UARB Decision - Final

7/30/2019 UARB Decision - Final

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Upper Churchill Power The Unexamined Alternative

The UARB Decision

h i l h f dl d


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Th P i l I h N f dl d R

The UARB Decision

Executive Summary

On July 22, 2013, the UARB in Nova Scotia conditionally approved the Maritime Link Project.The approval was dependent upon the guaranteed availability of surplus energy representing

about 40% of Muskrat Falls production, being available at market prices over the 35 year term

of the agreement with Nalcor. This condition should not have been a surprise to observers of

the Nova Scotia hearings, as it intended to codify what was presented by Emera themselves in

their application to the UARB.

The UARB demand to guarantee both the quantity and price of surplus energy over the 35 year

term is not a minor condition, and should be properly explained to the people of Newfoundland

and Labrador. Yet in their July 27 and August 3 Letters to the Telegram, both Ed Martin and

Tom Marshall have not provided any commentary regarding the potential consequences of this

decision, nor have they offered any insight into how both Nalcor and Emera will proceed.

The implementation of the UARB condition will mean that Emera no longer will receive 20% of

the power for 20% of the cost. Instead, Nova Scotia will receive 60% of the power, for what

amounts to about 30% of the cost. Meeting the UARB condition will have an impact on the

final rate to the NL consumer. This paper will attempt to further explain the potential impacts

of this decision.

Based on the DG2 data provided by Nalcor to the PUB, there is a potential 37% increase in the

incremental rates charged to NL ratepayers for Muskrat Falls Energy if the conditions of the

UARB are met. This would be reduced to a 10% increase if all export revenue in the early years

of the project were used to offset the burden on the NL ratepayer. This is assuming that the

Holyrood thermal plant can be decommissioned as per the original plan If the allocation of


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The UARB Decision

Part I: Introduction

The decision by the Nova Scotia Utility and Review Board (UARB) to approve the Maritime Linkproject, with a condition that there must be surplus power available at New England market

rates consistent with Figure 4.4 of the Emera application, represents a fundamental departure

from the deal that was signed in November 2010. It is perhaps the biggest challenge that the

project has faced to date, having the potential to put both additional cost, and risk onto the

Newfoundland rate payer.


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The UARB Decision

Accordingly, the Board directs as a condition to its approval of the ML Project that

NSPML obtain from Nalcor the right to access Nalcor Market-priced Energy

(consistent with the assumptions in the Application as noted in NSUARB IR-37 andFigure 4-4) when needed to economically serve NSPI and its ratepayers; or provide

some other arrangement to ensure access to Market-priced Energy. In the Board's

opinion, such a condition should not create any practical difficulty because it would

simply codify what NSPML asserts is the effect of the arrangement in any case. It

would also confirm what NSPML already states is Nalcor's view of their future

relationship.

Yet the response from Nalcor, Emera, and the Provincial Government of Newfoundland

indicates that this decision was clearly not what they expected. Therein lays the great paradox

of Muskrat Falls. Why is a potential customer willing to purchase 60% of Muskrat Falls power

under a long-term contract, and at market rates, such a major issue? This paper will attempt to

explain why.

Part II: The Original Plan

Just prior to the decision gate 2 (DG2), in the summer of 2010, Nalcor made the decision to

proceed with the Muskrat Falls first option. The messaging from Nalcor has been very

consistent. Muskrat Falls is the lowest cost alternative to meet the provinces growing electrical

need. Although only 40% of the energy will initially be used for the island demand, the

domestic requirement will progressively increase until 100% of the Muskrat Falls output isrequired in 2052. This was effectively demonstrated within the July 11, 2011 presentation

Nalcor made to the Public Utilities Board as shown within Figure 2.


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The UARB Decision

Even though only 40% of the energy will be initially used by the ratepayers of Newfoundland, it

was communicated that the rate payer was responsible for paying for 100% of the project

costs. Both the provincial government and Nalcor also communicated that any revenue from

exports would not be used to lower rates for NL ratepayers.

A power purchase agreement (PPA) was proposed between Nalcor and its subsidiary

Newfoundland and Labrador Hydro (NLH) where the latter party would sign up to a take or

pay contract. NLH would be committing to pay for the progressively growing portion of

Muskrat Falls energy as shown in green within Figure 2. For the information of the reader, the

take or pay agreement will state that the block of power is provided to Newfoundland Hydro

for resell to the island consumer. If the power is not used, it must still be paid for.

As part of the 2010 deal, and in exchange of the construction of the Maritime Link, Emera

would receive the Nova Scotia Block consisting of 980 GWh energy delivered annually for 35

years. Figure 3 provides an overlap of the NS Block (980 GWh per year for 35 years)

superimposed over the take or pay commitment between Nalcor and Newfoundland andLabrador Hydro. As is evident from this graph even with the base plan, there was a shortfall in

energy in the period from 2038 to 2041. To the knowledge of the Author, Nalcor has never

explicitly stated how this shortfall would be met.


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The UARB Decision

the cost of Muskrat Falls energy for the Newfoundland ratepayer, Nova Scotia ratepayer, and

the market rate used for surplus energy. As evident the original plan had Muskrat Falls energy

initially being sold to NL ratepayers at some 4 times the rates assumed by Emera as being

representative of a competitive market .

