Making the people pay more for electricity

Take a gander at Hansard for Wednesday and you’ll see an interesting series of questions put to Shawn Skinner about the settlement in the Star Lake expropriation.

You can see pretty easily that the expropriation back in 2008 had nothing to do with getting back timber and water from an evil foreign company.

Nope.

The real story was about something else.

Shawn told the House, in all earnestness, that as a result of the 2008 expropriation of the Star Lake hydro-electric facility, the people of the Happy Province could now benefit from having 18 megawatts of electricity to meet their needs.

From that, Mr. Speaker, that generating station will put electricity into the system that will benefit the people in Newfoundland and Labrador.

We now have an asset that is a fairly new asset, about ten or twelve years old. It is an asset that for decades to come will be able to provide clean, renewable power for this Province that we will benefit from.

Skinner makes it sound like Star Lake will do something now that it wasn’t doing before.

Fact is that Enel and Abitibi developed Star Lake in the 1990s in response to a request for proposals issued by Newfoundland and Labrador Hydro. The provincial government’s electricity producer wanted to add some new renewable energy to its island supply that would help reduce the need for thermal generated stuff at Holyrood.

And that’s what Star Lake did.  It wasn’t supplying power to the Abitibi mill at Grand Falls-Windsor, as Abitibi’s other hydro generators did. Star Lake made the light bulbs glow in homes on the island.

Now, NL Hydro bought the power from Star Lake and turned around and sold it to Newfoundland Power who in urn retailed it to consumers.  Skinner put the annual cost of the power from Star Lake at $10 or $11 million annually.

Nalcor tried to buy Star Lake – as it turned out – before the expropriation but Abitibi apparently rebuffed the offer.  They preferred to sell the whole affair to Enel, their partner at the time.

In the end, Nalcor got Star Lake.  The cost came in at around $73 million on a facility that cost about $50 million to build.  Skinner says it was $60 million.  Okay.  Tomato.  Tomato.

What’s interesting here is not that the lovely people of the island now have electricity, it is the financials of the whole thing.  Follow that link right there  - LINK – and you will see a couple of curious things.

In early 2009, Danny Williams pretty well blew away any idea that the island needed power from some expensive project in Labrador as a result of the Vale smelter in Long Harbour.  As the Telegram reported:

Williams explained that the province didn't need the power from the Exploits River in order to accommodate the Long Harbour plant. He said 70 megawatts were freed up when the Stephenville paper mill closed, and an additional 54 megawatts of wind power has also been added to the grid.

Williams also said that:

the most important fact is that the province, through Nalcor Energy, a Crown corporation, will take full control of the power at the end of March. [emphasis added]

Why is that important, you ask?

Well, it has to do with those power purchase arrangements.  you see, Skinner mentioned those on Wednesday as a way of saying that the $73 million for Star Lake meant the provincial energy company wouldn’t have to pay that money out any longer.

True enough.

But how, asked Yvonne Jones, would Nalcor recover the cost of the settlement?

Why silly thing, by selling power to the lovely ratepayers of the island, sez Shawn:

We are going to be selling electricity into the provincial grid. That was the point I was trying to make. I apologize if I did not make it clearly enough for the Opposition House Leader. We are selling electricity into the provincial grid. The Public Utilities Board sets a price and the people who receive the electricity pay the price, Mr. Speaker.

Hands up anyone who has seen Nalcor head to the public utilities board to lower electricity rates now that they won’t have to shell out that $10 million annually.  Of course they haven’t and one would be exceedingly naive to expect them to do it.

By having a near total monopoly on electricity production in the province, Nalcor can now pocket the $10 million annually it used to pass along to Enel along with whatever margin it took on top.  Nice windfall.

In fact, if the loan is the only thing they are directly liable for and it is for a 25 year term, the actual annual cost to Nalcor is a trifling sum.  They are basically pocketing a gigantic profit on every megawatt from Star Lake they have generated since December 2008.

Not bad, eh?

Nalcor’s bottom line is that much fatter courtesy of the good people of the Happy province. People are already used to paying the higher rates so Nalcor can just keep on making them pay rather than pass any savings that Skinner was talking about on to consumers.  he was crowing about bigger profits for Nalcor, not a brighter future for the ratepayers of the island.

And when Muskrat does come along in 2017, well the same ratepayers keep on footing the bills for the government monopoly:  Nalcor’s entire plan for Muskrat Falls is based on profitability from provincial ratepayers alone.

Just like at Star Lake.

- srbp -

Province settles expropriation with Enel, Sun Life and others

Compensating a group of companies involved in the Star Lake affected by the Abitibi expropriation will wind up costing the taxpayers of this province more than the original project cost to build a decade ago.

Natural resources minister Shawn Skinner announced on Monday that provincial government will pay $32.8 million to Enel while Nalcor will assume responsibility for a $40 million loan from Sun Life and other companies.

That’s $72.8 million for a project that originally cost $51 million to build in 1998 according to Enel’s website:

The Star Lake Hydroelectric Project is an 18 MW remotely operated hydroelectric facility with a 173 million cubic meter capacity storage reservoir. The project provides electricity to Newfoundland’s integrated grid, which is sold to Newfoundland & Labrador Hydro.

