PlanetNL12:
18 c/KWh – Warning – Not Exactly as Advertised
The last day of NL Hydro witness testimony at the General Rate
Application hearings at the Public Utilities Board revealed a cruel and
regressive plot twist.
A senior NL Hydro manager on the witness stand indicated that
Government’s post-Muskrat mitigated rate target of 18 c/KWh was merely an average figure. He said Hydro was already considering a rate
design scheme that would be presented to the PUB in the coming months based on two-tier
declining rates. In other words, the
first part of energy used will cost more than 18 c/KWh but the rest will be priced
lower. When all residential users are
added up together, the increase will average out to a 55% over today’s rate.
We won’t know Hydro’s exact details for a while, but a model
is presented here that plainly shows not everyone will be hit equally. A substantial number will be hit hard while a
small number barely take a hit at all.
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What follows is an analysis for residential rates only. Commercial energy rates will presumably be
modified to implement essentially the same system – business owners and
managers will have to use their imagination to think how badly it affects them. The industrial user group, which consists
mainly of Vale’s Long Harbour facility and the Come By Chance refinery, is
expected to be given a get-out-of-Muskrat-free pass by Government.
Predicted
Rates in a Two-Tier System
Without turning this post into a complex lesson in algebra, let’s
get some realistic numbers into play. The
base energy is likely to be set at a rate of 22 c/KWh. This first energy block is likely to be 1000
KWh per 30-day billing period. The
second block is simply any electricity used above 1000 KWh per month and it
will be priced far lower: 9 c/KWh is a probable rate.
The idea of a declining rate design is to recover the Muskrat
cost and other Hydro operating overheads in first block revenue and then the
second block is streamlined down to the essential cost of generation and distribution.
In a very narrow sense, without looking
at the broader impacts of this rate design approach, the declining rate scheme
is actually a technically astute fit to the incredibly high fixed cost
structure Hydro must deal with.
Admiration can be only be deserved, however, if we look at the
impacts and like what we see. Most of us
are going to be outraged at what Premier Dwight Ball and Nalcor CEO Stan
Marshall have been keeping secret for quite some time. The tyranny of mega-project madness,
deploying huge amounts of public capital to benefit the few at the expense of
the many, is clearly continued in this rate design scheme.
Expected Impact
on Three Example Home Types
For the main part of the market, customers with electric heat
in small to average-size housing, the average rate paid in the two-tier system
will work out close to the intended average of 18 c/KWh, a 55% increase over
today’s rate of 11.4 c/KWh. This is
after all, what Premier Dwight Ball promised us when he put forward his big lie
about the Maritime average rate being 18 c/KWh: we busted that here on July 30
by demonstrating that the accurate figure is 12 c/KWh, very close to today’s
local rate.
At the low end of monthly consumption are non-electric-heat customers
who may have wood or oil heating and can steadily get by on under 1000 KWh per
month. They will never benefit from the
low second-block power rate: they will always pay 22 c/KWh, an increase of 90%
from today’s rate. Stan Marshall did
tell us all a number of 22 c/KWh was to be expected, although it wasn’t meant
in the context we now understand it today.
At the high end of electricity consumption, are the super-size
electric-heated homes. For a home that
uses double the power of the average electric-heat customer, they would predominantly
use low-price second block energy. The resulting average cost would be just 13
c/KWh or only 15% over today’s rate.
Dwight and Stan surely didn’t want this broadcast widely.
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Related to this Post:
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Annual Cost
Impacts
A quick look at the dollars demanded from these example household
categories will further illuminate who the biggest losers are, if not already
clear. For our purposes here, we’ll set
aside any possible changes in energy consumption and we’ll exclude the service
fee and HST.
The annual energy charge of a typical non-electric homestead
using 9500 KWh at 11.4 c/KWh is presently $1083. Under the two-tier scheme, their costs will
rise to $2090 per year, an increase of $1007. Under a simple rate of 18 c/KWh, their cost
would have been $1710: the declining rate scheme stings this ratepayer by an
extra $380.
For a modest electric heated home using 19,000 KWh per year,
energy cost would be $2166. Whether at a
simple 18 c/KWh or via the two-tier scheme, this customer’s cost will be $3420,
an increase of $1254. Both rate schemes
are equally unwelcome.
The above two example types represent the many. Let’s turn to the few.
A large home consuming 38,000 KWh annually presently has an
energy bill of $4332. Government’s two-tier
rate will increase this to $4980, an increase of $648. On the simple 18 c/KWh rate we thought Dwight
and Stan were promoting, the annual cost would be $6840. This homeowner type benefits greatly from the
declining rate scheme.
While a lot of people must cope with increases of over 50% and
some over 90%, the cozy cats in the big houses will be hit by only about 15%.
Paying
for Muskrat By the KWh
The huge rate increases are all about trying to pay off Government’s
unwise boondoggle brought on by Dwight and Stan’s predecessors: the project
Government and Nalcor refused to seek ratepayer authorization for at the PUB. Now Government, under different leadership, seems
equally hellbent on rushing to pin the cost on ratepayers. Muskrat costs are not supposed to recovered
until the facilities are 100% complete and in-service yet they’ve had Hydro try
twice this year to commence collecting increased rates 2 years ahead of
schedule.
Government has also silently refused the recommendation made
on this blogsite on Aug.6 to have the PUB properly review the cost of service
based on finding the true least cost available alternative to Muskrat. They know it would almost certainly exclude
most of Muskrat’s cost from recovery through rates. The resulting fair and stable rates of such a
review are not on the leadership’s agenda.
Lacking all that, you might still think these esteemed leaders
would at least have a shred of decency to try to distribute the pain equally or
perhaps even bias it a little toward those who use the most electricity but sadly,
Dwight and Stan’s plan is just the cold-blooded opposite.
The non-electric customer example must incur an increase of
$1007 to pay for Muskrat. On their 9500
KWh they are paying a hefty 10.6 c/KWh penalty.
Remember that was the entire rate for electricity about a year ago
including Holyrood! This upcharge is completely
absurd considering this customer type in no way contributed to any demand for the
creation of Muskrat. In fact, if
everyone had the same consistent month to month energy usage as this group, not
only would Muskrat not exist but Holyrood could’ve been scrapped with a better,
far environmentally cleaner, far cheaper emergency backup power system decades
ago.
The modest electric-heat customer while using double the
energy at 19,000 KWh will incur only a little more Muskrat payback in total
dollars at $1254. Averaged out into
their total energy usage, their Muskrat penalty is 6.6 c/KWh, a full 4 cents
lower than the non-electric group. The
electric heat users are the main group that kept Holyrood in service for winter
power needs. By the Government’s logic,
these are the people largely responsible for Muskrat. For them to have less responsibility seems
wrong – something odd and perverse is at work here.
The large home example though takes the cake. Their share of Muskrat cost is only
$648. On their 38,000 KWh, this works
out to a mere Muskrat fee of 1.7 c/KWh.
If the ordinary electric-heat crowd seemed to get off a little lightly
then large homeowners can start popping champagne to celebrate their luck at almost
completely avoiding the much-feared rate hike.
In fact, as their marginal cost of consuming more power is just 9 c/KWh
– the closest today is Quebec’s 9.12 c/KWh which might well the – they might as well put in that heated
driveway they’ve been longing for while the rest of us cry into our empty
wallets. 
Next Post – Why Your Government is Doing This
Next time up we’ll explain why Dwight and Stan love their
little secret rate plan and why there is no disputing that is has been their
plan for some time, probably since they took office. For their ability to string this one along so
quietly all this time, who could argue they are proving to be as great at their
jobs as their predecessors – as instruments of societal destruction.