Residents of Newfoundland and Labrador are preparing for electricity rates to double in the next five years, adding an estimated $150 per month in power costs for the average homeowner, as a consequence of building the Muskrat Falls hydroelectric dam — and experts warn it could be a cautionary tale for British Columbia.

“Muskrat Falls was not the right choice for the power needs of this province,” public power company CEO Stan Marshall told the press last year, confirming the project is a “boondoggle.”

“It was a gamble and it’s gone against us.”

Meantime in British Columbia, debate continues over whether to continue building the 1,100 megawatt Site C hydro dam on the Peace River, estimated to cost $9 billion, at a time that power demand has been essentially flat for 10 years, despite population growth.

“There are a lot of parallels between British Columbia and Newfoundland,” David Vardy, former CEO of the Newfoundland Public Utilities Board, told DeSmog Canada. “There’s the same fixation with the megaproject.”

B.C. Premier Christy Clark has vowed to get the project past the “point of no return,” while provincial NDP leader John Horgan has promised to send the project for a review of costs and demand if elected in May.

Vardy, who led Newfoundland’s public utilities board from 1994 to 2001, has called for a public inquiry into the Muskrat Falls dam.

Review Panels Called For Further Study of Dam Economics

In an interview with DeSmog Canada, Vardy pointed to several similarities between Muskrat Falls and the Site C dam.

For starters, the joint federal-provincial environmental panel that reviewed Muskrat Falls concluded there was not sufficient evidence the dam was the best and least cost project for the province and called for an independent analysis.

“There were a lot of fundamental questions that were raised about the justification for the project,” Vardy said. “The joint panel warned against proceeding with this without doing a very in-depth review.”

In British Columbia, the Site C panel’s finding was nearly identical, calling for further study of capital costs and electricity demand — a recommendation that was ignored much to the chagrin of the panel’s chair Harry Swain.

“The thing that’s in common … is that we’re dealing with large crown corporations. And these crown corporations are very close to government. They are seen to be instruments of government policy,” Vardy said.

Experts have questioned whether BC Hydro and the Premier’s Office are too close for comfort.

Both Dams Skipped Full Review By Utilities Boards

Despite the panel recommending otherwise, the Newfoundland government didn’t send Muskrat Falls for a full review by its public utilities board. In B.C., the government also ignored the panel’s recommendation for a review by the B.C. Utilities Commission.

“In the normal course of events it would have gone to the public utilities board and they would have done an exhaustive analysis of all the options and they would have looked at costs,” Vardy said.

Former Newfoundland Premier Roger Grimes told DeSmog Canada that B.C. should still send Site C for a full review by the B.C. Utilities Commission.

“There’s no doubt: once you short-circuit the public review process, there’s something wrong,” Grimes said. “If it can’t withstand that kind of proper review in the proper public forum, history has shown us that there’s probably something wrong with it.”

Grimes said if it’s the right project, the B.C. government shouldn’t fear the outcome of a utilities commission review.

“If they have information that has them as the government so convinced that it’s the right thing to do, then any independent panel that looks at it should come to the same conclusion with the same information,” Grimes said.

In Newfoundland’s case, the government did seek the opinion of the Public Utilities Board, but the terms were limited to examining two options and alternatives couldn’t be considered. Still, the utilities board found the evidence presented was not complete or current enough to support the project. Newfoundland forged ahead anyway.

“The government commissioned a whole flurry of consulting studies,” Vardy said. “Consultants were charged to demonstrate that what the government wanted to do was the correct thing. There was no independent testing. There was no cross-examination. It was all contrived to create a business case for a project that made no sense from the beginning.”

ICYMI: The Startling Similarities Between Newfoundland’s Muskrat Falls & BC’s #SiteC Dam #bcpoli #cdnpoli https://t.co/ZgO61VLVx2 pic.twitter.com/chdEs51cKh

— DeSmog Canada (@DeSmogCanada) August 18, 2017

Lack of Checks and Balances

Democracy only works with checks and balances, Vardy said.

