24 November 2010

Doubling electricity rates for the Lower Churchill: then and now

"If we had to pay for it ourselves it would be safe to say the rates
in Newfoundland would double," Marshall said.

Turns out that Fortis headman Stan Marshall might have been in tune with a higher celestial power even if he was 12 years ahead of the rest of the world.

Stan Marshall gave that comment more than a decade ago to the Telegram business editor Chris Flanagan. The story – titled “Deal would double rates: Fortis boss skeptical of Quebec to Newfoundland line benefits” – appeared on the front page of the Saturday, February 21, 1998 edition of the province’s largest circulation daily.

Marshall was talking about a then-rumoured proposal to build an 1,100 kilometre, $2.0 billion line from the Lower Churchill to Soldier’s Pond. He told the Telegram that in his view the line would wind up being severely underutilized in the short-term and would cause financial headaches for the provincial government for maintenance and replacement.

At the time, however, the provincial government and Newfoundland and Labrador Hydro weren’t proposing that provincial taxpayers foot the bill, as with the proposal announced last week by Premier Danny Williams.  In 1998 and in some subsequent discussions the whole line would have been cost-shared with the federal government. 

What’s more, while power rates may well have doubled under the 1998 proposal, the provincial portion of the entire project would have been supported by the sale of power from the much larger and more lucrative Gull Island portion of the Lower Churchill to markets in Quebec and potentially elsewhere.

In the Williams version, Newfoundland and Labrador taxpayers would pay for the Muskrat Falls dam and the line to St. John’s.  Ratepayers in Newfoundland and Labrador would cover the cost through higher electricity rates and, in all likelihood, by carrying an additional $4.5 billion in public debt on top of the province’s existing, enormous public debt.

The only power export guaranteed under the new proposal would be 170 megawatts handed to Nova Scotia-based Emera in exchange for its building the line to get the power to Nova Scotia.  Under the proposed agreement, Emera could buy up any other export power at the Cape Breton landfall. What’s more, while Nalcor might get some right to wheel power through Erma’s Canadian transmission holdings, Emera could also step in to replace Nalcor in an export deal provided Emera compensated Nalcor.

In a media interview this week, provincial energy minister Kathy Dunderdale said power from the proposed project would cost at least 14.3 cents a kilowatt hour to produce;  she also gave a figure of $165 per megawatt hour which translates to 16.5 cents a kilowatt hour. 

But that’s the wholesale cost for the Williams proposal.  The rate for consumers would likely be higher in order to allow Nalcor and its partner Emera an appropriate rate of return.  The consumer rate would also have to include a return for electricity retailer Newfoundland Power, a Fortis company.  Taken altogether, rates on the island for residential users would likely be double the current rate of about 9.5 cents a kilowatt hour.

According to Dunderdale, the provincial government is justifying its projected rate hike based on a single projection from one consulting firm that the price of oil in the later part of this decade will be around $120 a barrel.  According to Dunderdale,  without the line from Labrador, the only alternative will be continued use of expensive diesel fuel for the large diesel plant at Holyrood as well as some additional wind and small hydro generation.

By comparison, [according to the provincial government] the Labrador dam and the new power line would be cheaper for consumers than the alternative.  To date, the provincial government hasn’t released any details to support their claims about the cost of alternative power generation to meet anticipated demand.  The only documents they’ve released are a graph and a chart without any of the context used to come up with the figures.

The provincial government also claims that the Labrador dam and new line would “displace” Holyrood’s diesel generation.  That claim isn’t backed by Nalcor’s own plans.

In 1998, Stan Marshall also had concerns about the cost of maintenance on the new line:

"If there's a real ice storm it will have to be rebuilt and I hope
somebody's going to pay for that," Marshall said.

Marshall said the line simply does not make economic sense.

"If someone offered you the transmission line or $2 billion, you'd
take the $2 billion," he said, but added there are political and long-
term factors others might want to consider.

"I don't know what the political agenda is here and what the
government is trying to achieve," he said.

Plus ca change?

- srbp -

*updated – words added to clarify attribution

Related:

Coming soon:  demand projections and crude price forecasts