14 April 2011

Making the people pay more for electricity

Take a gander at Hansard for Wednesday and you’ll see an interesting series of questions put to Shawn Skinner about the settlement in the Star Lake expropriation.

You can see pretty easily that the expropriation back in 2008 had nothing to do with getting back timber and water from an evil foreign company.


The real story was about something else.

Shawn told the House, in all earnestness, that as a result of the 2008 expropriation of the Star Lake hydro-electric facility, the people of the Happy Province could now benefit from having 18 megawatts of electricity to meet their needs.

From that, Mr. Speaker, that generating station will put electricity into the system that will benefit the people in Newfoundland and Labrador.

We now have an asset that is a fairly new asset, about ten or twelve years old. It is an asset that for decades to come will be able to provide clean, renewable power for this Province that we will benefit from.

Skinner makes it sound like Star Lake will do something now that it wasn’t doing before.

Fact is that Enel and Abitibi developed Star Lake in the 1990s in response to a request for proposals issued by Newfoundland and Labrador Hydro. The provincial government’s electricity producer wanted to add some new renewable energy to its island supply that would help reduce the need for thermal generated stuff at Holyrood.

And that’s what Star Lake did.  It wasn’t supplying power to the Abitibi mill at Grand Falls-Windsor, as Abitibi’s other hydro generators did. Star Lake made the light bulbs glow in homes on the island.

Now, NL Hydro bought the power from Star Lake and turned around and sold it to Newfoundland Power who in urn retailed it to consumers.  Skinner put the annual cost of the power from Star Lake at $10 or $11 million annually.

Nalcor tried to buy Star Lake – as it turned out – before the expropriation but Abitibi apparently rebuffed the offer.  They preferred to sell the whole affair to Enel, their partner at the time.

In the end, Nalcor got Star Lake.  The cost came in at around $73 million on a facility that cost about $50 million to build.  Skinner says it was $60 million.  Okay.  Tomato.  Tomato.

What’s interesting here is not that the lovely people of the island now have electricity, it is the financials of the whole thing.  Follow that link right there  - LINK – and you will see a couple of curious things.

In early 2009, Danny Williams pretty well blew away any idea that the island needed power from some expensive project in Labrador as a result of the Vale smelter in Long Harbour.  As the Telegram reported:

Williams explained that the province didn't need the power from the Exploits River in order to accommodate the Long Harbour plant. He said 70 megawatts were freed up when the Stephenville paper mill closed, and an additional 54 megawatts of wind power has also been added to the grid.

Williams also said that:

the most important fact is that the province, through Nalcor Energy, a Crown corporation, will take full control of the power at the end of March. [emphasis added]

Why is that important, you ask?

Well, it has to do with those power purchase arrangements.  you see, Skinner mentioned those on Wednesday as a way of saying that the $73 million for Star Lake meant the provincial energy company wouldn’t have to pay that money out any longer.

True enough.

But how, asked Yvonne Jones, would Nalcor recover the cost of the settlement?

Why silly thing, by selling power to the lovely ratepayers of the island, sez Shawn:

We are going to be selling electricity into the provincial grid. That was the point I was trying to make. I apologize if I did not make it clearly enough for the Opposition House Leader. We are selling electricity into the provincial grid. The Public Utilities Board sets a price and the people who receive the electricity pay the price, Mr. Speaker.

Hands up anyone who has seen Nalcor head to the public utilities board to lower electricity rates now that they won’t have to shell out that $10 million annually.  Of course they haven’t and one would be exceedingly naive to expect them to do it.

By having a near total monopoly on electricity production in the province, Nalcor can now pocket the $10 million annually it used to pass along to Enel along with whatever margin it took on top.  Nice windfall.

In fact, if the loan is the only thing they are directly liable for and it is for a 25 year term, the actual annual cost to Nalcor is a trifling sum.  They are basically pocketing a gigantic profit on every megawatt from Star Lake they have generated since December 2008.

Not bad, eh?

Nalcor’s bottom line is that much fatter courtesy of the good people of the Happy province. People are already used to paying the higher rates so Nalcor can just keep on making them pay rather than pass any savings that Skinner was talking about on to consumers.  he was crowing about bigger profits for Nalcor, not a brighter future for the ratepayers of the island.

And when Muskrat does come along in 2017, well the same ratepayers keep on footing the bills for the government monopoly:  Nalcor’s entire plan for Muskrat Falls is based on profitability from provincial ratepayers alone.

Just like at Star Lake.

- srbp -