Seamus O'Regan says behind-the-scenes talks ongoing about Muskrat Falls

He's not ready to provide any details, but Liberal MP Seamus O'Regan says there's plenty of discussion about ways Ottawa can help shelter electricity users from soaring rates during the Muskrat Falls era.

"We have a lot going on behind the scenes," O'Regan, Newfoundland and Labrador's representative in the federal cabinet, told CBC News on Thursday.

Rates poised to double

The federal government is considered a critical player in a promise by Premier Dwight Ball to keep electricity rates affordable and predictable when power starts flowing from Muskrat Falls, and repayment begins on the $12.7 billion cost to build and finance the controversial project.

Ottawa has provided loan guarantees for the $8 billion borrowed by Nalcor, the province's energy corporation, for Muskrat Falls.

That guarantee will save roughly $1 billion in interest payments, and about 1.5 cents per kilowatt hour for provincial ratepayers.

Rates are still expected to surge to nearly 23 cents over the next three years, nearly double the current rate, unless some serious — and expensive — mitigation measures are implemented.

Shifting away from hydro power

This is creating widespread unease among electricity users, and fears by the premier and others that people will begin shifting to oil and wood heat in large numbers, which would have the disastrous effect of lowering the demand for Muskrat Falls power, and shift even more of the burden onto ratepayers.

So there's still plenty of work to do before Ball can deliver on his pledge of affordable rates.

Observers at every level seem to recognize that the federal government is the x-factor.

"I'm trying to be as creative as I possibly can be. I don't want to talk too much about it yet," O'Regan stated.

The first mortgage for Muskrat Falls is due in 2021, and the cost is huge at more than $800 million.

That figure is expected to grow steadily in the coming years, reaching $1 billion within a decade because of a repayment strategy that is back-loaded.

The provincial government has not offered any specifics on what the gap will be between the available revenue, and the money needed to finance that debt, but Premier Ball has acknowledged it will be in the hundreds of millions of dollars annually.

A clearer picture of that gap is expected to be known by February, when the province's energy regulator, the Public Utilities Board, provides an interim report on ways to mitigate rates.

Talks with Ottawa are expected to get really serious at that point.

Crosbie calls for 'hard negotiation'

So what options are on the table for Ottawa?

Politicians at both levels are coy on that front, but modifications to the terms of the loan guarantee is likely at the top of the list, since it requires that the debt burden be shouldered by Newfoundland and Labrador Hydro customers.

That's despite the fact Hydro customers will use less than one-third of the power.

If government decides to use revenue from other sources, such as offshore oil, changes to the fine print will be needed.

There's the possibility of more federal money in a renegotiated Atlantic Accord, and there's also a growing lobby for Ottawa to transfer its lucrative 8.5 per cent equity stake in the Hibernia oil field to the province.

"We're working on all of it," O'Regan said when asked about the various options.

PC Leader Ches Crosbie, meanwhile, who's battling for his political future in the Windsor Lake byelection, is calling for a "hard negotiation" with Ottawa.

"They're going to have to help us out," Crosbie said. "That seems to be what Mr. Ball does not want to say. He does not want to displease his masters in Ottawa."

Dwight Ball has never denied Ottawa must play a role.

"At some point in time once we get an understanding of what this gap looks like, going back and renegotiating or changing certain things, if required, they know and we know that's an area we would have to go to," he said.