Below is an open letter by Ed Martin, President and CEO, Nalcor Energy,  to Tom Adams in response to his blog on Muskrat Falls posted on his website on Sunday, January 29, 2012.

Your blog posted on Sunday, January 29, 2012 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 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 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

Tom Adams’ website is located at: http://tomadamsenergy.com/