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Russell
Russell Wangersky
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Ratepayers deserve to know how much they will pay for Muskrat Falls

It’s time for a few answers — because the great Muskrat Falls price-of-electricity story doesn’t make sense anymore.

Excavation for the spillway of the Muskrat Falls hydroelectric plan, as seen in January 2014. — Submitted photo courtesy of Nalcor Energy

This past weekend, the pro­vince’s Board of Commissioners of Public Utilities (PUB) had an ad in this paper looking for public input on a new power line that Newfoundland and Labrador Hydro is proposing to build to bring power from Bay d’Espoir.

The new 230-kV line is expected to cost $291.7 million, and the utility is estimating that the project, “based on an estimate of forecast system costs at the planned time of commissioning in 2018,” will increase power rates by three per cent at the wholesale level, and 2.5 per cent at the retail level.

And then there’s the combustion turbine that Hydro is buying on a rush basis to locate at Holyrood to help take us through a power shortfall until 2017. That turbine, already the subject of a tender call, is expected to cost $119 million. The review of the project so far estimates that the new turbine will increase electricity costs to customers by 2.3 per cent.

But that’s only two of the three major projects Hydro has announc­ed recently. There is also a new power line in Labrador to serve the needs of proposed mining ventures that also carries a substantial price tag.

The numbers start at $300 million to build the new line from Churchill Falls to western Labrador — the public utilities board has been dealt out of an in-depth review of that project. Final costs haven’t been set, and in all likelihood will be higher than $300 million. The costs, whatever they are, will be borne by ratepayers.

If you take a nominal $300 million for the power line, though, and look at the other two construction projects, it probably isn’t unfair to estimate an increase in power rates of a further 2.5 per cent to pay the costs of the new Labrador line.

All right — so, ignore the niceties, and stop to consider that something around $710 million in new capital projects (before the almost-inevitable cost overruns from at least two projects that are only in the design phase) is set to hike power rates by a minimum of 7.3 per cent.

So far so good.

Now, for the elephant in Labra­dor.

By now, Nalcor should have a very good idea of what the Muskrat Falls project is costing and what we’re going to have to pay — even if it doesn’t feel like telling the ratepayers who actually have to pay the piper.

Certainly, at this point Nalcor should be ready to release what’s called the power purchase agreement (PPA), the document that will say what Newfoundland and Labrador Hydro will pay, per kilowatt hour, for energy from Muskrat Falls.

The PPA is a remarkably in-house deal: Hydro will sign an agreement with the company it is owned by and that it shares a board of directors with — Nalcor Energy. (It’s hard to imagine much tough negotiation on price going on between the subsidiary and the owner.) The PUB will not review the PPA.

The PPA will include not only the recovery of Muskrat Falls’ costs, but also Nalcor’s profits on every kilowatt hour of power sold. And there will be profits: the provincial cabinet brought in legislation to increase the rate of profits for Nalcor, so that it will get a return acceptable to its private-sector partner, Nova Scotia-based Emera.

Nalcor has already said the project is designed as a stand-alone — financing for the project is based strictly on what the utility can recover from its Newfoundland and Labrador customers. We will pay the whole shot, whatever that shot winds up being.

For years now, the provincial government and Nalcor have been arguing that increased fuel costs will mean power rates could spike tremendously, and because of that, investing $7.4 billion or so in Muskrat Falls is the cheapest option for the future supply of power for the province.

That $7.4 billion is the price you pay for stable electrical power cost increases, according to Nalcor. “Stable,” however, doesn’t mean there won’t be increases on your power bil. The way the financing is set up, there will be regular, annual increases in the cost of power, but the ratepayer would be protected from unexpected increases in the price of oil.

The increase that Nalcor was forecasting with Muskrat Falls alone is, well, huge.

There haven’t been new numbers in years, but based on the last independent partial review of the project (by the PUB in 2011), if you were paying $112 a month for electricity, that price tag would rise to $170, a 51 per cent increase, by 2020.

If you’re one of those electrical power users whose winter bills spike to $500 in cold Januarys, you’d see your January bill bounce up to $755.

But that’s before the latest 7.3 per cent — which, of course, you have to consider cumulatively.

And that’s just Newfoundland Hydro’s increases: the fine print spells out that Newfoundland Hydro “has not factored in periodic rate increases attributable to the retail distribution utility,” so if Newfoundland Power has increases, they’ll be added, too.

