Perfect electrical storm

Why playing catch-up is going to be ruinously expensive

Russell Wangersky: Remember when times were good, our provincial pockets were full and we were building energy warehouses and planning Muskrat megaprojects? Well, it seems that while all that was going on, crucial parts of that warehouse didn’t get the kind of maintenance and care they needed.

Remember when times were good, our provincial pockets were full and we were building energy warehouses and planning Muskrat megaprojects?

Well, it seems that while all that was going on, crucial parts of that warehouse didn’t get the kind of maintenance and care they needed.

As the province’s Public Utilities Board put it recently, “The findings by the Board of imprudence by Hydro are significant; they reflect a failure on the part of Hydro management to exercise the reasonable standard of care expected with respect to those projects and expenditures reviewed. The consequences of this imprudence for customers are significant, both in terms of service adequacy and reliability as experienced during the outages of January 2013 and 2014, and in terms of costs.”

So now, when times are tough, we’re not only paying through the nose for overbudget behind-schedule projects like Muskrat Falls, but also making up for the money we didn’t spend in the past.

Late in 2015, Newfoundland and Labrador Hydro, reacting to concerns about reliability problems, brought in a 2016 capital budget — approved by the PUB — to spend $183,082,800 in capital expenditures, a large portion of that on multi-year projects. (That expenditure is expected to grow to $248 million in 2017 and $218 million in 2018.)

As the PUB describes it, “Hydro states that the increase in overall capital expenditure reflects the requirement for projects related to replacement and upgrade of deteriorating facilities, compliance with legislation, additions required to meet load growth, and inflation.”

All in all, repairs and upgrades at Newfoundland and Labrador Hydro will be $1.1 billion between 2015 and 2020. And it keeps growing. Since the budget was approved in late 2015, the utility has been regularly adding emergency projects to the 2016 work. At this point, there are four new projects that total $22 million: $5 million to buy generators to “black start” the Holyrood station in the event of a failure of the power grid, $11.8 million for emergency boiler repairs at Holyrood, $3 million to repair generators at Hardwoods and Stephenville and $2.25 million to move a power line away from a Northern Peninsula landslide. (If you’re counting, that brings the capital bill for 2016 to around $205 million.)

But even that is only part of the problem, because Newfoundland and Labrador Hydro is only one part of the warehouse.

Remember in 2009 when the provincial government seized Abitibi Bowater’s assets in this province and handed them over to Nalcor to manage? Part of those assets were the paper company’s interests in hydroelectric facilities in central Newfoundland.

And at least one of those facilities is also about to need critical repairs.

Nalcor doesn’t have to go through the PUB to get permission to launch projects, but because of the province’s environmental protection legislation, it does have to submit applications for dam repairs.

As part of a three-year initiative, the main dam at the former Grand Falls paper mill is going to undergo $20 million in repairs, including more than 2,500 cubic metres of new concrete to address, among other things, deterioration in the 110-yearold main dam.

All of it is money that has to come from somewhere. Can you guess where?

Problem is, the province doesn’t have money right now, and is squeezing taxpayers tighter with higher taxes and fees. As well, with oil prices at a historic low, the rate we’ll get for selling power outside the province has fallen.

And if there’s one thing you need to know about regulated utilities — whether they produce their own power or buy it from non-regulated affiliates — the dollars they spend always flow directly out of the pockets of ratepayers. Add in the substantial rate hikes coming from the well-overbudget Muskrat Falls, along with more than $1 billion in other capital work?

Plan for long, cold winters.