To my knowledge Firefox does not support "file://" scheme for homepages (without venturing into about:config or other hacks). As a result this extension was not developed with support for them in mind. The extension New Tab Override does have some support for local file homepages. It is an excellent extension that may have the functionality you are looking for and I highly recommend it.

Regarding the history permission please see the explanation from similar addon New Tab Override : 'the permission to access the browser history is needed to prevent spammy "moz-extension://" entries in your browsing history every time you open a new tab. There is no way to prevent this without this permission.'

Edit: 1/9/21
I found that with at least Firefox 85 (and possibly earlier) there appears to no longer be the issue with browser history being flooded with "moz-extension://" entries and am happy to remove Browser History permission. Additionally I added some more feedback when using a homepage that is not http:// or https://.