Editor’s Note: This post is the fourth and final in a series titled “Dam Nation: Hydroelectric Developments in Canada.”

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Is Muskrat Falls a Big Dam? Muskrat Falls is an 824-megawatt capacity hydroelectric project now under construction at the site of a 15-meter falls of the same name on Labrador’s Lower Churchill River. In scale, it is, in fact, petite compared to its massive Upper Churchill counterpart, the 5,428-megawatt capacity Churchill Falls generating station built between 1967 and 1974 and then among the world’s largest hydroelectric plants and the largest in Canada until the Robert-Bourassa GS on the La Grande River was finished in 1981.

Nonetheless, Muskrat Falls is comparable to the current generation of large hydro projects across Canada: to BC Hydro’s 1,100-megawatt “Site C” project on the Peace River; Manitoba Hydro’s 695-megawatt “Keeyask” generating station on the Lower Nelson River; and Hydro-Québec’s 1,550-megawatt multi-phase Romaine River project on the north shore of the St. Lawrence, all of which are under construction.

It is more ambitious still in terms of the breadth of its transmission network and originally-forecast economic impact. Nalcor is the St. John’s-based provincial crown corporation behind the project, and Nalcor’s intention is to convey the electricity to the island of Newfoundland and its population center at St. John’s by laying a 35-km cable under the Strait of Belle Isle; and then to transmit the power to Atlantic Canada and New England via a 170-km cable to Cape Breton, Nova Scotia.

With 40% of the electricity originally intended to serve the island of Newfoundland and up to 60% to be transmitted to Nova Scotia and New England beyond, Muskrat Falls was to generate not only power, but exports and provincial revenue for the long-term. The “world-class” project will, according to Nalcor’s website, “power homes and businesses across Newfoundland and Labrador with clean, renewable energy for generations to come.” [i]

And this regional project has national and even global dimensions. Muskrat Falls is backed by a $6.3 billion loan guarantee from the Government of Canada and funded in partnership with Nova Scotia’s Emera Incorporated, parent company of Nova Scotia Power, which took a 20% stake and is constructing the $1.5 billion transmission link to the Maritimes. (“We are nation-building” said Nova Scotia Premier Darell Dexter. “This is our CPR.”)

Taken together with the 2,250-megawatt Gull Island project further upstream – originally slated by Nalcor for development in the 2020s – the Lower Churchill River becomes, for Nalcor, “the best undeveloped hydroelectric source in North America.”[ii] Beyond the bounds of the continent, Muskrat Falls’ turbines have been manufactured in China, its underwater cables made in Japan, and Italian multinational Astaldi has acted as general contractor for the generating station and related works.

Big industrial projects often come attached to political aims, and Muskrat Falls is no exception.

The project was publically launched in November of 2010 at a packed hotel ballroom in downtown St. John’s. Making the announcement were premiers Dexter and the outspoken Premier Danny Williams, the latter proclaiming “a day of great historic significance” and placing the commencement of the Lower Churchill project in a context that was familiar to his listeners. Newfoundland, said Williams, was characterized by a history of “giveaways,” most substantial being that of the Upper Churchill when the British Newfoundland Corporation (Brinco) via its subsidiary Churchill Falls Labrador Corporation (CFLCo) committed itself to a 65-year-long contract to sell virtually all of the electricity of the massive hydro plant to Hydro-Québec at what would prove to be roughly one-thirtieth today’s market rate.

That day in 1969, said Williams, was “a defining moment in our history and a warning…of what not to do.” But “giveaways are no longer a way of life [and] Quebec will no longer determine the fate of Newfoundland and Labrador.” Crediting Nova Scotia’s Premier with recognizing the value of the joint Atlantic-region project, Williams came to his main point. “We finally have a strategic route into the Maritimes…avoiding the stranglehold of Quebec.”[iii]

Williams’ feisty language recalls that of Newfoundland Premier Joey Smallwood, and his aspirations for the Lower Churchill recalls Smallwood’s for Churchill Falls. The inception of the massive Churchill Falls ‘Channel Scheme’ was rooted in Smallwood’s determination to stimulate the economic development of an impoverished Canadian province. His 1954 trip to England secured the necessary consortium of business interests that became the British Newfoundland Corporation or Brinco.

Smallwood alternately courted, and fought with, Jean Lésage and René Lévesque during protracted negotiations to secure a power customer in Hydro-Québec, and he intervened directly in the particularly thorny negotiations over price. Smallwood entertained talks with Quebec to adjust the Labrador boundary, as well as the possibility of a joint Quebec-Newfoundland development of the falls; and much of Smallwood’s intervention was to the consternation of Brinco’s managers who wrote of “grave doubts to the practicability of Mr. Smallwood’s ideas”, especially when Newfoundland’s stormy Premier threatened to nationalize Brinco – as he did several times – if the consortium couldn’t find a way to get on with the project. And it was Smallwood himself, in 1964-65, who ardently pursued what was then a technically-challenging and expensive long-distance, underwater power transmission route to the island of Newfoundland and thence to Cape Breton – then dubbed the Anglo-Saxon Route, and the forerunner of the Lower Churchill’s Labrador-Island and Maritime transmission links – in order to escape what the Premier described as the “clutches of Quebec.”

