Electricity customers putting power in their own hands

Put up prices, and sales generally fall. The only question is the tipping point: when does the decline in sales actually change the entire sales equation?

It’s been one of the big Muskrat Falls questions.

What happens to demand for electricity when the price skyrockets?

There’s been plenty of work done on the subject of what happens when electricity prices rise dramatically, but almost none on the Muskrat Falls case in particular.

I wrote about the need for just this kind of study last fall, saying “The cost of Muskrat Falls is going to be a fixed number; we’re contractually bound to buy all of its power at whatever price it needs to cover its costs. But if fewer people actually buy electricity, the cost for each of the remaining kilowatt hours used has to rise still further.”

Memorial University economics professor James Feehan changed that this week, completing a study on the project commissioned by the province’s consumer advocate, Dennis Browne.

The findings? We’re approaching a point where people will shed as much electricity use as they can.

Keep in mind, Muskrat Falls was commissioned to replace the Holyrood Generating Station’s oil-fired output and to support an expected increase in demand.

Falling demand because of the price increases, Feehan points out, just might mean we need none of the project’s power in the province at all — the decline in demand could be higher than Holyrood’s entire output.

“Island customers would be consuming little or none of Muskrat Falls electricity, in net terms, but would be paying much higher prices for the purpose of financing it,” he points out.

It’s worth noting that decreases in power consumption are already showing up, even though Muskrat Falls hasn’t hit power rates yet.

The Public Utilities Board recently asked Newfoundland and Labrador Hydro to explain how it had factored decreases in annual power consumption into its annual forecast load numbers. Keep in mind, these were decreases due not to an increase in price, but due to an “anticipation of significant retail prices for electricity.”

“The load forecasts prepared by Hydro and Newfoundland Power that were used … reflect recent declines in average annual electricity consumption by residential customers on a weather adjusted basis,” Hydro wrote back. “Discussions with Newfoundland Power of the recent declines in residential customer consumption levels have led Hydro to conclude that retail electricity consumers have already begun to change their electricity consumption levels in response to anticipated retail price increases.”

The PUB also wanted to know why, if there are signs of customers already slipping, that change wasn’t reflected in the utility’s forecasts of a different metric: the peak amounts of power that customers will need.

The answer? It’s too soon to know for sure just what the decline will be.

“Hydro’s reasoning for the different approach is partially associated with the observation that an increasing penetration level of mini-split heat pumps is occurring within the customer base of which the demand requirements remain largely unknown during system peak weather conditions,” Hydro wrote in its answer. “In addition, it is not known by Hydro if retail consumers, in general, will reduce their peak demand requirements (proportionally) to their energy requirements as currently forecast. Hydro considers this approach to be more conservative and appropriate for the current risk assessment.”

Hydro went on to say it wanted to “remain prepared” if peak power demands stayed at past levels.

But if you track peak demand, some interesting things seem to be showing up: I took a look at Hydro’s peak demand numbers for the month of July over the last four years. (Keep in mind, this is hardly a scientific analysis; to take a true applesto-apples look, you also need to take into account things like the differences in temperature and wind speeds across the year.)

As a back-of-the envelope review, some things pop up quite quickly: through July in 2015, 2016, 2017 and 2018, this July’s daily peak power use was the lowest of the four years 14 days out of 31. It was the highest only on one day, July 1.

Sometimes, we used significantly less power: on July 6, 2018, the peak was 714 megawatts — compare that to July 6, 2015, when, at 870 MW, we used 154 MW more power.

In 2015, there were 17 days that had peak power demands larger than the highest peak power for all of July 2018.

The overall trend? We need less power to cover our daily peak power needs.

And all in all, if customers are fleeing now, more will flee later, when prices are even higher.

“In addition, it is not known by Hydro if retail consumers, in general, will reduce their peak demand requirements proportionality to their energy requirements as currently forecast. Hydro considers this approach to be more conservative and appropriate for the current risk assessment.”