ELECTRICITY RATES: AN INDUSTRIAL-SIZED MESS

It is rare
that anyone expresses concern over how electricity cost increases affect
industrial concerns, like Vale, Corner Brook Pulp and Paper or the Come By
Chance Refinery. 

They possess
the financial, technical, legal, and political heft to lobby Governments, seek
recourse before agencies like the Public Utilities Board and, if necessary, the
Courts.  The public rarely takes notice except
when a company’s pending demise becomes front page news.

These days the
Province is pretty cocky about its over-hyped economy. The Unions will only
sulk when the jobs are gone.

Enlightened
public policy will not disassociate the interests of industry from the public
interest.

While this
Province has long offered subsidies to the sector, this scribe is not fond of schemes
that download operating costs to taxpayers and shift high capital costs and risk
to their sponsor, the Government. That issue may be worth debating another day.

Still, such
incentives are a feature of developed and developing economies alike; they are
not likely to disappear.

Vale is the
latest recipient of the “Industrial Rate”; the Company was guaranteed 700 GWh
of energy at 8 cents per KWh, a rate lower than most other industrial customers.  There was no mention of that part of the deal
when Premier Williams announced Vale would set up ‘shop’ in Long Harbour.  But that too, is another story.

The
disappearance of pulp and paper mills in Stephenville and Grand Falls to the
digital age and to international, especially Asian, competition is not just a
jolt to those seeking “tidy” public policies. 
It is a reminder that NL is as much a part of the global marketplace as any
other. 

The
realities of competition suggest no market, least of all one that suffers the constraints
of remoteness, labour shortages, demographic and other challenges, can afford
to be apathetic.   
Our
declining competitiveness is reflected in the actions of oil industry players
building production platforms, like Hebron. 
Oil companies are using every lever available in their development agreements
to shift the construction of major components to lower cost, less labour
challenged towns.

For that
reason, too, we ought to be alarmed when we lose control of vital input costs,
such as electricity, which damages the viability of the industry we will need
long term.


Last week,
“JM” the anonymous Muskrat Falls critic who submitted a major work to the PUB,
during Nalcor’s DG-2 stage application, published a new research paper.  An Estimate of Electricity Prices in Newfoundland Post Muskrat Falls describes how that project’s cost overruns and other capital expenditures will affect the power
rates of residential users.

JM concluded
that the known cost overruns and other capital improvements such as the 3rd
line from Bay d’Espoir to the Avalon Penninsula, the 3rd line to
Labrador West, the addition of a 100 MW generator at Holyrood and a plethora of
other items, will impact residential electricity rates by 85% over the period 2011-2018.  (See Exhibit from JM’s Research Paper below).

It was his
suggestion that I note the implications of these same cost pressures for industrial
users.


If you think
the industrial customers are unconcerned you would be mistaken.  Their solicitors have already sounded the
alarm before the PUB.  This is an excerpt
from their industrial customer’s Submission regarding NL Hydro’s 2014 Capital Budget:

The Island Industrial Customers have
in past Capital Budget Applications (including the 2013Capital Budget
Application) taken great exception to the growing nature of Hydro’s capital
expenditure demands. The 2014 capital budget of $98.7 million…does not include
the proposed 2014 capital expenditures for the Bay d’Espoir to Western Holyrood
Avalon 230 KV transmission line addition ($6.37 million) and the new combustion
turbine at Holyrood ($46.4 million)…”   

“…the total amount of that
expenditure, $151.7 million, represents an over 100% increase in capital
expenditures compared to the average annual expenditure ($73.1 million) in the
previous 4 years (2009-2013). Planned capital expenditure levels for the next 4
years (2015-2018) will stay near to or exceed this extraordinarily high level,
in many respects to extend the life of infrastructure which will be… redundant,
or at least questionable …. The Island Industrial Customers… have highlighted
this very worrying escalation in Hydro’s capital expenditure – escalation
that Hydro has exhibited no tangible effort to mitigate or moderate
.”(emphasis
added)

While some
will see these comments as mere griping by the greedy, more sensible people
will note the remarks as a “clarion call”, to use JM’s phrase, for a more
rational and affordable energy plan than the 50 year boondoggle that is Muskrat.

