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Muskrat Falls to hit your rates this year
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Muskrat Falls to hit your rates this year

Electricity rates become a new form of taxation

Ed Hollett
May 31
2
Share this post
Muskrat Falls to hit your rates this year
edhollett.substack.com
The dam and powerplant have been finished since last year. The bills are piling up as are demands from the mainland for us to start paying up.

Updated 01 Jun 2022

You were supposed to get a 6.4% decrease in your Hydro bills this summer but thanks to the order-in-council changes described below - that Hydro didn’t tell you about, by the way - your bills won’t be going down.

They are going to put that money toward Muskrat Falls, instead. First sentence of second paragraph.

There’ll have to be another hike perhaps next year so stand by for *that * news as well.

Oh, and in totally unrelated news, the House of Assembly closed today.


Original column:

Don’t expect Andrew Furey to hold a big news conference for this one.

You will start paying for Muskrat Falls through your electricity rates this year.

An order in council - OC2022-120 - on 16 May 2022 allows the Public Utilities Board to include costs related to the Muskrat Falls power plant and the transmission lines that connect the plant on the Lower Churchill to Churchill Falls.

It changes an earlier order in council – OC2013- 343, part of the original financing for the project in 2013 – that allows NALCOR-Hydro to tell the PUB what it needs to meet its financial obligations.  The PUB must adjust rates accordingly without “subsequent review” and without any change in future by the PUB unless NALCOR-Hydro asks for it.

The MF/LTA power plant and so-called Labrador Transmission Assets are finished and work properly. That’s the chunk that will start showing up on your power bill this year.

Plus, the provincial government will claim a return on its equity investment in MF/LTA assets to the tune of $22 billion from local ratepayers over the next 50 years.  On average, that would mean an extra $440 million each year - upwards of $1800 per household - for the provincial government from what is effectively a brand new tax.  

Oil may go up in the short-term and bring windfalls over the next couple of years, but this new tax on electricity will drill into local pockets until at least 2071, long after the local offshore is dry. That’s the thing about Muskrat Falls. Until Danny Williams, the idea was to get new money from outside the province. That’s what oil revenue is. But with the Williams-Furey scheme, the provincial government is drilling in your bank account for new cash.

The Labrador Island Link isn’t working, although NALCOR-Hydro is sending electricity to Nova Scotia free of charge under the original deal with Emera. There is no firm date when it will be ready to carry electricity reliably to the island. You won’t be paying for the LIL until next year, at the earliest.

There’s no indication how much your rates will jump but there will have to be an increase to make room for the Muskrat Falls costs.  In the original plan, NALCOR-Hydro would shut down Holyrood and cover part of the Muskrat Falls costs with the part of rates that used to cover the bills for Holyrood fuel.  But with the LIL not running reliably, NALCOR-Hydro still needs that fuel for Holyrood.


RELATED: “The Muskrat’s claws sink deep”


Until now, the provincial government has tied electricity rate hikes for Muskrat Falls to commissioning of the plant and all the transmission lines. Even though NALCOR-Hydro started sending electricity to Nova Scotia last August and the MF/LTA assets are finished and working,  there’s been no move to change electricity rates because of the problems with the LIL.

Something changed and it likely isn’t just the generous feeling of someone in Confederation Building that it was time to start paying.  Most likely, the federal government message during negotiations for the third federal loan guarantee and other financial help for the beleaguered project: start paying now.

Realistically, the LIL may never be finished and at best could be several years away from reliably carrying power to the island.  That would postpone repayment of project financing for years, with the federal government on the hook in the meantime as guarantor.  That leaves the federal government liable if any of the creditors wanted to force the issue. So the easiest thing for Ottawa to do is push the provincial government to start paying now.  

The compromise between the federal and provincial positions would be adding MF/LTA to electricity rates now, with LIL coming maybe next year.  Rates have to go up as part of the Williams-Furey scheme to pay for Muskrat Falls. This will break it into two smaller jumps instead of one initial shock. Maybe someone hoped the punters wouldn’t notice.

This new tax is a deliberate move by the provincial government. After all, as part of the talks with Ottawa that led to the most recent rate scheme, the provincial government under Premier Andrew Furey didn’t have to claim its return on equity.  That would have genuinely lowered consumer electricity rates rather than just pushing the costs to later in the payback period.

Problem is, that would have left the government short of hundreds of millions the bureaucrats and politicians have been counting on for a decade. The revised Muskrat Falls scheme Furey announced last year keeps the province on the strategic course Williams set that keeps the provincial government chronically teetering on the edge of financial ruin.


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