In short, the negotiations that produced the infamous 1969 power contract were complicated and often hampered by what CFLCo perceived to be the troublesome interference and impolitic statements of the Premier or members of his Government.

Now, with eerie symmetry, history seems to be repeating itself: a project driven hard by resource politics is coming to a disappointing end.

First came construction delays and resulting cost overruns. Construction of Muskrat Falls began in 2013. A slow start in concrete placement by Astaldi meant that by early 2016, multinational auditing firm Ernst and Young could describe construction of the generating station as “significantly behind schedule.”[iv] Extreme weather conditions, meanwhile, had slowed construction of the Labrador-Island Transmission Link. Muskrat Falls was meant to start generating electricity in 2017; Nalcor later revised the date to 2018; and Nalcor CEO Stan Marshall has recently put the finish date in the third quarter of 2019.

Commensurately, project costs, originally forecast as $6.2 billion in 2012, were revised upwards to $6.99 billion two years later, then to $7.65 billion in 2015. Marshall’s June 2016 estimate is $9.1 billion – or $11.4 billion including interest payments and financing costs. Given these financial challenges, one wonders how Williams’ determination to right the wrongs of the past (and Premier Kathy Dunderdale’s thereafter) clouded the Conservative Government’s judgment to go forward with the project.

Marshall’s takeover as Nalcor CEO was itself a mark of project turmoil. The November 2015 provincial election ended twelve years of Conservative rule, with the new Liberal Government of Dwight Ball sharply critical of Nalcor’s management of the project. Longtime CEO Ed Martin, along with the entire board of directors, stepped down in April 2016. Marshall, a seasoned executive and former CEO of Canadian utility giant Fortis, came out of retirement to take the job. And in a news conference this past June, Marshall stated with stunning bluntness that Muskrat Falls was “much too large” for the province’s energy needs, and that the dam was “built on faulty assumptions” – namely that energy prices would continue to rise, when in fact the prices of oil, natural gas, and electricity have descended since Muskrat Falls’ launch.

Ironically, it was the opposite assumption that tripped up Churchill Falls, he pointed out: the 1969 contract was signed with the expectation that energy prices would continue to fall, as they had across the twentieth century, whereas they rose precipitously during the 1970s Oil Shocks and beyond, producing windfall profits for Quebec.

Nor can Nalcor halt Muskrat Falls, Marshall made clear, since 75% of total project costs are spent or committed; since the 490-megawatt Holyrood thermal station near St. John’s is to be decommissioned at decade’s end; and since Nalcor has contracted to provide power to Nova Scotia for 35 years. Acknowledging that Muskrat Falls can be dubbed a “boondoggle,” Marshall said of the project “it was a gamble, and it’s gone against us.”[v]

Adding insult to injury, in late July the international credit rating agency Moody’s downgraded the province to Aa3 from Aa2, citing an “increase in debt burden and interest expense” due mainly to the decline in oil prices but with Muskrat Falls also being a “component.” The downgrade gave Newfoundland the lowest rating of any Canadian province.

Students of environmental history will know that delays and cost overruns are not untypical for large civil works projects. Perhaps, in time, Muskrat Falls will emerge from its current controversy to accomplish some of its promised economic aims. Nonetheless, from an environmental perspective, it is disturbing that by means of yet another hydroelectric dam – this one rooted in the politics of revenge and the promise of provincial profit, rather than the clear necessity to tap this particular energy source – a North American river will cease to flow as it has for millennia.

But obstacles to the project’s completion remain: contractual, fiscal, and social.

It is hardly clear that Nalcor has the legal right to regulate the Upper Churchill River (via the sprawling Smallwood reservoir) in a manner that would allow any Lower Churchill power plant to generate electricity in the quantity that would justify its expense. The Churchill Falls contract of 1969 is governed by Quebec law; and just last month, the Quebec Superior Court asserted that Hydro-Québec holds the right to schedule the energy produced from Churchill Falls. Not only is this “a devastating blow to the Muskrat Falls project” as St. John’s businessman and blogger Des Sullivan describes the court’s decision. But lack of certain legal management of the river’s flow, among other factors, in the assessment of Toronto-based energy consultant Tom Adams and St. John’s-based policy analyst Ed Hollett writing in the Financial Post, makes the upstream Gull Island project a “dead duck.”[vi]

In need of money to complete the much-delayed and overpriced Muskrat Falls dam, the Government of Newfoundland and Labrador has asked Ottawa to guarantee some or all of the remaining $4 billion in loans – which, as Bloomberg’s Josh Wingrove points out, puts Prime Minister Trudeau in an awkward position. With Presidents Obama and Nieto, Trudeau has just committed Canada to combat climate change by resolutely embracing clean energy, including hydro. Yet loan guarantees to prop up an acknowledged “boondoggle” will hardly be viewed by Canadians as fiscally prudent. Urged Green Party leader Elizabeth May regarding Muskrat Falls: “let’s not throw good money after bad.”[vii]

Aboriginal resistance remains, too. Ever since the James Bay and Northern Quebec Agreement of 1975, private and public developers alike in Canada have been obliged to negotiate with Native Peoples. Prior to starting dam construction, Nalcor made a deal with Labrador’s Innu, the 600-page document ratified by an overwhelming majority of Innu themselves in 2011.

