Another Bad Day for Electricity Customers in Nova Scotia

The energy from Muskrat Falls is not going to be available until at least 2020. But the transmission lines are all built at a cost exceeding $1.5 billion. You are going to pay the interest on that debt while we wait.

Newfoundland and Labrador’s (NL) inept Progressive Conservatives rushed headlong into the Muskrat Falls hydroelectric development, to be built by Nalcor, the provincially owned utility. To have any plausibility, they needed transmission via Nova Scotia, and a wiser government here would have told them to build it themselves.

Nova Scotia’s involvement was championed by Emera, but the decision to make it happen was taken by the one-term NDP government. They had shown themselves to be out of their depth on much simpler files such as the uneconomic wind turbine in Trenton, or failing businesses in furniture in Dartmouth and fish processing in Port Mouton.

Understanding how electric power works was far beyond them.

Emera was able to sell the fiction that we would “own” 20% of the electricity if we paid for transmission to Nova Scotia, and onward to enable exports to New England.

Those transmission assets will soon be completed and there are bills to pay—$97 million in financing costs, plus maintenance costs of $14 million in 2018 growing to $18 million in 2019.

Emera is a monopoly supplier of electricity through its subsidiary Nova Scotia Power Inc. (NSPI). The Utility and Review Board (UARB) is responsible for ensuring an appropriate commercial relationship between NSPI and its customers. NSPML, also owned by Emera, is the builder of the link on behalf of NSPI.

On September 11th it released its decision on how the delay will be addressed. It said:

“The Board is concerned about the significant delays in construction of the Muskrat Falls Generating Station and NSPML’s apparent lack of insight on what is happening at Muskrat Falls. Essentially, NSPML appeared to learn about the two-year delay contemporaneous with it being announced publicly, yet at the same time its representatives sit on joint committees with representatives of Nalcor dealing with the Project. This lack of insight is troubling to the Board.”

Apparently the contract negotiated by NSPML does not provide for any recourse against Nalcor for the cost of delay.

Nevertheless, none of the intervenors on behalf of customers argued that NSPML had been imprudent in proceeding, so the UARB would have had difficulty to rule otherwise.

The current decision is described as interim rather than final, but it is likely that ratepayers will bear the entire burden of the interest and maintenance costs even though no power is being delivered from the Muskrat Falls project.

Nova Scotians will find this dissatisfying, and a case can be made that the UARB was too soft on Emera. It is important to remember the context.

In NL, the government decided to bypass the regulator to get the Muskrat Falls project approved. The massive cost overruns they are experiencing show how unwise that was.

In Nova Scotia, the NDP chose instead to put the regulator in a straight-jacket. Its legislation said that:

“The Review Board must approve the Maritime Link Project if, on the evidence and submissions provided, the Review Board is satisfied that the project…represents the lowest long-term cost alternative for electricity for ratepayers in the Province…”

Note that the requirement was that the alternatives to the project had to be tested against what Muskrat Falls would deliver, as opposed to testing both against an assessment of what Nova Scotia needs. It made it more difficult for the regulator to insist on terms that would protect ratepayers.

It could get worse. Further delays, or collapse of the project, could bring further misery. The UARB is keeping its options open until it is clear when, if ever, the Muskrat Falls electricity will arrive.

This story is far from unique. Highly politicized choices about electricity generation in Ontario will cost ratepayers billions.

The Liberals in British Columbia bypassed their regulator to commence construction of the Site C dam, now being considered for cancellation after spending $1.75 billion and committing to contracts for a further $4 billion.

Former premier John Buchanan bypassed the regulator to approve the Port Aconi plant in 1989 to create a buyer for coal from the Prince colliery, which closed eight years after the plant began operation.

These costly mistakes happen because governments have neither the analytic capacity to evaluate projects, nor the wisdom to decline superficially attractive initiatives.

Voters beware. Anytime a government announces an energy project, assume that it is not a sound fact-based decision, and that ratepayers will bear the cost of mistakes, not the power utility.