By Jaymie White, Local Journalism Initiative Reporter, Wreckhouse Weekly News
April 20, 2023
WEST COAST — On Friday, Mar. 31, the Department of Industry, Energy and Technology announced initial steps toward rate mitigation. As a way to limit future rate increases for customers and reduce financing costs accumulating in the Supply Cost Variance Deferral Account, the provincial government decided to pay off the remaining 2022 balance, which totaled approximately $190.4 million.
The Supply Cost Variance Deferral Account was created in Dec. 2021 after being approved by the Board of Commissioners of Public Utilities. This account incorporates supply costs that are related to the Muskrat Falls Project, and ahead of full project commissioning, Newfoundland and Labrador Hydro was required to begin making payments under the Power Purchase Agreement for the costs to build, finance, and operate the plant.
Setting up this account has allowed NL Hydro to defer the expenses and the balance that has accumulated in the account, and represents an amount owing from customers that is primarily due to payments made under the Muskrat Falls Power Purchase Agreement and offset by fuel savings.
Why the decision to pay off this account is important for customers to understand is because this deferral account records the differences between the costs to supply the Island Interconnected System and the costs collected from customers with electricity rates. Had this amount not been paid by the provincial government, customers could’ve seen those costs reflected on their bills.
“Muskrat Falls itself, the plant, was commissioned back in November of 2021, and what that meant was the costs then became owing, the bills started to back up. So what has happened since then is there is a separate bank account where those costs are going,” explained Andrew Parsons, Minister of Industry, Energy and Technology.
“That has continued to rack up since that time to roughly $190 million bucks. Up to this point, Newfoundland and Labrador Hydro would’ve had to borrow to pay this and it would end up that all of us who are paying power bills would be on the hook for this, and it would be a pretty substantial hit to our power bills, and I’m not aware of anybody right now who are saying they are interested in an increase in their power bill.”
It was avoiding this substantial increase that led to the decision to pay off the balance.
“We went ahead and made a $190 million grant to NL Hydro to pay this and the result of that is that Newfoundlanders and Labradorians, rate payers, will not see that increase reflected on their bill,” said Parsons. “That money we paid with was basically money we got from the Feds as part of the entire rate mitigation agreement that we struck.”
Now that the payment has been made in full, the balance resets.
“It will begin, again, to start to accumulate, and we will see where it goes. I’m not saying, at this moment, that we will do the exact same process in order to take care of it, but let’s just say that we are extremely cognizant of the impact on Newfoundlander’s and Labradorian’s bills,” said Parsons.
“I’ve said all along, ever since I’ve been here, that Muskrat Falls has been an issue that we’ve been saddled with, that we’ve had to deal with, at the same time that the PC’s (Progressive Conservatives) like to rail on about cost of living and stuff, they basically put the biggest burden on the people of this province when they rammed Muskrat Falls through. It’s been seven years of cleaning up a mess that was left to us and trying to be innovative in ensuring people can afford to live, something that’s challenging enough when you’re dealing with worldwide pandemics, when you’re dealing with inflation, and, in this case, this was a pain that was inflicted on us by a previous administration.”
Other significant work has also taken place:
• Term sheets have been signed and financing has been secured for the $1 billion federal loan guarantee
• Capital restructuring for Muskrat Falls and the Labrador Transmission Assets
• $1 billion investment by Canada in the province’s portion of the Labrador-Island Link.
Any implementation of final elements of rate mitigation are unable to be finalized until all parts of the Lower Churchill project, including the Labrador-Island Link, are fully commissioned.
MHA Tony Wakeham (Stephenville – Port au Port) believes the problem with rate mitigation starts at the top.
“There is a rate mitigation in place for the Muskrat Falls project that will kick in once that project is up and running, and yes, that will help to keep rates for taxpayers down for those that use electricity, obviously. But one of the problems I have with the rate mitigation that has been negotiated between the provincial liberals and the federal liberals is the fact that the majority of that rate mitigation proposal has the province of Newfoundland and Labrador borrowing more money. It’s based on the principles that the federal government will provide loan guarantees, but that’s still adding more debt to the provincial coffers,” said Wakeham.
“While it’s great to have rate mitigation, I would have much preferred to see the federal government take an equity stake in that project. They did announce they would take an equity stake in the transmission line. I believe there’s a billion dollars as part of the rate mitigation strategy for that particular piece, but not for the project in itself.”
High-power testing began on Mar. 30 for the Labrador-Island Link up until Apr. 6, and on Apr. 8, NL Hydro released a statement discussing the results.
“The second 700 MW high power pole trip test of the Labrador Island Link is complete. The system performed as expected without any customer outages. Power flows will stay at 675MW and be monitored for the next 12 hours as part of these ongoing tests.
“Although early in our analysis, we are pleased with how the Labrador Island Link performed during these tests. This last phase of testing was an important step toward final commissioning of this asset. Thank you for your continued patience—We know you are counting on us to provide safe, reliable energy, and we take that responsibility seriously.
“We will have more information in the coming days and weeks.”
Parsons said we have not seen the last of the province’s plans for rate mitigation.
“Right now, the Labrador-Island Link, the LIL, is still not commissioned. That is undergoing testing right now and, because that part is not commissioned, those bills haven’t become owed yet. There is still more to come because of this. We’re looking forward though, and hopefully when everything is working and it’s able to transmit power as intended, we’ll be able to move forward,” said Parsons.
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“The goal is to have a steady and solid rate mitigation plan that minimizes impact on consumers. It was because of our work we did on the rate mitigation with the Feds that we are able to deal with Muskrat. We just couldn’t hold off anymore. We had to deal with this. It would’ve eventually come to the point, sooner rather than later, that the bills owing would’ve become so large that we wouldn’t have even been able to borrow and pay for it.”