Too close for comfort

Russell
Russell Wangersky
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“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.

Feel comfortable?

Russell Wangersky is The Telegram’s

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

Organizations: Newfoundland and Labrador Hydro, Newfoundland Power, Public Utilities Board

Geographic location: Newfoundland and Labrador

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Recent comments

  • Just sayin
    November 19, 2013 - 14:21

    Glad to see you mention "transmission losses" in your piece. 10 percent of the power gets loss enroute to St Johns's because of the long distance. !0 percent of the project is about 1 billion dollars in cost. This can convert every house in St johns to efficient heating and cut electricity for heat by 60 percent, reduce electricity costs, and further cut transmission losses from our island generation ( as we currently have our two lines to the Avalon loaded up which increases line losses). So sad such details were hidden by nalcor, to arrive at MF being the cheap way to go.

  • W Bagg
    November 19, 2013 - 09:34

    The good thing is, if the PPA is announced soon, our power bills will still be showing up every month into 2015 and beyond. The only measure of if the PPA is just and reasonable will be the election in 2015. My 2 children of pre-school age (and their children) will have to pay for MFs, I hope it ends up being a good deal

    • Cyril Rogers
      November 19, 2013 - 11:52

      W Bagg, there can NEVER be a good deal out of this project for the ratepayers of Newfoundland and Labrador. The energy world, the cost of transmission and construction, the actual "manufactured right.here" need for power in this province.....all have changed considerably since the initial announcement. This was...and is...supposedly a legacy to Danny Williams but will become his political epithet. He will be forever tarnished by this hastily-contrived scheme to make it seem like he was going out, having achieved a significant accomplishment. Sadly, for us, it will saddle the province with a humungous financial burden with no actual returns. It will be a blessing Nova Scotia but a virtual Promethean rock for the people of this province. Nothwithstanding the destruction of the PC Party for the next decade or two, it will leave us with an enduring burden that is totally unnecessary...all due to the reckless manner in which he and his successors have chosen to push on.....in the face of all of the evidence telling them to stop it right now.

  • concerned
    November 19, 2013 - 06:38

    The issue with the PPA is not just the cost. It is also how and when will the energy be delivered, will peak time deliveries be assured, and how much capacity will we have. When determining the lowest cost option, Nalcor assumed that Muskrat was a 900 MW thermal unit. That meant there was 900 MW available when we needed it. Yet since then they have committed 80 MW of recall (all the firm capacity remaining from RECALL) to Alderon, and have a deal with Emera. So therefore how can the PPA meet the inputs used by Nalcor in their strategist runs to determine MF as the lowest cost option. I am very interested to see what the terms of this PPA will be between Nalcor and NLH. Even if we forget the pricing, it is worth while to have the PUB, and MHI review the PPA to see if the terms of the energy delivery is consistent with the "lowest cost" assumptions which this project was sold to the people of the province.

  • Maurice E. Adams
    November 19, 2013 - 06:10

    Perhaps Nalcor could sign a confidential agreement (one of those open and transparent ones) with Nova Scotia's UARB to do an independent review on behalf of NL ratepayers and then release it after the project is built, $15+ billion is spent and NL ratepayers are locked into its 50 year PPA at a final customer price of around 25 cents per KWh (all while the energy starved province of Ontario (today) has a wholesale energy price of 1.4 cents / KWh (we should be as energy starved as Ontario, then our government in cahoots with Nalcor would not have the natural resources that they misuse to screw us over with.