Guess who’ll pick up the slack

Russell
Russell Wangersky
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Oh, what a tangly regulatory world we live in. The province’s Public Utilities Board (PUB) usually generates press only when it’s setting new electrical rates for customers, or else when it’s being accused of wasting “millions of dollars” dealing with reference questions about the Muskrat Falls project.

The fact is, though, that the PUB trundles through a whole bunch of stuff: already this year, it has issued 10 orders under the Public Utilities Act and another three under the Automobile Insurance Act.

One of those, Board Order No. 6, came down in early March. And while it talks about just one segment of the power business in this province — the industrial rate to be charged to Vale’s Long Harbour operations, which, incidentally, is the power demand that almost single-handedly tips us into needing new power generation — it’s a fascinating example of how everything’s connected.

Unlike some of the PUB’s hearings, there don’t seem to be any detailed filings of evidence for the Vale rate.

But there is the substance of the complaints from Newfoundland Power and the consumer advocate about what those Vale rates mean for the rest of us.

Paying the price

As the PUB order describes it, Newfoundland Power is concerned that other power customers — that’s you and me — will have to pick up the slack for Vale’s being added to the pool of companies that receive industrial rates: “Newfoundland Power argues that rates to be approved for Vale should reasonably reflect the cost of serving Vale. According to Newfoundland Power, ‘If the rate charged to Vale does not reasonably reflect costs, then a hazard exists that any shortfall may be recovered from other customers, including the customers of Newfoundland Power.’ Newfoundland Power submits that the rate proposed by Hydro for Vale includes an energy charge that does not appear to reflect the cost to serve Vale.”

That’s interesting enough, but have a look at what the consumer advocate had to say, according to the PUB: “In his submission the consumer advocate states that this application has significant repercussions for electricity consumers of the province. He states that the rate proposed by Hydro for Vale is well below the incremental cost of supply, collecting only about 18 per cent of the fuel costs at Holyrood, resulting in a $14.9 million shortfall over 2012 and 2013, much of which may be transferred to other electricity consumers in the province. Since Hydro has not filed a cost of service study there is insufficient information available to determine a cost reflective rate for Vale.”

And it’s not just Vale that’s getting power for less than it costs to produce it: “The consumer advocate agrees with Newfoundland Power’s submission that the rate approved for Vale should be a cost-based rate and believes that both the Teck Resources rate and the current rates for Corner Brook Pulp and Paper Limited and North Atlantic Refining Limited fall well short of costs.”

And on that, the PUB agrees: “All parties, including Hydro, acknowledge that the present rates for all industrial customers, including Teck Resources, do not recover the costs of providing service. … The board notes that, at present, neither of the existing interim industrial rates recovers the cost of providing service. There is also no proposed rate before the board which is a true cost-based rate.”

Interesting.

The board order suggests that industrial rates won’t change until there’s a general rate hearing — and that industrial rates can’t be brought into line with what it actually costs to produce power until Newfoundland Hydro actually does a cost of service study.

And all of that leaves you asking some other interesting questions, what with us being on the crux of major electrical price changes in this province.

For example, if the Corner Brook paper mill is a marginal player in the ever-declining newsprint industry, what would new electrical rates based on the cost of servicing their power needs mean?

Do new power rates — especially those reflective of the new, much-higher costs government tells us are coming in any circumstance — mean the big industrial power users will have to think twice about their business models, or will government have to think twice and provide them with either special rate relief (meaning everyone else picks up the freight) or direct subsidies?

What happens when new mining ventures want power, and what will they pay? The cost of actually providing power, or something less?

And if the big power users step away, do we even need Muskrat Falls, or can we manage to cap demand enough to reach 2041 without substantial growth in generation?

Lots of questions.

Fewer answers.

Russell Wangersky is The Telegram’s

editorial page editor. He can be reached by email at rwanger@thetelegram.com.

Organizations: Public Utilities Board, Newfoundland Power, Automobile Insurance Teck Resources North Atlantic Refining Interesting.The board

Geographic location: Long Harbour, Holyrood, Corner Brook

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Recent comments

  • Muskrat Scientology
    April 17, 2012 - 17:59

    How much time and money have our government wasted on this muskratfalls all the while ignoring everything else. All the ministers are bored and starting to pick at things they have no knowledge about because of this loan from the feds. Ex Terri French darrit King. And now, in our time of great fisicial restraint in Nl with our tax dollars, the very people that declared it want to give themselves a raise after being off for 11 months prior and having no legislation ready prior and have done nothing since. There needs to be Cap on our elected officials, like they have done with everyone else from the busdrivers to the nurses. More money only attracts more fly's, just like something else does. Its obvious that our NL conservative party isn't up to the task of governing, but are still being told what to do, just like a backbencher. Tom Marshall said it best last week when he opened the steve harper handbook on politics and said, "the opposition gets its say and the government gets its own way, that's politics." Thats their politics and thats steve harpers politics as we all are experiencing. We should expect no less on MUskratfalls, should we? The things that they are not being upfront on with this project are the very things that are the most important. There was no time restraint with that emeras deal...and that still isn't done. What a bunch! They can't even give it away right.

