It’s been a while since anyone talked rate mitigation.
There’s been a lot of other stuff on the go, for sure.
A pandemic, runaway government expenses, a huge jump in unemployment — it’s easy to see why everyone’s attention would be somewhere else than looking at how the provincial government will keep ratepayers from paying for Muskrat Falls.
But the elephant is still in the room, and it’s getting bigger.
All this time, the money borrowed for the project has been piling up interest.
Now, not all the money for the Muskrat Falls project has been borrowed: the provincial government did “inject equity” into the project, but since we still have a huge provincial debt, that equity is, effectively, money that the province has had to borrow somewhere else to cover its expenses.
A good chunk of it ($5 billion) was borrowed for 40 years at a blended interest rate of 3.8 per cent per year in 2013.
Rate mitigation is both difficult — the money has to come from somewhere — and absolutely necessary, given that high electricity prices bleed into everything we produce, every service that’s provided, and even into municipal taxes.
By the time we reach December, that $5 billion will have been on the books for seven years, with accrued interest (but not including interest on the interest) of $1.3 billion.
Use that nominal 3.8 per cent interest rate across the board, and things get scarier. The project is ballparked right now at $13.1 billion — a full update is apparently coming soon — and the project is not yet in operation (so not paying for itself).
If you used the supposedly wonderful 3.8 per cent interest rate we got originally, the annual cost now would be around $498 million a year in interest. (That’s probably not what it is, given the fact that the province may have gotten better rates for its own borrowing. Interest rates have been falling, after all.)
But, essentially, in the ballpark of $1.3 million in additional interest for every day the project isn’t in operation. Strangely, the pandemic makes our completely unsustainable debt look smaller in comparison to the huge deficit and debt numbers other governments are facing — but then again, our poor ability to pay is bound to make it ever more difficult to find lenders at competitive interest rates.
As I’ve pointed out before, Newfoundland and Labrador Hydro — which is contractually obligated to pay for Muskrat Falls power at a rate high enough to cover the projects costs, including financing — at this point doesn’t have enough concrete information to even start its rate-setting process with the public utilities board.
The company doesn’t know enough about the province’s rate mitigation plans to hazard an estimate of what our power rates will actually be. Think on that for a moment.
This week, we were told there was a milestone reached in the project; Muskrat Falls has produced power, with the first of the project’s four generators putting power into the Labrador grid.
Sadly, that power can’t get to its intended customers, because the power line connecting it to its intended market doesn’t work yet.
Early in the afternoon Friday, Premier Andrew Furey announced the establishment of a rate mitigation committee to negotiate with the federal government to find some sort of deal. Nalcor Energy’s board chair, Brendan Paddick, will be taking a leave from the board to run the brand-new committee — which doesn’t even have any other members yet. In other words, we’re still very much at the start of a process that you could reasonably have expected to have been started long ago.
Rate mitigation is both difficult — the money has to come from somewhere — and absolutely necessary, given that high electricity prices bleed into everything we produce, every service that’s provided, and even into municipal taxes.
Haste has already made tremendous waste.
But delay makes interest. Every single day.
Russell Wangersky’s column appears in SaltWire newspapers and websites across Atlantic Canada. He can be reached at russell.wangersky@thetelegram.com — Twitter: @wangersky.
