15 August 2012

Muskrat Falls: the revised cost for consumers #nlpoli

If, as Shawn Skinner suggests, the cost of Muskrat Falls is going to jump by a third or more by the time we find out what the Decision Gate 3 numbers are, then it follows logically that Nalcor is going to have to figure out how to pay for that.

What might that look like for the ordinary consumer in Newfoundland and Labrador?

As we know, Nalcor has already said it is working on the premise that it can essentially force consumers in Newfoundland and Labrador to pay for the whole thing:

For the purposes of analysis, Nalcor has assumed there are no export sales and consequently, Hydro customers are assumed to pay the full cost of Muskrat Falls and the Labrador Island Transmission Link [Emphasis added]

Using the method the public utilities board would normally use to figure out the cost of electricity for consumers, Muskrat Falls initially worked out to 21 cents per kilowatt hour according to Nalcor.

Since that was politically impossible, they invented a new way of paying for the project.  They’d stretch the payment period from the usual 30 or 35 years out to 55 years and they’d spread the cost out equally over that longer period.  The price per kilowatt hour using that method was 7.6 cents, which Nalcor figured would increase by two percent per year.

Basically, Nalcor has three ways to get consumers to pay for higher costs.

The first way would be to increase the rate consumers will pay. If the cost per kilowatt hour was 7.6 cents when the project cost $6.2 billion, it’s logical to assume that when the cost of the project goes up, the cost per kilowatt hour would go up proportionately.

Here’s a simple table that shows just that.

Original Estimate (per kwh)

+ 30%

+ 37%


7.6 cents

9.88 cents

10.41 cents

11.4 cents

Take a breath.  Now go look at your power bill and see how much you are paying for electricity now.  Look at the table again.  Now look at your bill.

Not pretty is it?

Now here’s what Jerome Kennedy said in January, via Twitter, using the $6.2 billion cost estimate:

MF No.10 - Power rates continue to rise due to the price of oil. Critics argue that rates will double because of MF.This is simply not true.

Okay, so maybe Nalcor will keep the cost fixed at 7.6 cents. 

The only way they can recover higher costs by doing that is if they increase the amount of time people will be paying for Muskrat Falls. That’s the second option. They are already talking about 55 years.  If the costs went up by 50% – as they well might -  would we still be paying off Muskrat Falls in 2112?

Could be.

The third choice they have is to come up with a combination of the other two. You’d pay somewhat more over an unspecified longer amount of time.

There are probably some other alternatives that the provincial government could try. It all depends on how creative they want to be.For example, if the provincial government was going to raise half the cost of the project by borrowing money directly, they could just tell Nalcor not to bother paying the loans back.  Government would do it instead.

Consumers still wind up paying for it in the end if government went that way.  That’s because the electricity rate payers and the taxpayers are one in the same person. 

And that’s really the thing:  no matter how you slice it the people of Newfoundland and Labrador will wind up paying for Muskrat Falls, one way or another.