“What we have is a strong crown corporation, which is overbearing and spends enormous amounts of money. It has infinite communications resources. It has infinite money for studies,” he said. “They’ve basically backend loaded the project so the people in 50 years time will still be paying off this project.”

In British Columbia, BC Hydro has tried to stifle critical media coverage and has conceded that residents will be paying for the Site C dam for 70 years — until 2094.

“By the time the Site C hydroelectric dam is paid off, fusion or some other energy advancement might already have made it obsolete,” Nelson Bennett wrote in Business in Vancouver.

Grimes has said the legacy of Muskrat Falls will haunt Newfoundlanders for generations.

“This is the biggest mistake that Danny [Williams] ever made, by far, and will haunt all of us, unfortunately, for the rest of my life, my daughter’s life, my granddaughter’s life even,” Grimes told CBC.

Questions About Power Demand

Stan Marshall, the incoming CEO of Newfoundland’s public power utility, Nalcor, announced last year that load growth estimates had been vastly exaggerated and the cost of the project had escalated to $11.7 billion, from $6.2 billion in 2010.

In B.C., questions about demand for Site C’s power on the current timeline have been raised by review panel chair Harry Swain, former CEO of BC Hydro Marc Eliesen and former premier Mike Harcourt.

BC Hydro argues that B.C. will need new power to meet the needs of a growing population. This is where the provinces diverge as Newfoundland is not projecting any population growth.

However, B.C.’s power demand has stayed flat for the past 10 years despite a growing population, due in part to the shutdown of several industrial pulp mills, which are large consumers of electricity. Efficiency improvements for things like appliances and light bulbs also decrease demand.

“Hydro’s demand forecasts are persistently and systematically wrong,” Swain wrote in an affidavit to a federal court last year. “There is no reason to believe that much new power, if any, will be required in the next 20 to 30 years.”

In the 2012 load forecast used for decision-making by the B.C. government, BC Hydro predicted nine per cent growth in power demand over the next four years. It dropped by one per cent.

However, if B.C. electrifies its economy, including transportation, to fight climate change, B.C. will need more electricity, argues Mark Jaccard, former head of the B.C. Utilities Commission and professor in the School of Resource and Environmental Management at Simon Fraser University.

That said, it’s important for demand forecasts to be reviewed by the utilities commission, Jaccard told DeSmog Canada.

“We ran into this where the politicians will lean on people in Hydro to give a different forecast because it will justify whatever they wanted to do,” Jaccard said of his time at the helm of the utilities commission between 1992 and 1997.  “It’s always tricky when the utility is publicly owned.”

“If we’re going to act on climate, we need a lot of electricity. But we don’t need the Site C dam to get that electricity. We could get it other ways too,” he said.

Out of Sight, Out of Mind

Another thing Muskrat Falls and Site C have in common is that they’re located in remote areas with very small populations.

“On the island, in St. John’s, it’s been kinda out of sight, out of mind,” Vardy said. “Until such time as people see it show up in their electricity bills, most people are fairly oblivious to these impacts.”

Power rates in Newfoundland are now projected to rise from 11.5 cents per kWh to 21.5 cents per kWh when the dam comes online in 2020.

“It’s a very precarious situation where the interest on the public debt is now costing more than what we’re spending on our schools,” Vardy said.

Newfoundland is relying on exporting excess power at spot market prices, which are a fraction of the cost of producing the power —  also part of the plan in B.C.

“Ninety per cent plus of the burden is placed on consumers in this province. That is the core problem,” Vardy said about Newfoundland.

Rate increases in B.C. will depend on the final cost of constructing the Site C dam, domestic demand for power and the ability of B.C. to export excess power.

‘Blinded By the Sunk Costs’

Muskrat Falls is now beyond the point of being stopped, according to Vardy. But he argued for years that it could have been stopped, even though it had begun construction.

