A newly released audit of Nova Scotia Power’s fuel costs for the years 2020 and 2021 underline the extent to which delays in receiving hydroelectricity from Muskrat Falls in Labrador have increased fuel costs and continue to impact power rates.
American audit firm Bates White was hired by the Utility and Review Board (UARB) to review the reasonableness or “prudence” of the Nova Scotia Power’s management of fuel costs, which are the biggest factor in the price we pay for electricity.
For 2020, the auditor found fuel costs were $12 million more than forecast, or about 4%.
By the following year, 2021, fuel costs were $176 million over budget, or a whopping 67% more.
In plain language, deliveries from Muskrat Falls were late to non-existent in 2021, and the missing renewable energy meant Nova Scotia Power substituted by burning more coal, natural gas, and biomass. Prices for fossil fuels had increased, and this substitution also led to higher carbon emissions, which in turn added to Nova Scotia Power’s cost to purchase carbon credits.
Here’s how the auditor explained it:
It’s important to point out that one of the main causes of the very large actual-to forecast variance in cost in both years of the Audit Period was the delay in the completion and energization of the Muskrat Falls generation project, which was assumed by NS Power to provide 625,301 MWh of firm energy over the Maritime Link in 2020 and 1,133,520 MWh in 2021 — whereas no power was received in 2020 and only 9.4% of the forecast power was received in 2021.
This missing Muskrat Falls energy necessitated higher than forecast dispatch levels on many of NS Power’s generating units and contributed to a growing deficit in GHG compliance credits.
As an example of “higher than forecast dispatch levels,” auditor Bates White reported Tufts Cove in Dartmouth generated 19 times more electricity than had been forecast, while the coal-fired Lingan power plant delivered 42% more electricity than planned.
The lack of hydro power from Muskrat Falls was the culprit.
We can’t report exactly how much that replacement power cost consumers in 2021 because we don’t know. The audit report on page 312 has that significant number redacted, at the request of Nova Scotia Power. Hopefully the consumer advocate will succeed in requesting the UARB release the amount.
We do know that although Nova Scotia ratepayers have yet to receive the full 2 terawatts of hydro power from Muskrat Falls promised in 2013, ratepayers have paid more than $200 million directly to Nova Scotia Power Maritime Link, the Emera-owned company established to convey that power from the island of Newfoundland to Nova Scotia.
The first electricity under the 35-year contract Nova Scotia Power has with Newfoundland and Labrador Hydro began to flow in August 2021, 3.5 years late.
This “NS Block” represents about 10% of the supply needed to power this province.
Nova Scotia Power has first dibs on another 10% of supply (at market price) that has yet to become available.
Ongoing problems with the General Electric software that controls the transmission over a cable known as the Labrador Island Link (LIL) continues to restrict deliveries to Nova Scotia. The LIL brings the power generated at Muskrat Falls in Labrador across the Gulf of St. Lawrence to the island of Newfoundland. The power then is to sent via the Maritime Link to Nova Scotia.
The problems with the LIL cable — of which Nova Scotia Power’s parent company Emera is a co-owner with up to a 49% stake — are still being addressed. Nova Scotia Power has told the UARB it may be next spring before those problems are fully resolved.
Meanwhile, the Utility and Review Board, the power company, and the provincial government are now having to address the sobering reality that fuel costs for 2022-2024 are expected to be $681 million over budget.
That’s because of this double-whammy: not enough hydro power flowing from Labrador and higher prices for replacement fossil fuels such as coal, petroleum coke, and natural gas used to replace the absent hydro. The higher prices are exacerbated by the war in the Ukraine.
What will that double-whammy mean for power bills paid by homeowners and renters?
The short answer is probably double-digit increases in power rates in each of the next two years.
Don’t be fooled by the 1.8% cap imposed by the Houston government on power rates. That only applies to the non-fuel costs — the money Nova Scotia Power needs to run the business and keep the lights on. The company is now expected to dip into shareholder profits to keep operating.
The unavoidable costs to ratepayers are the fuel costs, which by law must be passed along or downloaded to consumers. That $681-million total? If the total was paid in full by ratepayers over the next two years, Nova Scotia Power estimates it will increase power rates by about 12.5% in each of those two years. Add the roughly 1% a year increase the province is allowing to maintain the grid, and residential power bills could increase by about 13% a year.
