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Monday 14 July 2014


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. 

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