“You can’t do anything about sunk costs. You’ve got to weigh the future costs of stopping against the future costs of continuing. They kept being blinded by the sunk costs,” Vardy said.

Vardy’s advice to British Columbia is to “go back to the public utilities board and take this thing apart and see if it makes any sense.”

“If there’s no business case, it should be stopped because it’s going to be a burden on future generations.”

Escalating Costs

In particular, Vardy warned there needs to be a process in place to stop construction if costs escalate.

“That’s exactly what should have happened here. We should have said: ‘Things have changed. Circumstances have changed.’ ”

An Oxford University study in 2014 found that large dams suffer average cost overruns of 96 per cent and delays of 44 per cent.

Commenting on Premier Christy Clark’s vow to get Site C “past the point of no return,” Vardy said: “That’s not good public policy. What you want to do is do the right thing. If it doesn’t make sense to do the project, then it should be stopped.”

He pointed to the problem of politicians getting too attached to projects.

“They’re looking at this as a legacy project and they’re focused on their own egos and their hubris. And this is what happened here. And it sounds like the same thing is happening in British Columbia.”

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

Climate campaigners and tar sands blockaders widely celebrated the announcement last month that the Norwegian energy company Statoil was halting plans for a multi-billion dollar tar sands project in Alberta, Canada. The company cited rising costs of labor and materials in Alberta, and also blamed “limited pipeline access” for “squeezing away the Alberta margins a little bit,” a point that anti-Keystone XL activists have taken as a clear sign of victory.

Don’t take your eyes off of Statoil, however. The company is quietly reallocating the estimated $2 billion investment to pursue a massive deepwater offshore project off the east coast of Newfoundland, in harsh, sub-Arctic conditions adjacent to an area drillers refer to as “iceberg alley.”

A win for Athabasca, a loss for the North Atlantic

The Statoil decision to mothball its tar sands project for at least three years is a clear win for the northern Alberta boreal forest and the First Nations peoples who live downstream in Fort Chipewyan. The atmosphere will also be spared an estimated 777.4 million metric tons of carbon dioxide.

Statoil's decision to shelve the in situ project also helps prove the concept that, as Bill McKibben tweeted, “battling pipelines is a good idea [because] it makes it more expensive to do bad stuff.” It also dampens "the invevitability argument," the idea that rapid tar sands development will happen with or without the Keystone XL pipeline.

Coming on the heels of a May announcement by Total SA and Suncor Energy that work would be suspended on an $11 billion tar sands project (a decision that cost those companies $1.65 billion), Statoil's announcement indicates that fighting pipelines can be effective by applying a sort of people-powered carbon tax to fossil fuel development.

As recently as December 2013, Statoil Canada president Stale Tungesvik told The Globe and Mail that he was “still fighting for doing both,” referring to the Corner tar sands project and development of the Bay du Nord deepwater offshore find in the Flemish Pass off of Newfoundland.

However, for now — and in no small part because of the lack of pipeline capacity out of Alberta — Statoil can only afford to invest in one project, and the company has calculated better returns on the deepwater offshore play that has received little media attention and little public resistance.

Statoil’s North Atlantic Plans

In the summer of 2013, Statoil and its partner Husky Energy made a massive discovery of oil in the deepwater Flemish Pass Basin, off of Newfoundland. Called Bay du Nord, this was the third, and largest, of Statoil's recent discoveries in the area. Estimated at 300 to 600 million barrels of recoverable light crude, Bay du Nord was the largest oil discovery in the world in 2013, Statoil's largest discovery since 2010, and the company's largest discovery ever outside of Norway.

The other two plays, called Mizzen and Harpoon, are both expected to yield in the hundreds of millions of barrels. Exploration and appraisal wells are currently being drilled or analyzed in all three locations, all within 10 to 15 miles of each other.

