When the "expert witness" for Newfoundland Power
gave testimony to the PUB on April 4, 2016, in support of Newfoundland Power's
(NP) General Rate Application, one part of the evidence was disturbing in its
clarity. NP is seeking a rate increase with effect from July 1, 2016 of 3.1%.
If granted, the increase will up NP's return on equity to 9.5%.
This piece will not deal with whether NP's Application is
reasonable in its entirety. Of interest, here, is the Utility's claim to a risk
premium and its rationale justifying the higher return. Roughly a third (0.9%)
of the proposed 3.1% relates to this demand.
Readers may recall that prior to Muskrat Falls sanction
some people, including this Blogger, suggested the Province's electrical
distributor should weigh in on the debate over Muskrat. Newfoundland Power
stayed mum. But since DARKNL, NP has expressed a flood of concern, and with an
urgency larger even than a Spring freshet on the Lower Churchill.
The Company has belatedly discovered that its financial
interests are threatened by Muskrat Falls. Newfoundland Power decided to join
members of the 2041 Group and others, to support a request for an expanded
Terms of Reference of the PUB's Inquiry into the cause of DARKNL.
At issue, among other things, is reliability
and security of the electrical supply from Muskrat Falls, recognizing that
Nalcor proposes to shut down the Holyrood generation capability, and that the
Labrador power will be delivered over an 1100 KM. transmission line.
Said NP in its Submission: "the eastern part of the
system (the North East Avalon) is also the location of the largest and fastest
growing loads. Following the commissioning of the Labrador in-feed....it is not
clear how long-term reliability and security of power supply will be maintained
at that time".
There is the matter of "technical uncertainty"
and NP has invoked the problem of rural population decline, too. But
Newfoundland Power has another concern; something called "demand
compression".
The Utility expects that the high cost of Muskrat power
will reduce electricity sales and thereby increase the Company's capital risk.
Low electricity consumption will reduce NP's revenues and profitability. The
Company wants to be compensated for that higher risk and it wants that
compensation to start July 1st.
NP acknowledges there is only one source of revenue.
Compared with populous Ontario, which refurbished the Darlington Nuclear Plant
at an enormous cost, this Province has only 300,000 ratepayers to shoulder the
$9.05 billion financial burden of Muskrat Falls.
While the assertions are self-serving for NP, the Company
is a credible entity and offers, at least, the value of perspective; whether
one agrees with it or not.
The following is from pp. 18-20 of the PUB transcript wherein Mr. Ian Kelly, representing the PUB, is examining Mr.
James Coyne V-P Concentric Energy Advisors; a Consultancy. He is an
"expert witness" representing NP.
You might note that the cost and risk which the
"expert witness" describes is actually your cost and your risk, too,
as ratepayers. Don't race past the top of page 20. You won't want to miss a
word:
Muskrat Falls represents "360 percent of the rate base
of Newfoundland Power and NL Hydro combined (currently $2.5
billion)......" (the "rate
base" is the value of the assets on which the utility is permitted a rate
of return, prescribed by the PUB, as the regulator).
Then there are the comments of Mr. Coyne: "...four to
five times differential in its relative impact on customers....no other North
American utility exposed to this level of risk....Nalcor projects over 50
percent price increase..."
If only the NP's parent, Fortis Inc. and its former
CEO, Stan Marshall, had had the balls to speak up when his customers needed him
to do that, prior to sanction.
I suggest, in consequence of not having the balls, the PUB
should deny NP the part of the increase attributable to its claim to enhanced
risk.
Companies need to understand, while their first
responsibility is to shareholders, the interests of customers should not be
ignored in that pursuit. Besides, in this case, NP badly miscalculated in not
recognizing that the "shareholder" and "ratepayer"
interests are perfectly aligned.
Such a lack of good judgment does not warrant reward.
While we thank NP for belatedly confirming what others
tried hard to get them to acknowledge about the Muskrat Falls project, long
ago, the PUB needs to remind the Utility that screwing up has its costs.
Newfoundland ratepayers will pay dearly for Muskrat Falls.
That is a certainty.
But they should not have to pay for the same error twice!
