Ballooning construction costs and longer delays associated with building a dam at Muskrat Falls will hurt electricity consumers — not just in its home province of Newfoundland and Labrador, but also in Nova Scotia.
That’s because the longer it takes to deliver the promised clean green hydroelectricity from Muskrat Falls, the more money consumers here will have to fork out to buy power to replace it, according to Nova Scotia consumer advocate John Merrick. The last estimate provided by Nova Scotia Power to the regulator suggests the cost might be in the range of $87 million a year.
“What is clear is that there is going to be a delay in receipt of power; as a result, there will be costs incurred that will have to be recovered from ratepayers,” wrote consumer advocates John Merrick and Bill Mahoody in a submission this month to a hearing before the Nova Scotia Utility and Review Board.
Nova Scotia Power has been counting on Muskrat Falls to supply eight to 10 per cent of the province’s total energy needs.
That was the initial amount Emera contracted with Nalcor Energy – the builder of Muskrat Falls — with an option to buy another 10 per cent. It’s a big deal, and it does not inspire confidence when you consider the delivery date has slipped from January 2018 to January 2019 and now, possibly as late as June 2020 — a delay of more than two years.
At a press conference given in St. John’s last Friday, Nalcor revealed a revised schedule that doesn’t even include a delivery date for its Nova Scotia customer, which has signed up to take 20 per cent of the megaproject’s output for a period of 35 years.
NS Power spokesperson Sasha Irving says the utility doesn’t know when it will receive hydro from Muskrat Falls. Nalcor Energy referred the same question to NS Power. NS Power says Nalcor has told the company that hydro from Muskrat Falls will arrive sometime between the autumn of 2019 (best case scenario, after the new generating station is switched on) and the middle of 2020 (a more probable scenario, when the generating station is expected to operate at full power).
The worst case scenario is that the dam never gets finished. Nalcor Energy CEO Stan Marshall (who took over from Ed Martin after the Province fired him and the Board of Directors resigned) said the project is too far along now to dump, in part due to penalty clauses in its contract with Emera. Marshall, the former CEO of Fortis Inc., described Muskrat Falls as “a gamble we took and lost.”
Marshall said that decision was based on flawed assumptions that the price of electricity today would be higher than it is, and that the cost to build the dam would be lower. Marshall noted Nalcor is currently in “a major contract dispute” with the dam’s builder, Astaldi Canada. In 2012 — when Muskrat Falls got the green light — oil sold for $110 US a barrel; today the price is half that.
The price will be paid dearly by Newfoundland electricity consumers, who are on the hook for the megaproject’s construction costs, which have mushroomed from the initial $6.2-billion to $9.1 billion today, and an estimated $11.4 billion to complete.
Consumers on The Rock could see the price of power nearly double from 12 cents a kilowatt hour to 21.4 cents by 2021. Nova Scotians currently pay between 16 and 17 cents a kilowatt hour and are not responsible for the cost overruns tied to building the dam and generating station.
The pain in Nova Scotia will be smaller, but is certain to come. And it could be significant. Exactly how much Muskrat Falls delays will add to power rates and when the bill will come due (likely beginning in 2020 and lasting beyond) are questions that consumer advocates and representatives of business in the Province will continue to wrestle.
Just this month the Utility and Review Board was asked to approve Nova Scotia Power’s estimates of fuel costs that would comply with the three-year rate stabilization period ordered and legislated by the McNeil government. McNeil’s Liberals have staked their political future on keeping power rates “stable” for the next three years and last November, NS Power CEO Bob Hanf promised “rates would increase by no more than 1.5 per cent a year” through to 2019. That’s a promise that will be difficult to keep unless costs are deferred and pushed forward to a later date, which is often the practice.
The UARB’s decision on fuel costs and power rates for 2017-2019 is pending. Considering Friday’s news that the megaproject is at least two years behind schedule, it now appears that Nova Scotian business representatives and residential consumers who accepted NSP’s three-year fuel costs plan were working pretty much in the dark.
