You only get one chance to make a first impression.
Last Friday, Newfoundland and Labrador Hydro announced it was seeking a rate hike of 13 per cent over two years, in part to build a fund to cushion the impact of the huge rate increase coming as a result of the Muskrat Falls project.
It was a brief enough synopsis, basically arguing the need for the increase.
But the nuts and bolts of the utility’s rate hike application didn’t go online at the same time. In fact, it wasn’t easy to find until the Public Utilities Board made it available on its own website on Monday, well after the first impression was already made.
So, here are a few things you might not realize about that 13 per cent electrical rate hike, the first impacts of which could come as early as January 2018.
First, the rate hike isn’t coming because Hydro urgently needs the money. In fact, one of the cornerstones of the hike is an interesting effort to mitigate the upcoming costs of Muskrat Falls.
But don’t think that means three years of cheap power. No, it actually means the most expensive power that Hydro can bill you for.
You could call it the frog solution: popular wisdom suggests that a frog, dropped into boiling water, will jump right out again, but a frog put into cold water that’s brought to the boiling point will stay put until if it dies.
What Hydro plans to do is to start us in cold water with higher rates to try and prevent Muskrat rate shock later, even though the Muskrat Falls project isn’t supplying our power right now.
The utility plans to recall cheap power from the Upper Churchill or buy cheap power on the spot market and import it, either over the new Labrador-Island power line, or through the Maritime Link.
They say it like this: “It is anticipated that the Labrador-Island Link and the Maritime Link will be available in 2018 and 2019 to provide off-island purchases to reduce the generation required from the Holyrood Thermal Generating Station. This presents an opportunity to reduce the use of costly Holyrood generation by using lower cost off-island purchases in 2018, 2019 and 2020.”
But don’t think that means three years of cheap power. No, it actually means the most expensive power that Hydro can bill you for. Whatever it actually costs Hydro to get the power, it wants to bill customers as if the cheap power it buys actually cost whatever the bill would be if the power came from the Holyrood Generating Station.
Labrador power from the recall block costs two cents a kilowatt hour. Under the Hydro rate proposal, they’d sell that two-cent power to the average consumer for 13.3 cents a kilowatt hour, and bank the extra.
And, to add to the financial injury, Hydro’s taking the liberty of suggesting that oil prices are going to jump pretty spectacularly during the next two years, amping up the price even more. The utility is forecasting that No. 6 fuel will cost $87.11 a barrel in 2019, compared to the $47.55 it cost per barrel in 2016. (And we all know how grand government agencies are at oil prices.)
The difference in prices adds up in a hurry. The rate application says, “For the period from 2018 until full-commissioning of the Muskrat Falls Project, the use of off-island purchases could provide a reduction in the range of 1.3 to 2.3 TWh in Holyrood generation and avoid the purchase of between 2.1 million and 3.6 million barrels of oil.”
Hydro is suggesting that it should set up a bank account, put all the extra money in there, and use it to help with rates when they are set to spike in 2021.
How much money are we talking about the utility shaving out of your wallets? We don’t know yet. That’s a story for another day.
Calling it an “opportunity,” the utility says “Hydro will file supplemental evidence in the fall of 2017 to provide more detail on the proposed deferral account …”
Here’s a broad-strokes version. If Hydro saves 3.6 million barrels at $87.11 a barrel, it would save $313.6 million — but we’d pay as if the oil was burned anyway.
Hey, froggies — what’s your impression?
Are we about to get boiled, or what?
Russell Wangersky’s column appears in more than 30 SaltWire newspapers and websites in Atlantic Canada. He can be reached at email@example.com — Twitter: @wangersky