Tell us the truth

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

Russell Wangersky rwanger@thetelegram.com
Published on May 12, 2014
Excavation for the spillway of the Muskrat Falls hydroelectric plan, as seen in January 2014. — Submitted photo courtesy of Nalcor Energy

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

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.