31 July 2013

Relative Costs #nlpoli

Leave entirely to one side the spectacle of the guy who gets paid as the consumer advocate sitting there on the CBC flailing his arms around explaining Newfoundland and Labrador Hydro’s latest rate request.

Tom Johnson sounded like a Hydro spokesperson as he went on about things called “puts” and how this sort of cost was up, and this was offset by something else.  Prices on the island would go down, therefore, while in Labrador, where the issues are different, costs would go up.

Johnson did a better job of defending Nalcor than he did during Muskrat Falls.

Leave that to one side.

Note instead how Johnson responded to David Cochrane’s question about Muskrat Falls.  You will recall that Muskrat falls was justified entirely on the basis that costs would inevitably rise to great heights in the next few years due to oil prices and growing demand.  As a result, by the time we had finished Muskrat in 2017,  we would only have to raise up the price of electricity a relatively small bit to cover the huge cost of Muskrat Falls.  The rest of it would be taken up with the chunk coming from the amount for oil already in the price.

Yet, here we have Nalcor coming to the public utilities board for a small rate decrease based on a net decrease in operating expenses.  And the costs of Muskrat Falls are much higher now than they were when the company first told us of their scheme to make Newfoundlanders and Labradorians subsidise electricity for mining companies and Emera ratepayers.

Tom got on with some nonsense about how you couldn’t base things on the short term decreases this year.  There might be big jumps next year.  Now Tom never noticed that even in the rigged public utilities hearings, Nalcor’s Muskrat Falls pricing/cost excuse was based on a some dubious short-term trends that others tore huge strips off when they looked at the long term.

Basically, folks, if you accept Nalcor’s own projections, the more the price of electricity stays the same or goes down now,  the more prices will jump four years from now.

That’s not good and if Tom was actually an advocate for consumers instead of yet another partisan hack in a patronage job, he’d be  - at the very least – waiting to assess the rate application rather than getting on the Ceeb rationalising it.

Now lest you think that is the scary part of this little ride, you ain’t seen nothing yet.  Let us take a look at some simple math for Muskrat Falls.  The faint of heart, the elderly, and Tom Marshall might want to leave the room now.  They may not be able to stand the anxiety this math will induce.

The Muskrat Falls thing is supposed to cost $6.2 billion for the dam and the line to Soldier’s Pond.  The plant is rated for 824 megawatts. will spit out, on average, about 560 MW, give or take.   That assumes that Hydro-Quebec loses its court case and drops the firm capacity to about 140 MW.

A few clicks of the old calculator and you find out that each megawatt will cost $7.5 million at the 824 MW and $11.07 million at the average capacity.

For the sake of comparison, let us look at a little plant on the Magpie River.  One company just bought it from the one that built.  The names are irrelevant.  The new company paid $28.6 million and assumed the existing debt of $55.4 million  - a total of $84 million - on the 40.6 MW dam.

That is $2.06 million per MW.

Hydro-Quebec’s La Romaine project is currently rated at about 1550 MW at a cost of $6.5 billion.  That’s $4.19 million per megawatt.

You are seeing a pattern here no doubt.

Let’s add one more:  a 27 MW wind project in Ramea that cost about $12 million. 

$2.25 million per megawatt.

The reason to look at that project is that the Hydro guys told CBC the extra wind energy is contributing to the decrease in oil consumption.  Over at the Telly, ironically, they point out that isolated communities like Ramea are actually getting their rates jacked up.

That little detail to one side, the more you look at Muskrat Falls relative to other cases, the less sense it makes.