03 July 2018

Electricity prices, risk, and what the editors didn't say #nlpoli


What Muskrat Falls will do to electricity prices is not funny.

Never was.

But what *is* extremely funny are columns like Russell Wangersky's latest hand-wringer about the most recent round of electricity rates hikes.
Remember when we were told that Muskrat Falls was needed to stabilise electricity rates? 
Now, it’s pretty clear that it is destabilising them —- in a frightening fashion.
Let's review some information that has been in the public domain since the beginning of the project.  Russell has clearly either forgotten or chosen not to remember details because none of this stuff is new.

SRBP. "Fear and loathing on the energy campaign trail" from November 2010.

Note the date.

Muskrat Falls just announced.

Kathy Dunderdale said oil prices would rise, inevitably, which meant that electricity prices would rise because of Holyrood.  Therefore,  by the time Muskrat came along,  electricity prices would already be  so high that Muskrat would just slip right in there.

Prices would climb but Muskrat would save the day.  You betcha.  Shawn Skinner said the same thing in April, 2011 based on a CBC projection. MF is about fighting those big rate hikes.  Problem for Shawn was that Muskrat Falls was actually included as one of the drivers of high oil prices, but anyway...

The thing is, as SRBP noted in 2010, "the truth is that electricity prices could be all those things, but then again, the world of the future could be completely different. That’s because those oil prices aren’t guaranteed. The number the provincial government has from its consultant is a guess.  it may be an educated guess but it is still a guess, all the same."

As it turned out,  electricity prices didn't climb,  just like they didn't climb in 2008 when the government claimed they knew for certain prices would be going to US$200 a barrel before the end of the year.  Government was wrong then too.

They didn't climb in 2011 and 2012 as predicted.

But Muskrat continued,  which meant that, at some point, prices would have to rise in order to fulfil the prophecy.  That is precisely what we are seeing now.

The problem with the initial rationale for Muskrat should have been obvious to anyone with a brain at the time government announced but it surely should have been raising some doubts a year later.

But it didn't.

August 2, 2011.

Telegram editorial called "The big squeeze."

Not on the Telly site any more but you can find it if you look.  SRBP linked to it in a post about public debt and risk.

Alarmed at the the forecast that electricity prices were going to go up, with or without Muskrat Falls.  Government was still pushing the talk of high oil prices.

"Don't think of this from a 'Muskrat Falls should go ahead' or 'Muskrat Fall should not go ahead" point of view, "  said the editorial.  Just know that we "are in for a massive increase in electricity rates with or without Muskrat Falls."

Even with experience as a guide that the provincial government was shit at the Kreskin thing,  not a soul at the Telly was prepared to question the government's assumptions. Let's not take sides,  they said.  Let's just brace ourselves for a big bill.

Pick whatever word you want to describe that attitude.  Doesn't really matter in the end since we got the high electricity prices, anyway.  Had anyone raised a serious question about electricity prices back then,  that might have been enough to frighten the government off.  They were very scared of public reaction to prices, don't forget.

The people pushing Muskrat were so frightened of sticker shock that they invented a new way of paying for it to try and lower the up-front cost.  They pushed off some payments to the end.  This lowered the initial price but it also meant that prices at the back end would be higher than the front.  It also drove up the overall cost of the project since the back-end loading mean you had to pay interest on more of the principle for longer.  Investors loved it.

Later in August 2011,  we got confirmation of the cost implications for Muskrat Falls from no less an authority than the joint environmental review panel.  SRBP noted it at the time with this extract from the review panel's report:
The Panel notes that the main driver for the Muskrat Falls projected cash flow provided to the Panel comes from Nalcor’s projected Island domestic rates that continue to escalate by two percent per annum even after Project debt payout. There are also questions about the regulatory treatment of Muskrat Falls by the provincial Government and the Public Utilities Board. It is not clear how much of the overall Muskrat Falls cost would be permitted to be passed on to the Newfoundland rate payer and what the implications are for the ability of Muskrat Falls to generate a long-term revenue stream for the Province.
The only people paying for it will be local ratepayers.  And, as the panel noted, Nalcor assumed a steady rate increase of two percent even after the debt was paid.

Forget the bit about stabilising electricity rates, Russell,  you forgot that when Tom Marshall and the rest of them talked about the "revenue stream" coming from Muskrat falls, they meant your bank account.  You didn't get that information from some Known Critic blogster, either.  Nope.  Right there from an expert panel based on Nalcor testimony.

August 2011.

A long way to "sanction",  if that actually meant something, and electricity prices still hadn't climbed, by the way.  Nor would they climb much all through the next six years.

14 January 2012

Almost a year to sanction.  Economist Jim Feehan raises a concern about electricity prices.  Kathy Dunderdale,  by then the Premier, dismisses Feehan by saying Muskrat Falls is all about keeping electricity prices low.


That's what she said.

Feehan wanted to let prices go to around 13 cents a kilowatt hour without Muskrat Falls as a way of controlling demand.  Ed Martin actually made fun of Feehan's idea by talking about his 80-year-old father freezing because electricity prices were so terribly high at 13 cents.

Martin knew the price his folks were talking about was higher, but that was another issue.  He also knew, as did SRBP readers, that Emera was talking up much lower rates than the NL ones based on his commitment of a steady supply of electricity at a fixed price from Nalcor.   As SRBP put it at the time,
Your humble e-scribbler opposes Muskrat Falls because the people who own the resource should not have to pay the full price for development plus a profit for the companies involved while customers outside the province will get the electricity at a discount.
Plus a profit.

That's been built in from the beginning.

In the current round of rate increases,  everyone knew that Newfoundland Power would come looking for a hike on the heels of Nalcor's request because that's what always happens.  There's no reason for Russell to be worried or shocked.  Nor should he be shocked that prices will have to climb up to the rates Kathy Dunderdale originally predicted and that folks at the Telegram accepted back when they could have raised serious questions.

More serious, like, say,  are these government projections wrong?

Why not just stop the whole thing and think about it?

After all, the original premise for the project obviously wasn't coming true.

You see talking in August 2011 about the prospect of electricity prices twice as much as they were and just saying "imagine"  - without broaching the subjecting of not building Muskrat Falls  - was not talking about risk.

It was just fear-mongering, which is exactly what the folks behind Muskrat Falls used to push the project from the beginning.

These days, wringing your hands about rate increases and muttering about risk is just a waste of time.

The thing to do is ask the government where their rate mitigation plan is and wonder why it hasn't been announced along with money for this and cash for that.