12/18/2012 12:19 EST | Updated 02/17/2013 05:12 EST

Muskrat Falls law reduces regulatory oversight, enshrines monopoly

ST. JOHN'S, N.L. - Electricity rates in Newfoundland and Labrador would have to cover the costs of the $7.7-billion Muskrat Falls hydro megaproject under new legislation that diminishes oversight by the province's utilities regulator.

Natural Resources Minister Jerome Kennedy said the Public Utilities Board will still have a role in setting blended power rates but will be "directed" by government to incorporate full Muskrat Falls costs to satisfy terms of a federal loan guarantee that would save about $1 billion in borrowing costs.

"We're going to the markets based on the fact that there will be a revenue stream," he told a news conference Tuesday. "That revenue stream is required by the lenders, by the rating agencies and by the federal loan guarantee."

Asked if the government is locking ratepayers into a 50-year deal that can't respond to changing energy circumstances, Kennedy said: "Based on everything we know to date, this is the best option at present."

"We have to, at some point, trust the experts. We have Nalcor. We have Newfoundland and Labrador Hydro. We have Manitoba Hydro reviewing the project."

The bill introduced Tuesday would also enshrine Crown corporation Nalcor Energy's monopoly over wholesale electricity generation.

"Newfoundland Power has certain assets," Kennedy said. "They will remain the same. However, there will be no new generation allowed under the (Electrical Power Control) Act."

It's a move that he concedes could be challenged if U.S. producers ever want to sell power here.

A major selling point of Muskrat Falls has been a subsea link between Newfoundland and Nova Scotia being built by Emera Inc. (TSX:EMA). The link allows access to U.S. markets — access that requires reciprocity under energy regulations.

"There would be or could be potential arguments on that but we'll have to wait and see if they arise," Kennedy said.

The bill is one of two pieces of legislation that must be passed to trigger the federal loan guarantee.

The other bill covers land expropriations, including five homes along a stretch of the transmission route on the Avalon Peninsula, that would be needed for the development.

The legislation is the focus of a deepening standoff between the majority Progressive Conservative government and the Liberal and NDP opposition.

However, Kennedy said the bills must be passed in the current sitting of the legislature so that financing arrangements can begin early in the new year.

He said the government will not curtail debate and will sit for as long as the opposition wants — including through Christmas.

"We'll be here to debate it as long as it takes," Liberal Opposition Leader Dwight Ball said during question period in the legislature Tuesday.

He accused the government of ramming through bills that affect at least 15 other pieces of legislation.

"One deals with taking away power from the PUB (Public Utilities Board) and putting it in the hands of cabinet, the other deals with expropriation of 1,000 kilometres of land."

The opposition Liberals and NDP say Muskrat Falls was approved without a regulated review and that they'll extend debate in the legislature on related legislation.

Premier Kathy Dunderdale said during question period Tuesday that she's confident Muskrat Falls is the best project for future energy needs. She vowed to extend the fall sitting for as long as it takes to answer questions.

"Like every other project that we have planned and delivered to the benefit of the people of Newfoundland and Labrador, we have imagined every scenario, Mr. Speaker — everything that could possibly go wrong. And we have a remedy in case it does."

NDP Leader Lorraine Michael has repeatedly raised concerns about potential cost overruns. She said the introduction of two major pieces of legislation, without typical advance notice of 72 hours, is "an affront to democracy and an abuse of the people's house."