Danny Williams staked his political legacy on getting the Muskrat Falls hydroelectric project built. Dwight Ball is staking his own on making sure Newfoundland and Labrador voters don’t have to pay a cent for Danny Williams’s hubris. In doing so, Premier Ball may be mortgaging the province’s future to pay for its past.
On Monday, Mr. Ball announced a deal with Ottawa to rework the federal government’s $7.9-billion loan-guarantee agreements for the star-crossed $12.7-billion project, which is years behind schedule and double its original budget. The project, which Mr. Williams unveiled a decade ago with bold promises of delivering economic independence, vital revenue and stable power prices, has instead left the country’s second-least-populous province with potentially crippling debts and the prospect of skyrocketing electricity rates.
Mr. Ball has invested much of his energy and political capital on reining in those rates, which threaten to show up on voters’ electricity bills as an expensive monthly reminder of government failure. Because the costs of paying for the project’s construction must be built into the rates charged to electricity customers, the massive overruns have the province braced for residential rates to jump to nearly 23 cents per kilowatt hour next year, from about 13 cents currently. Mr. Ball has promised to fix that. He hasn’t said that he’ll do his best to minimize the rate increases, or that he’ll keep electricity costs down to the region’s average of about 16 cents. No, he has promised, loudly and repeatedly, that he will make sure rates stay right where they would have been without Muskrat Falls. The cost of producing Newfoundland and Labrador’s electricity is about to go through the roof, but the cost to consume it won’t budge.
That’s a tall order; Newfoundland and Labrador’s own Public Utilities Board has estimated that it will cost $620-million to offset the looming rate increase in 2021 alone. But there Mr. Ball stood on Monday in St. John’s, not far from where Mr. Williams stood a decade ago, making his own historic announcement, sounding just as self-assured as his predecessor as he stated, emphatically, that his deal with Ottawa would completely spare consumers from the Muskrat Falls burden – not just next year, but permanently.
Apparently, brazen self-confidence is very big in Newfoundland politics.
In reality, what Mr. Ball has struck with the federal government is an agreement to come up with an agreement; most of the key details are still to be negotiated. But the general idea is that the two sides will find a way to “monetize” future revenue from the project’s related assets – essentially bring them forward so that the province can get the money in its hands now, rather than wait for it to trickle in over the next half-century under the project’s power purchase agreement. It’s not the only trick Mr. Ball has up his sleeve to offset the impact of the Muskrat Falls costs, but it’s the key to making the entire problem disappear for voters.
Of course, nothing is really disappearing. You can repackage it, slice it into smaller pieces and different shapes, scatter it across budgets and finances and decades, but one way or another, someone has to pay for it eventually.
Mr. Ball was adamant that he’s not going to sell Muskrat-related assets, but that doesn’t mean he won’t sell the fruits from those assets’ labours. We can expect to see, within the next few months, a deal under which an investor or investors will effectively purchase the rights to a substantial portion of the expected future revenue from the project, with the proceeds from that sale being used to in some way rejig the debt and reduce the rate hit.
“It’s about balancing through the life of the plan the revenue streams that are in place. There’s enough there to cover the cost of debt over the life of the plan,” Mr. Ball said.
The precise way this will be done is still an open question. The most likely investor would be the federal government. At the very least, it does look like Ottawa is prepared to take some of the financial risk off Newfoundland’s hands, and perhaps even sink its own money into the solution.
But the bottom line for Newfoundland and Labrador is that its government is prepared to relinquish a great deal of future revenue to make this rate problem go away. In a province with high debt, slow economic growth and an aging, shrinking population – a province that faces long-term revenue challenges – this may prove dangerously short-sighted. Future premiers may rue the day that Mr. Ball played a hero by kicking his own financial problem down the road to them – just as Mr. Ball rues the day Mr. Williams opened this Pandora’s box in the first place.