Un­der­stand­ing how power rates drive de­mand for elec­tric­ity

The Beacon (Gander) - - Editorial -

The cap­i­tal cost of Muskrat Falls in­creased by 105 per cent from $6.2 bil­lion in 2010 to $12.7 bil­lion.

Last year Nal­cor warned us that to pay for those hor­ren­dous costs res­i­den­tial rates could more than dou­ble. And surely rates for com­mer­cial and in­dus­trial cus­tomers will go by a sim­i­lar amount as well? But does Nal­cor un­der­stand just how sig­nif­i­cantly higher rates will in­flu­ence elec­tric­ity use? Does Nal­cor mea­sure the price elas­tic­ity of de­mand?

De­mand for elec­tric­ity is driven by a large num­ber of fac­tors. These in­clude de­mo­graphic fac­tors, in­clud­ing the growth, dis­tri­bu­tion and age struc­ture of the pop­u­la­tion. They also in­clude in­dus­trial re­quire­ments for elec­tric­ity, par­tic­u­larly by en­ergy in­ten­sive in­dus­tries. De­mand is also in­flu­enced by the avail­abil­ity of sub­sti­tutes for elec­tric­ity, by de­mand side man­age­ment and by in­creased en­ergy ef­fi­ciency. The in­stal­la­tion of heat pumps can play an im­por­tant role in dis­plac­ing the use of elec­tric­ity for space heat­ing.

Rate in­creases for elec­tric­ity will play an im­por­tant role when con­sumers are given a strong in­cen­tive to con­serve and to sub­sti­tute other forms of en­ergy for elec­tric­ity. Con­sumers can shift from elec­tric space heat­ing to the use of fuel oil, wood, or propane. They can re­duce elec­tric­ity con­sump­tion by us­ing am­bi­ent or geo-ther­mal heat pumps or mini-splits. They can im­prove in­su­la­tion or move to a smaller res­i­dence.

If cer­tain classes of cus­tomers are ex­empted from higher rates this will in­crease the bur­den for other classes. For ex­am­ple, if in­dus­trial cus­tomers are ex­empted then res­i­den­tial and com­mer­cial cus­tomers will face more than a dou­bling of rates. If the de­mand for power col­lapses be­cause of price es­ca­la­tion who will bear the bur­den when the full cost of our elec­tric util­i­ties on the Is­land rises from $700 mil­lion to $1.5 bil­lion? Will gov­ern­ment at­tempt to shield some in­dus­tries in or­der to avoid loss of em­ploy­ment and what will be the im­pact on res­i­den­tial and com­mer­cial cus­tomers?

Will gov­ern­ment ex­empt its own agen­cies, boards, com­mis­sions, crown cor­po­ra­tions, schools, hos­pi­tals, and post­sec­ondary in­sti­tu­tions? Will low in­come peo­ple be pro­tected?

Power that is sur­plus to do­mes­tic needs could be ex­ported but whole­sale prices in ex­port mar­kets are way be­low the costs of elec­tric­ity from Muskrat Falls. There­fore, in­creased rev­enues from forc­ing lo­cal cus­tomers to pay higher prices and from ex­port­ing en­ergy are un­likely to come close to the ex­tra $800 mil­lion per year re­quired to pay for Muskrat Falls.

In­deed, rev­enues may ac­tu­ally de­cline be­low the cur­rent level of $700 mil­lion, as rates rise, be­cause lo­cal con­sumers will be con­stantly look­ing for new ways to cut their elec­tric­ity con­sump­tion.

This is why Muskrat Falls will not be self-sup­port­ing and will threaten the al­ready pre­car­i­ous fi­nan­cial plight of the province

How will gov­ern­ment fi­nance this in­creased bur­den? Will so­cial pro­grams be sac­ri­ficed in or­der to meet these costs? As yet un­de­fined pro­pos­als for “rate mit­i­ga­tion” rest on the no­tion that tax­pay­ers will share the in­creased cost but the stark re­al­ity is that the pro­vin­cial gov­ern­ment may have to take full fi­nan­cial re­spon­si­bil­ity, with lit­tle or no rev­enue con­trib­uted by higher rates. Can the province ab­sorb this bur­den? If not, is there a plan afoot to in­crease the level of fed­eral par­tic­i­pa­tion?

Could this not have been eas­ily pre­dicted? And where’s the plan?

David Vardy St. John’s

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