Construction of Star Lake began in May 1997 and was completed in October 1998 for a total cost of $51 million (CAN).

From the earliest stages of the project, environmental considerations were considered in its development and have been instrumental in the technical design. The facility was conceived using environmentally friendly materials and equipment such as biodegradable hydraulic oil for its intake gate system and an oil-free hydrostatic bearing for the turbine unit. An underground penstock was also designed and implemented in order to avoid obstructing migration routes of the Buchans Plateau caribou herd.

An artificial brook trout incubation and rearing facility is also onsite. It is designed to produce up to 100,000 fingerlings (young fish). These fingerlings are intended for annual introduction to Star Lake to ensure that the lake's brook trout population is maintained.

Skinner is quoted in the news release as saying that this is a “a fair settlement and the most appropriate action for the province to take.”

The provincial government is still in talks with Fortis on compensation for that company on another project affected by the 2008 expropriation bill.

Nalcor has already assumed responsibility for a $59 million loan related to Fortis’ former hydro interests.

- srbp -

Fortis and Enel getting special treatment from Williams gov under expropriation bill

At least two of companies whose long-term power purchase agreements were ripped up under the December 2008 expropriation bill will still get all their cash under long-term power purchase arrangements, according to natural resources minister Kathy Dunderdale.

Abitibi is not included in the arrangements, apparently.

Dunderdale told the House of Assembly on Thursday that:

…we made a commitment to both of those companies [Fortis and ENEL] that regardless of what happened with Abitibi, at the end of this process we would ensure that they were kept whole, that they were properly compensated for fair market value for the assets. The PPAs that they have with Abitibi would also be honoured, Mr. Speaker.

Dunderdale said that the provincial government’s energy corporation  - NALCOR  - is still discussing arrangements with the two companies. The power purchase arrangements date from 1997 and 2001. The exact duration is currently unknown to your humble e-scribbler but would typically be in the range of 20 to 30 years.

ENEL partnered with Abitibi on the Star Lake project to supply electricity to Newfoundland and Labrador Hydro. Bill 75 seized all the generating and transmission assets of the Star Lake partnership and revoked all the agreement related to it, as listed at Annex E of Bill 75. 

Dunderdale made no reference to the other companies also affected by the seizure:

• Clarica
• Sun Life Assurance
• Mutual Life Assurance
• Standard Life Assurance, and
• Industrial Life Assurance.

Fortis – the other company Dunderdale discussed – was a partner in the Exploits Hydro Partnership.  Under a long-term power-purchase agreement, Exploits partnership sold power to Newfoundland and Labrador Hydro.

Dunderdale also admitted what Bond Papers readers already knew:  the provincial government is paying for a long-term loan for the Exploits partnership.  The outstanding balance on the loan is $59 million.  The provincial government paid the 2009 instalment.

The hydro-electric assets are likely the only ones seized in 2008 that could generate any reliable revenue to offset the costs of environmental clean-up at former Abitibi sites in the province.  Payment of loans and royalties to the companies other than Abitibi as if the expropriation never happened would significantly reduce any revenue NALCOR could gain from the assets.

Dunderdale’s admission today could also further undermine any legal cases the provincial government is pursuing.  One of the problems government faced in recent Quebec court decisions on the Abitibi bankruptcy protection proceedings is that its environmental clean-up actions appeared to be aimed solely at Abitibi and were not part of the routine administration of provincial environmental laws.

Dunderdale’s admission makes it pretty clear that the government is treating some of the companies affected by the expropriation very differently from Abitibi.

Colouring the expropriation as aimed solely against Abitibi could also colour the move and undermine any defence of Abitibi’s NAFTA challenge.

-srbp-

Williams lends credence to other expropriation theory

The Premier may have been trying to deflect one set of questions about the expropriation of AbitibiBowater’s hydroelectric assets when he told reporters:

Williams explained that the province didn't need the power from the Exploits River in order to accommodate the Long Harbour plant. He said 70 megawatts were freed up when the Stephenville paper mill closed, and an additional 54 megawatts of wind power has also been added to the grid.

In the process, though he just leaves hanging the question of why he bothered to expropriate the hydro assets in the first place including Star Lake, a site that wasn’t feeding power to the ABH paper mill at Grand Falls.

If NALCO didn’t need the assets and the assets weren’t going anywhere and the only thing they could do is generate electricity, why exactly was the provincial government in such a rush to seize them?

Failed Star Lake bid?

Eliminating any potential competition – guaranteeing NALCO’s monopoly position - seems to be the prime motivating factor. As the Telegram renders the Premier’s comments,

he said the most important fact is that the province, through Nalcor Energy, a Crown corporation, will take full control of the power at the end of March. [Emphasis added]

No details update:  Premier Danny Williams will confirm that NALCO tried to buy a portion of Star Lake but he won’t give any more details.

So if they didn’t need the power – as the Premier said in another interview - why try and buy in? According to the Premier, it was to bring “provincial ownership of the resource.” 

Odd statement that since the Premier knew that legally the provincial government owned the resource already. Al the Star Lake partnership had was a set of water rights leases and agreements.

Forget the conspiracy theories.  This is looking more and more like a case of “Why buy when you can seize?”

-srbp-