Risks and rate in­creases

The Gulf News (Port aux Basques) - - Editorial - Rus­sell Wanger­sky Rus­sell Wanger­sky’s col­umn ap­pears in 39 SaltWire newspapers and web­sites in At­lantic Canada. He can be reached at rus­sell.wanger­[email protected]­gram.com — Twit­ter: @wanger­sky.

Holy­rood, even if the power is much cheaper elec­tric­ity sup­plied from some­where else. (The dif­fer­ence would be es­sen­tially banked to try and soften the mas­sive in­crease in power rates when Muskrat Falls comes on stream.)

But now, New­found­land Power is look­ing for an in­crease, too, and although it’s not as large, just 1.2 per cent next March, the rea­sons for the in­crease are, well, alarming.

As the prov­ince’s Con­sumer Ad­vo­cate Den­nis Browne puts it, New­found­land Power is look­ing for a rate in­crease in part be­cause rate in­creases are af­fect­ing the econ­omy: “New­found­land Power is main­tain­ing that its risk has in­creased due to the prov­ince’s strug­gling econ­omy re­sult­ing from Muskrat Falls. It is worth not­ing that New­found­land Power had op­por­tu­nity to op­pose the Muskrat Falls project but chose to re­main silent. New­found­land Power can­not use this com­plic­ity of si­lencers a rea­son to seek rate in­creases from con­sumers.”

The way the com­pany puts it in its rate ap­pli­ca­tion is, “The com­pany’s long term growth is un­cer­tain. This un­cer­tainty re­flects a weak eco­nomic out­look for the prov­ince and ex­pected in­creases in the cost of elec­tric­ity fol­low­ing in­ter­con­nec­tion of Nal­cor En­ergy’s Muskrat Falls project.”

“In New­found­land Power’s view, the con­tin­u­a­tion of a strug­gling pro­vin­cial econ­omy and the com­mis­sion­ing of Nal­cor En­ergy’s Muskrat Falls project con­trib­ute to an aboveav­er­age busi­ness risk for the com­pany. This is sub­stan­ti­ated by ex­pert ev­i­dence filed with this ap­pli­ca­tion.”

“A shift from a pe­riod of sales growth to sales de­cline can be ex­pected to put pres­sure on New­found­land Power’s abil­ity to earn a fair re­turn.”

And that makes the com­pany less at­trac­tive from an in­vest­ment point of view, in­creases the cost of bor­row­ing, and means the com­pany de­serves a bet­ter re­turn to cover the risks it is tak­ing.

So, power rates have to go up more be­cause … power rates are al­ready go­ing up, and that’s af­fect­ing the econ­omy.

But if that’s the case, then won’t New­found­land Power’s rate in­crease hurt the econ­omy’s prospects and … re­quire more power rate in­creases?

(There are other is­sues in the rate ap­pli­ca­tion that should also give peo­ple in this prov­ince pause: like the fact that 83 per cent of New­found­land Power’s equip­ment and ser­vice costs are the re­sult of ser­vic­ing ru­ral parts of the prov­ince, and the util­ity says it ex­pects the ru­ral pop­u­la­tion on the is­land to drop by 25 per cent by 2036. “The cost of serv­ing a de­clin­ing num­ber of cus­tomers in ru­ral ar­eas will put ad­di­tional pres­sure on the com­pany’s abil­ity to re­cover the in­vest­ment in as­sets re­quired to ser­vice those cus­tomers.”)

Browne, mean­while, ar­gues that New­found­land Power’s af­ter-tax profits have in­creased steadily over the past four years, clos­ing in on $41 mil­lion in 2017 — and be­cause of that, “New­found­land Power can­not jus­tify any rate in­crease.”

Re­mem­ber when we were told that Muskrat Falls was needed to sta­bi­lize elec­tric­ity rates?

Now, it’s pretty clear that it is desta­bi­liz­ing them —- in a fright­en­ing fash­ion.

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