Profit up at Nalcor but still no plan for Holyrood in Q1 report

Nalcor Energy is reporting increased profits, ongoing challenges with the Labrador-Island transmission line and no firm plan for the future of the Holyrood thermal generating station in the Muskrat Falls era.

CEO Stan Marshall and chief financial officer Derrick Sturgepresented the results of Nalcor'sfinances for the first quarter of 2019 during a webcast and conference call Tuesday.

The highlights include Nalcor recording a profit of $92 million for the first three months, an increase of $14 million over the same period in 2018. Last year, first-quarter profit was $90 million, but a Nalcor spokesperson says changes to international financial reporting standards last year mean that figure was adjusted.

"Overall it was a good quarter," said Sturge.

General Electric working on software

Nalcor has also turned over control of the new 1,100-kilometre transmission line from Muskrat Falls to Newfoundland's Avalon Peninsula to General Electric so the computer software used to operate the line can be figured out.

"We continue to work through the software issue," Marshall explained.

"It's critical for us to have this debugged by the time the power is coming out of Muskrat Falls. That's our No. 1 priority:get this thing done."

What's more, Marshall confirmed Tuesday there's no firm plan for the aging and polluting Holyrood thermal generating station once Muskrat Falls reaches full commercial power in a few years.

"You have to bear in mind that a lot of questions about reliability have been asked, and we have flexibility there," he said,adding that any decisions about the Holyrood facility will be made in conjunction withthe Public Utilities Boardand the provincial government.

"You can keep it going a long period of time. It's simply a matter of cost," Marshall said.

Oil and gas profits increasing

The increased profits were attributed primarily to the sale of power to island customers from the Upper Churchill generating station in Labrador, which increased Newfoundland and Labrador Hydro's net income to $52 million, up from $32 million a year ago.

Profits from Nalcor's interest in offshore oil projects also surged by $8 million, driven largely by higher production.

But Nalcor'senergy sales to export markets dropped sharply because much of the recall power available at the Upper Churchill is now being redirected to Newfoundland over new transmission lines built for the Muskrat Falls project.

And power that was exported fetched lower prices, according to Sturge.

Nalcor, through subsidiary N.L. Hydro, sells nearly 80 per cent of its generation to Fortis-owned Newfoundland Power, which then sells it to residential and commercial customers on the island.

Meanwhile, Sturge reported that Nalcor plans to spend roughly $1.3 billion this year on the Muskrat Falls project, with $172 million spent in the first quarter.

But with the controversial project now 97 per cent complete, that's significantly less than was being spent a few years ago.

The quarterly report shows that $9.1 billion has been spent to date on construction costs for Muskrat, but that figure grows to $10.5 billion when interest charges and commissioning costs are included.

Muskrat was sanctioned at a construction cost of $6.2 billion in late 2012, but that figure has since grown to $10.1 billion. But when construction costs, interest during construction and commissioning costs are included, the figure grows to $12.7 billion.

The project isthe subject of an ongoing public inquiry to determine why there have been massive cost and schedule overruns.

No change in cost estimate

Marshall said there is "no change to the capital cost estimate at this point in time" and Nalcor remains on track to achieve first power from Muskrat later this year.

The generating station at Muskrat will produce 824 megawatts once fully operational, and contractors are now in the process of installing the four turbines and generators in the powerhouse. All three dams are complete.

The new power line from the Upper Churchill to Muskrat has been in use since April 2018, but it's the high-voltage direct currentlink from Muskrat to Soldiers Pond, known as LIL Labrador-island link that's been posing the greatest challenge.

The LILwas used throughout the winter to transmit Labrador power to Newfoundland, up to 150 megawatts at peak, according to a Nalcor statement.

And with the link now completed between Newfoundland and Nova Scotia, Nalcor is also purchasing power from the Maritimes when it's feasible.

Both these initiatives have helped displace oil-generated electricity at Holyrood, resulting in fuel savings of $33 million since 2018, said Nalcor.

But limitations in the computer software means only one of two conductors on the LIL are being used, and thishas to be resolved before Muskrat power can be transmitted to the island.

"While we have faced some challenges in the development of the required software, we are continuing to work with our contractorto ensure their success in the development and integration of this version of bi-pole software that is required to safely and reliably operate LIL later this year," a statement from Nalcor reads.

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One of the selling points of the Muskrat Falls hydroelectric project was that the polluting and old thermal generating station at Holyrood could be decommissioned.

That process was supposed to start next year, according to Marshall, butnow that's not so certain.

Critics have raised concerns about whether there will be a reliable backup if the LILfails, and Marshall confirmed there isno firm plan for the future of the Holyrood facility.

Holyrood can produce up to 500 megawatts of power, or roughly 40 per cent of Newfoundland's energy needs.

But it's been operating for 50 years, and burns up to 18,000 barrels of oil per day at peak output.

Meanwhile, Muskrat Fallshas achieved a significant safety milestone: two years, or 15 million person-hours,without a lost-time injury.

"This is an outstanding achievement which reflects the exceptional work that the entire project team has been doing to ensure a injury-free workplace. So I congratulate all team members on their long-term dedication to safety," said Marshall.

The project was also recognized by the Canadian building trades unions with a health and safety distinction award, said Marshall.

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