Canadian Manufacturing

Fresh trouble at Muskrat Falls as cost of hydro project approaches $12B

Latest revision swells cost of what critics are calling a bottomless money pit to more than $4 billion above estimates, straining Newfoundland's budget



Construction of the cofferdam at Muskrat Falls. The major infrastructure project is currently behind-schedule and significantly over-budget. PHOTO: Nalcore Energy

ST. JOHN’S, N.L.—Costs continue to soar at the delayed Muskrat Falls hydro project in Labrador as a new contract to settle construction disputes will drive the price tag to almost $11.7 billion.

Stan Marshall, CEO of Crown corporation Nalcor Energy, said Dec. 21 the new deal with contractor Astaldi to finish the powerhouse and intake near Happy Valley-Goose Bay is now worth just over $1.8 billion.

That’s up from the original Astaldi deal of just over $1 billion. And Marshall said he can’t rule out more increases.

“We’re still exposed for this winter,” he said of a leaking coffer dam and protests in October over potential methylmercury contamination.

Marshall blamed both factors for delays that derailed installation of an ice boom meant to protect the flood gates and other concrete structures from damage.

“While we’ve done everything we can to protect the site, I mean, if we have a catastrophic inundation of the site this winter then all bets are off,” he told a media conference call.

Marshall confirmed last June that costs had jumped to about $11.4 billion with financing, up almost $4 billion since the former Progressive Conservative government sanctioned the project four years ago.

He says that estimate included much of the extra costs anticipated for the new Astaldi deal. The agreement to be finalized next month will add $270 million, bringing the total to almost $11.7 billion.

Muskrat Falls is a joint venture with Nova Scotia utility Emera to bring power to Newfoundland and then on to Nova Scotia using subsea cables. It is not expected to fully function until 2020, about two years behind schedule, with first power in 2019.

Marshall took over as Nalcor CEO last April after the new Liberal government criticized Muskrat Falls oversight. He has agreed the project is a “boondoggle” but says he’s steering it back on course, starting with the Astaldi contract that pays out as work is done.

“There’s no avenue we could have taken which would have reduced our risk and given as much certainty as the path we’ve now chosen,” he said Wednesday.

Marshall has also repeatedly said that with more than $7 billion spent or contractually committed there’s no turning back.

Most problems have stemmed from delays involving the power generating station, he explained during the update in June. He described issues with Italian construction contractor Astaldi Canada as a “major dispute.”

The added costs confirmed Wednesday are on top of electricity rates for domestic customers that are forecast to hit 21.4 cents per kilowatt hour in 2021, before tax. That’s up 6.3 cents from estimated rates when the project was approved, and almost double the 12 cents consumers paid in the province last year—potentially adding $150 to an average monthly bill.

Both Marshall and Premier Dwight Ball have said they’ll explore all options over the next four years to lower those prices.

While projected energy needs in Newfoundland and Labrador have waned, Marshall still says the province needs a new source of power to replace its aging oil-fired Holyrood plant and to meet future demand.

The province is obligated to provide power over 35 years to Emera, which is building the $1.6 billion subsea Maritime Link for transmission.

Ball challenged the Muskrat Falls project while Liberal opposition leader, including two related filibusters. Since becoming premier last year, he says his government has “inherited” what critics have called a bottomless money pit.

NDP Leader Earle McCurdy says the Liberals should have done a far more thorough and publicly transparent “stop-or-go analysis” when they took power.

“I’m long past taking comfort in bland assurances about Muskrat Falls from either Nalcor or government people—past or current administration,” he said in an interview.

The province is pouring cash into what he called “an unmitigated disaster.” Meanwhile, funding for low-income supports such as dental care has been cut while a forecast deficit of $1.6-billion looms, McCurdy added.

“This project is a huge part of that,” he said. “And there’s no end in sight.

“These massive cost overruns haven’t been addressed with the kind of urgency that the situation demands.”

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