In fact, Bates White recommends that Nova Scotia Power begin negotiations with Newfoundland and Labrador Hydro to bill for unintended consequences of the delay in receiving Muskrat Falls energy.
One such consequence was the cost of keeping the coal-fired generating plant at Lingan running for more than a year after it had been scheduled to retire. The auditor says how ever many million dollars it cost to keep Lingan open is a cost that should be forwarded to Newfoundland and Labrador Hydro.
It’s a different kettle of fish when it comes to replacing the actual GWhs of missing energy. Although Newfoundland and Labrador Hydro has a signed agreement with Nova Scotia Power to replace or make-up every electron, the auditor says accountability rests with Nova Scotia Power.
“It is NS Power that should take the risk of contractual negotiations with Nalcor, not ratepayers, who are owed a ‘similar value; for the missing energy,” says the 2020-21 Fuel audit prepared by Bates White. “To that end, we include a recommendation regarding NS Power’s tracking, negotiating, and reporting of this ongoing ledger of underdeliveries and makeup deliveries.”
So far, the auditor is generally pleased with the method Nova Scotia Power has been using to track the amount and the cost of hydroelectricity owing.
Meanwhile, on November 18, we hope to find out what Nova Scotia Power is proposing to make the fuel cost portion of the power rate increase more palatable. Maybe the company will suggest pushing some of the fuel costs down the road after 2024; such a move might reduce “rate shock” to something closer to 6-7% a year. Of course the downside of that idea is that interest charges would mean ratepayers pay more in the long run.
Delayed deliveries of hydro from Labrador fed into a decision by the McNeil government in 2020, following the demise of the Northern Pulp mill in Pictou County, to increase the amount of biomass being burned in the province to generate “renewable” electricity.
Technically speaking, biomass is only renewable if it comes from leftover bark and shavings and not the roundwood and wood chips that are often used.
As with other fossil fuels, the actual amount of biomass in tonnes and the dollars spent during the 2020 and 2021 audit period are redacted in the audit report. Bates White does report that more biomass was burned in 2021 than in any year since 2016, when the McNeil government amended a regulation to prevent the biomass boiler at Port Hawkesbury Paper from running 24/7 to help meet renewable energy targets.
The economics shifted again in 2020 after Northern Pulp shut down and sawmills lost secondary markets for woodchips. The Liberal government ordered Nova Scotia Power to “maximize” the amount of electricity that could be produced at an aging 30 MW biomass boiler associated with the former Bowater Mersey mill at Brooklyn. Emera had bought it and renamed the biomass facility Brooklyn Power. The directive in May 2020 from then Energy minister Derek Mombourquette to increase purchases from Brooklyn Power was to (a) provide a secondary market for waste wood from sawmills and (b) make up the shortfall of hydroelectricity from Muskrat Falls.
The Brooklyn biomass boiler is inefficient and the energy it produces is expensive.
At the time, the government acknowledged it could cost Emera more to operate it at full throttle. Mombourquette authorized Nova Scotia Power to pay its sister company a premium of $30 per megawatt hour up to a ceiling of $7 million a year.
Now, the auditor believes Nova Scotia Power misinterpreted the wording in the government directive (which isn’t entirely clear or precise) and paid Brooklyn the premium price for every megawatt hour it delivered and not just the additional amount mandated by the province.
Nova Scotia Power disagrees with the auditor’s interpretation of the government directive.
The auditor recommends Nova Scotia Power return to ratepayers a rebate or “disallowance ”for the overpayment to Brooklyn Power (Emera).
How much that rebate might be is also unknown. Nova Scotia Power is asking the UARB to keep the amount of money in dispute confidential.
The Examiner reported on the directive in February 2021 when we were able to obtain figures that showed the amount of biomass being burned to generate electricity had doubled in November, December, and January compared to the same three months prior to the directive.
The Brooklyn biomass facility has been shut down since February 2022, when a big storm caused a lot of damage, but it is expected to be back online this January.
However infuriating, the biomass business is a side show compared to dealing with hundreds of millions of dollars in fuel cost overruns that will be included in power rates. Smarter people than you and me will have to figure that out, but the next rate increase definitely won’t be 1.8% over two years. It’s likely to be closer to double digits. Even with the intervention by the provincial government.