Higher power bills on the way as delays continue at Muskrat Falls

Ongoing delays in the promised flow of hydroelectricity from Labrador’s Muskrat Falls will deliver Nova Scotians at least one thing with certainty: higher power bills. Here’s why:

In June, the province received less than half the amount of contracted energy — known as the Nova Scotia Block — because of frustrating problems with General Electric software, which controls the flow over a cable called the Labrador Island Link. So, instead of renewable hydro coming to the rescue and displacing its current mix of fuels, Nova Scotia Power had to buy and burn more coal, natural gas, and biomass at a time when prices for those commodities have all gone up. This also increased greenhouse gas emissions at a time we thought we’d be reducing them.

“In June, fuel costs were 100% over the budget, set in 2019,” said Nova Scotia Power spokesperson Mina Atia wrote in an emailed statement. This was, “primarily due to cap and trade costs; increased generation from coal, natural gas, and biomass; and increased world-wide fuel costs. For the first six months of 2022, NSP has spent 75% of its 2022 budget for fuel and imported power.”

For 2022, Nova Scotia Power estimates its fuel costs will be $174 million higher than it budgeted. And those costs will eventually have to be paid by ratepayers.

The penalty for burning more fossil fuels

Rising fuel costs because of delayed deliveries of renewable power from Muskrat Falls is only half the story. Complying with environmental legislation will also cost Nova Scotia Power ⁠— as well as ratepayers ⁠— big money. In its Fuel Costs report to the Utility and Review Board filed last week, Nova Scotia Power included $111.8 million to buy carbon credits to offset higher-than-expected GHG emissions.

“Due to reduced availability of Muskrat Falls energy as compared to what was forecast in 2018, Nova Scotia Power has estimated a $111.8 million expense associated with GHG compliance.”

The province’s cap-and-trade legislation ⁠— designed to reduce carbon emissions by the same amount as if it had opted for the federal carbon tax ⁠— capped Nova Scotia Power’s emissions at 22.05 millon tonnes over the four-year period of 2019 to 2022. If the company releases more than 22.05 million tonnes the polluter must buy carbon credits. Muskrat Falls was originally slated to come online in 2018, but the first hydro didn’t flow until September of 2021. And deliveries have been inconsistent while testing and commissioning continues.

By 2022 the power company was counting on Muskrat Falls to provide 20% of the electricity we use daily, but availability has been limited to just under 10%. That led Nova Scotia Power to burn more fossil fuels, which produced GHG emissions that will certainly exceed the allowable limit and will force the company to buy carbon credits.

“Virtually all of these credit purchases are as a result of lower deliveries of ‘market priced’ energy from Muskrat Falls,” Nova Scotia Power’s spokesperson Mina Atia continued in the email. “This was energy that we were planning to purchase at prevailing market prices and now have to replace from other sources, in the most economic manner for customers (including emissions impact), through self- generation and increasing other forms of imports.”

Nova Scotia cap-and-trade regulations prevent any one company from purchasing more than 5% of the total carbon credits available for auction. It’s been a very small pool. There were only 26 registered participants in the last auction and the province is reviewing the structure to see whether cap-and-trade should be modified or dropped.

The more than $70 million raised by selling credits has gone into a provincial Green Fund used to finance energy efficiency programs for homeowners, businesses, and renters. So, in order to meet its GHG cap, Nova Scotia Power says it plans to purchase what are called “reserve credits” from the province at a higher price of approximately $60 a tonne.

Guess who pays?

Nova Scotia Power plans to recover all additional fuel costs and GHG compliance costs from ratepayers through a process called the Fuel Adjustment Mechanism. In its request for a 10% general rate increase over the next two to three years, Nova Scotia Power has proposed deferring substantial fuel cost overruns for 2021 and 2022 until sometime after 2024. Those overruns are currently estimated at about $260 million. The Nova Scotia Utility and Review Board will decide if or when those costs can be punted down the road for future consumers to pay.

Sadly, what the total will be for 2022 remains a work-in-progress. The news from Newfoundland & Labrador Hydro reported in last week’s update from Nova Scotia Power Maritime Link (NSPML) was discouraging.

“The reduction in deliveries over the Maritime Link in June 2022 were driven largely by Newfoundland & Labrador Hydro (NLH) taking the Labrador Island Link (LIL) offline for a period during June to conduct testing of updated GE software.

NLH is currently expecting receipt of revised LIL operating software in August 2022. If that software proves acceptable, testing of that software should continue to late fall. Subject to such testing, it is possible that Labrador Island Link commissioning could be completed by year-end, 2022. However, NSPML’s working assumption is for full LIL commissioning to be achieved by mid-2023, with continued testing and commissioning activities until that time. NSPML understands that during the commissioning period NLH expects to operate the LIL starting at 475 MW capacity and to increase capacity as commissioning proceeds. Even at these reduced pre-commissioning levels, the LIL will be operating at sufficient capacity to deliver NLH’s contractual obligation to Nova Scotia, including any required make-up deliveries.”

Translation: Nova Scotia Power hopes/expects to get the 10% of low-cost renewable power from Muskrat Falls it contracted, but not the additional 10% at market prices it also requires/banked on in order to comply with various environmental regulations.

Since the majority of the additional fuel costs and environmental compliance costs for 2019 to 2022 appear to be related to problems with the Labrador Island Link, the Examiner asked Nova Scotia Power why the company isn’t considering recovering those costs through a lawsuit instead of relying on ratepayers. Here’s the response we received from spokesperson Mina Atia:

Nova Scotia Power understands and shares customer frustrations around the delay in the delivery of the NS Block and energy from Muskrat Falls. To the extent the additional costs relate to Muskrat Falls energy, it is primarily a timing issue due to 2018 forecasting, which expected earlier deliveries of incremental market-priced energy. Customers will receive 100% of the contracted Nova Scotia Block based energy. All contracts were reviewed in detail by stakeholders and assessed by the UARB as part of the Maritime Link approval process.

Although it is somewhat reassuring Nova Scotians will eventually receive 100% of the contracted NS Block, at this point in the year Newfoundland & Labrador Hydro are still behind in deliveries with more downtime anticipated over the next six to 12 months. So why should Nova Scotia ratepayers be the ones to cough up hundreds of millions of dollars to cover costs incurred because a megaproject was four years late and continues to under-perform in terms of its obligations?

By contrast, it’s Nova Scotia Power shareholders who could be on the hook when the company is unable to comply with legislated provincial Renewable Energy Standards. They require the company to generate 40% of its electricity from renewable sources by the end of 2022. Period.

In May, a regulatory filing by Nova Scotia Power indicated to its shareholders it was unlikely to hit that 40% target (the province has been at 30% for the past two years). The filing said the company could face a maximum fine of $10 million. That fine is at the discretion of the province, depending on whether the company has exercised “due diligence” in complying with the regulations.

Could the prospect of a $10 million fine for shareholders be used as a bargaining chip to knock percentage points off the proposed rate hike for consumers? During the last sitting of the legislature, the government did not pass any legislation that would challenge the way power rates are set in this province, despite bills introduced by both the Liberals and NDP. That leaves the regulator, the Utility and Review Board, with its hands tied when it comes to addressing issues like climate change or special consideration for ratepayers on fixed incomes who will be most impacted by rising power costs.

The public hearing on power rates begins September 7.

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