“Nalcor has stated that there will be a power purchase agreement (PPA) in place between Nalcor and Hydro for power from the Muskrat Falls project. We anticipate this being finalized in the near future, and it will then be made publicly available.”
— Premier Kathy Dunderdale in a Telegram opinion piece, answering a series of questions about the Muskrat Falls project.
It’s a big shoe, the one that will decide exactly what we all pay for electricity in the future.
Newfoundland and Labrador Hydro will sign a contract with Nalcor, the province’s energy firm, agreeing to buy a set amount of power from the Muskrat Falls project for a set price. The power purchase agreement is to be a take-
or-pay agreement, meaning Newfoundland Hydro will pay for the electricity whether it needs the power or not: in essence, that means Newfoundland Hydro will take every scrap of it.
It is the anchor on which everything rests: once the agreement sets a price, the rest of the pricing factors for what we’ll pay for power in the future will come into view: take the power purchase agreement, add in the transmission costs (and the loss of electricity through the lengthy transmission system), add on Newfoundland Hydro’s own percentage return on equity and Emera’s return on equity for its share of the construction of the transmission system and Newfoundland Power’s return on equity and the HST on the power, and you’ll begin to see what the number will look like on your bill, instead of on the Nalcor charts that show you that this is all the cheapest offer possible.
The PPA may be a critical starting point, but it’s going to have a very uncritical genesis.
It will be a little different than many deals between companies, primarily because, in this case, the customer is a subsidiary of the supplier. On the website they share, Newfoundland Hydro lists eight directors: those same eight directors oversee Nalcor Energy. Guess they’ll negotiate the deal with themselves. Should save on travel.
Newfoundland Hydro describes itself like this: “Committed to operational excellence, Newfoundland and Labrador Hydro is dedicated to delivering safe, reliable, least-cost power to industrial, utility and over 35,000 direct customers in rural Newfoundland and Labrador.”
Newfoundland Hydro is a regulated utility. Nalcor Energy is not. If Newfoundland Hydro were to build Muskrat Falls, the province’s utilities regulator, the Public Utilities Board, would be able to determine if the project was in the best interests of customers — the PPA arrangement between Nalcor and Newfoundland Hydro is not reviewable by the PUB.
The PUB’s mandate is this: “The board is responsible for the regulation of the electric utilities in the province to ensure that the rates charged are just and reasonable, and that the service provided is safe and reliable.”
But since they’re dealt out, whose responsibility will that be — especially the “just and reasonable” part? Will it be Newfoundland Hydro, whose mandate is “safe, reliable, least-cost power”? Not there either — when the corporate board and the shareholders are the same, even the business world recognizes a deal as a “non-arm’s-length” transaction. Theoretically, Nalcor should not be able to avoid the responsibilities of all regulated utilities by simply going through a corporate cut-out.
On top of that, the overall regulator — the provincial government — is not at arm’s length from Nalcor.
Factor in all of the special protections that Nalcor’s strange “we’re a business but a government corporation but a business” status gives it — everything from permission to block access to information to refusing details on tender results — and you can ask yourself one simple question.
If everyone — from Newfoundland and Labrador Hydro to Nalcor Energy to the provincial government — is singing from the exact same hymnbook, who’s going to make sure it’s a reasonable song?
There will only be one measure of whether the PPA is “just and reasonable.”
Three agencies sharing the same vested interest will tell you that it is.
Russell Wangersky is The Telegram’s
editorial page editor. He can be reached by email at email@example.com.