The cost of do­ing noth­ing

The Aurora (Labrador City) - - Editorial -

In 1968, I could fill up my mid­size car for $5. I have a much smaller car to­day, which I filled up with gas re­cently; it cost me $65.

Fifty years have passed since. In in­fla­tion­ary terms, gaso­line in­creased at the rate of 5.25 per cent per year. This is typ­i­cal of fos­sil fuel prices over an ex­tended pe­riod of time.

They in­crease at a faster rate than the con­sumer price in­dex in­fla­tion rate, which the Bank of Canada at­tempts to keep to two per cent per year.

Look­ing at the cost of op­er­at­ing the Holy­rood gen­er­at­ing plant (See my Aug. 27 let­ter, “Good­bye Holy­rood and hello Muskrat”) — as­sum­ing the Muskrat Falls gen­er­at­ing plant did not ex­ist — the cur­rent cost of oil used by the Holy­rood plant is about $270 mil­lion an­nu­ally.

The lat­ter fig­ure as­sumes the cost of oil is $61.40 per bar­rel and the plant is op­er­at­ing 67 per cent of the time. With pas­sage of time, the above an­nual cost of oil will in­crease and not nec­es­sar­ily in a lin­ear fash­ion.

The cost of do­ing noth­ing would have in­creased elec­tric­ity rates in the years ahead as the cost of oil in­creases.

For ex­am­ple, if the cost of oil in­creases to $65 per bar­rel, the an­nual cost of oil to feed the Holy­rood plant in­creases to $286 mil­lion. If the cost of oil in­creases to $70 per bar­rel, the an­nual cost of oil to feed the Holy­rood plant in­creases to $308 mil­lion.

The cost of fi­nanc­ing Muskrat Falls plant (in­clud­ing trans­mis­sion lines) is about $444 mil­lion, as­sum­ing a cap­i­tal cost of $12.7 bil­lion at 3.5 per cent in­ter­est.

When the prov­ince shifts to Muskrat Falls power, the prov­ince will be sav­ing a min­i­mum of $270 mil­lion an­nu­ally.

Hence the Muskrat Falls power is cost­ing the prov­ince, cur­rently, the dif­fer­ence — in other words, $174 mil­lion ($444 mil­lion less $270 mil­lion). This amount will only de­crease over time and even­tu­ally be­come pos­i­tive. Note also that as the price of oil in­creases, oil roy­al­ties will in­crease and Muskrat Falls power plant will be­come an in­creas­ing pos­i­tive as­set to the prov­ince.

Muskrat Falls project is not a short-term project. It is built to last 50 years. If the price of fos­sil fu­els con­tin­ues to in­crease at the rate of 5.25 per cent per year, as it has in the last 50 years, the an­nual cost of oil to op­er­ate the Holy­rood plant 50 years hence will be $3.51 bil­lion, the cost of do­ing noth­ing.

The pro­vin­cial govern­ment has made the right de­ci­sion not to in­crease elec­tric­ity rates as a re­sult of a trans­fer of elec­tric­ity from Holy­rood plant to Muskrat Falls plant.

Ian Mcmaster St. John’s

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