Nova Scotia Power’s plan was filed last March and was based on taking delivery of hydro from Muskrat Falls by April 2018. Last month saw Nalcor push back the delivery date to January 2019, following a string of construction problems. In June, during the examination of the power company’s fuel costs plan, intervenors representing residential and business customers asked NSP how much more it would cost to buy replacement power between April 2018 and January 2019 if Muskrat Falls didn’t deliver.
The company’s answer was $56 million — adding an estimated 1 per cent to the bill. The power company was also asked to predict how much more it would cost ratepayers if power from Labrador didn’t arrive until April 2019. The company estimated it would cost $31 million to replace power during those three coldest months. Now that Nalcor has said power won’t arrive until the autumn of 2019 at the earliest, that scenario is real. This in turn suggests that fuel costs and power rates could rise 5.8 per cent, rather than the 4.5 per cent proposed.
“What the ratepayers’ representatives participating in the hearing couldn’t agree on was when Muskrat power was likely to be received,” said consumer advocate John Merrick. “The agreement that was negotiated allows each ratepayer category to pay the rates based on their estimate. At the end of the three-year stabilization period there would have to be a ‘true up’ or an adjustment. Because Muskrat is now going to be delayed beyond anyone’s estimate, all rates will have to be adjusted upwards.”
“What started out as a three-year period of stable and relatively low rates is now going to be a three-year period of high rates,” says Merrick. “Making things worse, there will be a significant jump in 2020 as rates go back to what they would have been if they hadn’t been ‘smoothed’ over by the three-year stabilization period.”
Prior to this, filings by Nova Scotia Power show residential customers were already looking at a 6.4 per cent increase in 2020 to cover earlier fuel adjustments, an increase of about $2 per month on average – and that’s before factoring in any cost from delays to Muskrat Falls.
Merrick says it’s too early to say what impact the Project delay will have on the three-year agreement reached with the power company and being reviewed by the Utility and Review Board. The deal may need to be re-opened. The consumer advocate says the 4.7 per cent increase over three years was based on an understanding the numbers were estimates and some change was expected.
“Once we’ve had a look at the numbers and had a chance to reflect, we’ll decide.”
Despite Friday’s bombshell update by Nalcor, NS Power is sticking to its script. The company says there’s no reason the fuel cost plan shouldn’t be approved as it stands.
“The information from Nalcor does not materially change the consensus agreement we reached before the hearing earlier this month,” said NS Power spokesperson Sasha Irving. “It represents all types of fuel costs and we are very confident in it.”
Irving points out that even if fuel costs turn out to be higher than expected because the utility has to buy more costly electricity to replace what it has contracted from Muskrat Falls, the Board will simply use the fuel adjustment mechanism (FAM) to assign the true cost to ratepayers later. When costs are lower than predicted, consumers get a refund. If costs are higher, that overrun gets charged on the power bill — usually a year or two later.
Irving says the underwater transmission line to bring hydro from Labrador to Nova Scotia and the rest of the Maritimes is “on budget and will be in service early in 2018.” The $1.5 billion cable is being built by an Emera subsidiary called Nova Scotia Power Maritime Link; NS Power ratepayers are paying for it. Irving says this new regional interconnection or energy “loop” opens the possibility of NS Power buying surplus power from Newfoundland, New Brunswick, or even Quebec to substitute for what’s on hold from Muskrat Falls.
It’s one option NS Power says it could use to defend against rising fuel costs as a result of delays to the project, although the reason Muskrat Falls was chosen after an extensive public hearing was because NS Power claimed it was “the lowest cost renewable energy option.” — a claim clearly contradicted by reality.
Another possibility is that not all of the small, renewable projects approved in Nova Scotia under the Community Feed-in Tariff will actually get built. As for the legislated goal of moving off coal and ensuring 40 per cent of electricity is generated from renewable sources by 2020, Irving says Nalcor’s latest schedule should allow the company to meet that deadline, even if it’s just-in-time delivery.