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Opinion Will Trudeau rescue Newfoundland from its Muskrat Falls debacle?

Last month, a public inquiry led by Justice Richard LeBlanc of the Newfoundland and Labrador Supreme Court heard from the last of its witnesses in an attempt to get to the bottom of how the province ended up with the biggest white elephant in its, and possibly Canada’s, history.

As Newfoundlanders await Justice LeBlanc’s final report on the debacle, there has been no end to the finger-pointing as Canada’s most-indebted province contemplates a future mortgaged by the $12.7-billion Muskrat Falls hydroelectric dam, now nearing completion. But ascribing blame for the disastrous 824-megawatt project will do nothing to alleviate the financial burden current and future generations of Newfoundlanders face as the turbines start to spin.

The main problem now facing the Newfoundland government is how to pay for Muskrat Falls without saddling residents and businesses with punishingly high electricity rates that would strangle the provincial economy. It doesn’t have a lot of options.

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In July, Moody’s Investors Service lowered Newfoundland’s credit rating to A1, the lowest of any Canadian province, noting that “rate mitigation efforts, proposed by the province to ensure hydro rates remain relatively affordable despite the high cost of Muskrat Falls, may require direct provincial support.” In other words, the government may need to run bigger deficits and go even deeper into debt to subsidize electricity rates.

Liberal Premier Dwight Ball is, hence, stepping up pressure on Prime Minister Justin Trudeau’s government to come to the rescue. Ottawa has already provided loan guarantees on $7.9-billion in bonds issued by the provincial entity that owns Muskrat Falls. Former Conservative prime minister Stephen Harper provided an initial $5-billion loan guarantee that was topped up by Mr. Trudeau in 2016. Now, Newfoundland is looking for annual “rate mitigation” payments starting at $200-million from Ottawa, or billions of dollars over several decades.

In April, Mr. Ball’s government extracted a commitment from Ottawa “to further engage with Newfoundland and Labrador to expeditiously examine the financial structure of the Muskrat Falls Project, so that the province can achieve rate mitigation.” Since then, Finance Minister Bill Morneau has met at least twice with Mr. Ball to discuss the issue, including a meeting on Tuesday after which the two men pledged to “work together to ensure progress toward the province stabilizing electricity rates” for consumers.

The $200-million question facing Newfoundlanders in the federal election is whether the Trudeau government is just stringing them along with vague promises of helping out on electricity rates or whether it can be counted on to pay up after they go to the polls. The Liberals won all seven federal seats in the province in 2015 and hope to hold on to them this year.

Mr. Ball’s government hopes to partially offset electricity rates by closing the Holyrood thermal generating plant, exporting surplus power from Muskrat Falls and implementing a host of energy efficiency measures. But it has likely overestimated the revenues from such initiatives, and could end up needing even more from Ottawa than its initial $200-million annual ask.

Indeed, the underwater transmission line that would allow Newfoundland to export power from Labrador to the island and onto Nova Scotia (through a separate undersea line now under construction) is even further behind schedule than the Muskrat Falls generating station itself.

Until the new line is fully operational, Newfoundland will need to transport Muskrat Falls power through Quebec to reach export markets. That is likely to stick in the craw of Newfoundlanders, many of whom saw Muskrat Falls as a form of revenge on Quebec for a one-sided 1969 contract under which Hydro-Québec buys power from the much bigger Churchill Falls generating station in Labrador at a fraction of its market value.

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Indeed, all those promises that Muskrat Falls, situated on the Lower Churchill River in Labrador, would enrich the province now seem like a cruel joke. Former Progressive Conservative premier Danny Williams originally championed Muskrat Falls, saying: “I’d put my own money into this project if I could because I think it’s just a great investment for the people.” His successor, Kathy Dunderdale, whose government gave Muskrat Falls the official go-ahead in 2012, insisted it would “bring lasting benefits to the people of Newfoundland and Labrador.”

Instead, the project’s capital costs have more than doubled from the $6.2-billion initially estimated. It has been plagued by construction delays and opposition from Indigenous groups, who fear methyl-mercury contamination to their food chain from the flooding of the Muskrat Falls reservoir. The public inquiry heard that Mr. Ball’s government missed a deadline in 2018, preventing it from proceeding with a plan to mitigate methyl-mercury contamination risk through a process known as capping. The flooding began without it.

There is no way to positively spin the Muskrat Falls disaster. The only question now is whether Ottawa will step up to ease Newfoundland’s pain or leave it in the lurch.

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