Newfoundland and Labrador Consumer Advocate Dennis Browne says a special review by the Public Utilities Board (PUB) is an opportunity to reimagine the entire system for establishing power rates in this province, and assure ratepayers remain protected.
Speaking with The Telegram Thursday, Browne said the decision by the Liberal government regarding power rates, in ordering the work by the PUB, shows a “major shift” in government thinking, by formally acknowledging forecast prices and the rate-setting system as it exists today could risk the system itself, given how much the Muskrat Falls hydroelectric project now costs.
The kind of electricity costs expected as the Muskrat Falls project comes online — estimated at an average of nearly 23 cents per kilowatt hour in 2021, roughly doubling rates — could not, would not, be possible for ratepayers, he said.
He pointed to work completed by Memorial University economist James Feehan (as The Telegram reported on in early August) showing people abandoning the electricity system and making greater use of heating options such as propane and wood, and cutting their electricity consumption as costs rise.
“I think that the reference (by government to the PUB) is completely timely. It’s necessary. What it will enable the board to do at this juncture is to call evidence from rate design people, (and) design a rate that will ensure the consumers of the province have affordable electricity in the Muskrat Falls era. That is first and foremost their job,” Browne said.
But he said change is also needed in electricity-related legislation and policy, including changes to the Public Utilities Act. He says it’s something that can addressed through the PUB review.
“We’re looking at a systemic change here and the terms give us the ability to make this systemic change,” he said.
That said, the PUB’s recommendations are not binding, and the PUB cannot dictate energy policy and legislation. The provincial government would have to respond to recommendations and enact proposed changes.
But having reviewed the reference question, Browne said his next step will be to develop a team of associates and tap experts around the world to address the questions posed, and build proposals for the system long-term to put forward during the upcoming review.
“What we need is legislation which will allow the utilities, particularly Newfoundland Power, to opt into performance-based, incentive-based rate making,” he said of the system, suggesting a move away from the current status quo that uses determinations on cost of service and incorporates a guaranteed rate of return to utilities.
“Hydro will no longer be able to piggyback on Newfoundland Power’s rate of return because that system will change. These are the things the board will look at,” he said, laying out his own expectations.
He does not expect the announced review to address all of the costs associated with Muskrat Falls. In handling the costs above and beyond what ratepayers can handle, he suggested he expects the federal government to be involved with the province in what comes next, but does not expect any simple, direct injection of cash.
For its part, when asked about the announced special reference to the PUB to investigate power requirements and options to manage electricity costs, Newfoundland Power said it is aware of customer concern around rate forecasts tied to Muskrat Falls.
“We believe that it makes sense to investigate all options available to mitigate future customer electricity rate impacts associated with the Muskrat Falls project,” a spokeswoman stated, in response to an email from The Telegram. “Newfoundland Power will continue to be an active and informed participant in regulatory proceedings before the PUB to help ensure that customers’ electricity rates are kept as low as possible.”
Meanwhile, the man responsible for the Crown corporation now at the centre of a new PUB special review, Nalcor Energy president and CEO Stan Marshall, is out of the country and was not available for comment on Wednesday following the government’s announcement. He is expected to return Sept. 11 and The Telegram has requested an interview after his return.
The PUB’s special review is expected to result in an interim report, to be filed with the government by Feb. 15, 2019, and a final report due Jan. 31, 2020.