  • Basic Math your statement paints the perfect picture of the Muskrat Falls scenario
    April 17, 2012 - 14:10

    Wow Basic Math, your statement that "Nfld is like the Titanic with Muskrat Falls as the iceberg and Dunderdale as Captain John Smith" is so appropriate for the scenario that we have going on with the Muskrat Falls Project.

  • edward power
    April 17, 2012 - 14:06

    Thank you, Russell, for turning over the stones and allowing us a glimpse of what lies underneath. The lamentations of John Smith notwithstanding, a thorough analysis of this project is desperately needed by the people who will be paying for it long after the politicians and NALCOR executives responsible for it have retired in Florida with their fat pensions and severance packages - taxpayer provided and subsidized, of course - and the VALE smelter is an industrial toxic waste site. The government, and NALCOR, have not done themselves any favours by releasing information in dribs and drabs, by restricting the scope of any study or investigation they have commissioned and by requsitioning assessments from agencies they are already in contractual relations with. It is only when their feet are held to the proverbial fire by the press, and independent agencies such as the PUB, do the Ministers and PR flacks - (John Smith) - emerge to spin the information contained in latest report, revised funding analysis or projected electrical usage figures, and criticize anyone who questions their own figures and analysis. A good project should be able to withstand an independent and rigorous review process..

  • Basic math
    April 17, 2012 - 13:41

    If you divide the cost of Muskrat by the number of rate payers in Nfld, you will understand why Nalcor won’t release their facts and figures and why they have to ram it through the House without any scrutiny or sanction from the AG, PUB, environmental or any other public agencies. No matter whom they hire to spin it for them there is no possible way for this deal to add up. What it does add up to is that anyone in the world can take our resources for nothing and we will even pay them to do it. Nfld is like the Titanic with Muskrat Falls as the iceberg and Dunderdale as Captain John Smith.

  • Maurice E. Adams
    April 17, 2012 - 11:02

    Between 2001 and 2010 our peak demand increased by a total of 43MW (from 1,435MW to 1,478MW), for an average of 4.3MW /year.......... At that rate it will take more than 200 years to breach our already "existing" "installed" "net" capacity of 1,958MW........ Throw in Vale's future need (at capacity) of an additional 82 MW, and that means our existing net capacity would be breached in 92 years....... Then take into account that Nalcor says we need a "buffer". That is, that we really need more power once our buffer at 1,683MW is breached......... So that means that we will need more power 29 years (instead of 92 years) past year 2010...... In other words we will need more power (not in year 2015, as Nalcor keeps saying), but in 2039 ---- just in time for the Upper Churchill.............. So why should island ratepayers go in debt billions of dollars to provide mining companies Muskrat Falls power (which will cost island ratepayers 35-40 cents/KWh and billions in debt servicing costs) when we don't need the power and the mining companies can get 5 cent power from Quebec (which also means that they won't pay any more than that for Muskrat Falls power)...... It may be good for the mining companies, but not for island ratepayers and not for the province's fiscal position.

  • The only hope for the province of Newfoundland and Labrador is to ""NATIONALIZE"" its Natural Resource base with a non-fool proof system
    April 17, 2012 - 09:52

    Yes, indeed, the only hope for the province of Newfoundland and Labrador is to Nationalize its Natural Resource base. Down through the years we watched our resources being developed with little or no benefit to the province or its people. All one has to do is to look around this Beautiful well endowed resource-rich province and take an inventory of the services, infrastructure and economy that can be found here. It is pitiful to know given the Billions of Dollars worth of resources that are shipped out of our province annually, that the only places that have benefited are the ones that have become the primary beneficiaries and they are in other parts of Canada and the World. Our politicians have had too much say over our natural resources and some of them have profited handsomely through taking control in a secretive way. There are many politicians out there who know what has transpired but they all tend to toe the party line, I guess they are promised if they do so they will benefit, as well, from their silence and toeing the line that is required. Newfoundlanders and Labradorians HAVE TO become more vociferious and demand that our Natural Resource Base be Nationalized with an honest Accounting and Auditing System. We will go nowhere unless this is done, we know the type of governance and stewardship of our natural resources that we have received under the Ottawa umbrella that has been detrimental to our province in creating the economy that should have been created here in this province. The Corrupt ""POLITICAL PATRONAGE"" system has destroyed the province of Newfoundland and Labrador's change of ever becoming the economic state it should have become the buggers who accepted the Patronage Appointments as Senators and the like are corrupt themselves and they will keep us forever impoverished. We have no other choice but to try and get out from under the Ottawa Umbrella. Then, of course, there are the "Political Patronage" Appointments given out by the province of Newfoundland and Labrador that has stymied our growth, as well, THEY HAVE TO BE MADE REDUNDANT. I will repeat those political appointments have been detrimental to the way our resources have secretly been exploited by the politicians. A lot of changes need to be made i our political systems so that the province of Newfoundland and Labrador can become the economic titan it should have been all along.

