Nalcor Replies to Post “Stop Muskrat Falls”

The following response to the previous post was received from Nalcor at 11:25, Monday January 30th. It was posted to the discussion forum for the previous post but to ensure that those interested in the subject have easier access, it is repeated here.

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Letter of Response from Ed Martin, President & CEO, Nalcor Energy

Your blog displays a clear lack of understanding of the Lower Churchill Project, including the Muskrat Falls Development. I’m compelled to correct the statements made by you, and request the prompt apology you said you would make if your arguments were wrong.

Usable output
Contrary to your statement that “Nalcor has vastly overstated the usable output from Muskrat Falls,” Muskrat Falls will generate 4.9 terawatt hours of energy per year. This analysis is based on several studies completed by reputable engineering consultants. It’s not based on an average water flow study as stated in your blog.

I’m not sure if you are aware of legislation in our province that requires a water management agreement to be in place between Nalcor Energy and Churchill Falls (Labrador) Corporation (Churchill Falls). The legislation requires the two power producers to use available storage, primarily in the Churchill Falls reservoir, and their respective generating facilities to optimize the production of power while maintaining the contractual obligations of Churchill Falls to its customers.

The terms of the agreement, which have already been established, requires Muskrat Falls and Churchill Falls to operate as an integrated system. This provides the Muskrat Falls hydroelectric facility with access to over 30 billion cubic metres of storage upstream in the Churchill Falls reservoir. With production at Muskrat Falls completely integrated with Churchill Falls, this means that during May and June Muskrat Falls will be producing at full output, and the resulting production not required on the island will be displacing production at Churchill Falls.  This energy will be drawn down when rivers flows are lower, and during peak winter periods when electricity demand is higher on the island.

Finally, the only water not utilized at Muskrat Falls is the amount spilled during the spring freshet when runoff is greater than the capacity at Muskrat Falls. On the island, we have significant storage capability in our reservoirs and the amount of water spilled in the spring freshet on the island is relatively small.

Evaluating the costs
The Government of Newfoundland and Labrador has asked the NL Board of Commissioners of Public Utilities (Board) “to provide a supplemental review of the process used to determine that Muskrat Falls represents the least-cost option for the supply of power to Island Interconnected Customers compared to the Isolated Island development option.”
I appreciate that you’ve read some of Nalcor’s over 400 responses to information requests as part of the Board’s review. However, I’d like to draw your attention to some of the material you may not have had an opportunity to review.

The terms of reference for the review requires that Nalcor compare costs on a system basis, and consider the least-cost expansion for the island. All of the costs associated with both generation expansion plans are posted on the PUB website, and can be found in Exhibit 99: http://www.pub.nf.ca/applications/MuskratFalls2011/files/exhibits/Exhibit99.pdf
Nalcor has publically answered this question and the annual costs for Muskrat Falls and the Labrador-Island Transmission Link are included in our modelling. The methodologies for recovering costs associated with Muskrat Falls (escalating Power Purchase Agreement) and with the Labrador-Island Transmission Link (cost of service) as well as the annual amounts recovered are disclosed and shown annually.

Costs of the Isolated Island (current system) and Island Interconnected (Muskrat Falls) are disclosed in our analysis. When compared to the Isolated Island expansion alternative, there is a cost preference for Muskrat Falls of $2.2 billion ($2010).

Muskrat Falls is the least-cost supply for Newfoundland
Muskrat Falls (824 megawatts (MW)) will provide us with clean, stable, renewable electricity that will allow our province to meet its own domestic and industrial needs in an environmentally-sustainable way and also provide export opportunities.

Nalcor and its subsidiary Newfoundland and Labrador Hydro have a mandate to meet the province’s growing electricity needs. The recommendation we’ve put forward is that the lowest-cost alternative to meet our future energy requirements is Muskrat Falls with a transmission link to the island.

Nalcor’s immediate priority is to meet the increasing need for electricity in Newfoundland and Labrador and replace the 40-year old 500 MW oil-burning plant in Holyrood, thereby eliminating our dependence on oil for generating electricity.

Muskrat Falls will enable our province to be powered by 98 per cent stable, clean renewable energy. It’ll also significantly reduce greenhouse gas emissions in Eastern Canada and Northeastern US.

Future Benefits
The development of Muskrat Falls, and in due course Gull Island, will have far reaching benefits, including: lowest-cost electricity to our province’s consumers, stable electricity rates, support for industrial development and a long-term source of revenue for our province. There are also tremendous benefits regionally and nationally from these hydro developments.

Ed Martin
President and CEO, Nalcor Energy

10 Comments

  1. Mr. Martin says, “On the island, we have significant storage capability in our reservoirs and the amount of water spilled in the spring freshet on the island is relatively small”.

