Fortis made the right call

Russell Wangersky russell.wangersky@tc.tc
Published on February 22, 2016
Russell Wangersky

Newfoundland and Labrador’s other electrical company — Not-Nalcor, or, as it’s better known, Fortis Inc. — just announced its profits for 2015. The number was a quite-staggering $728 million — a banner year for a company that sprang out of Newfoundland Light and Power not that many corporate years ago, and has made a point of increasing its value, and the value to its shareholders, every single year.

Fortis, you may remember, wasn’t interested in getting involved in a joint venture with the Newfoundland government to develop Muskrat Falls.

Here’s how then-Fortis boss Stan Marshall put it in 2011: “In the early days, we were invited — or inquiries were made whether we’d be interested in a minority situation — and we said no. Very straightforward. … Without going into the merits of any project, we wished them well, but we do not get involved with minority situations with Crown corporations.”

(That’s particularly interesting because Fortis was interested in a joint-venture hydro dam in British Columbia. Here’s where the company is with that project, according to company documents: “On April 1, 2015, the corporation completed construction of the $900 million, 335-MW Waneta Expansion hydroelectric generating facility ahead of schedule and on budget while maintaining an excellent safety and environmental protection record. Construction of the Waneta Expansion commenced late in 2010.” Ahead of schedule and on budget. Fancy that.)

But that doesn’t mean that Muskrat Falls isn’t on Fortis’ mind — because the Muskrat Falls project is appearing in Fortis’ end-of-year documentation this year, in the section called “summary of the corporation’s significant business risks.”

Here it is in the company’s Management Discussion and Analysis (MD&A) document, filed as part of Fortis’ year-end: “Future changes in energy supply costs at Newfoundland Power, including costs associated with Nalcor Energy’s Muskrat Falls hydroelectric generation development and associated transmission assets, may affect electricity prices in a manner that affects Newfoundland Power’s sales. The recovery of Muskrat Falls development costs are expected to materially increase customer electricity rates.”

And here it is again, in the company’s Annual Information form: “The recovery of Muskrat Falls development costs are expected to materially increase customer electricity rates.”

But that’s not all: unlike during the debate when Muskrat Falls was picked as the best option for Newfoundland and Labrador’s electrical future, Fortis is anticipating major changes in the electrical distribution systems, and is aware that those changes may make some of its key products less attractive — and less valuable — in the future.

This is also from the Fortis MD&A, released Thursday: “New technology developments in distributed generation, particularly solar, and energy efficiency products and services, as well as the implementation of renewable energy and energy efficiency standards, will continue to have a significant impact on retail sales, which could negatively impact various utilities’ results of operations, net earnings and cash flows. Heightened awareness of energy costs and environmental concerns have increased demand for products intended to reduce consumers’ use of electricity. Utilities are promoting demand-side management programs designed to help customers reduce their energy usage.

“Research and development activities are ongoing for new technologies that produce power, enable more efficient storage of energy, or reduce power consumption. These technologies include renewable energy, customer-owned generation, appliances, battery storage, equipment and control systems. Advances in these, or other technologies, could have a significant impact on retail sales which could negatively impact the results of operations, net earnings and cash flows of utilities.”

Does anyone remember any discussion — except from those quickly dismissed by government as inveterate naysayers — about distributed energy, demand-side management or other risks to long-term energy sales when we were launching our now-behind-schedule, now-over-budget old-school hydroelectric project?

Didn’t think so. Instead, the government trumpeted the fact that we had “world-class experts” building Muskrat Falls.

Perhaps the government should have talked a little more to the other world-class experts — the ones at the Fortis Building in downtown St. John’s.

Even in this big economic and energy downturn, they seem to be getting it right. In fact, $728 million worth of right.

Russell Wangersky is TC Media’s Atlantic regional columnist. He can be reached at russell.wangersky@tc.tc — Twitter: @Wangersky.