10 October 2012

Muskrat needs full review: AIMS #nlpoli

By any reasonable standard, Gordon Weil would count as an expert.

In business.

In the energy business.

An expert.

As much as she said she wants to hear from experts, Weil’s review of the Muskrat Falls project won’t have any impact on Kathy Dunderdale.

That’s because he doesn’t fit her unique definition of what an expert is.

Gordon Weil does not enthusiastically support Kathy’s project.

But for those of you with an open mind, here’s what Gordon Weil has done, according to the official biography provided by the Atlantic Institute for Market Studies:

Gordon L. Weil, a newspaper columnist, was formerly
President of Standard Energy Company, Augusta, Maine. He graduated from Bowdoin College, Brunswick, Maine (A.B.), the College of Europe, Bruges, Belgium (Diploma) and Columbia University, New York (Ph.D. in Public Law and Government). He is a member of Phi Beta Kappa.

Weil was Commissioner of Business Regulation, Director
of the Office of Energy Resources and Public Advocate of
the State of Maine. He has served on numerous regional
energy bodies and was chair of the national organization
of state energy agencies.

He was the chair of the New England negotiations leading to the region’s electric transmission tariff and the Independent System Operator. He has engaged in wholesale and retail power purchasing and power sales and strategy development for wholesale and large retail customers in the U.S. and Canada. Weil is author of Blackout: How the Electric Industry Exploits America (Nation Books, 2006)

The author of this report has worked independently and is
solely responsible for the views presented here. The
opinions are not necessarily those of the Atlantic Institute
for Market Studies, its Directors, or Supporters.

Among Weil’s observations:

  • “At the same time, their remoteness [from markets] imposes unusually heavy transmission costs to bring the power to customers – the load.”
  • “Ultimately, the NL taxpayers, either through Nalcor or directly, or utility customers are responsible for revenue
  • “It is likely that the project will continue to rely on extremely long-term forecasts, whose lack of reliability, in any
    context, is well understood. Thus, the Board’s conclusion, even with updated cost information, would likely be the same; it would be unable to determine that the project was preferable for NL customers.”

Weil recommends two ways to deal with the risk:

“First, the project analysis should not be limited to in-province considerations alone….” and

“Second, the project should be subject to review either by a regulator or by the government meeting the same standards as would a regulator.”

Export sales are a key part of Weil’s assessment.  He notes that export sales   “would provide needed contributions to the cost of both the generating plant and the additions to transmission. Lacking such contributions from the sale of exports, costs are likely to fall on NL customers….”

That issue of export sales is especially important because Ed Martin basically told CBC in his On Point interview that export sales are going to be on a catch-as-catch-can basis.  That is, they might happen and they might not.

That extra revenue is important because, as Weil notes, the effect of not selling all that surplus electricity “ could be to double the price of power from Muskrat Falls…” to consumers.

“Even if Muskrat Falls is projected to produce in-province savings, export sales should be used in part to lower rates.  As currently planned, it appears they would flow solely to Nalcor potentially for other uses.”

That’s a new consideration no one has raised before in this province and one the provincial government has always glossed over.  The oil stakes and Muskrat Falls are not assets that produce revenue for the provincial government.  They generate a return for Nalcor only.  People should bear that in mind when they discuss the benefits of Muskrat Falls to the province as a whole.

Weil added another new issue:  Nalcor is going to have unbundle its generation and transmission costs if it wants to keep selling into the United States.  Unless Weil knows something the rest of us have missed,   this is something that is already an issue.  The only reason it hasn’t come up is that no one has had a reason to wheel power into Newfoundland or Labrador.

No reason yet.

Weil also identifies a new cost to be added to the project, namely the cost of bringing the island up to the same standard as the markets Nalcor wants to work in:

As MHI noted, the Nalcor system does not meet continental reliability standards. It would seem essential that the system should meet the same standards as the remainder of the system to which it would be interconnected. That would pose an additional cost on the project.

Weil also suggests Muskrat Falls and the interconnections could help to form a regional electricity pool that would benefit the entire Atlantic region.  It’s an interesting ideas as long as Newfoundland and Labrador wouldn’t wind up subsidizing everyone else.