Muskrat Falls electricity prices... again #nlpoli

The infamous JM is at it again.

"Top 10 Muskrat Myths" (via Uncle Gnarley) rebuts 10 of the arguments in favour of Muskrat Falls. All of this has been argued before in several places, but this is a one-stop summary of the key points.

One to notice is the idea that Muskrat will make money from export:

“It will generate Export Revenue”:  Initial export sales of 2,000 GWhr (40% of MF output) will generate about $80 million annual revenue, based upon current market pricing.  To put that figure into perspective, interest on the ~$8 billion (the final figure may be much higher) which will have to be borrowed for this project will cost about $320 million a year.  Muskrat Falls will not be a significant revenue generator for the province until it is paid off in 2067.

In the second part of his myth-busting extravaganza, JM tackles the claim that Muskrat Falls will stabilise electricity rates.  This is a long, dense post with lots of charts.  it will turn most people off.

The big take-away is that, as SRBP and others have told you,  Muskrat Falls is going to double electricity rates, guaranteed.  Double the rates, at least.

But the bigger point is that doubling rates will push electricity consumption down, despite the fact that Nalcor sold Muskrat Falls on the assumption that consumption would only go up.

The problem is that we pay for Muskrat Falls whether the energy is needed or not.  "The impact on ratepayers will be profound," JM notes.  If we have to distribute the cost over fewer kilowatt hours, you can expect the price for each kilowatt hour will go up. That will induce even more conservation with a similar pressure on prices.

JM notes that Nalcor hasn't produced a simple set of rate projections.  The reasons is likely that Nalcor doesn't know how it will translate the final cost of Nalcor to rate payers.  For example,  a future government may find itself under pressure to keep electricity prices down.  One way to do that would be to limit how much of the total cost of Muskrat Falls is recovered through rates.

Here's how that might look. If MF costs $10 billion all-up,  half of that is covered by the federal loan guarantee while the other half is provided by the government through additional borrowing. The provincial government might decide to only recover the half of the cost covered by the federal loan guarantee.  The government itself would pay back the other half through other taxes.

Since taxpayers and ratepayers are the same people,  the final cost will be the same.  The difference is that government can hide half the cost of Muskrat Falls with a bit of creative accounting.  There are reasons why the House of Assembly destroyed the province's transparent electricity rate system in 2012 and replaced with one ultimately dictated by cabinet.  Hiding the real cost of Muskrat Falls from consumers is one of them.

-srbp-

Nalcor and the Eff In Way #nlpoli

Over at Uncle Gnarley,  JM’s at it again with the first of a two-parter on Nalcor and its problems with forecasting for Muskrat Falls.

Nalcor assumed that they would get 830 megawatts of electricity out of Muskrat Falls in the winter months when demand is highest.  That’s the number they gave everyone else and, as you can tell by the language Nalcor uses, it was an assumption, not a solid forecast.  Now they say they should be able to get 673 MW at Soldier;s Pond from Muskrat Falls.  That’s a difference of 157 MW, not an inconsiderable difference.

Silence is the perfect expression of scorn #nlpoli

by JM and EGH

The BBC online news magazine carried an article on March 10 that should be of interest to all those following the Muskrat Falls debate.

“Do massive dams ever make sense?” summarizes the work of researchers at Oxford University.  They studied more than 245 large dams completed between 1934 and 2007. 

A large dam is one with a wall height of more than 15 metres.  Muskrat Falls would meet the study criteria

The researchers found that dams ran 96% over their approved budgets, on average. One Brazilian dam went 240% over budget.  With few exceptions,  the researchers found that the dams were not economically viable.

If Nalcor got the peak load wrong #nlpoli

The rolling blackouts on the island of Newfoundland could warn of bigger problems to come, if a new paper by the analyst JM is correct.

Underestimating peak load and the potential impact on the Muskrat Falls solution

-srbp-

JM’s assessment of the UARB Decision #nlpoli

According to the commentator JM, the implementation of the Utility and Review Board conditional approval will mean that “Nova Scotia will receive 60% of the power, for what amounts to about 30% of the cost” of the Muskrat Falls project.

Using information provided by Nalcor to the Public Utilities Board, JM concludes that “there is a potential 37% increase in the incremental rates charged to Newfoundland and Labrador ratepayers for Muskrat Falls Energy” if Nalcor meets the UARB condition.

This would be reduced to a 10% increase if all export revenue in the early years of the project were used to offset the burden on the Newfoundland and Labrador ratepayers. This is assuming that the Holyrood thermal plant can be decommissioned as per the original plan. If the allocation of additional power to Nova Scotia results in Holyrood’s life being extended beyond 2021, then these rates will potentially further increase.

Muskrat Falls: delayed dividends, more equity needed #nlpoli

The provincial “mid-year” financial update included a familiar claim about the Muskrat Falls project:

We estimate that the province will see revenues in excess of $20 billion over 50 years beginning in 2017, with average annual revenues of $450 million over this period.

But a new analysis of the project cash flows by JM shows that it will be 2031 before the provincial government will realise any genuine dividends from the project.  What’s more,  it will be sometime around 2048 before the dividends would reach as much as $200 million.

That’s not all.  The provincial government will have to inject upwards of $100 million over and above any amounts described to date in order to maintain the debt-service coverage ratio (DSCR) of 1.4 during the first five years of the project as required by the federal loan guarantee.

When you consider the equity repayment, the required debt service ratio, and include the potential upside from power exports, Muskrat Falls will be in operation for nearly two decades before the net returns to the Government of Newfoundland will match that presently provided by the Upper Churchill. This statement is one which is not fully understood by even the most buoyant supporters or sharpest critics of the Muskrat Falls project. [page 2]

Adding the technical to the legal on the WMA #nlpoli

“We are potentially paying 6.4 Billion for 170 MW of firm power, which will just be enough to meet the Emera commitment,”  notes JM in discussing one scenario in his latest commentary The Water Management Agreement and Peak Load Delivery to the Island. 

The scenario JM is referring to involves irregular production by Churchill Falls of 20 days at full capacity and 11 days at a minimum level. Nalcor laid it out in one of its presentations to the PUB:

This adds a significant new technical dimension to the ongoing water management agreement controversy.

Muskrat Falls – The Importance of Transparency #nlpoli

Nalcor will install new generating capacity at Portland Creek in the mid-2030s despite having about 1200 gigawatt hours of  electricity available from Muskrat Falls.

In his latest assessment - Muskrat Falls – The Importance of Transparency [scribd pdf] -  JM concludes that Nalcor apparently plans to build Portland Creek  at additional cost to consumers in Newfoundland and Labrador in order to keep capacity available at Muskrat Falls to meet the commitment to Emera.