Joint Review Panel Finding on Lower Churchill Represents a Victory for the People of Labrador

Photo: flickr.com/olya

HAPPY VALLEY-GOOSE BAY, LABRADOR, NL – “The Review Panel’s report reflects what we have been saying all along,” said Clarice Blake Rudkowski, president of Grand Riverkeeper Labrador Inc.: “The Lower Churchill project does not make economic sense, and environmentally, it’s simply and clearly too destructive.”

“Labrador doesn’t want this project, and Newfoundland doesn’t need it” says Grand Riverkeeper Roberta Frampton Benefiel.  “Given the high transmission costs, the initial cost of Muskrat Falls power on the Island will be just as high as Holyrood, and the cost will keep going up for decades.”  She added that there are almost certainly better alternatives, including conservation, on-Island wind, and other options, including offshore gas to fuel Holyrood for backup.  “As the Panel pointed out, Nalcor sees the project as an end in itself, so it has never really looked for alternatives,” she said.

The Panel looked in detail at the justification for the project, alternatives to it and the many environmental concerns raised by participants in the public hearings.  It found that “Nalcor’s analysis that showed Muskrat Falls to be the best and least cost way to meet domestic demand requirements is inadequate,” prompting it to call for a formal financial review and an independent analysis of alternatives before the project could proceed.

In its report, the Panel determined that the Project would have several significant adverse environmental effects, and concluded that Nalcor did not carry out a full assessment of the fate of mercury in the downstream environment.  It stated that, in the event of dam failure,  Nalcor “should assume liability” for all personal and financial losses, regardless of cause.  And it concluded that, if alternative ways of meeting Newfoundland’s electricity needs in a way that is economically viable and environmentally and socially responsible, the Muskrat Falls project as proposed should not be permitted to proceed.

Grand Riverkeeper Labrador Inc. participated in all of the Panel’s hearings in the province and, along with other members, made 21 separate submissions.  It engaged several experts, including Philip Raphals of the Helios Centre, an expert in energy policy, to analyze the need, justification and economics of the proposal.  The Review Panel retained many of his findings and recommendations concerning the inadequacy of the analysis presented and need for careful assessment of alternate supply strategies for Newfoundland.  As well, our scientific advisors successfully challenged many of Nalcor’s assertions.

Grand Riverkeeper Labrador Inc. calls on Nalcor and the Government of Newfoundland and Labrador to respect the Panel’s findings and follow its recommendations.  Specifically:

  • It calls upon Nalcor to modify the Project in response to the 70 + recommendations concerning the biological and social environment;
  • It calls upon the Government to consult with stakeholders, including both supporters and opponents of the Project, as to the best way to proceed with the independent financial and alternatives assessment that the Panel called for, before governments decide on whether or not the project should proceed; and
  • It calls upon the Provincial Government, Newfoundland Labrador Hydro, Newfoundland Power and the Public Utilities Board to move forward with implementing an Integrated Resource Planning framework within the province, as called for by the Panel.

 

Grand Riverkeeper Labrador Inc. (www.grandriverkeeperlabrador.ca) first came together as a concerned citizens group in 1998 to challenge plans for a mega hydro dam project.  In 2005 they became affliated with Waterkeeper Alliance (www.waterkeeper.org) and joined some 200 other Waterkeepers worldwide.  The purpose of Grand Riverkeeper Labrador Inc. is to preserve and protect the water quality and ecological integrity of the Grand River watershed and its estuary, through actions of public awareness, monitoring, intervention and habitat restoration.  It actively promotes economically and environmentally sustainable ecosystem management approaches that will maintain the heritage and intrinsic value of this river for present and future generations.

–  30 –

FOR MORE INFORMATION, please contact:  Clarice Blake Rudkowski, President, Grand Riverkeeper Labrador Inc.  709-896-9530, Roberta Frampton Benefiel, Grand Riverkeeper & VP, 896-4164 or 897-4241 or Philip Raphals, Helios Centre, Montreal, 514-849-7900.


 

EXCERPTS FROM

REPORT OF THE JOINT REVIEW PANEL

LOWER CHURCHILL HYDROELECTRIC GENERATION PROJECT

 

August 2011

 

CHAPTER IV: PROJECT NEED AND ALTERNATIVES

 

SECTION 4.1.  NEED, PURPOSE AND RATIONALE

 

p. 23

The Panel concludes that, for its assessment, it considers the Project need to consist of three elements:  address  the future demand for electricity in Newfoundland and Labrador; secure a sustainable future for the Province; and, generate long-term revenues for the people of Newfoundland and Labrador.