  • The people of Newfoundland and Labrador are the ones who will pick up the slack
    April 17, 2012 - 08:29

    The ordinary citizen of Newfoundland and Labrador who pays the household electrical bill and who also is the taxpayer will be paying the bill for Industry and those politicians who created it. It is shocking to know all of our great natural resources in this province have not created nothing of consequence, in the way of infrastructure, services or economy, to this province, other than debt. Almost everywhere else in Canada wears the signature of having availed of the exploitation of Newfoundland and Labrador's Natural Resource Base or its great strategic location during the Second World War. For instance think of Fish, Iron Ore, Nickel Ore, many other Ores, Hydoelectricity, Forest Products, etc., etc. Besides the province of Newfoundland and Labrador was not on the receiving end of the great economies Ottawa doled out to the other provinces in the name of Federal Regional Offices, Military and Naval Bases, etc, etc. Why are we a part of Canada anyway, with our Eastern Periphery situated on the Atlantic Ocean and nothing else within site for thousand miles or more, we could rise as one of the great economies in the next new economy which will rise from the dust of the last great economy which collapsed in October 2008. Come on Newfoundlanders and Labradorians let us get motivated to do something about the disaster of being captured by Canada. If Canadians don't care we must care ourselves. How can we survive with 7 Members of Parliament in an Ottawa Parliament of 308 MPs , which is now slated to increase to a 338 Member Parliament.

  • John Smith
    April 17, 2012 - 07:53

    We all know that Corner Brook pulp and paper has been receiving help through cheap electricity...that's no news flash, has been going on for years. They also receive millions in cash from the taxpayers of NL to keep it afloat. If gov. took away all support that place would close up tomorrow.Industrial rate users throughout the world get good prices on power, that's the norm. If Vale uses 100 megawatts, don't you think they deserve a break on costs? One line to support, and enough power to supply a town?at straws now Russell. Don't you think you should be looking at the two most pertinent questions? Do we need the power, and is muskrat the lowest cost option? It's not just the Vale plant that will require new sources of energy, there are many other indicators as well. The fact that we have seen a rise in residential demand for every year since 2000 is one clue. We need to support industry here, and they need a discount on power, inorder to provide jobs for our economy to prosper. The NL gov. has come out to say we will see about a 15 dollar a month rise in our bills. They would go up triple that without muskrat, and have gone up 60% since 1998. The discussion should not be about what industry pays for power, that will always be lower than residential...economies of scale comes into play. We need to stabalize our rates, get off oil, and make sure we have enough power for residents, and for industry. Without that there would be no need at all for newspapers like the Telegram...or anything else.

    • WTF
      April 17, 2012 - 09:11

      It's not a "discount". When government supplies business with an input at below cost then it's called a SUBSIDY. Hell, we can really up that load forecast if we just gave away the electricity. Apparently the province's "Energy Warehouse" is the people's pockets.

    • Willi Makit
      April 17, 2012 - 09:57

      ''Economies of scale come into play''??? Industry is receiving power at less than cost. Residential ratepayers are paying cost +++. There is no economy of scale that justify industry receiving power for less than it costs to produce. To make that claim is simply absurd! Industrial use iss the prime driver for burning increased fuel at Holyrood, not the residential use.Why is it that the residential user is subsidizing the costs associated with that and who will pay for Muskrat Falls should it go ahead. If industry needs power, let them build in Labrador and transmit their own power in from Quebec. That would have no financial effect on the residential users. No Need for Muskrat Falls, and no debt to be socialized in the ratepayers to subsidize industry.

    • John Smith
      April 17, 2012 - 12:40

      Residential use has increased year over year, while industrial use has decreased...but very soon industrial load will as well begin to pick up. The fact of the matter remains that it is not out of the norm for heavy industry to get a break on energy costs.

    • wtf
      April 17, 2012 - 13:05

      it's not a "discount", it's not a "break", it's a subsidy.

  • W BAgg
    April 17, 2012 - 07:39

    sounds like residents are subsidizing power of Industry, unknowingly. Everything is much clearer now.

  • Willi Makit
    April 17, 2012 - 07:10

    Alderon appointed former premier Danny Williams as a special advisor to their board. Alderon just announced a $400 million deal with the Chinese. Industrial use is prompting a $9 billion hydro project (don't forget the interest). Danny Williams signed the deal to make that project a reality. Industrial users are paying less for power than the cost to produce it, and the NL ratepayers are picking up the slack. Does 'No more giveaways'' ring a bell? Muskrat Falls is needed? Needed so we can give it away? Nothing could be further from the truth. Perhaps the Telegram could take a closer look at this?