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Russell Wangersky: The buck stops … with some of us

Submitted — A map shows the route of the Churchill Falls-Muskrat Falls and the Labrador-Island Transmission Link transmission lines.
The route of the Churchill Falls-Muskrat Falls and the Labrador-Island Transmission Link transmission lines. — Submitted map

Last week, oil-rich Alberta struck a deal to buy renewable energy from the private sector in that province, 595 megawatts of wind power in all, with a price of 3.7 cents per kilowatt hour.

 

Russell Wangersky
Russell Wangersky

 

Cry a little tear for that, as you look down the road at the Muskrat Falls project, and the anticipated power rate of 22.89 cents per kilowatt hour.

The price problem that’s coming for ratepayers is far more insidious than you might think. We’re not actually only talking about a doubling of the power rate. Power rates will double, but for some Newfoundlanders, the actual cost increase will be far more.

That in itself is the result of a key problem: in order to make the Muskrat project attractive to lenders, Nalcor and Newfoundland and Labrador Hydro signed a take-or-pay contract.

The short version of that is that we pay the whole shot for Muskrat Falls through our power rates whether we use Muskrat Falls electricity we’ve promised to buy or whether we don’t.

So, say power use in the province drops by 10 per cent as people tighten their belts to avoid the cost increase; economists say a 10 per cent drop in consumption is a perfectly reasonable expectation for a doubling of the power rate.

But if that happens, the Muskrat portion of power bills stays the same, so, if less electricity sells, the price of electricity actually has to increase still more.

Now, look at who will actually pay the piper.

Because we’re not all in this together.

The short version of that is that we pay the whole shot for Muskrat Falls through our power rates whether we use Muskrat Falls electricity we’ve promised to buy or whether we don’t.

First off, because of the way the project was envisioned, the power rate hikes involved will not hit every electrical user in the province.

Thanks to an order by the provincial cabinet — OC2013-343 to be exact — only customers on the Island Interconnected portion of the power grid will pay for Muskrat Falls. Labrador industrial customers will not be paying increased rates. Nor will residential and commercial customers on the Labrador interconnected grid. Nor will customers on the island and Labrador isolated diesel service.

Then, start looking further down the funnel of who is left to actually pay.

That problem is hugely multiplied when you look at the biggest power users: the provincial government can’t afford for major industrial users to close because of power rate increases — but if the government provides a rate increase cushion to major users, the rest of us have to pay more, either in rates or taxes.

Then, move down the line: provincial and municipal government offices will see their power bills go up for everything from office lighting to street lighting, but they simply transfer that cost to taxpayers (many of whom are already ratepayers dealing with their own cost increase). Their costs are our costs.

On the commercial side, there’s a different problem: for most businesses, absorbing the hike in power bills isn’t an option.

A downtown St. John’s business either passes its electrical costs onto its customers, or, if it can no longer compete with out-of-province internet sellers, it closes. If it passes the cost on, the customer pays. If it closes, that’s one less customer in the pool to pay for Muskrat, so everyone else pays more. (It’s different kind of domino, but a domino nonetheless.)

But back to Alberta and electricity at 3.7 cents per kilowatt hour.

One of the provincial government’s plans is to sell excess Muskrat Falls power and use the profits to soften the rate increase that ratepayers will face. But what price will we have to sell the power at to be competitive, let alone when you build in the transmission costs and the lost of power during transmission?

I don’t think you could build a more perfect storm — especially if you’re the unlucky one at the bottom of the pile.

Russell Wangersky’s column appears in 35 SaltWire newspapers and websites in Atlantic Canada. He can be reached at rwanger@thetelegram.com — Twitter: @wangersky.

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