The Flemish Pass Basin sits about 300 miles east of St. John's, Newfoundland, under some 3,600 feet of water. The reservoirs themselves are more than one mile under the seabed.

The Bay du Nord play sits in the Flemish Pass Basin, appearing on the far right in turquoise blue. Image credit: CNW Group/Statoil Canada Limited

Geir Richardsen, Statoil Canada’s vice-president of exploration, hopes that the Bay du Nord well will be producing crude by 2020 if all goes to plan. 

“Canada is a core area for us," Richardsen said. “It’s an environment where we hope to create good value.”

Newfoundland’s Oily Ambitions

Canada’s offshore oil industry has historically been limited to three fields clustered in the Jeanne d'Arc basin, about 100 miles southwest of the Flemish Pass basin in a broader region known as the Grand Banks. Output from these fields peaked in 2007 and the national and provincial governments seem dead set on helping boost production by any means necessary.

Derrick Dalley, the minister of natural resources for Newfoundland and Labrador, said that the Bay du Nord discovery “proves there is oil in our province’s deepwater basins, and it will encourage increased offshore exploration activity.”

Bay du Nord would be Canada’s first foray into deepwater drilling — the Jeanne d’Arc fields are only about 300 feet deep. And while many residents of Newfoundland worry about the safety of drilling Canada’s first deepwater offshore oil wells, the provincial government is aggressively working to help Statoil get to the oil as soon as possible.

Ministers of the province of Newfoundland and Labrador announced in June that public funds, through the Crown corporation Research and Development Corp., will chip in $1.5 million on top of Statoil’s $2.4 million for three research projects geared towards deepwater drilling in such harsh sub-Arctic environments.

Farrah Khan, of Greenpeace Canada, told the CBC that “it's especially galling that Newfoundland and Labrador is using public money to advance a very risky industry.”

The government of Newfoundland and Labrador also created its own Crown corporation to capitalize on what it hopes to become an offshore bonanza. In 2007, Nalcor Energy was formed, and has since been investing in hydroelectric projects, energy marketing, and, crucially, offshore energy infrastructure.

You don’t have to look far to find the inspiration for Nalcor. “We’re modeling ourselves after Statoil,” said Jim Keating, vice president of Nalcor’s oil and gas division, referring to the quasi-public structure as an “arms-length” state-owned oil company.

Who else is working off the Canadian coast?

The massive Statoil discovery underscores a busy time in exploration off of Canada’s eastern shore. On top of Statoil’s Flemish Pass plays, a number of companies, mostly foreign, are at various stages of tapping the crude under the North Atlantic.

Exxon Mobil already operates in two of the fields in the Jeanne d’Arc basin (see map above) — Hibernia (1.2 million barrels) and Terra Nova (>370 million barrels). The company is currently ramping up operations in the Hebron heavy oil field also in the Jeanne d’Arc basin, which is estimated to have 400 to 700 million barrels of recoverable crude.

Exxon also leads investment and operations of the first and only offshore natural gas project in Canada, called the Sable Offshore Energy Project, off the coast of Nova Scotia (see map below).

The Sable Offshore region is the small cluster of yellow, orange and green, connected by pipline to the island. The Shelburne Basin fields are the yellow blocks on the left. Image credit: Nova Scotia Department of Energy (click for larger version)

Royal Dutch Shell, doing business locally as Shell Canada Limited, is leading a partnership, along with Suncor and ConocoPhillips, to explore the deepwater off of the south shore of Nova Scotia. The companies recently paid close to $1 billion for exploration rights on four parcels in the Shelburne Basin (see map above), roughly 150 miles south of Halifax.

Chevron is currently drilling its third exploration well in the Orphan basin, roughly 30 miles northwest of the Flemish Pass.

Husky Energy is partnering with Statoil on the Flemish Basin plans, as described above. Huksy also has the majority interest in the White Rose field in Jeanne d'Arc, with Suncor holding the minority stake. 

