30 March 2016

Paying for Muskrat Falls #nlpoli

To understand precisely how insane an idea we have at Muskrat Falls, think of it this way.

In Quebec,  provincial government policy is to maintain a pool of electricity that is very cheap to produce.  This is for use inside Quebec so that the people of Quebec always have really cheap electricity.

In Newfoundland and Labrador,  provincial government policy is to force local consumers to pay double their current low rates in order to pay for Muskrat Falls.  Nova Scotians get a block of power for free and access to an additional quantity of power at Nova Scotia market rates, which are far less than Muskrat Falls will cost local consumers.  If they can sell any other electricity,  they will but again,  the cost will be subsidized by the people of Newfoundland and Labrador who are paying the whole cost plus profit.

This isn't new.  It has been the case since before Danny Williams announced his retirement scheme called Muskrat Falls.  Your humble e-scribbler pointed out the subsidy insanity before the announcement.  Williams and Nalcor boss Ed Martin confirmed it when they unveiled the Muskrat Falls project.

Once local consumers finally caught on to this idea,  the folks who back Muskrat Falls started to talk about using export sales to lower domestic rates.  Dwight Ball is one of those folks.  It is now the official government talking point.   Here is the official pronouncement from the provincial government delivered by email to the Telegram from one of the legion of uncommunications people left over from the former crowd that ran the place:
As part of government’s mandate, we are committed to selling surplus power generated from Muskrat Falls and to use that revenue to mitigate increases in electricity rates. After the rate application has been filed, government will review the proposed rates and determine the level of mitigation required.
No one has explained how this will work.

They don't explain it because they can't explain it.

Nalcor has no electricity sales to speak of, first of all.  The only people guaranteed to pay anything for MF power are the people of Newfoundland and Labrador.  And those folks are going to have to pay double their current rates just to pay the thing off.  The current plan is to pay the cost of the project over the course of about 50 years.  Nalcor and the provincial government have set that up so that consumers will pay more 50 years from now than they do at the front end for Muskrat Falls. The thing is back-loaded in other words.  Your grandchildren are in for a nasty surprise.

Nalcor cannot find any regular customers for Muskrat Falls because it is too expensive.  That's why we are being forced to pay for it.  The most Nalcor might get is the odd sale here and there at a fraction of the actual cost to make the electricity.  We are not talking a lot of money here.

The public utilities board has to set rates to cover the costs and basically the way to do that is set rates high enough to cover the costs.  There's a huge problem, though.  The higher the cost of electricity, the more people will cut back to save money.  They less money Nalcor gets from electricity rates, the high they have to charge for each kilowatt to cover the difference.  It's a financial death spiral cooked up by a complete idiot:  after all, the more costs go up, the less people use, which means we have to charge more for the power, which means we use less and so on and so on.

According to the provincial government folks,  they will use sales of "surplus" electricity to lower consumer prices.  Nice thought but since Nalcor has no idea if they can sell any power,  there's no way of knowing how much money might be available to lower electricity prices.  The best they can come up with when Newfoundland Power applies for a new rate is to guess.

Government or the PUB might cook up some scheme that assumes the average of the preceding years but that could vary wildly from actual experience.  If they guess wrong, we will have to make up any shortfall one way or another. Those loans must be paid off.  We might have to borrow money.  We might have to divert cash from oil royalties to Nalcor.  We might have to give up any net profit that was supposed to come out of electricity rates and help to pay for health care, schools and roads.

None of that makes any sense given that Muskrat Falls is supposed to be a source of new cash for the province. Remember all the times people called it a revenue stream?  Yeah well, you can see that neither the original plan for Muskrat Falls nor this new "mitigation" scheme actually makes any sense at all.

As long as the provincial government plans to finish Muskrat Falls, there is no way to avoid doubling provincial electricity rates.

At least.

That was the plan from the beginning.

There is no way to avoid it except to cancel the project altogether.

And by the signs of things,  Dwight Ball isn't going to cancel anything.