    Yet NL Hydro’s 2nd and 3rd year 2011 quarterly reports state that NL Hydro’s island hydro sites spilled the water energy equivalent of just under 3/4 of a TWh of energy — THIS YEAR ALONE.

    And more importantly, while early on, Nalcor was saying the island needed Muskrat Falls power to meet the increased demand that Vale’s new nickel plant (just under 3/4 of a TWh demand) will place on the system, Nalcor was saying that Vale’s increased demand would have to be met with increased, high cost oil fired generation from Holyrood’s thermal generation station (thereby justifying the need for Muskrat Fall power).

    Yet, now, in Nalcor’s Final Submission to NL’s Public Utilities Board, Nalcor claims that island spillage will continue (year over year) until Vale comes on stream to take up the existing excess capacity now being lost through spillage.

    So which is it? Vale’s demand will either eliminate already existing and forecast year over year excess capacity (spillage), or it will be met by placing an increase in demand and cost on oil fired thermal generation at Holyrood? —- I guess whichever is convenient at the time.

    Maurice E. Adams
    Paradise,NL

  2. I wrote to Nalcor today indicating that I had posted the utility’s reply and noted the reply also in a tweet. I also asked the following:

    “Nalcor’s letter does not provide any references to support the statements contained there with respect to the seasonal distribution of water to be used by the integrated CF + MF system. Any direction you can provide to supporting documentation would assist.”

    The utility responded as follows:

    “Thank you Mr. Adams for posting our information.

    In response to your request for information, the water management information is on the public record at the NL Board of Commissioners of Public Utilities. Hope this information helps.

    http://www.pub.nl.ca/applications/Nalcor2009Water/index.htm

    Regards,”

  3. It appears that Nalcor’s Water Management Agreement can in no way interfere with or diminish CF(L)Co’s legal obligations to uphold its 1969 (and 2016 renewal) contractual requirements to utilize the Upper Churchill reservoir capacity to first and foremost meet its obligations to provide power to Quebec. So the Water Management Agreement that Nalcor refers to appears to be totally subservient to and limited by the earlier 1969 contract and the 2016 renewal contract. See below:

    Excerpt from a 2009 letter from Hydro Quebec to NL Public Utilities Board:

    “Hydro-Quebec wishes to express to the Board its position that any water management agreement
    to be established by the Board must recognize that the CF(L)Co/Hydro-Quebec Power
    Contracts have the benefit of Section 5.7 of the EPCA.

    We note that the Nalcor Application, as well as the Nalcor and CF(L)Co submissions of
    December 10, 2009, acknowledge that the CF(L)Co/Hydro-Quebec Power Contracts are
    protected by Section 5.7 of the EPCA, as does the water management agreement proposed by
    both Suppliers to the Board.

    In such circumstances, Hydro-Quebec has decided not to intervene in the Nalcor Application.”

    Also, the relevant section of the Electrical Power Control Act is as follows:

    “5.7 A provision of an agreement referred to in section 5.4 or 5.5 shall not adversely affect a provision of a contract for the supply of power entered into by a person bound by the agreement and a third party that was entered into before the agreement under section 5.4 or 5.5 was entered into or established, or a renewal of that contract.?

    Maurice E. Adams
    Paradise, NL

  4. Tom, it’s a pretty significant fact that you have overlooked if in fact you’re saying that you’re not familiar with this agreement. The integration of reservoir capacity on the Churchill River and its watershed, along with reservoir capacity on the island, puts a serious skew in your estimations of actual output from Churchill falls.

  5. Nalcor above says “during May and June Muskrat Falls will be producing at full output.”

    Nalcor in the Telegram Jan 31 (Quick answers snuffs Muskrat criticism) “If you need power on the island and you have excess, you’d use your island power and you wouldn’t flow from up north. You’d store it in the reservoir.”

    Notice the difference between the two statements.

  6. Isn’t a distinction in Tom’s post at 2012/01/31 at 10:13 am only pertinent to island consumption only? Assuming there is always some level of flow to Nova Scotia wouldn’t MF serve to top up any island need as well as meet exports needs?

    • The sum of the winter generation capabilities of Muskrat Falls plus winter generation capabilities of existing on-island hydro-electric generation is approximately equal to the winter load on the island. Approximately zero hydro-electric power is available from an integrated system to deliver power to Nova Scotia. If Nalcor commits to flowing a firm supply to Nova Scotia, that generation will have to be delivered from thermal generation on the cold days in winter.

      In May and June, when on-island generation would be spilling before taking into account Muskrat Falls potential generation, all surplus island generation would be delivering power to Nova Scotia. The potential for Muskrat Falls generation is limited to the available head room on the line from the island to Cape Breton.

      The Water Management Agreement is irrelevant.

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