 

The Panel recognizes that the scope of the Project for environmental assessment purposes includes both the Gull Island and Muskrat Falls generating facilities and interconnecting transmission lines, and notes that the two generating facilities are subject to separate sanction decisions by Nalcor and its shareholder, the Government of Newfoundland and Labrador.

 

Because Gull Island and Muskrat Falls are subject to separate sanction decisions, the Panel has assessed them separately with respect to alternatives,  justification in energy and economic terms, and where possible, with respect to other considerations.

 

p. 24-26

The Panel notes that Gull Island is no longer Nalcor’s preferred starting Project even though as a generating facility it has a much lower per unit generation cost than Muskrat Falls, and therefore would be a better option for meeting domestic demand provided the surplus energy could be sold. The Panel can only assume that the lack of transmission access through Quebec for Gull Island energy is a significant factor in that decision….

 

The Panel notes that the main driver for the Muskrat Falls projected cash flow provided to the Panel comes from Nalcor’s projected Island domestic rates that continue to escalate by two percent per annum even after Project debt payout. There are also questions about the regulatory treatment of Muskrat Falls by the provincial Government and the Public Utilities Board. It is not clear how much of the overall Muskrat Falls cost would be permitted to be passed on to the Newfoundland  rate payer and what the implications are for the ability of Muskrat Falls to generate a long-term revenue stream for the Province. Further, Nalcor indicated at the hearing, that in its analysis, Muskrat Falls includes a high equity content (41 percent) and that the shareholder might forgo dividends so that not much of a revenue stream is expected from Muskrat Falls for distribution.

 

While the Panel concurs with Nalcor that the Panel’s role is not to conduct an “audit” of Project economics, it cannot help but note the significant issues created by the transmission access uncertainties discussed above and the impact these have on the Panel’s confidence level that the Project would in fact deliver the long-term financial benefits projected. …

 

The Panel has been told that Nalcor, its shareholder, and project financiers understand economic considerations sufficiently that unless markets and project viability are properly demonstrated, the Project cannot be sanctioned. The Panel notes that even if the Project as a whole, or Muskrat Falls or Gull Island individually, were to meet sanction requirements, it still might not necessarily provide long-term financial benefits to the Province for distribution, as projected by Nalcor. The Panel also notes that governments are expected to make their decisions on the environmental assessment of the Project before knowing whether either of Muskrat Falls, Gull Island, or both, would be sanctioned.

 

Whether the Project is considered as a whole or as separate generating facilities, the Panel finds that there are two significant outstanding questions. The first is whether the Project is the best alternative for meeting domestic demand. This is addressed in Section 4.2, Alternatives to the Project. The second has to do with the availability of transmission access to deliver a significant portion of the Project’s energy to export markets, whether markets would be for Muskrat Falls includes export capability of part of the output via the planned Maritime Link. However, no certain transmission capability has been identified for the much larger energy output of Gull Island.

The Panel concludes that, in light of the uncertainties associated with transmission for export markets from Gull Island, Nalcor has not demonstrated the justification of the Project as a whole in energy and economic terms.

The Panel further concludes that there are outstanding questions for each of Muskrat Falls and Gull Island regarding their ability to deliver the projected long-term financial benefits to the Province, even if other sanctioning requirements were met.

 

RECOMMENDATION 4.1 Government confirmation of projected long-term returns.

The Panel recommends that, if the Project is approved, before making the sanction decision for each of Muskrat Falls and Gull Island, the Government of Newfoundland and Labrador undertake a separate and formal review of the projected cash flow of the Project component being considered for sanctioning (either Muskrat Falls or Gull Island) to confirm whether that component would in fact provide significant long-term financial returns to Government for the benefit of the people of the Province. Such financial returns must be over and above revenues required to cover operating costs, expenditures for monitoring, mitigation and adaptive management, and financial obligations to Innu Nation. The Panel further recommends that the Government of Newfoundland and Labrador base these reviews on information on energy sales, costs and market returns that have been updated at the time of sanction decision, and make the results of the reviews public at that time. The financial reviews should also take into account the results of the independent alternatives assessment recommended in Recommendation 4.2.

