The Muskrat Falls Concerned Citizens’ Coalition, headed by David Vardy, Ron Penney and Des Sullivan (the latter also hosts this Blog) wrote the Premier on September 3, 2018 seeking specific commitments and clarity following his statements to the effect that ratepayers would not be expected to bear the costs of the Muskrat Falls project and offered to reinstate the authority of the PUB to set rates.
Following receipt of the letter, the Premier made a further statement on September 6 which fell far short of his earlier commitments. This is the text of the Coalition’s response to the Premier’s latest comments. This post also provides a link to the full text of the letter sent to the Premier.
In our letter to the Premier, which is attached, we asked government to seek alternatives to the Power Purchase Agreement (PPA) and to task the PUB with finding the best way to establish rates in an interconnected world to enable consumers in our province, large and small, to participate in competitive markets within and outside the province and buy energy at the lowest cost. To accomplish this government needs to remove the exemptions which kept the PUB from exercising regulatory oversight over Muskrat Falls.
We also called upon government to repeal the 2012 legislative amendments which enhanced the monopoly position of Nalcor and which removed the independence of the PUB, giving Cabinet the right to set the return on equity and thereby effectively to set rates. As a result of these amendments Cabinet can also tell the PUB whether they may convene a hearing or not. These amendments were passed at a time when the previous government was venting its petulant anger at the PUB for its defiant advice that the Board could not recommend Muskrat Falls as the least cost source of power.
The Premier made no reference to reversing these regressive measures taken by previous governments, after almost three years in power. Nor did he clarify the position which he will be taking with the federal government to seek further financial support. We had proposed that government “prepare a strong case for further support and present it transparently both to Ottawa and to the people of the province. We ask that government make public, before January 1, 2019, a proposal for presentation to the federal government to relieve the province and its citizens from all or most of the obligation to service the cost of federally guaranteed debt and to share in financing of equity, possibly by purchasing up to 49% of the common equity in the project as was envisaged under the LCDC Agreement.” Instead the latest announcement made no reference to the further involvement of the federal government.
The Premier did accept our proposal for a reference to the PUB but did not give the Board the mandate which we saw as necessary. Our proposal asked that the PUB be given the following mandate through a special reference which allows them to consult with all stakeholders, including ratepayers, and to report back to government:
To ensure that future power rates reflect only least cost power and not be required to recover the
cost of Muskrat Falls through a take-or-pay Power Purchase Agreement;
To recommend rates which will be affordable;
To recommend a framework whereby Muskrat Falls power can be made available at competitive
rates even if it results in failure to recover the project’s costs;
To advise on changes in the PUB’s legislative mandate to allow the Board the discretion to set
rates based either on wholesale market prices or traditional cost of service, maintaining its authority to keep imprudent costs out of the regulated rate base.
To advise as to whether Nalcor’s electricity assets other than the Churchill Falls plant, should be transferred to a fully regulated NL Hydro.
The PUB should be asked to consider the proposal advanced by Dr. James Feehan in December 2016 and appropriately entitled: “Connecting to the North Atlantic Grid: Time for Newfoundland to Discontinue Inefficient Price Regulation” (Canadian Public Policy, December 2016). Under Dr. Feehan’s proposal Island customers will pay rates that are low and stable yet based on wholesale rates established in competitive markets.
In summary, on August 22 and 30 the Premier gave a categorical assurance that the costs of Muskrat Falls would not be recovered through rates, inferring that the PPA will be shredded. The latest announcement is not consistent with what the Premier said last week.
Now we are back at “mitigating” from sources such as the sale of export power which can produce only a fraction of what is required to keep rates affordable.
This is a far cry from what we asked of government. We asked that they present a plan for further federal support following up on the reference made by the Premier in his earlier statements.
We asked for the 2012 amendments to be overturned, including those which undermine the independence of the PUB. We asked for the exemption orders to be repealed.
We asked that the PUB be free to ensure that rates are based on least cost power, including lower cost power from outside the province. We asked for open access and competition so that our rates can be linked with Maritime/New England rates as Dr. Feehan had suggested. Dr. Feehan has shown that because of demand elasticity a dramatic rate increase will lead to the collapse of demand for Muskrat Falls power and likely a reduction in revenue from rates so the issue of demand elasticity must be considered by the PUB in their assessment of market demand.
The Premier’s statement is a retreat from Ball’s earlier statements confirming rate stability and delays any decisions on rates until 2020. It does not resolve the uncertainty surrounding rates nor does it discourage unnecessary investments in alternatives to electric baseboard heating such as heat pumps. Our problem is not so much with what is included in the mandate for the PUB Reference but rather with what is left out.
We now call upon government to take the next step and announce that the authority of the PUB will be reinstated and that the 2012 legislative amendments be repealed. We ask as well that the Premier reaffirm as government policy that the imprudent costs of Muskrat Falls will not be recovered from ratepayers either through the PPA or in any other way.