With so many projects in development off of Canada's East Coast — from conventional offshore to deepwater to gas drilling — the region seems to be on the cusp of a mini-bonanza. Many investors are predicting that 2015 will be "big year for offshore oil in Canada" as more exploratory wells are drilled and more companies invest in the area, many seeking easier profits and less resistance than they're encountering in the Alberta tar sands. 

But drilling offshore in the North Atlantic has its challenges. In future posts, DeSmogBlog will investigate the risks of drilling in this particular harsh environment, the infrastructure demands and impacts on local populations, and the climate threat that emerges as the size of these oil discoveries are better understood. We will continue to monitor the situation off of Newfoundland, Labrador and Nova Scotia, and will report important developments.  

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

Several provincial initiatives to reduce greenhouse gas emissions are closing the gap created by the federal government’s continuing lack of climate legislation. This patchwork of provincial policies may be the future of climate policy in Canada, according to a review of Canadian climate or carbon policy in 2013.

“If we have learned anything about carbon policy in Canada, it is that top-down national systems are lost to the federation and we need to embrace bottom-up subnational systems,” argues the review released recently by the prestigious International Institute for Sustainable Development (IISD) in Winnipeg.

The Institute found in 2013 the federal government’s will to implement greenhouse gas (GHG) emissions reducing regulations “evaporated," but several Canadian provinces had “major successes” in adopting measures to reduce their own provincial carbon footprints. BC’s carbon tax, Quebec’s cap and trade system and Ontario phasing out coal-fired power plants are a few highlights of 2013 filling the lack of federal climate policy gap mentioned in the report.

“In 2012 the carbon policy Lego was strewn across the floor waiting to be built. In 2013 we walked on it with bare feet. Looking forward to 2014, one has to wonder if the Lego will be put back in the box and forgotten in the basement until yet another federal plan emerges. In the meantime, look to the provinces to take it upon themselves to start building something from all of the pieces,” concludes the report.

Eighty-four percent of Canadians want the federal government to take action on climate change according to a November 2013 survey.

Climate Policy Highlights in 2013

The year of 2013 was a dismal for federal climate policy in Canada. The federal government quietly admitted to the U.N. Canada was nowhere near meeting its weak GHG reduction targets for 2020. Prime Minister Stephen Harper announced Canada’s long awaited oil-and-gas sector emissions regulations were years away from becoming a reality. Many had hoped the Harper government would implement those regulations to win over U.S. President Barrack Obama on the Keystone XL pipeline at the very least.

But the year was not all bad according to the IISD report.

While the federal government in Ottawa may loathe the idea of a carbon tax east of the Rockies, B.C. decided in 2013 to keep its successful and popular carbon tax going. The price on emissions will remain at $30 per tonne as well. B.C. also decided to extend its Clean Energy Vehicle Incentive, which offers up to $5,000 off on the purchase of electric, hybrid or natural gas powered vehicles.

Back in Ontario, (in Toronto, not Ottawa) premier Kathleen Wynne announced in 2013 the shut down of all coal-fired power plants in the province will be complete by the end of this year. The Institute describes this as the “single largest regulatory action in North America” to reduce GHG emissions. Wynne followed this up with a bill to ban the use of coal for power generation in the province in the future.

And in Quebec, the province launched its cap and trade system – trading permits on allowable GHG emissions – last year. Quebec linked its system with California’s successful cap and trade system to create a bigger market to trade permits. Hopes are high that the Quebec-California emissions trading market will serve as an example for other provinces and states to use this market-based approach to reducing GHG emissions.

“Learning from our provincial policy labs and building on successes now need to be ongoing objectives of those helping to shape future policy,” IISD argues in the report.

The report also commends the actions taken by other provinces in 2013. Newfoundland and Labrador's guaranteeing a $5 billion loan for the Muskrat Falls hydroelectric project and Nova Scotia’s approval of the Maritime Link – Nova Scotia buying water power from Labrador – were “major milestones in energy development in 2013." Even Alberta received recognition for reviewing how the province could make its oil and gas emissions regulations stricter.

