop of flags. There were nods to the children present from the college daycare, seated on one side of the gym. But the questions from reporters were on something entirely separate: an “agreement in principle” announced earlier the same day between Canada and Newfoundland and Labrador on the Muskrat Falls Project.

Newfoundland and Labrador desperately needed a new arrangement for managing construction costs from the hydroelectric project. The 824 megawatt (MW) generating station and associated transmission lines were initially estimated at $7.4 billion all-in for provincial ratepayers. But wild overruns upped the price to $13.1 billion. The costs to Crown corporation Nalcor Energy (now being folded into Newfoundland and Labrador Hydro) fell to the province and ratepayers. Businesses, individuals and the provincial government in Newfoundland and Labrador were at risk of being overwhelmed by a sudden hike in their power costs and the fallout in everything from new taxes to a utility spiral driving rates ever higher. Talks on the problem had been ongoing for years, with uncertainty permeating the population even longer. It was only approaching deadline, with new and unmanageable rates mere months away, the governments reached the agreement in principle.

Prime Minister Justin Trudeau (now candidate Trudeau perhaps, if election rumors play out) took questions from the room after the children were cleared out, with bottles of water handed to the line of politicians behind him. He kept his responses high-level, tight, positive. He fought through the heat. It was from more than just the lack of air.

“We know the future is going to require more clean energy, more reliable cooperation between provinces across the country,” he said. But even as he spoke of cooperation, other words like “gift” and “handout” were settling into critical thoughts, reports and commentary. The agreement was called an election giveaway and an attempt by the federal Liberals to buy votes.

 

 

 

 

The agreement in principle includes three, key pieces involving the federal government. There is a new federal loan guarantee covering $1 billion. That’s not the same as a loan. It allows borrowing at a preferred, lower interest rate than the province might otherwise achieve. In this case, the borrowing of $1 billion on the capital markets will be used to help cover early payments due on the dam and some transmission in Labrador, stretching out repayment. Second, the plan includes a $1-billion direct investment (the first direct, federal investment for the project) supporting the Labrador-Island Link transmission line. That money isn’t all available to the province up front, only over time, with the option for the province to tap up to $150 million a year in support. A third, major piece of the agreement in principle involves royalties from the Hibernia offshore oil project. The federal government helped the Hibernia project get started and through construction in 1997 with support of $973 million in grant and not quite $2 billion in loan guarantee. Canada received “net profit interest” (NPI) and “incidental net profit interest” (INPI) returns as part of the financial arrangements. A total $3.35 billion was taken in by Canada from the NPI and INPI as of 2020. Looking ahead, roughly $3.2 billion is expected to the end of the oil project’s life in a little over a quarter century from now. Transferring future revenues to the province bit by bit, year by year, is direct aid for Newfoundland and Labrador. It is also sure to be the subject of heated debate in Ottawa before any approval of rate mitigation plans. Provincially, there are also significant new arrangements in the agreement around the movement of funds between ratepayers, the utility and the provincial government.

In the immediate wake of the announcement, Newfoundland and Labrador was being portrayed as a leech on the country. It was already difficult for any politician to raise the subject of electricity in Eastern Canada and, at least through any fall election, it will be even more difficult. And it all begs the question of what might come next.

 

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