The Nova Scotia government and Nova Scotia Power are being urged to start planning for the cancellation of the Muskrat Falls hydro electricity project, which could jeopardize the province's ability to meet green energy standards.

It comes from consultants for the province's largest electricity customers, known as the Industrial Group.

"NS Power has plenty of capacity, so it could easily meet customers' load," said Drazen Consulting in a report prepared for the Nova Scotia Utility and Review Board.

"The problem would be that it may not meet the Renewable Energy Standard," Drazen said.

Green targets at risk

Nova Scotia has legislated that 40 per cent of electricity be generated from green energy sources by 2020. Renewable electricity from the $7-billion Muskrat Falls hydro project is expected to supply just under 10 per cent of Nova Scotia's electricity after it comes on stream in 2018.

The consultants say whether a failure to meet the standard is acceptable will depend on whether the project is only delayed or cancelled.

"That question cannot be answered now. But NSPI and the government should start contemplating their range of responses and NSPI should inform the board and customers of the effects of backup plans," Drazen said.

Those concerns are shared by Catherine Abreau, an environmentalist with the Ecology Action Centre in Halifax.

"It could throw them off course," Abreau tells CBC News.

Utility seeks 4.5 per cent rate increase

The consultants were hired by the industrial group to examine an application by Nova Scotia Power to raise rates by 4.5 per cent over the next three years to cover its fuel costs. By law NSP fuel costs are automatically passed on to rate payers.

The application was a response to legislation passed by Nova Scotia's Liberal government imposing three years of "rate stability."

Drazen says it is concerned that the costs of the $1.5-billion Maritime Link — which is being built by an NSP sister company to bring Muskrat Falls electricity into Nova Scotia — are being recovered before supply arrives.

Consultants hired by the Nova Scotia Utility and Review Board have also warned the project is likely to be at least one year behind schedule, with electricity arriving in 2019.

A break for Port Hawkesbury Paper?

Drazen also claims the amount charged for Muskrat Falls hydro is not being fairly distributed among NSP customers. NSP has purchased 20 per cent of Muskrat Falls output — the so called "Nova Scotia Block," which is higher cost than market-priced surplus power from Muskrat Falls.

Regulators approved the Maritime Link project on the understanding "NS Block" and "market-priced surplus" electricity rates would be blended.

Drazen says certain customers — primarily Port Hawkesbury Paper — are getting charged the lower rate.

Danger signal

Those are regulatory issues. The Drazen Consulting report is further evidence of the uncertainty that now surrounds the troubled mega-project.

Nalcor — the provincial Crown corporation developing Muskrat Falls — has promised an update on costs and timing within the next month or so.

"The delay and cost over‐runs on the Muskrat Falls project are a danger signal and NS Power should be directed to develop and present a backup plan if that project is delayed further," Drazen said.

"The project is over budget, Nalcor's president and entire board have resigned and the new president has announced a 'full review' of the project."