14 October 2015

Consumer to pay 19.8 cents for electricity in 2020: Nalcor #nlpoli

Muskrat Falls will ensure consumers in Newfoundland and Labrador pay much higher electricity rates than they otherwise needed to pay.

The latest Nalcor estimate is that consumers in the province will see a 53% jump in rates between now and 2020, with rates hitting 19.8 as the project enters commercial production.

The information came in the reply by Nalcor officials to a question by Tom Baird.  Here’s a screen cap of the portion he tweeted on Tuesday:

baird nalcor cost

Double whammy there for Nalcor:

Bad enough. the 2020 date confirms recent projections from two different independent sources - via Uncle Gnarley - that Nalcor’s megaproject in Labrador is now two years behind schedule.  There’s a very good likelihood the real date will be later..

Far worse, you now know you will be getting a massive  - and entirely unnecessary - jump in electricity rates due to Muskrat Falls.  The cost over-runs are just adding to the amount of the increased cost. 

Nalcor’s official figures put the jump at 53% above your current charge  For folks using 1500 kilowatt hours a month of electricity, you’d be looking at about another $100 a month. 

Compare that to the “seven dollars” more figure Ed Martin was tossing around a couple of weeks ago when word of the last cost over-run and project delay hit the news. VOCM even used it in a headline on September 30: 

Nalcor Expects Average Power Bill to Go Up About $7


The truth was that the seven dollar hike Martin was talking about was on top of several other Nalcor increased estimates that still didn’t account for the gap between where we are currently and where Nalcor’s estimates started.  More on that below.  Key thing here is that official Nalcor figures now put the rate increase at 53%.

Only problem is we can’t be sure Nalcor has its own figures right. Here’s why.

The electricity rate is set by the public utilities board.  Every domestic consumer gets the same rate.  Today, the rate is 10.573 cents for every kilowatt hour of electricity you use.  Take out your current bill and you will see the rate on the line right next to the total number of kilowatt hours you used.

There are also some other charges, likely the flat fee of $15.70 for the basic monthly charge every consumer pays regardless of how much electricity they consume.  There are also taxes and discounts.

If you wanted to compare rates now to rates in the future accurately and fairly, not to mention honestly,  you should compare the rate without any of those extra charges on top of it or discounts applied.

The most you could apply is HST, but even then you’d be guessing what the harmonised tax rate would be. It’s 13% today, with a scheduled increase to 15% in January. That two percent hike might not come, though.  But even if you used the 13% HST and added it on, you’d still be fair because the amount of HST you pay varies with how much you use. 

But if you tacked one cent a kilowatt hour on your average bill to try and add the $15.70 into the “rate”,  you would start to go off into the trees. You see, while you’d get the right amount at your average consumption (1500 kwh), you’d get a very different basic charge amount if you used 4,500 KWH in the winter. To be precise, you’d triple the amount of the charge in your total even though it is supposed to be just $15.70.

There’s Nalcor’s first problem.  They claim the current rate for electricity is 12.9 cents a kilowatt hour. But that includes the flat fee and other charges.  As such, it is misleading. 

It artificially inflates the actual rate you are paying currently.  That would have the effect of making the gap between current and future rates smaller than it likely will be.

That “all-inclusive” current rate also only works for someone who happens to use the average number of kilowatt hours a month Nalcor used to make up the figure. If you tried to figure out anything but that one average,  you’d overestimate the amount you’d pay.  The official Nalcor rate in that reply to Tom Baird is basically either misleading or useless, take your pick.

Then there’s Nalcor’s second problem.  Even using Nalcor’s own figures,  the cost escalations on this project are destroying their own rationale for the project as the lowest cost option.

Oh yeah, and their figures don’t match up.

The PUB Hearings

At the public utilities board hearings into the Muskrat project in 2011,  Nalcor provided the board with a detailed set of rate projections in cents per kilowatt hour. The chart showed the wholesale price from Nalcor subsidiary Newfoundland and Labrador Hydro to the retailer, Newfoundland Power. Then it showed a separate set of figures representing the anticipated rate for consumers from the retailer.

It’s worth looking at a few of these “all-in” estimates over time.


Nalcor Contrived Consumer Rate 2011 (cents/kwh)

Nalcor Contrived Revised  Rate 2015 (cents/kwh)

PUB rate





























The first column in this chart is consistent with Nalcor’s rationale for the project.  They expected electricity princes to climb steadily.  Rates would go up in 2017, the year of anticipated commercial power and then things would stay relatively stable over a very long period of time.

The second column shows the extent to which Nalcor’s new estimates in 2015 have brought the projected rates from well into the future up to the very near term.  The new projected rate for 2020, for example is a rate Nalcor didn’t estimate we’d see until the 2040s.  That basically destroys the argument the project will give us stable, lower rates.

Once the initial shock of a 53% hike starts to wear off,  you might recall that we aren’t done with the revised estimates and cost over-runs.  The risk of further increases and further delays is very high according to the independent engineer appointed as part of the federal loan guarantee to watch over this pig of a project. 

Are Nalcor’s projections accurate?

If the risk of further delays and cost over-runs is high,  you have to consider that there’s a very high risk that Nalcor’s rate projections aren’t all that accurate either.

After all, what they call their “rate” is actually a number Nalcor made up based on a  very sketchy premise. They could have – and should have – produced a simple calculation of rates that are directly comparable with utilities board rates. That would have given consumers the chance in 2011 to worry how much they would pay for this project but at least it would be a fair and accurate comparison.  If Nalcor could persuade people base don accurate information, then they deserved to get their project.

And of course, if they couldn’t… well, you get the point.  Concocting this “all-in” number and calling it a rate is right in line with all the concocted reviews Nalcor and the provincial government have created to try and justify Muskrat Falls. If the only evidence in favour of the project is pulled together by the guys backing it, then you really don’t have any reason to believe the project is justified. And if you are still a little uncomfortable with that blunt statement, just consider the gap between Ed Martin’s “seven dollar” increase and the truth.

A glimpse of accuracy, maybe

Nalcor hasn’t always taken this approach to concocting an “all-in” number and calling it a rate. .  In 2014,  Nalcor showed a set of rate projections for 2018 that apparently weren’t “all-in”. It appeared to show the rate, as set by the utilities board plus a figure that included HST.

This was the figures your humble e-scribbler used last week to try and project Muskrat Falls electricity rates for consumers.  There are corrected figures in that post and an explanation of why the numbers changed.

2014 nalcor estimated rates

Compare those to Nalcor’s latest “all-in” numbers. Frankly, given the two different Nalcor figures for 2018 within a year and a bit, you’d have to be suspicious that the “all-in” calculation of 16.7 cents a kilowatt hour is just not right.  Despite the cost increases since 2011,  Nalcor is still basically forecasting the consumer cost will be the same when the project achieves first power.  On the face of it that doesn’t seem to make sense.

Nalcor should release an explanation of the way it does its calculations.  The company should also provide a rate estimate that corresponds to the PUB rate without any add-ons. it should be easy enough to set up a little program that let’s you plug in some numbers and figure out roughly what the cost would be for that particular consumer.

That kind of transparency would go a long way to restoring public confidence in a company that so far has not been able to forecast anything related to this project with anything that looks vaguely accurate.