Ottawa and Newfoundland and Labrador will rewrite the financial structure of the Muskrat Falls hydro project to shield ratepayers from paying for the megadam's cost overruns.

The agreement announced today by federal Natural Resources Minister Seamus O'Regan and Premier Dwight Ball will scrap the financial structure agreed upon in past federal-provincial loan guarantees, moving to a model aimed at redirecting equity returns to ratepayers.

Details of how exactly the project will be monetized over the next few decades to make up the gap in funds are still to be worked out.

The two governments will also work towards electrifying federal buildings to reduce an anticipated power surplus in the province.

Electricity rates have been forecast to skyrocket in Newfoundland and Labrador when the over-budget Muskrat Falls dam comes fully online in 2021.

Ball has said the issue is a top priority for his government and has pledged to keep rates near existing levels, but talks with Ottawa dragged on for months.

A report by the province's Public Utilities Board released Friday forecast an “unprecedented” 75 per cent increase in average domestic rates for island residents in 2021 and reported concerns from industrial customers about their ability to remain competitive.

Costs of the megadam on Labrador's Lower Churchill River have ballooned to more than $12.7 billion since the project was approved in 2012, according to the latest estimate of Crown corporation Nalcor Energy.

The dam is set to produce more power than the province can sell, and its existing financial structure leaves electricity ratepayers on the hook to make up the difference starting in 2021.