Competitive Rates

Anyone who has ever shopped for a car knows that prices and options can magically improve when the dealer becomes aware of competitive alternatives. Nova Scotia ratepayers could benefit greatly from some of that magic.

Nova Scotia residents have the highest power rates among Canada’s provinces. The government is championing the proposed terms for the Muskrat Falls project that will cause them to continue rising. Why are they proud of this?

It is certainly not reflective of the marketplace. The wholesale rate Hydro Quebec has been getting for its electricity has been plummeting:

Price of exports per MWh

Source: HQ Annual Reports

At  $41 per megawatt hour (MWh) the rate in 2012 is only half what it was two years ago.

Compare it with the price we are being asked to pay for the Maritime Link block of Muskrat Falls Power:

Source: Proponent submission to the UARB

The line called “Maritime Link” shows that price starting at about $125, rising to $180 in 2026 before subsiding to around $150 at the end of 35 years. To be comparable, the $41 Quebec rate for 2012 would have to be increased for transmission costs across New Brunswick, which should not exceed $10 unless more transmission needs to be built, in which case it would be more.

The line called “Surplus Energy” reflects the proponent’s view of market prices for the excess energy to be transmitted over the Link. It starts at just under $50 and rises gradually to $90. It will be available to any buyer. The various agreements that form part of the Maritime Link application give Nalcor an explicit right to buy transmission across Nova Scotia.

We have two concurring pieces of evidence, one from the proponent, that market prices for the electricity are well under $100 per MWh. Furthermore, the proponent’s evidence indicates that the proposed price for the Maritime Link power will be much higher than the market price for the entire 35 years.

Meanwhile, Hydro Quebec’s Romaine project will be adding 1550 MW of capacity in four phases between now and 2020. This is close to double the size of the Muskrat Falls project.

They will be delighted to compete for Nova Scotia’s business if given a chance on a level playing field.

In the heat of a well-managed competition, both they and Emera will be focused on what expenses can be avoided or allocated elsewhere. Rate of return expectations will be trimmed. Further, cuts will be made because of the long term strategic implications of victory or defeat. This is the kind of auction that can provide excellent results for buyers.

Ensuring this kind of competition is not at all in the proponent’s interest. It should have been the role of a government agency. Government has manifestly failed in its duty.

The UARB is not in a position to give direction to the government, but it is able and in fact required to evaluate the appropriateness of the present proposal.

According to the Maritime Link Act, 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.”

To be satisfied, the Board must have adequate answers to the right questions. Those questions include understanding what the outcome of a competitive process might be. They include understanding what will happen next if this proposal is rejected. They include understanding why Nova Scotia should pay more than market rates for electricity that will be available to others without paying a hefty premium.

Almost fifty years ago Premier Smallwood led Newfoundland and Labrador into one of the worse commercial deals in the history of Canada. There was nothing wrong with the Churchill Falls project. But the associated business arrangement with Quebec was a disaster.

There may be nothing wrong with the Muskrat Falls project. The question is not whether it will be built but what we will pay for its electricity.

The proposed business arrangements for Nova Scotia appear to be expensive, needlessly risky, poorly tailored to our needs, and untested as to competitiveness.

The Utilities and Review Board represents the last chance to reject an arrangement that may prove embarrassingly expensive for decades. The Board should not be satisfied. It should reject the application.