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.

Steve Jobs
US computer engineer & industrialist (1955 - 2011)

Thursday, February 18, 2016

Dumping Canadian Hydro Power in the US Market

Electrical power exports from Canada to the the United States have traditionally made sense. The Americans had a seemingly endless need for more and more power that they couldn't keep pace with from their own resources. Conversely, Canada had massive hydroelectric sites - tapped and untapped. However, that hydro power relationship no longer makes economic sense. It can be argued that hydro is severely damaging environmentally, and that far better alternatives like solar, wind and wave make far more environmental sense. However, the argument has never been made that Canadian electrical power sales, created primarily by hydro dams, actually break US law.

Consider the following quote from the US Department of Trade:

 "What is Dumping?

Dumping occurs when a foreign producer sells a product in the United States at a price below that producer's sales price in the country of origin ("home market"), or ar a price that is lower than the cost of production. The difference between the price (or cost) in the foreign market and the price in the US market is called the dumping margin."


"Countervailing duties. United States law provides that a countervailing duty (CVD) be applied to imports when a foreign government, person or organization is providing a subsidy conferring an economic benefit to a "class of kind" of merchandise exported to the US. Actionable subsidies may include benefits conferred directly on exports or benefits that indirectly subsidize exports."

So, the question is: Do Newfoundland and Labrador hydroelectric power sales to the United States constitute "dumping?". The answer is yes.

The cost of producing Muskrat Falls electrical power and transmitting it to the Soldier's Pond transit station for export, was estimated at 23.9 cents per kwh way back in 2012 when the project was at the DG2 process and he price was in the vicinity of $6 billion (see here). Since then the project is now estimated to be over $2 billion more that originally forecast, and we have yet to see another "cost per kwh hour to Soldier's Pond" estimate. Furthermore, Nalcor must pay transmission fees to Emera of Nova Scotia to use the Maritime Link sub sea cable in order to transmit that power to Nova Scotia and then to the US. It must also pay transmission fees to New Brunswick for using its lines. It becomes very obvious that the cost to produce Muskrat Falls hydro power is atmospherically high.

Then consider that the entire project is being built by a Crown Corporation which is solely owned and subsidized by the Newfoundland and Labrador government, and the same government is investing over $3 billion directly into its construction. Then there is the issue of the Canadian government's $5 billion dollar loan guarantee to build the project, which reduced Nalcor's 50 year bond costs to below 3%. All in all, this project is a state owned and heavily subsidized venture. That in itself isn't a problem, but when you want to take that same power and export it to the United States it becomes one.

In the US 69% of plants are owned privately, but public ownership controls 73% of production - in other words there are a lot of small plants, but the big ones are owned by governments - primarily the US federal government. That is one aspect, but here is another - natural gas generated electrical power in the US is 5 times that of local hydro power (see here). In other words, natural gas generated electricity is a dominant player on the domestic US market.

Is Canadian hydro power sold into the United States at a loss? Take Muskrat Falls power as a case in point. As stated earlier, the conservative estimate of a kwh of Muskrat Falls power to the export point in Newfoundland was 23.9 cents at DG2 - it's much higher now. Now consider that the average price per kwh in the US for 2015 was about 2.5 to 3 cents a kwh (see here). That means Newfoundland and Labrador would be exporting power for sale into the US at about an 800% loss. Clearly, that is dumping in the extreme. In fact, and more importantly, it could cause US producers of natural gas to be less competitive in their own market by artificially depressing the market, and restricting their profits to expand - ditto for solar power or other such production.

Combine the obvious dumping of this province's power with the provincial and federal subsidies used to create it, and it seems like a very strong case of dumping could be made with the US Treasury and Commerce Department. Will it ever come to that? Frankly, I'm surprised it hasn't yet. It seems logical that US private producers would resent Canadian power being dumped on their market.

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