Generation gap

Experts unsure how Muskrat Falls will impact Nova Scotia power rates in the future

“Should they have stood back and let Emera, a private company, foot all the risks of construction and the risks of fluctuating fuel costs and power costs? Then when Muskrat power was available, Nova Scotia Power would have been able to make its own decision as to whether they buy from Muskrat.” John Merrick, outgoing consumer advocate with UARB

The Maritime Link, a $1.57-billion project that links Nova Scotia to the hydroelectricity from the Muskrat Falls generating station in Labrador, could be the province’s ticket out of a costly coal phase-out — but whether or not things will go as planned remains uncertain, along with the longterm impact on ratepayers.

The Maritime Link is owned and operated by NSP Maritime Link Inc., a wholly-owned subsidiary of Emera Newfoundland Labrador Holdings Inc., and an affiliate of Nova Scotia Power. The project is on time and on budget, as the first test run of an energy transmission took place earlier this month.

NSP Maritime Link Inc. is investing 20 per cent of the total cost of Phase 1 of the Lower Churchill Project and the Maritime Link, and is responsible for the design, engineering, construction, operation and maintenance of the Maritime Link Project for 35 years, in exchange for 20 per cent of the electricity from Muskrat Falls for 35 years.

In other words, Emera, a private company, built the Maritime Link, which was funded in part by utility Nova Scotia Power, in exchange for future energy production.

But with Muskrat Falls years behind schedule — first power is not set to flow until at least 2020 — and billions over budget, many are left wondering when, and even if, that power will flow.

To some extent, the cost of the Maritime Link has already been incorporated into power rates in Nova Scotia, which are already some of the highest in That dam project

the country. According to an emailed statement from Nova Scotia Power, the province is in an electricity rate stability period for 2017, 2018 and 2019, as approved by the Nova Scotia Utility and Review Board (UARB).

Annual rate increases of 1.7 per cent in each year of the three-year stability period do not include any general rate increases but rather reflect estimated fuel cost increases, which are a direct passthrough to customers — less than $2.50 per month for the average household.

“Current rates also include a forecast of customer costs for the Maritime Link construction in 2018 and 2019, which were smoothed out over the three-year period. This means power rates are already set and there won’t be new rate increases in 2018 and 2019 related to the Maritime Link,” the statement said.

In fact, due to the delay in the delivery of the Nova Scotia block of energy, Nova Scotia Power said it will be crediting back to customers just over $107 million over the next three years.

“The amount each customer receives will depend on their individual energy use, so for 2018 we would expect individual credits ranging from $15 to $65 for residential customers,” the release says.

The Nova Scotia Department of Energy reiterated some of this information and said It would be speculative to predict power rates beyond 2020 at this time.

Among experts, there is also some uncertainty about how the Maritime Link will eventually land with ratepayers in Nova Scotia.

Tom Adams, an electricity consultant and researcher, told The Chronicle Herald if things go as planned, the outcome for Nova Scotia ratepayers will be pretty good.

“It will allow Nova Scotia to significantly reduce coal generation at a pretty affordable price, so you’re not going to be a big premium for the coal phase-out,” Adams said.

“But that’s assuming everything goes great — if it doesn’t go great, then you’re going from a modest increase in rates to something that could be much worse.”

Despite major strides in increasing the use of renewables, coal still makes up more than half of Nova Scotia’s energy production. In early 2015, the province signed the CanadaNova Scotia Equivalency Agreement with the former Conservative government, allowing the province to continue using its aging coal-fired generators to meet electricity demand to 2030, beyond when they would have otherwise shut down for failing to meet federal standards. In exchange, Nova Scotia agreed to a number of emissions caps. Without the equivalency agreement, the province says shutting down Nova Scotia’s coal-fired plants prematurely could cost ratepayers up to $1.3 billion.

In 2016, the premier announced Nova Scotia had reached a new equivalency arrangement with the federal government, allowing it to continue its necessary use of coal-fired plants beyond the national 2030 deadline, and as part of that agreement in principle it agreed to implement a cap-and-trade system as per the national framework on carbon pricing.

Adams said the worst-case scenario for Nova Scotia would be if Muskrat Falls does not deliver as planned and the federal government is not flexible with coal-reduction targets beyond 2030.

“You’ve got various alternatives but they’re all expensive and take time and would render existing infrastructure you’ve invested in … less useful than expected.”

In July 2013, prior to the approval of the Maritime Link Project, the UARB issued a decision based on expert testimony over a number of hearings that deemed the project the lowest long-term cost alternative for electricity for ratepayers in Nova Scotia — but just barely.

The board concluded there were various scenarios within a range of reasonable assumptions that perform almost on an equivalent basis, but ultimately that the Maritime Link was the most robust.

But, John Merrick, outgoing Consumer Advocate with the UARB, said future market value for energy is going to be one of the key questions as to whether this was a good or bad deal for Nova Scotia ratepayers.

“If, in two years time, Muskrat power becomes available but there’s cheaper sources of energy out there, Nova Scotia power should have been able to go get those cheaper sources as opposed to paying off a construction assessment that may or may not have anything to do with the market value of energy,” he said,

“If the cost of power goes up, Nova Scotia may have made a very good deal on locking in its payment for its share of the power at the construction cost.”

Merrick said the uncertainty begs the question whether or not it’s appropriate for a utility to make such a gamble on behalf of the province’s ratepayers.

“Should they have stood back and let Emera, a private company, foot all the risks of construction and the risks of fluctuating fuel costs and power costs? Then when Muskrat power was available, Nova Scotia Power would have been able to make its own decision as to whether they buy from Muskrat,” Merrick said.

Merrick said, in his opinion, signing on to Muskrat was a distortion of the role of a public utility.

“To negotiate a deal which, in effect, had the utility paying for part of the construction of the project, that’s the responsibility of developers.”