The federal and provincial governments said Monday they have agreed on a plan for Newfoundland and Labrador's Muskrat Falls hydroelectric project aimed at keeping electricity rates affordable, but the finer points of accounting for a $30 billion funding gap over the coming decades have yet to be formalized.

"This is a very complex financial solution," Newfoundland and Labrador Premier Dwight Ball said Monday afternoon at the Signal Hill Campus of Memorial University in St. John's.

Monday's event was greeted with scorn by opposition politicians, with Progressive Conservative Leader Ches Crosbie referring to the announcement as "propaganda" to divert attention away from a hiring controversy in government.

NDP Leader Alison Coffin said she was "underwhelmed" by the announcement.

The two governments agreed to talks on how to revise financing of the project, committing to reach a deal before Muskrat Falls is completed at the end of this year.

"No government since Confederation has faced a tougher challenge," said Ball. "I made a commitment that you will not bear the burden of the higher electricity rates or taxes as a result of Muskrat Falls. Today I am delivering on that commitment."

O'Regan, left, with Ball and provincial Natural Resources Minister Siobhan Coady watching, speak with reporters in St. John's on Monday. (Terry Roberts/CBC)

"We have a responsibility" to keep power rates stable, said federal Natural Resources Minister Seamus O'Regan, who is member of Parliament for St. John's South-Mount Pearl.

Under the existing agreement, over the next 45 years it would cost $74 billion to pay for Muskrat, a scenario that would eventually force retail power rates up to 78 cents per kilowatt hour from the current 13 cents.

But that agreement, which is backloaded and includes billions in what insiders say are unachievable dividends to the province, is being shredded.

It will be replaced with a more traditional, cost-of-service agreement expected to shave $34 billion in costs, which will be passed on to ratepayers.

The new plan means annual costs will be relatively stable at between $600 and $800 million annually, instead of rising dramatically in future years.

But to keep rates stable at around 13.5 cents per kilowatt hour, the province will have to cover off a $4.8 billion shortfall over the next two decades.

That's where the details get a little murky, with both levels of government saying these details will be worked out in the coming months.

"We said we would be there to help, and we will be," said O'Regan, adding that Prime Minister Justin Trudeau took personal interest in dealing with the issue.

Another measure to ease the short-term burden is the deferral of a $150 million payment into a sinking fund until Muskrat is commissioned, and if necessary, deferral of payments into a special account in case there are further cost increases.

The push to increase the demand for Muskrat power by converting buildings to heating systems fuelled by electricity will continue, since revenues from electrification will also lower the burden on ratepayers.

Natural Resources Minister Siobhan Coady, meanwhile, is expected to provide more details on a rate mitigation plan in the coming weeks.

Lots of MPs, MHAs and staffers here. Rather somber tone. Only polite applause at the end of the speech from Ball <a href="https://twitter.com/hashtag/nlpoli?src=hash&ref_src=twsrc%5Etfw">#nlpoli</a> <a href="https://t.co/38nQ5GFrXT">pic.twitter.com/38nQ5GFrXT</a> —@PeterCBC

Finding a way to keep electricity rates low — as the costs of the megaproject have soared — has been a key issue in federal-provincial relations for well over a year.

The 824-megawatt hydro project in central Labrador has been plagued by delays, cost overruns and political controversy in the decade since it was first announced.

On Friday night, the provincial government released a report by the Public Utilities Board on rate mitigation options. It concluded that in order to keep power rates at or below 13.5 cents per kilowatt-hour, as the government has said was its intention, it would need help to the tune of $600 million.

By the time Muskrat Falls was sanctioned in 2012, the cost estimate had risen to $7.7 billion. It's now expected to deliver power for the first time in late 2020, and the current price tag is $12.7 billion. (Twitter/Nalcor)

Finding a way to limit the financial damage of Muskrat Falls is one of the most pressing political issues in Newfoundland and Labrador. Without significant mitigation, average electricity bills could spike by 75 per cent to cover the cost of the project when it delivers power sometime in late 2020.

Electricity rates would jump from 13 cents per kilowatt-hour to just under 23 cents.

But the utilities board warned that a price increase of that magnitude would be too much to absorb for people in a province with high unemployment, and it could make major employers less competitive.

Soaring costs

In 2010, former Progressive Conservative premier Danny Williams pitched it as a $6.2-billion green energy solution that would bring Labrador power to the island of Newfoundland and into Nova Scotia through a series of subsea cables.

By the time the project was sanctioned in 2012 by Williams's successor, Kathy Dunderdale, the cost estimate had risen to $7.7 billion. It's now expected to deliver power for the first time in late 2020 with a final price tag that, at this point in time, is pegged at $12.7 billion.

Finding a way to keep electricity rates low as those costs spiked has been a key issue in federal-provincial relations for well over a year.

Ottawa's stake in the project is due to the federal loan guarantee first promised by former prime minister Stephen Harper in 2012 when he agreed to guarantee up to $6.3 billion in debt. The Trudeau government increased the loan guarantee by an additional $2.9 billion in 2016.

The report by province's Public Utilities Board — which sets electricity rates — concluded that limiting rates further would require significant help from the federal government.

The current provincial Liberal government and its taxpayer-owned energy company, Nalcor, have been trying to find a combination of cost savings and revenue options to cap that massive rate increase.

But that would require hundreds of millions of dollars a year to keep rates low at a time when the provincial government is already running record deficits.