 

SECTION 4.2.  ALTERNATIVES TO THE PROJECT

p. 33-35

[I]t is the Panel’s position that Nalcor’s inclusion of developing the hydroelectric potential of the lower Churchill River as a Project need led to an inadequate consideration of alternatives to meeting its other stated needs. …

Nevertheless, there are many outstanding issues and these remain despite the considerable attention given to this subject through relevant information requests and at the hearing, including the Panel’s March 21st letter to Nalcor,  Nalcor’s response dated April 1st , and the special hearing session on April 13th  to address both. In summary, these include: the significance of several different domestic demand projections; widely different views regarding the potential contribution of energy conservation and demand management to reduce overall energy demand; criticism of current efforts in this province compared to other jurisdictions regarding conservation and demand management; potential contributions of alternate on-Island energy sources; the significance, in energy cost comparisons to 2067, of available Churchill Falls power in 2041 and recall power currently available; Nalcor’s cost estimates and assumptions with respect to its no Project thermal option; the economics of offshore gas as a potential less costly option than burning oil at Holyrood; cash flow projection assumptions for Muskrat Falls and implications for Provincial ratepayers and regulatory systems.

 

It is the Panel’s view that all of this should be addressed by commissioning an independent analysis of alternatives. Based on what participants said, such an analysis would provide needed credibility and would be beneficial to both Nalcor and the Government of Newfoundland and Labrador. Further, without the independent analysis, matters regarding the Muskrat Falls income stream, implications for ratepayers, and what electricity rates might otherwise be, cannot be determined.

 

An appropriate question for the analysis to address is “What would be the best way to meet domestic demand under the No Project option, including the possibility of a Labrador-Island interconnection no later than 2041 to access Churchill Falls power at that time, or earlier, based on available  recall?” An independent analysis of this question would provide alternatives that could then be compared to Muskrat Falls and Nalcor’s primarily thermal option which was based on complete upgrading and replacement of Holyrood.

 

The ‘best way‘to meet domestic demand is not just the least cost. Environmental considerations should be taken into account. For example, without the Project, could some of the emissions from Holyrood  be partially or completely displaced by on-Island  renewable energy sources?

 

The Panel concludes that Nalcor’s analysis that showed Muskrat Falls to be the best and least cost way to meet domestic demand requirements is inadequate and an independent analysis of economic, energy and broad-based environmental considerations of alternatives  is required.

 

RECOMMENDATION 4.2 Independent analysis of alternatives to meeting domestic demand

The Panel recommends that, before governments make their decision on the Project, the Government of Newfoundland and Labrador and Nalcor commission an independent analysis to address the question “What would be the best way to meet domestic demand under the ‘No Project‘ option, including the possibility of a Labrador-Island interconnection no later than 2041 to access Churchill Falls power at that time, or earlier, based on available recall?” The analysis should address the following considerations:

  • why Nalcor’s least cost alternative to meet domestic demand to 2067 does not include Churchill Falls power which would be available in large quantities from 2041, or any recall power in excess of Labrador’s needs prior to that date, especially since both would be available at near zero generation cost (recognizing that there would be transmission costs involved);
  • the use of Gull Island power, when and if it becomes available, since it has a lower per unit generation cost than Muskrat Falls;
  • the extent to which Nalcor’s analysis looked only at current technology and systems versus factoring in developing technology;
  • a review of Nalcor’s assumptions  regarding the price of oil till 2067, since the analysis provided was particularly sensitive  to this variable;
  • a review of Nalcor’s estimates of domestic demand growth (including the various projections to 2027 in the EIS (2007, 2008, 2009 and the 0.8 percent annual growth to 2067 provided at the hearing);
  • Nalcor’s assumptions and analysis with respect to demand management programs (compare Nalcor’s conservative targets to targets and objectives of similar programs in other jurisdictions and consider the specific recommendations, including the use of incentives  to curtail electric base board heating, from Helios Corporation, among others);
  • the suggestion made by the Helios Corporation that an 800 MW wind farm on the Avalon Peninsula would be equivalent to Muskrat Falls in terms of supplying domestic needs, could be constructed with a capital cost of $2.5 billion, and would have an annual operating cost of $50 million and a levelized cost of power of 7.5 cents per kilowatt-hour;
  • whether natural gas, instead of oil, could be a lower cost option for Holyrood; and
  • potential for renewable energy sources on the Island (wind, small scale hydro, tidal) to supply a portion of Island demand.

There were also questions about planning mechanisms used by utility companies. Instead of the traditional approach of forecasting loads and finding the least cost generation solutions to meet them, some jurisdictions have moved to an integrated resource planning approach. Evidence was presented at the hearing that this approach has been used successfully in Hawaii and the Panel understands it is also being used in Nova Scotia and in some other jurisdictions in Canada.

 

RECOMMENDATION 4.3 Integrated Resource Planning

The Panel recommends that the Government of Newfoundland and Labrador and Nalcor consider using Integrated Resource Planning, a concept successfully used in other jurisdictions. Such an approach would involve interested stakeholders and look simultaneously at demand and supply solutions and alternative uses of resources over the medium and long term.

 

 

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