The problem
for individual ratepayers, as much as for industrial customers is that the
escalating capital costs associated with that public policy choice have barely
begun. 
Even at 8
cents per KWh, Nalcor will be charging our job creating industrial customer’s a
rate that will be:
      
             1)   higher
than the rate it will charge Emera for so-called surplus or loose juice              
                   (guaranteeing
lower input costs to Nova Scotian industry at NL’s expense);
       2)   higher than the rate per KWh charged mining companies
in Labrador; secondary        

              industries normally receive that advantage.

Nalcor has made a mess of industrial policy:


In short, electricity, a critical input, will become far too expensive. 


It has given
Nova Scotia industry an edge that ought to be available here.

It has even created
a two tier industrial rate.  

In addition, the impact of
the preferred ‘industrial’ rate, as JM has noted, will increase ‘residential’
rates by 5% above the amount Nalcor has stated.

This is the result of an energy plan founded upon Nalcor’s unfettered overconfidence.  Then, too, it reflects a complete lack of
public engagement on the pricing issue.

Nalcor has
attempted to bully Grand River Keepers and Danny Dumaresque, over their
intervention to the PUB.  The two want to
raise the huge risks inherent in the Nalcor Muskrat Falls plan, especially the
Labrador Island Link which will have to survive Alpine conditions and, the “quick
clay” stability problems at the North Spur. 
But, Nalcor will not be able to bully the industrial customers.

They will be
fighting for lower rates or special deals. Like residential customers, they will exhibit increased frustration over the dramatic impacts of the Government’s energy plan.

If Nalcor holds
down the industrial rate at 8 cents per KWh, residential rates will go up even more;
someone has to pay. 

The only joy will be
watching the Liberals and NDP squirm as they justify their support of the
Project. But, that won’t be worth much.
Even at 8 cents per KWh, this Province will have one of the highest industrial
customer rates in North America, to match one of the highest residential rates,
too!

It’s too bad
so many fell in love with Danny Williams’ energy plan.  But one thing is certain: we are all going to pay for it. 



*********************************************
MUSKRAT MADNESS by Cabot Martin
Available at Afterwords Bookstore, 245 Duckworth Street, or
Online: www.muskratmadness.ca

Des Sullivan
Des Sullivan
St. John's, Newfoundland and Labrador, Canada Uncle Gnarley is hosted by Des Sullivan, of St. John's. He is a businessman engaged over three decades in real estate management and development companies and in retail. He is currently a Director of Dorset Investments Limited and Donovan Holdings Limited. During his early career he served as Executive Assistant to Premier's Frank D. Moores (1975-1979) and Brian Peckford (1979-1985). He also served as a Part-Time Board Member on the Canada-Newfoundland Labrador Offshore Petroleum Board (C-NLOPB). Uncle Gnarley appears on the masthead representing serious and unambiguous positions on NL politics and public policy. Uncle Gnarley is a fiscal conservative possessing distinctly liberal values and a non-partisan persusasion. Those values and opinions underlie this writer's views on NL's politics, economy and society. Uncle Gnarley publishes Monday mornings and more often when events warrant.

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2 COMMENTS

  1. I read your articles weekly and I too share the same degree of concern that you have expressed on this issue. Having read the attached, I would like to suggest that you might attempt to have the Telegram print this article so as to reach out to an increased audiance. The figues as stated need to be more widely shown to the people of this province. The people on fixed income and lower income need to fully appreciate the impact this will have on their lives. And I might add, Dwight Ball needs to publicly state his position on this feasico. I believe that if the average person were more aware of the impact Muskrat Falls will have on thier lives, more would come forward to try and stop this madness and rid us of the current Nalcor management team.

    For your consideration..