N.L. taxpayers hit with $190M payment to keep Muskrat power rates stable
Newfoundland and Labrador taxpayers have been hit with a nearly $200 million bill to cover the shortfall in paying for the Muskrat Falls generating station and keep electricity rates stable.
The provincial government announced Friday that the "initial steps" to keep power rates affordable in the Muskrat Falls era — a strategy called rate mitigation — will require a payment of $190.4 million.
The money is being used to limit future rates increases and reduce financing costs that are accumulating in what's called the supply cost variance deferral account.
The payment is for the outstanding balance for 2022 and is higher than the $160-million deficit forecast earlier this month when Finance Minister Siobhan Coady delivered the province's 2023-24 budget.
"This action to pay the deferral account balance demonstrates the provincial government's commitment to rate mitigation," Andrew Parsons, minister of industry, energy and technology, said in a Friday press release.
The deferral account, created in December 2021, allows N.L. Hydro to defer the expense associated with the Muskrat Falls power purchase agreement.
The account records the difference between the costs to supply the island interconnected system and the costs currently collected from customers in electricity rates.
N.L. Hydro began making payments under the power purchase agreement for the costs to build, finance and operate the plant after the plant was commissioned in late 2021.
The province is financing the deferral account through short-term borrowing.
The full rate mitigation plan, meanwhile, cannot be finalized until the power line that transmits Muskrat electricity to Newfoundland's Avalon Peninsula — the Labrador-Island Link — is commissioned.
The 1,100-kilometre line is capable of transmitting up to 900 megawatts but has been plagued by software and hardware problems. It is currently undergoing high-power testing, which must be successful before the link is commissioned.
It's the latest blow to the province's treasury from a controversial project once described by former premier Dwight Ball as the biggest economic mistake in Newfoundland and Labrador's history.
The public project was sanctioned a decade ago with a price tag of $7.4 billion but has since soared to at least $13.4 billion.
The federal government announced a $5.2-billion plan in February 2022 to prevent electricity rates from doubling once the Lower Churchill project was fully commissioned.
"Significant work has been concluded with respect to rate mitigation," the press release stated.
For example, the release added, term sheets have been signed and financing has been secured for a $1-billion federal loan guarantee, and there's been a $1-billion investment by Ottawa in the province's portion of the Labrador-Island Link.