Pooling power is the right solution

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Nalcor, the Newfoundland and Labrador utility developing Muskrat Falls, and the Nova Scotia Utilities and Review Board (UARB) have been on a collision course.

Nalcor wants to keep a big chunk of the project’s power for use in

promoting the province’s future economic growth. Until large customers emerge, Nalcor would sell that power in the open market.

The UARB approved the Maritime Link transmission line, Emera’s contribution to the project, on the condition that the Nova Scotia utility could obtain more market-priced power from Muskrat Falls or elsewhere. Only that way, the UARB reasoned, could Nova Scotia’s customers be assured that the new power supply was the lowest cost.

Nalcor and Emera have now made a deal under which they

claim Newfoundland and Labrador growth goals and the UARB’s requirements can be met. Nalcor says that it will keep “firm” power, energy that’s available even at the lowest hydro flows, and sell Emera “non-firm” or surplus power, energy that’s available in most years when there are good hydro flows.

Nova Scotia will be first in line to get Muskrat Falls surplus power. And it will pay either the Massachusetts market price or a higher price if Nalcor finds another buyer willing to pay more.

If the surplus energy does not meet the amount originally forecast by Emera and accepted by the UARB, the two utilities must make up the difference at the market price. This amounts to a utility guarantee and is the key piece of the deal.

Emera is responsible for the first slice of the shortfall. The deal apparently means that if the cost of the power from Emera to make up a shortfall is above the market price, the Nova Scotia company, not its ratepayers, would take the loss. The UARB will probably want to nail down that obligation to eliminate any ratepayer risk.

Nalcor would have to take on the same obligation for its backup responsibility in case of a major shortfall, but there’s no regulatory supervision of its Muskrat Falls commitments.

If the Emera and Nalcor corporate backup is real, the two utilities seem to have found a somewhat complicated way to ensure Emera of the market-priced energy that the UARB demanded.

The deal helps provide Nalcor with an assured market for surplus power.

That could relieve some Newfoundland and Labrador ratepayer risk. And it could ensure Nova

Scotia customers have access to enough market-priced electricity to make the deal work economically.

Emera may use new wind power generation to meet any need it would have to fill a supply gap. And Nalcor would help it deal with any supply swings when there’s not enough wind.

Still, the deal could leave Nalcor’s customers exposed to significant risk. 

If the desired economic development does not take place and Emera and other buyers can access cheaper power elsewhere, Nalcor’s customers may be stuck with firm power that cannot be sold. Under Muskrat Falls rules, the customers, not the utility, would pay.

If Nalcor and the Dunderdale government gave up the risky policy of keeping power in reserve for possible economic development, Nalcor could make a commitment to sell “firm” power to Emera at the market price. 

That would be a simpler way to meet the UARB conditions and would reduce risk for Nalcor’s customers.

In an Atlantic Institute for Market Studies study, a colleague and I have proposed another approach which could be used when Muskrat Falls comes on line in 2017. 

We suggested an Atlantic power pool that could protect customers in both provinces.

Under a power pool, energy is used on a regional basis, with customers paying the fuel cost of each resource used, starting with the cheapest.

Because hydro and wind have no fuel cost, they would be guaranteed a market and would be paid a pre-determined price based on other generators’ costs.

That would provide an incentive for more renewables, protect Nalcor’s customers and ensure the supply that Emera needs under the UARB order.

It could lower energy costs across the region.

To make a power pool work, transmission connections among all four Atlantic provinces would be needed. That would make the Maritime Link essential.

Past efforts at regional co-operation have failed, because provinces did not want to give up control over their own generators. A power pool would not require them to do that and would even let them keep some units out of the regional arrangement.

A power pool would allow the kind of concern UARB showed for Nova Scotia customers to be reflected in all four Atlantic provinces.

Gordon L. Weil is senior fellow

for electricity policy of the

Atlantic Institute for Market Studies.

Organizations: Atlantic Institute for Market Studies

Geographic location: Nova Scotia, Muskrat Falls, Newfoundland and Labrador Massachusetts

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