What a tan­gled web they weave…

Nor'wester (Springdale) - - Editorial - Rus­sell Wanger­sky Rus­sell Wanger­sky’s col­umn ap­pears in 35 Saltwire news­pa­pers and web­sites in At­lantic Canada. He can be reached at rwanger@thetele­gram.com; Twit­ter: @wanger­sky.

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.

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 self­in­ter­est. 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 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 is 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.

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