Emera-Nalcor Deal Could Meet UARB Conditions, But Risks Remain

Nalcor, the Newfoundland and Labrador utility developing Muskrat Falls, and the Nova Scotia Utility and Review Board have been on a collision course.

Nalcor wants to keep a big chunk of the project’s power for use in promoting the province’s future economic growth. Until large customers emerge, Nalcor would sell that power in the open market.

The URB approved the Maritime Link transmission line, Emera’s contribution to the project, on the condition that the Nova Scotia utility obtained more market-priced power from Muskrat Falls or elsewhere. Only that way, the board reasoned, could Nova Scotia’s customers be assured that the new power supply was the lowest cost option.

Nalcor and Emera have now made a deal under which they claim Newfoundland and Labrador’s growth goals and the URB’s requirements can be met. Nalcor says that it will keep “firm” power, energy that’s available even at the lowest hydro flows, and sell Emera “non-firm” or surplus power, energy that’s available in most years when there are good hydro flows.

Nova Scotia will be first in line to get Muskrat Falls surplus power. And it will pay either the Massachusetts market price or a higher price if Nalcor finds another buyer willing to pay more.

If the surplus energy does not meet the amount originally forecast by Emera and accepted by the URB, the two utilities must make up the difference at the market price. This amounts to a guarantee from Emera, and also Nalcor, to supply that power at the market price and is the key piece of the deal.

Emera is responsible for the first slice of any shortfall. The deal apparently means that if the cost of the power from Emera to make up a shortfall is above the market price, the Nova Scotia company, not its ratepayers, would take the loss. The URB will probably want to nail down that obligation to eliminate any ratepayer risk.

Nalcor would have to take on the same obligation for its backup responsibility in case of a major shortfall above the first slice, but there’s no regulatory supervision of its Muskrat Falls commitments.

If the Emera and Nalcor corporate backup of the Emera obligation is real, the two utilities seem to have found a somewhat complicated way to ensure Emera of the market-priced energy that the URB demanded.

The deal helps provide Nalcor with an assured market for surplus power. That could relieve some Newfoundland and Labrador ratepayer risk. And it could ensure Nova Scotia customers have access to enough market-priced electricity to make the deal work economically.

Emera may use new wind power generation to meet any need it would have to fill a supply gap. And Nalcor would help it deal with any supply swings when there’s not enough wind.

Still, the deal could leave Nalcor’s customers exposed to significant risk.

If the desired economic development does not take place and Emera and other buyers can access cheaper power elsewhere, Nalcor’s customers might be stuck with firm power that cannot be sold. Under Muskrat Falls rules, the customers, not the utility, would pay.

If Nalcor and the Dunderdale government gave up the risky policy of keeping power in reserve for possible economic development, Nalcor could make a commitment to sell “firm” power to Emera at the market price.

That would be a simpler way to meet the URB conditions and would reduce risk for Nalcor’s customers.

In an Atlantic Institute for Market Studies study, a colleague and I have proposed another approach that could be used when Muskrat Falls comes on line in 2017. We suggested an Atlantic power pool that could protect customers in both provinces.

Under a power pool, energy is used on a regional basis, with customers paying the fuel cost of each resource used, starting with the cheapest. Because hydro and wind have no fuel cost, they would be guaranteed a market and would be paid a predetermined price, based on other generators’ costs.

That would provide an incentive for more renewables, protect Nalcor’s customers and ensure the supply that Emera needs under the UARB order. It could lower energy costs across the region.

To make a power pool work, transmission connections among all four Atlantic provinces would be needed. That would make the Maritime Link essential.

Past efforts at regional co-operation have failed, because provinces did not want to give up control over their own generators. A power pool would not require them to do that and would even let them keep some units out of the regional arrangement.

A power pool would allow the kind of concern UARB showed for Nova Scotia customers to be reflected in all four Atlantic provinces.

Gordon L. Weil is Senior Fellow for Electricity Policy at the Atlantic Institute for Market Studies. A former public advocate and director of the Office of Energy for the State of Maine, he is a licensed energy broker, holds a PhD in public law and government from Columbia University, and lives in Harpswell, Me

This piece is featured in the Chronicle Herald’s opinion section, found here: http://thechronicleherald.ca/opinion/1162972-atlantic-power-pool-would-insulate-ratepayers

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