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Letter: Nalcor excluded electricity price elasticity… why?

Hydro Place in St. John’s, headquarters of Nalcor Energy and subsidiary Newfoundland and Labrador Hydro.
Hydro Place in St. John’s, headquarters of Nalcor Energy and subsidiary Newfoundland and Labrador Hydro.

The Phase I Muskrat Falls Inquiry forensic audit report describes electricity price elasticity as “the effect of price on demand,” and that elasticity “was not included” in the planning load forecast for the general service/commercial and industrial load sectors.

On questioning from the consumer and citizens’ coalition representatives, Nalcor witnesses advised that elasticity was not included in the forecast for these sectors because the amount of energy these customers use is not affected by price (in essence, they need the same amount of electricity anyway, even when the price goes up).

Notwithstanding that an Oct. 11, 2014 Weekend Telegram article “Program can cut electricity costs, power head says” quotes Newfoundland Power as saying that “companies taking advantage (of an expanded efficiency program for businesses) will see combined energy savings of $200,000 on their annual energy costs,” Nalcor’s assumption/rationale for excluding price elasticity for these sectors (that they need the same amount of electricity anyway, even when the price goes up) went unchallenged.

Related story:

Auditors bring Muskrat Falls as ‘best option’ into question

Furthermore, my Dec. 11,2014 letter to The Telegram “Muskrat straightjacket getting tighter” went on to point out that Quinlan Brothers was “… expected to save this one fish processing plant $125,000 a year in reduced energy costs ... (and) ... if most of the nearly 100 fish-processing plants in the province jump on the energy-efficiency bandwagon, they could potentially save millions (up to $10 million or $12 million) annually.”

Now I don’t know if fish processors are part of the commercial or the industrial sectors, but Nalcor excluded price elasticity from the forecast for both of these sectors (based on an assumption that seems to have gone unchallenged by commission co-counsel or parties with standing).

How is it possible to reduce such energy costs — without reducing energy usage (which Nalcor assumes these sectors do not do)?

It seems to me that a decision to reduce such energy usage (demand) would have been because of actual and expected “price” increases (the elasticity effect).

While information such as the above has been publicly available for years (letters available at www.vision2041.com) and has previously been referred to in an email to the commission itself, I am not aware that the commission’s co-counsel or any party with standing challenged Nalcor’s rationale for excluding elasticity from its general/commercial and industrial sector forecasts.

Why not?

On a separate point.

At the conclusion of the Labrador hearing, Nalcor’s load-forecasting witness agreed with Nalcor’s legal representation that the magnified risk due to the length of the 56-year cumulative present worth (CPW) analyses of both the Muskrat Falls (interconnected) and the Isolated Island (Holyrood) option is less than one would think, because the CPW process “discounts” them to the present time (CPW discounting making those risks less).

I would suggest however that risk magnification due to the length of the forecast/cost comparison period (an increased, but un-quantified risk identified in MHI’s reports to the PUB), is not mitigated/”discounted,” or not significantly mitigated through the CPW process, i.e., does not apply to CPW input factors such as load forecast (a factor that dramatically increases the CPW for the isolated island option in that high load forecast levels increases oil consumption for one option while having virtually no impact on the Muskrat Falls option).

Again, I am not aware that the commission’s co-counsel or any party with standing queried the Nalcor witness’s CPW expertise (a witness with load forecasting expertise) when he agreed with the Nalcor legal representative that risk magnification is mitigated by the CPW discounting process.

Why not?

Maurice E. Adams

Paradise

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