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Russell Wangersky: What a tangled web they weave…

Hydro Place in St. John’s, headquarters of Nalcor Energy and subsidiary Newfoundland and Labrador Hydro.
Hydro Place in St. John’s, headquarters of Nalcor Energy and subsidiary Newfoundland and Labrador Hydro.

Hear that? It’s the sound of a big can of worms opening. Not just a can of worms, but a can of whoop-ass worms that could spell the fiscal demise of Newfoundland and Labrador Hydro.

Russell Wangersky

And it all comes down to a problem with Muskrat Falls that the Williams government knew all about, and chose to ignore.

First, a little background: the U.S. Federal Energy Regulatory Commission (FERC) issued an order in 1996, requiring utilities exporting power to the U.S. to set open access transmission tariffs, or OATTs.

Here’s what FERC said at the time: “As the commission noted in Order No. 888, it is in the economic self-interest of transmission monopolists, particularly those with high-cost generation assets, to deny transmission or to offer transmission on a basis that is inferior to that which they provide themselves.”

We are going to have a grossly high-cost generation asset, and the government of the day clearly tried to draft legislation to protect Nalcor’s self-interest. The Electrical Power Control Act gives Newfoundland Hydro the “exclusive right to supply, distribute and sell” power to customers on the island, exactly the kind of law that FERC Order 888 bans.

The trouble is, while the government of the day knew that was going to be a problem, they swept the concern about the need to be OATT compliant — allowing others to use this province’s power grid to sell power on the island — under the table. The Telegram raised concerns in editorials as early as January 2013.

But then Natural Resources minister Jerome Kennedy was downplaying it, saying, “Under the open access transmission tariff, there certainly would be an argument there, but we’ll have to wait and see how that develops. ... But you are right. Under FERC and under the OATT, there would be or could be potential arguments, but we’ll have to wait and see if they arise.”

The waiting and seeing is over.

Why? Because Newfoundland Hydro is now being asked in a quasi-judicial process — a general rate application — to publicly reveal if Emperor Muskrat actually has no clothes.

The consumer advocate is asking questions that, if Hydro doesn’t try to avoid answering, could critically affect the utility’s ability to live up to the terms of its power purchase contract with its parent company, Nalcor Energy.

The critical question is known as CA-NLH-012. It’s just one of 160 questions the consumer advocate has for Hydro. It says, “Hydro states, ‘As a result of the Muskrat Falls project transmission assets and the Maritime Link providing service in advance of the full commissioning of the Muskrat Falls project, Hydro and Nalcor will be expected to provide open access to its transmission facilities.’ Under open access, can Hydro-Québec and/or Emera sell power directly to Newfoundland Power?” It’s a multi-billion-dollar question indeed.

The problem gets really sticky when you consider that, while Newfoundland and Labrador Hydro is contractually bound to buy Muskrat Falls power for a set price — one that covers all of the project’s expenses, Newfoundland Power is not bound by the same contract.

And that’s why the consumer advocate’s questions are so critical. The blended cost of power for consumers in this province is expected to reach 22.7 cents per kilowatt hour in 2021; since the rest of the province’s power generation assets produce power at a much lower rate, the actual cost of Muskrat power is even higher.

Hydro-Québec has power on the edge of our grid — power that they sell under long-term contract in New England for six cents a kilowatt hour, and that they would probably be delighted to sell to Newfoundland Power at a rate far more competitive than Muskrat Falls could offer. (To add insult to injury, the power would come from our last bad mega-deal, the Upper Churchill contract. The irony is crushing.)

So, Newfoundland Hydro would have a contract it has to pay for, but a hole where the bulk of its customer base would be. How does it pay its debts? By selling off assets?

Don’t expect the PUB to block power imports, either. Its legislated mandate is ensure that “power being delivered to consumers in the province at the lowest possible cost consistent with reliable service.”

A can of worms? Indeed.

 

Russell Wangersky’s column appears in 35 SaltWire newspapers and websites in Atlantic Canada. He can be reached at rwanger@thetelegram.com — Twitter: @wangersky.

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