Muskrat Follies

Emera’s response to the Utilities and Review Board (UARB) on the Maritime Link is deficient.
Emera applied early this year for approval of the project, to be done through a special purpose affiliate called NSPML. On behalf of ratepayers, it proposed to spend $1.5 billion building the Maritime Link between Newfoundland and Nova Scotia. (Many of the numbers are rounded to keep things from getting too complicated.)

It would transmit electricity originating at Muskrat Falls. In exchange, Nova Scotian ratepayers would annually receive 1 Terrawatt hour (TWh) of rather expensive electricity, and the opportunity to buy 2 TWh of much less expensive market-priced energy. Here is an abridged version of the Board’s key findings on Emera’s original application:

“The Board finds that the ML Project (with the market-priced energy factored in) represents (just barely) the lowest long-term cost alternative for electricity for ratepayers in Nova Scotia. In the absence of market-priced energy, the ML Project is not the lowest long-term cost alternative.

However, the Board remains very concerned with the availability of market-priced energy under the ML Project, as presently proposed by NSPML. The fundamental assumption which underpins the Application is that NS customers will enjoy a blended rate for electricity which is comprised of a weighted average of the costs reflecting the NS Block and the projected amounts and prices for market-priced energy over the 35 year term. Until 2041, the availability of Market-priced Energy from Nalcor is an issue of “substantial uncertainty.”

Accordingly, the Board directs as a condition to its approval of the ML Project that NSPML obtain from Nalcor the right to access Nalcor Market-priced Energy consistent with the assumptions in the Application, or provide some other arrangement to ensure access to market-priced energy.”

In short, the deal is barely acceptable if and only if we are assured to receive twice as much inexpensive market-priced electricity as the expensive stuff. Nalcor is to provide a guarantee of that to NSPML. That guarantee is much more useful to Nova Scotia in the later years as our coal plants are retired and other sources of generation would otherwise have to be constructed. Emera’s 39 page response arrived on October 21st.  The problems with it are numerous. Three of them stand out:

  1. Instead of providing 2 TWh each year, it proposes to provide an annual average of 1.2 TWh, or a total of 28.8 TWh over the 24 years. Emera argues that the reduced level is justified because the Board expressed the view that the low load future scenario was the most likely. This is entirely absurd. If you decided to buy a smaller car would you voluntarily accept a reduction in the opportunity to buy low-price gasoline?
  2. How that average is achieved is entirely in Nalcor’s control. It can offer up to 1.8 TWh in any year, and if so, that amount counts toward the average whether or not Nova Scotia uses it. So in theory, they could offer 1.8 TWh for the first 16 years (thereby achieving the commitment of 28.8 TWh) and little or nothing thereafter. In practice, something close to this is quite likely since Nalcor is forecasting that all of Muskrat Falls’ energy will be needed in Newfoundland and Labrador by the twentieth year. This is entirely consistent with the long held position of Newfoundland and Labrador that Nova Scotia’s needs will always come second to theirs. In order to meet the UARB’s requirement they needed to move off of that position. They have not.
  3. The UARB’s concluding paragraphs say that the requirement for surplus energy availability “… should not create any practical difficulty because it would simply codify what NSPML asserts is the effect of the arrangement in any case. It would also confirm what NSPML already states is Nalcor’s view of their future relationship.”

Instead of a simple confirmation, we have a 39 page document containing many new agendas. It incorporates yet another complex web of arrangements between Nalcor, Emera, and NSPI. The impact on Nova Scotian ratepayers is to constrain rights, create risk, create a less favourable pricing formula, and establish additional future privileges for Emera.

For example Nalcor’s obligation to fulfill commitments in a year is diminished by “Forgivable Events,” which include hydrology events (not enough rain in Labrador) or larger than planned demand in Nalcor’s home territory In summary, Emera’s response provides less market-priced energy than the Board required. It provides the energy in a format that is much less advantageous than illustrated in the original application. It does so in an agreement that is anything but simple, and hurts Nova Scotian interests.

It is distressing that the UARB is proposing to hold its final hearings in less than two weeks. It took the proponents three months to come up with their response. It would seem reasonable to give others more time to respond. Nowhere is this more true than with the government. New Energy Minister Andrew Younger has rightly said that while the Maritime Link might be a good idea, he questions the proposed financial arrangements.

Government will no longer be a cheerleader for whatever Emera proposes. To put it gently, the department will require a rather profound pivot to align itself and provide proper support to the new government’s position. The Minister deserves the time to fully understand the file and provide a cogent response. He should ask for it on behalf of all respondents, and the UARB should agree.