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LETTER: Some thoughts on rate mitigation for the uninitiated

The Muskrat Falls generation dam’s spillway and powerhouse are shown in Oct. 2017.
The Muskrat Falls generation dam’s spillway and powerhouse are shown in Oct. 2017. - The Canadian Press

Premier Dwight Ball has promised that the tax/ratepayers of our benighted province will not have to bear the costs ($14 billion) of Muskrat Falls.
Mitigation measures will be put in place by the Public Utilities Board to relieve us of worry about the consequences of this useless energy project.
How this will come about remains to be identified but the laws of economics will nevertheless be suspended. If successful Ball should move on to the $23 billion of provincial debt net of MF costs. He should also be nominated for a Nobel Prize in economics.
Meanwhile, in the current real world of economics it is a trivial observation to note that all costs must be paid. There are borrowers. There are lenders.
Thanks to successive Tory/Liberal governments we will owe some $14 billion (likely more) before this is finished.

A government has nothing. It only has what it extracts from taxpayers. So we are on the hook for repayment. All measures taken to rearrange/reduce repayment are therefore zero-sum.

Ball apparently does not understand this.

Or I could be wrong.

Pray that I am. I do.
As to annual payments I did ask The Telegram to publish my estimate of costs based on some 15 years of experience in the rate making process. To no avail.

Here is a short version.

Currently there are $3 billion of assets “used and useful” in our power system. (I use power deliberately as energy is not power.)
Revenues are $800 million. At $14 billion in costs, and using accepted utility rate-making standards, the annual revenue requirements will be circa $1 billion with interest and equity costs at $750 million-plus (and) another $300 million for debt repayment, operational, maintenance, depreciation costs.
This, I note, is a P75 estimate, in my estimation.

It is clear that an additional revenue requirement of $1 billion is out of the question.

I submit that even a fraction of that amount, a 25 per cent increase in rates, would lead to system collapse.

There is something called “demand elasticity” that kicks in with rising costs. And NL Power already has noted declining demand at current rates.
Meanwhile, the charade continues.

Political parties offering misleading solutions to problems they have created.

It is like telling an alcoholic that the solution to his problem is more drink.

There can be no soft landing.

The avalanche gathering momentum cannot be transformed into a large but pleasant snowball that will break softly over us.

The people in their majority have been snow-jobbed. The digging out will be traumatic.

Andy Wells
St. John’s

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