No discussion on power can happen in this province without factoring in Newfoundland Power Inc. Newfoundland Power is a subsidiary of Fortis Inc. It has the enviable position in Newfoundland and Labrador of being the sole retailer of power to customers in the province. Essentially, it buys power from Newfoundland and Labrador Hydro (NLH), a crown corporation controlled by Nalcor (the province's energy crown), and in turn sells it directly to customers.
I was able to piece together a historical summary of revenue for selling power vs cost of buying it. The history goes like this, with the percentage of profit before other costs beside it:
In the millions:
2012 581,000 - 380,000 - 35%
2011 573,000 - 369,000 - 36%
2010 555,000 - 358,000 - 35%
2009 527,000 - 346,000 - 34%
2008 517,000 - 337,000 - 35%
2007 490,000 - 327,000 - 37%
2006 421,300 - 257,200 - 39%
2005 420,000 - 256,000 - 39%
2004 404,400 - 244,000 - 40%
2003 384,200 - 228,000 - 41%
2002 369,627 - 210,764 - 43%
2001 359,305 - 202,479 - 44%
2000 348,413 - 199,266 - 43%
1999 342,001 - 192,775 - 44%
1998 335,751 - 191,586 - 43%
1997 343,677 - 190,711 - 45%
1996 341,560 - 192,114 - 44%
1995 338,934 - 191,081 - 44%
1994 338,367 - 188,352 - 44%
1993 333,570 - 186,146 - 44%
The near twenty year trend is clear - the profit in retailing power in this province has been steadily dropping, yet it still comes in at 35% before other expenses. Also, the cost of power to Newfoundland Power more than doubled in the last twenty years, but its profit margin decreased just 9%. This is the key factor.
In Part One of this series, Muskrat Falls Math - Into the Abyss, I outlined several scenarios likely with the construction of the proposed dam. In Newfoundland and Labrador, Newfoundland Power's cut has to be factored into the equation.
Given the current rate of power sold to Newfoundland Power on a wholesale basis is about 4.7 cents per kwh, the following scenarios are very real scenarios for us:
1. Current arrangements remain in place, and the dam produces only 510 MW as stated by Nalcor VP Gilbert Bennett capacity of Muskrat Falls is realized, the blended price Nalcor would have to wholesale the power at, to break even, is 13 cents per kwh. That is a 276 % increase in the wholesale price from today. Then there is Newfoundland Power's retail cut. Based on the historic percentages outlined above, Newfoundland Power's hike up could be as high as 35%. If that scenario were realized the cost to the average home for power would be 16.9 cents - with HST 19.09 cents. From the current rate of 10.4 cents, that is almost a 100% increase.
2. Combined lawsuits by myself, and Hydro-Quebec, render the Water Management Agreement unconstitutional. The maximum production of the project is 110 MW. In this scenario the base rate for wholesale of power rises to 15 cents per kwh - which represents a 300% increase in the current base rate. Add in a 35% hike up from Newfoundland Power and the new rate for rate payers would be 20.25 cents per kwh - with HST 22.93 per kwh. That represents a 125% increase.
When you consider that only 30% of Newfoundlanders and Labradorians pay any income tax (an indication of poverty within the province), the aging population of the province, and the loss of competitive advantage for industry, this spells economic disaster. Elderly people and low income earners can expect to pay twice as much for a bill that does not increase the quality of their lives. No extra economic spin off will result in benefits for businesses or their employees - other than the three year build period at Muskrat Falls. In fact, according to the Newfoundland and Labrador government, only 80 permanent jobs will be left created once Muskrat Falls is complete.All we will have done, as has been done with the economy (particularly in St. John's area) is create hyper inflationary pressures that can not be sustained given the debt and demographics of the province. In other words, the party will be over and the bill will be massive.
Here's to the crazy ones, the misfits, the rebels, the troublemakers, the
round pegs in the square holes... the ones who see things differently -- they're
not fond of rules... You can quote them, disagree with them, glorify or vilify
them, but the only thing you can't do is ignore them because they change
things... they push the human race forward, and while some may see them as the
crazy ones, we see genius, because the ones who are crazy enough to think that
they can change the world, are the ones who do.
US computer engineer & industrialist (1955 - 2011)