Under this so-called New Dawn agreement, the 2,400 Innu of the communities of Sheshatshui and Natuashish secured permit-free hunting rights over 34,000 square kilometres, $2 million a year in compensation for flooding by the Churchill Falls project (for which no compensation had been made in the 1960s), and an Impact and Benefits Agreement by which Nalcor will share 5% of Muskrat Falls’ profits, and a portion of construction-related contracts and jobs, all in exchange for the damming of Mishta-shipu or Big River at the sites of Muskrat Falls and Gull Island. Nonetheless, the IBA did not quiet Innu protests, including a blockade of the Lower Churchill construction site as early as 2012.

Nor had Nalcor dealt with the Inuit downstream. In April 2016 a report prepared by Harvard researchers for the Nunatsiavut Government of the Labrador Inuit predicted “elevated levels” of the neurotoxin methylmercury in the estuary of Lake Melville – due to flooded vegetation and soils in the Muskrat Falls reservoir and bacterial breakdown of this organic material – “to last for several decades.” The resulting bioaccumulation of methylmercury in fish and seals would affect Inuit in communities including Happy Valley-Goose Bay, North West River, and Rigolet.[viii]

The report also made clear that the removal of topsoil, vegetation, and trees prior to flooding (an enormous endeavor, to be sure) would limit the number of humans exposed to levels that exceed Health Canada guidelines. The Nunatsiavut Government is now demanding that Nalcor “fully clear the Muskrat Falls reservoir” and that Nalcor “negotiate an Impact Management Agreement with the Nunatsiavut Government to the satisfaction of all parties before Muskrat Falls reservoir flooding.”[ix] With Muskrat Falls already well over-budget and behind schedule, it remains unclear whether Nalcor will follow such recommendations.

Meanwhile, hundreds of Inuit and Labradorians, alike, gathered in Happy Valley-Goose Bay in late June to protest the completion of the Muskrat Falls project. Said Nunatsiavut President Johannes Lampe: “We are not interested in compensation, we want to enjoy our way of life.” “Look around look at faces of youth and elders,” Lampe told Premier Ball, “and tell them everything will be O.K….tell them you will make Muskrat right.”[x]

References

[i] https://muskratfalls.nalcorenergy.com/project-overview/

[ii] http://www.nalcorenergy.com/lower-churchill-project.asp

[iii] The announcement can be viewed at http://www.cbc.ca/news/lower-churchill-announcement-1.1774680

[iv]  Ernst and Young LLP, “Muskrat Falls Project: Review of project cost, schedule and related risks,” April 8, 2016, at http://www.gov.nl.ca/mfoversight/pdf/EYCostScheduleRisks_Apr.pdf

[v] Marshall’s comments can be viewed at http://www.cbc.ca/news/canada/newfoundland-labrador/stan-marshall-muskrat-falls-update-1.3649540

[vi] Des Sullivan, “Time for Nalcor to Tell the Truth to the Public,” 1 September 2016, http://unclegnarley.blogspot.com/2016/09/time-for-nalcor-to-tell-truth-to-public.html. At this same blog site, see also Sullivan’s 29 August 2016 “The Quebec Superior Court Gives Nalcor Nothing: Water Management a Pipe Dream.” “Tom Adams and Ed Hollett: Gull Island, dead duck,” July 21, 2015, Financial Post, at http://business.financialpost.com/fp-comment/tom-adams-and-ed-hollett-gull-island-dead-duck

[vii] Josh Wingrove, “Power Plant Boondoggle Tests Trudeau’s Green Energy Commitment,” July 22, 2016, Bloomberg, at http://www.bloomberg.com/news/articles/2016-07-22/trudeau-s-muskrat-falls-dilemma-to-test-canada-s-green-pledges

[viii] Nunatsiavut Government 2016, “Lake Melville: Avativut, Kanuittailinnivut (Our Environment, Our Health) Scientific Report” at http://makemuskratright.com/wp-content/uploads/2016/04/ScienceReport-low1.pdf

[ix] Nunatsiavut Government 2016, “Lake Melville: Avativut, Kanuittailinnivut (Our Environment, Our Health) Summary for Policy Makers,” at http://makemuskratright.com/wp-content/uploads/2016/04/Policymakersreport1.pdf

[x] Ossie Michelin, “Labrador Indigenous leaders echo calls of protesters to half Muskrat Falls dam project,” 27 June 2016, Aboriginal Peoples Television Network (APTN) National News, at http://aptn.ca/news/2016/06/27/labrador-indigenous-leaders-echo-calls-of-protesters-to-halt-muskrat-falls-dam-project/