If you want to know just how Kafkaesque electricity prices will be once Muskrat Falls comes on stream, you need to look no further than a piece of evidence filed with the Public Utilities Board and identified as CA-NLH-031.
For months now, Newfoundland and Labrador Hydro has been answering questions surrounding its most recent rate application. At this point, the utility has answered 971 of them — but not all of them without protest.
CA-NLH-031, and its companion, CA-NLH-032, were two of the questions that the utility didn’t want to answer.
The questions were simple: if, when power rates double in 2021, customer demand actually drops significantly, what would happen to the 26.32 cents per kilowatt hour? If consumption across the province dropped by five or even 10 per cent, how would rates be affected?
Hydro fought releasing that information until the PUB ordered it to respond.
If you don’t buy that kilowatt hour of power for 22.89 cents plus 15 per cent HST, Newfoundland Hydro will sell the power off-island — but it believes it will only be able to sell that kw /h for … 5.7 cents.
Usually, power companies actively encourage reducing power consumption: it’s called demand-side management, and it is why companies that sell you electricity actually pay out money to help you use less.
The reason companies want you to use less power is so that they don’t have to keep building expensive generation assets to supply more power. Less power use equates to rate stability.
In our particular case, though, using less power means paying more for it.
And that’s where CA-NLH-031 comes in.
Hydro’s answer to the questions of what happens to rates is that, if power demand across the province drops by five per cent, power rates will have to rise by four per cent. And if power use drops by 10 per cent, rates will rise by eight per cent. (Studies suggest that, in situations where customers have other options, a doubling of electricity prices has been met by a 10 to 20 per cent drop in consumption. Those who can, reduce. Those who can’t, pay more.)
While it may be depressing to see that, in the case of electricity, a penny saved isn’t going to be a penny earned, it’s even more depressing to see another aspect of the mess: what happens with the power you don’t buy.
If you don’t buy that kilowatt hour of power for 22.89 cents plus 15 per cent HST, Newfoundland Hydro will sell the power off-island — but it believes it will only be able to sell that kw/h for … 5.7 cents.
And even that 5.7 cents — based, Hydro says, “on forecast energy markets,” might be optimistic.
First of all, that number was provided to the rate hearing before Emera — the company that built the Maritime Link — lost a 20-year bid to supply power to New Hampshire using the as-yet-unbuilt Atlantic Link subsea cable. New Hampshire’s decision to award the bid to Hydro-Québec and its partner, Eversource, means sales of 1,000 megawatts of power (17 per cent of the state’s needs) will come off the table for other prospective sellers.
Second, we’re a long way from market, and transporting the power to market will add more costs; getting power to St. John’s from Muskrat Falls is projected to cost almost nine cents per kilowatt hour, so the trip to U.S. markets might be, well, fiscally interesting.
All of this, of course, goes back to the power purchase agreement that Newfoundland and Labrador Hydro signed with its corporate parent, Nalcor Energy, promising to buy power at rates that would cover all of the Muskrat Falls construction costs, whatever they turned out to be. (An agreement Hydro probably couldn’t refuse, and that now seems to fly in the face of Hydro’s own legislation, which says its role is to “develop and purchase power on an economic and efficient basis … and to supply power, at rates consistent with sound financial administration.”)
That brings us to another question that Hydro didn’t want to answer, CA-NLH-007: have Newfoundland Hydro and Nalcor considered altering the existing Muskrat Falls power purchase agreement to help future ratepayers?
The answer, when it finally came? There have been no such discussions.
Russell Wangersky’s column appears in 39 SaltWire newspapers and websites in Atlantic Canada. He can be reached at firstname.lastname@example.org — Twitter: @wangersky.