Critics warn of deals for mining firms if Muskrat Falls approved

Providing cut-rate power to mining companies in Labrador should not be a prime reason for developing the Muskrat Falls hydro megaproject, says a growing cast of critics.

Skeptics of all political persuasions are warning that residential ratepayers could wind up paying for industrial expansion, and they want the Progressive Conservative government to make power purchase deals public.

The proposed hydro dam and generating station on the lower Churchill River will top $6.2 billion, a massive commitment of public funds over a 50-year project. Detractors say it's a high-risk and outdated venture fraught with potential cost overruns.

The government and its Crown corporation, Nalcor Energy, have promoted Muskrat Falls as the cheaper, cleaner option to meet future power needs. But they're waiting on a promised federal loan guarantee that could shave hundreds of millions of dollars off borrowing costs, and an arm's-length assessment from Manitoba Hydro International before the government decides whether to approve the project.

"There should be no requirement that we subsidize mining companies," said Brendan Sullivan, a St. John's businessman and former provincial government economist.

Since the project was first announced in November 2010, he said he has listened to the government's messaging on MuskraFalls shift from domestic power needs, to export possibilities, to increasing demands from mining interests.

"I have no problem with giving power to mining companies if they need it and if they're prepared to pay a decent price," he said.  "But you know and I know that's not going to happen here."

Industrial versus domestic rates

Industrial electricity rates of about seven cents per kilowatt hour for firm power are already substantially lower than the average domestic rate of about 11 cents, Sullivan said.

Newfoundland and Labrador Hydro's interim industrial rates — adjusted for such variations as fuel cost, load and rural rates — are about two to three cents per kWh for companies such as Teck Resources Ltd, which owns a copper and zinc mine in central Newfoundland  and Vale that operates the Voisey's Bay nickel mine in northern Labrador.

Power needs

Government rhetoric in support of Muskrat Falls has in recent months highlighted potential mining projects in Labrador West. Premier Kathy Dunderdale and Natural Resources Minister Jerome Kennedy have both repeatedly stressed the power needs of companies wanting to set up or expand iron ore production sites.

Dunderdale said it's business as usual to offer electricity discounts in return for jobs and investment.

"We want companies to invest here, to create work for our people here in Newfoundland and Labrador," she told reporters last week. "But at the same time, you have to be sure that there's a return to the people of the province.

"Remember: this is a foundational principle of this government, that the people ... be the beneficiaries of the development of our natural resources."

Dunderdale said several companies are inquiring about the prospect of getting power from Muskrat Falls, expected to generate a maximum of 824 megawatts by 2017.

Asked if related contracts would be made public, the premier raised the need to protect corporate privacy.

"Companies are only going to go so far in terms of disclosing commercial arrangements because at a certain point, it becomes a disadvantage for them because they have competitors.

"So you have to try to balance out those two values all the time," she said. "I think we've done an extremely good job of doing that."

Power prices

Kevin Lacey, Atlantic director of the Canadian Taxpayers Federation, said companies should pay their fair share.

"Certainly our fear is that what will happen is the government will give huge breaks to these companies at the expense of the average homeowners who are paying already higher increases in power rates. These tend to be just backdoor subsidies to companies that come at the expense of the average person who can least afford it."

Thomas Johnson, the provincial consumer advocate, has endorsed Muskrat Falls as a cheaper option than if the province stays isolated from mainland grids and reliant on an aging oil-fired power plant. He said it's no surprise that industrial power rates are typically lower, in part to lure development.

"If you charged an industrial customer a per-kilowatt rate like you'd charge a residential customer, it would be very doubtful that any industry would be attracted to a particular jurisdiction," he said.

"And that would be the same anywhere in North America, for that matter. There are differences in how industrial rates get designed no matter where you go."