Friday, 27 September 2013

HOW THE PREMIER DAMAGES HER CREDIBILITY (Part II)

Premier Kathy Dunderdale
Verbatim Transcript from media ‘scrum’
Corner Brook, September 12, 2013 

“….I was at a Conference in Quebec this weekend for two days with the six New England Governors who talked about energy development…..particularly in Newfoundland and Labrador…they’re saying develop, develop, develop, Governor Shulman is saying if you got the juice we got the use so here are the people who are buying Canadian electricity saying to Canadian Premiers develop, develop, develop because we got the markets….we have just had six Governors purchase power for their states…they are talking specifically about Muskrat Falls, specifically about Gull and how that power needed to be developed and they had a use for the power in New England….the Governors are saying there’s a market, we’ve been saying there’s a market for a long time…”
Comment:
There may be a market, in New England, for electricity.   But, is development of the power commercially viable?  Is this Province prepared to expose itself to the construction risk and willing to heavily subsidize the cost of the power, as we are doing with Muskrat?  That, I believe, is exactly what the Premier is counselling.
Hopefully, you will draw your own conclusion, having read critical information the Premier failed to share.  Let’s start with a couple of basic facts. 

Note the name "ISO New England".  This is a non-profit regional electricity transmission organization that oversees “the day-to-day reliable operation of New England's bulk power generation and transmission system (i.e. wholesale electricity markets)…” It publishes updates including forecasts for electrical demand, prices and other information on an on-going basis, for its own market.

ISO New England serves all the New England States.  Its Web Site states: “…the wholesale electricity market establishes a price for… electricity by matching supply and demand.…”  .  It does this on a three year forward basis. 

What else should you now?  Muskrat Falls power will cost 21.4 cents per KWh for generation + 14.7 cents per KWh for transmission to Soldier's Pond, a total of 36.1 cents per KWh  (based upon DG-2 estimates); we know that costs increased in the DG-3 Estimate and there is still the matter of  cost-overruns.  The Government will subsidize those costs, in the early years of production and increase them year over year, so as not to give you “rate shock”. Only Nalcor knows the incremental cost of Muskrat Falls  energy as the DG3 data has never been made public.  The cost of Muskrat power, just cited, may even go up further depending upon the final deal with Emera.

Against this backdrop, this is the information that the Premier failed to share, with the Media, in Corner Brook:

1.      Given ISO New England’s mandate to match “supply and demand”, the laws of this proposition dictate that the availability of more produced power will favor the buyer of the electricity, not the seller.  The “market” could care less about the cost of production, so more electricity will only drive export prices down.

 

2.      The ISO New England organization released a Study last month stating that investments in energy efficiency will allow New England to use the same amount of electricity in 2021 that it needed in 2012. That's an 8 year forecast of no growth!   Note the Black line in the Graphic below.

 
Source: ISO NEW ENGLAND

3.        In New England, the average price of wholesale elecrtic energy fell 23% in 2012, from $46.68 per megawatt-hour (MWh) in 2011 to $36.09/MWh last year (that’s 3.6 cents per KWh). Further, the 2012 price was almost 26% lower than the average price of $48.59/MWh (or 4.86 cents/KWh) set in 2003, the year that competitive markets, in their current form, were introduced in New England.

 
4.      A CIBC Report on Emera’s recent purchase of three New England natural gas powered generation facilities noted: “(t)he New England power market has been under pressure since 2009 given low demand and weak pricing…the outlook calls for only modest improvements. Furthermore, capacity pricing has been at floor levels and could go lower if the capacity floor price is eliminated, as expected.” (see chart on CIBC story)

 

5.      For the purpose of providing an `out-of-New England` comparison, an Article on the ”New Currents Blog” notes a New York Report,  that energy prices have been the “lowest” since the competitive market began 12 years ago. One of the reasons cited is natural gas pricing and also "cheap imports from Ontario and Quebec``. The average wholesale price, to New York, in 2012 was 4.3 cents per KWh.

 

6.      Ontario has so much power available that it has been “paying” Quebec and the American states to “alleviate” the system. A CTV News story states “In total, $62 million was paid to the Bruce plant this year to suppress electricity production.”


7.      In 2011 Quebec’s revenue, from exported power, equalled 5.227 cents per KWh; in 2012 it was 4.1 cents per KWh.

 

8.      The Star news article noted that "As Quebec Bathes in Electricity Money goes down the drain".  The Paper noted recently that Hydro Quebec, in 2011, had surplus power equal to 7.7 TWh (enough to power 77 billion 100 watt light bulbs per hour); presently it is constructing a 1550 Megawatt power plant on the Romaine River.  It has closed a $500 million B├ęcancour co-generation facility and is expected to be in surplus until at least 2023; critics charge that it is irresponsible for HQ to develop more power.

 

9.      Vermont, in a contract that began in November 2012, Hydro Quebec will be paid "about 6 cents per KWh" for 225 Megawatts. The contract will run to 2038. 
 

10.  The New England Grid System is regulated under the U.S. Federal Energy Regulatory Commission (FERC) which requires adherence to a reciprocal “Open” grid by sellers into the U.S. market.  Legislation, passed by the Dunderdale Government last year, specifically Bill 61, closed the NL market to electricity imports placing this Province in non-compliance with FERC rules.

 

11.  Even if Newfoundland received the same price for its electricity as Hydro Quebec contracted with Vermont it still would not be a “net” price.  Emera agreements stipulate that Nalcor must pay Emera to wheel the power from the Nova Scotia border into the U.S. This cost works out to be about 1 cent per kwh.  Remember, Nalcor must sell to Emera (at NS border), at ISO New England market rates minus the transmission costs. So in the example above, if Power is selling for 5 cents in New England, we will only get 4 cents, even if they sell it in Nova Scotia. Emera can get the power it wants at less than market rates (ISO New England minus transmission costs), and anything they don’t want they can collect a fee from Nalcor.... Emera can also shift a percentage of the over-runs, on the Maritime Link, over to us, too!!!

When NL will receive 3.5 cents to 4 cents per KWh for power, a mere fraction of current development and transmission costs, why is the Premier telling us we need to “develop, develop, develop”?  What is her motive? What is the wisdom of developing more electricity NL taxpayers will have to heavily subsidize for a market already characterized by cut throat pricing, declining consumption and existing “cheap” Canadian power from Ontario and Quebec?

The Research cited is in the public domain and it is plentiful.  It is as available to the Premier and her Administration, and to Nalcor, just as it is to you and me.

Why would the Premier advocate 'investments' that are ruinous to the Province`s finances, investments which make no sense in any real world context, that ordinary folk would write off as 'crazy' ? I don't know.

But, I am certain that when Kathy Dunderdale takes such a hatchet to her own credibility, it is not hard to understand that its impact reflects heavily on the scale of her popularity.