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Churchill Falls still haunts Newfoundland nearly half a century later.

Under a now-infamous 1969 contract, Hydro-Quebec gets to buy virtually all the power from the Labrador hydroelectric project at pre-1970s oil crisis prices until 2041, with no adjustment for inflation. The arrangement is worth hundreds of millions of dollars in profits every year to the Quebec utility.

Never again, Newfoundlanders said. The province vowed to do things differently to exploit the hydro potential of the lower Churchill River, including the Muskrat Falls project.

And it did. Former premier Danny Williams rejected the idea of selling most of the power from Muskrat Falls to Hydro-Quebec, opting instead to go it alone. So the province is repatriating the power to Newfoundland and financing a circuitous underwater transmission line to Nova Scotia.

The unfortunate consequence of this energy hubris is that instead of being cheated by its neighbour, Newfoundlanders are fleecing themselves.

Delays and cost overruns on the $12.7-billion megaproject will cause residential hydro rates to more than double across Newfoundland by 2022. That's according to Nalcor Energy, the provincial Crown corporation that's building the project, with loan guarantees from Ottawa.

Even that fatalistic prognosis may be too optimistic. A new analysis by an anonymous poster on a popular Newfoundland public-policy blog says Nalcor is still lowballing the true cost of Muskrat Falls, which has already doubled in price. Consumers will see rates more than triple to 35 cents per kilowatt-hour within five years, up from less than 10 cents now, according to the poster. That's twice the highest rates anywhere in Canada.

The province and Nalcor declined to comment directly on the 35-cent forecast. But Natural Resources Minister Siobhan Coady said in an e-mailed statement that the province has directed Nalcor to explore "all options" to hold rates down, including importing cheaper electricity from other provinces and finding new export customers. Nalcor, likewise, says it is looking at "all reasonable measures" to minimize the impact of Muskrat Falls on customers.

Premier Dwight Ball has said he'll never let rates double – implying the province may have to subsidize rate payers for decades to come.

Depending on what happens elsewhere in Newfoundland's highly energy-dependent economy, such subsidies would weigh heavily on the province's finances for a long time. The province's debt has ballooned in the past three years amid falling oil revenues. Getting back to balance depends heavily on reducing expenses, not on spending millions to subsidize electricity rates.

Newfoundland is not alone in putting politics ahead of sound economics when it comes to energy megaprojects. Provincial monopolies, powerful entrenched bureaucracies and regional jealousies have created a balkanized energy system across Canada that too often serves the few at the expense of efficiency and the national interest.

The result is that Canadians pay far more for their electricity than they should.

Newfoundland would have been better off giving everyone in the province big energy rebates and mothballing Muskrat Falls, which will cost every Newfoundlander more than $24,000.

But with Muskrat Falls nearly 80-per-cent complete, there is no going back.

Nalcor chief executive Stan Marshall, who inherited the project, has been surprisingly blunt about his company's big venture. He says Muskrat Falls is a "boondoggle" that is "a hell of a lot worse" than the 1969 Churchill Falls contract.

"It should never have been built," he told reporters earlier this year. "But it's too late to stop. We couldn't go and get a refund."

He might not want to admit it, but the original Churchill Falls deal was never as bad as it's been characterized. It was a product of its time – before the oil crisis, hyperinflation, deep-water drilling and hydraulic fracking. Energy contracts are priced with the best available information at the time.

Many also forget that Hydro-Quebec put up much of the money to build the project and assumed the risk of finding customers for the power and laying hundreds of kilometres of transmission lines.

Not getting a better price was a lost opportunity for Newfoundland. But the province didn't need the power back then. Its leverage was limited, and it assumed relatively little of the risk.

By trying too hard to make amends for perceived mistakes of the past, Newfoundland has poisoned its financial future.

It's a steep price to pay for energy independence.

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Reuters