RATE MITIGATION: FUREY'S DECEPTION

As much as Premier Furey proclaimed, alongside PM Trudeau, that Newfoundland and Labrador negotiated a successful “rate mitigation” plan, no deal was struck that even slightly got the “Muskrat off our back”.

The plan simply does not contain the elements required to protect the public from unaffordable energy costs – except for just a few years. Then the problem will have only grown bigger. 

It is disappointing that the media were taken in by the propaganda and hoopla generated by the PM’s visit, reminiscent as it was of the manner which they treated Danny Williams’ announcement of the Muskrat Falls project in the first place.

Neither the Tory Opposition nor any other group, including the Consumer Advocate and Memorial’s Business School, offered any analysis or follow up. Little wonder this place is called the Happy Province!

Reporters don’t write the propaganda, of course; they only regurgitate it. 

What was the public’s takeaway other than that “rates will not double”, as Furey stated. If it was that the Federal promise of $5.2 billion had reduced the monstrous millstone of a $13.1 billion project, who could blame them? Except that it would be wrong.

Did the Feds put “some” money on the table to assist with “rate mitigation”? The answer is “yes”, and “some” is the operative word. 

Phots Credit: CBC

Problem is, most people have no idea what "mitigation" really means to their wallets, or how difficult it is to raise the more than $1 billion needed annually in addition to the costs of the current electrical system. Ratepayers having been exposed only to the warnings and not to the reality of the costs. 

The Feds offered two categories of assistance. First, it eliminated the 0.5% charge which Nalcor was required to pay as a service fee when the Federal Loan Guarantee was raised from $5 billion to $7.9 billion.

Second, the Feds claim to have offered $3.2 billion under a category of revenue called the Hibernia Net Profits Interest (NPI) benefits. Ostensibly it is a sum held back from the 2019 Hibernia Agreement. It is forecast to be paid annually over 26 years at the rate of $123 million to 2047 except in year one of commissioning when the payout is estimated at $191 million*. No information on the NPI was offered in the Province’s Technical Briefing to inform the basis of the calculation, its sensitivity to oil prices, or at what production/price level there is no profit.

The NPI is not even mentioned in the Agreement in Principle (AIP) between the two governments.

You can be sure, however, that lower oil prices will mean less profit, the balance of which will come from you. The issue is significant because, if received, the sum is estimated to lower power rates by 2.3 cents/kWh.

Outside of those two specific initiatives – neither of which tackles the $13.1 Muskrat Falls project debt – the remaining measures include $2 billion of repayable loans and the rescheduling of other debt payments. $1 billion replaces – but does not repay - maturing debt.  Muskrat's debt weight just increased by $1 billion.

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Get more details on the province's rate mitigation scheme in this post by Planet NL:

Rate Mitigation: Dr. Furey's False Diagnosis

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The agreement also calls for an increase in power rates to 14.7 c/KWh starting this year, and annual rate increases of 2.25% thereafter. After promises of 13.5 c/KWh – including from both Premiers Ball and Furey - Island residents, especially seniors and retirees on fixed incomes, can brace for energy hardship.

The annual increase of 2.25% is a fiction anyway. Remember, when there is a deficiency of revenue to meet the capital and operating costs of the Muskrat Falls project, the difference must be made up either from annual rate increases or government subsidies, except the latter is not an option.

There are other things that Premier Furey did not tell you, having misrepresented the rate mitigation scheme.

First, the rate offset caused by the loan of one of those billions runs out after 6.5 years.

Second, Nalcor’s rate forecasting “assumes” that demand for power on the Island will consistently increase over the 50-year financing time frame. With up to 60% of Muskrat power going to Nova Scotia at close to zero cost and other export revenue only miniscule, Island ratepayers were always the target for rate increases when cost overruns and higher operating costs trigger the need for higher revenue.

A big problem is that local demand has been slipping. Lower demand translates into higher rates to keep revenues even. The costs of operating Muskrat are the same whether the power is used/exported for a pittance, or the water is spilled.

Third, the $2 billion loan funding was billed as an “equity” infusion in the LTA assets (the power house, related infrastructure and TL to Churchill Falls). It was nothing of the kind. “Equity” denotes an investment along shared risk. The funding is a loan – repayable. The ratepayers retain 100% of the on-going risks of the Muskrat Falls project.

Fourth, the interest on the $2 billion additional loan essentially accounts for the jump from 13.5 cents to 14.7 cents/KWh. If you needed another signal who is on the hook for costs that exceed revenues, you have surely received it.

Rather than actually mitigating rates, Premier Furey has cut ratepayers adrift to deal with both the exposed and the hidden features of Muskrat madness. 

The hidden ones are not nearly as difficult to identify as the politicians might suggest.

Failed synchronous condensers at Soldier’s Pond, problems in the Muskrat Falls powerhouse, structural damages on the Labrador Island Link due to icing (like that which occurred last winter), power interruptions due to incomplete software – all have very real cost consequences.

Next, the Holyrood generating station, as the main back up source for the Avalon, awaits additional major upgrades which some estimate at $1 billion.

So, you think you have a rate mitigation deal that takes “the Muskrat off your back”?

In short, all you have is a scheme that protects the Prime Minister from having to answer awkward questions at a time when the Federal Seats in NL are needed in pursuit of a majority government.

If you need it spelled out more clearly: Premier Furey has put the interests of the Federal Liberal Party ahead of yours.

The Muskrat isn’t off your back. The Feds have only helped delay the worst consequences – for now - as the debt on the project grows.

From the National Post to the Calgary Herald the Muskrat “bailout” was decried. Too bad their reporters are no better informed than our own.

Equally shocking is that the Premier has lost the moral basis for a nation-wide campaign to showing how the Feds were complicit in the Muskrat Falls affair and to justify a real bail-out. 

Instead, we have a rate mitigation scheme that displays a Premier either dishonest or willingly sidelined by partisan politics.

Canada is warned that, if not this Premier, the next one will come calling – ‘cap in hand’ – once again.

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* figures revised based on new information August 23, 2021.