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RUSSELL WANGERSKY: Signed, sealed, and we just may have to deliver

An aerial view of the Muskrat Falls hydroelectric project site. - File photo
An aerial view of the Muskrat Falls hydroelectric project site. — Contributed

Words, I’m afraid, are cheap. Electrical power may not be.

Muskrat Falls and rate mitigation was back in the House of Assembly this week, as politicians traded words about whether we’re going to pay the money we’re legally obligated to pay for electrical power.

Premier Andrew Furey was sounding definite: “I will say that we have been very clear in our rate mitigation and management plan due to Muskrat Falls — extremely clear. We said that the ratepayers of this province will not bear the expense of Muskrat Falls. I will reiterate that again, Mr. Speaker, in case he didn’t hear it: the ratepayers of this province will not bear the expense of Muskrat Falls.”

The problem is that electrical customers in this province are still legally bound to do exactly that, as a result of contracts that are close to bulletproof. So it’s no wonder the process is slow.

Something as simple as a news release from a bond rating agency explains part of the reason why rate mitigation is so darned difficult.


There is no magic money tree, no mysterious trick to make our legal commitments disappear.


The project’s grossly over budget, years late and key pieces don’t work — that’s the sort of thing that would make investors nervous, isn’t it? And the spectre of customers not having to pay their bills — that would make bond rating agencies issue warnings, right?

Well, no.

In this case, the investors have everything sewn up so tight that they’re not in the least bit concerned — they’ll get every penny they are owed.

DBRS Morningstar issued its most recent analysis of the $7.9 billion Muskrat Falls and Labrador Island Link bonds on Monday, and pointed out that the bonds are as safe as the federal government’s own bonds, regardless of the performance of the dam and other equipment.

Here’s a snippet: “The (Federal Loan) Guarantee constitutes an irrevocable, unconditional, absolute, and continuing obligation of Canada. There is no requirement to exhaust recourse against the Issuers before bondholders are entitled to the payment from Canada; all defences are waived by the government and subrogation rights are postponed as long as the guaranteed obligations are still outstanding; and no amendment of the Guarantee is permitted, except by agreement with the Indenture Trustee.”

As was pointed out during the Muskrat Falls inquiry, the federal guarantee included a requirement that Newfoundland and Labrador “would ensure that regulated rates for Newfoundland and Labrador Hydro (‘NLH’) would allow it to collect sufficient revenue to recover all costs.”

All costs.

Think about that for a moment: the federal government agreed in advance that it had no defence that would allow it not to pay, and no matter how much the provincial and federal governments might want to change anything, they need permission from the lenders for that change. There’s no way that permission is coming, unless the lenders end up getting even more money, frankly.

That’s not the only place where satisfying the lenders was key. (And who could blame someone lending $7.9 billion from wanting to be sure their money was secure?)

Look at the Power Purchase Agreement (PPA) between Nalcor Energy and its subsidiary, Newfoundland and Labrador Hydro.

In order to assure lenders that the money to pay off loans was going to come in, Hydro agreed it would pay enough for power to cover the project’s costs — even if it didn’t end up using the power. Another agreement, the Generation Interconnection Agreement (GIA), puts Hydro on the hook for the costs of transmitting the Labrador power as well.

The agreements tie Hydro’s hands neatly and firmly — as the Muskrat Falls Corporation describes it succinctly in notes attached to its financial statements: “Under the terms of the PPA, Muskrat Falls will recover all costs associated with the Muskrat Falls hydroelectric facility as well as the costs incurred by Muskrat Falls under the GIA. Hydro’s obligation to pay for the costs under the PPA is absolute, non-conditional and irrevocable.”

From the very beginning, everybody wanted to be absolutely sure they were going to get paid. They carefully put that commitment into every legally binding contract. And, politics or no politics, they will be paid.

There is no magic money tree, no mysterious trick to make our legal commitments disappear. The only solutions are that we pay, or that someone else pays on our behalf. Oh, and that second option is also likely to have ramifications that we will find difficult to accept.

We made our bed. Sleeping in it, though, may be uncomfortable.

Russell Wangersky’s column appears in SaltWire newspapers and websites across Atlantic Canada. He can be reached at [email protected] — Twitter: @wangersky.


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