Any cost overruns at Muskrat Falls — there are already increases, although Nalcor has refused to say what they are, or even when they’ll tell us what they are — will also pile on top of that 60 per cent or so increase on your bill.

Nalcor is using a different way of paying for Muskrat Falls than the industry normally uses, but stop and think about this, just for a second.

If a $710-million cost hikes rates by 7.3 per cent, and $7.4 billion (and growing) is 10.42 times more than $710 million, won’t an on-budget Muskrat Falls increase rates by 76 per cent? (Plus 7.3 per cent in new projects, of course, rounding the whole shooting match up to 83.3 per cent — a far cry from the forecasted 51 per cent.)

The math might be wrong. But it’s hard to be right when the numbers aren’t being disclosed.

It’s time for answers.

 

Russell Wangersky is The Telegram’s news editor. He can be reached by email at rwanger@thetelegram.com.

Organizations: Newfoundland and Labrador Hydro, Board of Commissioners of Public Utilities, The PUB Emera.Nalcor Newfoundland Power

Geographic location: Muskrat, Newfoundland and Labrador

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Recent comments

  • Cashin Delaney
    May 14, 2014 - 00:17

    It’s hard to imagine much tough negotiation on price going on between the subsidiary and the owner. I can imagine it. Social license rules the day. The only sad power we have in our shitbang democracy is to herangue public figures. Even that, done properly on paper to government members, might save the mail, on the governments dime. Write letters. Bulky ones. Its free. The shit I put on here is done on an iPad, I hate it. I do write long, scrawley barely legable xeroxed letters that cost our government money, and feed into CPC. If we did the simple, small stuff, like simple letter writing contests, and mild boycotts, then the people would rule. As it stands, the people are in the corner, bullied. The answer to Muskrat is not in Maurice's heat pumps, the net zero house, or a yellow submarine cable, it is in our hearts. It is not in Ethel's mercury or Lucy in the sky with carbon, it is in our hearts. Harper smiled on you all the day DunderShue accepted the greenboobyprize on behalf of Mud Lake, and Elizabeth P., and Dennis B. and all the activists, that either chop their axe or clip flop there racks for FREEDOM. Muskrat belies us into paridoxical, self fulfilling prophecy - like the MLOCR, and the flow of Canada Post Letter Mail. it is a monumental mistake that will hurt US more than any of the hydropharoahs could imagine. We couldn't have saved the whales, even with dedicated coast guard SAR, but we can save the mail, so the wedding invitations of the local aristocracy are not chewed up. Private hand delivery, or be machine sorted, and box delivered. Email I spose? How déclassé!

  • Maureen
    May 13, 2014 - 15:21

    Russell, don't forget the taxes on those bills, another win fall for this so called government

  • Joe
    May 13, 2014 - 10:29

    So who is going to legislate the 20 per cent increases to social assistance, pensions and the minimum wage so that we can all pay for these "profits" that the Province is going to make?

  • Concerned
    May 13, 2014 - 09:51

    The 21 cents you refer to comes from RFI-KPL-27-REv. 1 at the following reference http://www.pub.nl.ca/applications/MuskratFalls2011/rfi.htm ........ Interestingly the 21 cents is the average rate, not the domestic rate. 700 of the initial 2000 GWHr energy from Muskrat Falls will be used for the Vale facility, at industrial rates. Although 21 cents is the average rate, if the Vale block is sold for less than 21 cents (ie; 8 cents) then the remaining 1300 GWhr must be sold at higher than 21 cents to domestic customers. This is one increase which you did not identify. The second is that there must be an amount of equity which remains in the project to maintain the debt servicing ratio required by the FLG. This is likely another 200-300 million dollars which must be invested in the company, and recovered in the rates. This was recently referenced by Nalcor in the handout they provided to James McLeod when trying to explain Interest During Construction. With all these factors, combined with the over-runs in the project, I expect that rates will nearly double between 2012 and 2020. The PUB should be proactive and asking for this transparancy. But you are right... it is time for answers.

  • Maurice E. Adams
    May 13, 2014 - 06:56

    And who among us believes that oil will jump by 83% (to $195 a barrel) by 2020? And when customers shift to oil heat and efficiency improvements, such loss of revenue for NL Hydro MUST be compensated for only by drastic increases in rates. What a ______ mess. When will someone fire Ed Martin? And gut out this whole crew? Is there a government member with any respect and concern for his or her constituents? How will low and middle income earners deal with this mess? As Danny said "They should all be ........"