Provincial Patchwork Policy Could Be the Future of Canadian Climate Policy

The IISD argues in absence of a unified national climate policy a fragmented climate policy made up of a “patchwork” of provincial policies is emerging in Canada.

“Against this backdrop of federal inaction and provincial patchwork, it is perhaps time to embrace policy fragmentation within the federation. The path forward for 2014 and beyond is therefore one of seeking provincial alignment to minimize long-term administrative and compliance costs,” states the report.

A fragmented provincial policies approach in the absence of federal policy is not a new concept to Canada. Canada’s current health care system of free and accessible health coverage for all Canadians was adopted by Saskatchewan before the federal government would even consider it.

The trick for an effective patchwork climate policy, according to the Institute, will be to find commonalities and linkages in the various provincial policies so they can work in cooperation with one another. 

Image Credit: International Institute for Sustainable Development Policy Brief

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

There will be no fracking near Gros Morne National Park, a UNESCO World Heritage Site in Newfoundland.

Shoal Point Energy has lost its exploration license for an area near the park as well as its $1 million deposit after applying to extend that license until January 2015.

In a release, the Canada-Newfound and Labrador Offshore Petroleum Board (C-NLOPB) said the extension was not approved because in the nearly eight years since the license was issued “minimal exploration has been undertaken.”

"We are disappointed by this decision," Shoal Point chief executive officer Mark Jarvis said in a statement.

"We feel that our proposal recognized and respected the importance of Gros Morne National Park, a UNESCO world heritage site. Our proposal balanced a desire to protect this unique and beautiful park with a desire to safely and responsibly develop a much needed economic opportunity on the west coast of Newfoundland."

Earlier this year Shoal Point drew criticism from the United Nations Education, Scientific and Cultural Organization (UNESCO) for its plans for fracking near Gros Morne, which was designated a world heritage site in 1987 for its unique geological features and has been a boon for Newfoundland’s tourism industry every since.

Guy Debonnet, the UNESCO unit chief for North American heritage sites, told the CBC that the group was concerned about possible impacts of drilling and hydraulic fracturing, including "offshore leakage reaching the property, pollutants affecting pristine lakes on the property, and the risk of rock fall from high cliffs caused by shocks during hydraulic fracturing, including areas of the property with high visitation."

The decision to deny Shoal Point's application comes in the wake of groundbreaking legislation regarding the future of hydraulic fracking in Newfoundland and Labrador. In November the province's Natural Resources Minister Derrick Dalley announced a moratorium on fracking in the province pending environmental reviews and public consultation.

“Our first consideration is the health and safety of our people,” the minister said. “In making this decision, our government is acting responsibly and respecting the balance between economic development and environmental protection.”

A similar ban in Quebec drew a lawsuit from Calgary’s Lone Pine Resources Inc for $250 million. The suit was filed under NAFTA, which the company believes is possible because it is registered in Delaware.

Critics argued that the suit shows the dangers of international free trade in issues of environmental regulation.

"If a government is not even allowed to take a time out to study the impact without having to compensate a corporation, it puts a tremendous chill on a governments' ability to regulate in the public interest," said Ilana Solomon, director of the Sierra Club's trade program in Washington, D.C. told the Canadian Press.

Encouraged by legislation in those two provinces, environmental groups have called for similar moves across Canada.

“From coast to coast, communities are calling for a stop to fracking,” Emma Lui, national water campaigner for the Council of Canadians, said in a statement. “We’re relieved to see that the Newfoundland government is taking a common sense approach by reviewing regulations, conducting impact studies and engaging the public before moving ahead.”

Now that Quebec and Newfoundland and Labrador have put a hold on fracking, Lui says, “it’s time for other provinces and the federal government to do the same.”

Image Credit: Wikimedia Commons

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.