Figure 4: Muskrat Falls Energy Costs Compared to Market (Ref. 6, 7)


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The UARB Decision

Part III: The UARB Condition

Figure 1, as submitted by Emera to the UARB, proposes a blended rate to the Nova Scotiaratepayer that is premised upon the availability of surplus power from both Nalcor and New

Brunswick. From the period from 2017 to 2041, there is some 1600 GWhr of energy that Emera

have assumed that they can purchase from Nalcor at the market rate. This 1600 GWhr

represents some 35% of Muskrat Falls production, post line losses. As shown within Table 2

this amount of power is assumed to be available from Nalcor from the period of 2017 to 2041.

Assuming this power comes from Muskrat Falls prior to 2041, the energy supply balance is

shown within Figure 6.

Figure 6: Energy Supply Balance Considering UARB Condition


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The UARB Decision

As Figure 5 so effectively communicates there will be a revenue shortfall if Nalcor sell the

additional surplus power at market rates only. If the Newfoundland ratepayer is still expected

to pay for the entire project, and export revenue is not used to offset the costs, meeting the

UARB condition will have an impact on our rates.

Table 3 provides a summary of the rates when considering the impact of the UARB condition.

This is summarized from the period of 2017 to 2040 in Figures 7 and 8. If Nalcor agree to sell

the required 1600 GWhr of energy to Emera, at the Market rates as per the UARB condition,

there will be an estimated 37% increase in unit rates to Newfoundland rate payers over the life

of the project. This is if provincial government maintain their policy of not using export revenue

to offset domestic rates. If all export revenue was used to lower domestic rates, there would

still be a 10% increase in rates. These numbers are based on the DG2 data provided by Nalcor

during the PUB process.


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The UARB Decision

Figure 8: Average Unit Rate for Electricity Paid By Newfoundland Consumers 2017 to 2041

This is a very simple demonstration of the potential impact of the UARB decision. There are

some additional points of consideration:

1) This assumes that the Holyrood plant would still be closed It is very unlikely that with


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The UARB Decision

Part IV: Other Sources of Surplus Energy

Within their application to the UARB Emera clearly promoting a blended rate from 2017 to2040 which is much lower than the rate for the Nova Scotia Block (980 GWhr) only. This is

verified on Page 23 of the Emera application to the UARB:

The original application had this surplus power from both Nalcor or New Brunswick. However

the majority of the 2 TWhr referenced above was intended to come from Nalcor, over the 35

years of the agreement.

If Nalcor maintain that Muskrat Falls will be developed primarily for the benefit of

Newfoundlanders, and they respect the original take or pay concept provided within Figure 2, it

is unclear where this additional Nalcor generation will come from? In their own submission to

the Newfoundland Public Utilities Board, Nalcor has effectively demonstrated that there is no

source of new generation in Newfoundland which can provide that amount of Energy, for

anything close to the surplus energy rate quoted in Figure 4 4 of the Emera application


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The UARB Decision

Yet Upper Churchill power seems to be possible solution to providing market rate power to

Emera. It must be remembered that Hydro Quebec are obligated to provide open access to

their power for Canadian markets prior to export to the US. Consider the following excerpt

from the 1994 decision from the National Energy Board, in granting an export license to Hydro

Quebec [Ref. 10]:

In the event that Emera does purchase Upper Churchill Power from Hydro Quebec, would they

then have access to transmission rights as a partner within the Labrador Island Link? In thecase of dispute resolution, would their 35% ownership in the LIL give them 35% of the

transmission capacity?


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The UARB Decision

Figure 8: Excerpt from Figure 1.2 of Emera Application to UARB noting 1200 MW capacity of LIL

Emera and Nalcor should clarify if the LIL has a 1200 MW rating. Was there an incremental cost

to go from the original 900 MW to the 1200 MW rating? If this additional cost exists, is it being

recovered under the Labrador Island Link agreement? Are Newfoundland ratepayers now

paying a premium for additional capacity to export extra power to Nova Scotia?

If power from the Hydro Quebec system is part of the solution to meeting UARB approval then


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The UARB Decision

Part V: Conclusion

It has been a month since the UARB decision was tabled, and to date there has been limitedpublic discussion by either Emera or Nalcor. However from Emeras recent quarterly statement

to the market it is very likely that re-negotiated agreement between the parties will again have

to be resent to the UARB for approval [Ref. 12]. This will extend the period until Nalcor can be

certain that they have a committed partner on the project. It is a precarious position at best.

However, the question must now be asked. If the revised deal between Nalcor and Emera has

the potential to increase our rates into the future, should the Public Utilities Board also beprovided the same opportunity for review to ensure it is in the same long term interest of the

Newfoundland and Labrador rate payer? As the expedited PUB review could be completed in

parallel with the UARB review it is certainly difficult to understand why this would not be

demanded by the tax payers of Newfoundland and Labrador.

As a minimum Nalcor and the Government of Newfoundland and Labrador should answer the

following simple questions regarding the any revision to the deal with Emera:1) Is there a potential that it will increase NL rates into the future from what was provided

during DG3?

2) In the absence of any additional generation (ie: Gull Island) can Holyrood close ifadditional energy is committed to Nova Scotia?

3) If energy from Alternate Sources is wheeled over the NL grid will Emera have to pay atransmission tariff similar to what Nalcor will pay Emera to wheel power into the US?

4) If Emera are planning to access Upper Churchill power at market rates, why did Nalcornot consider this power purchase when it confirmed Musrkat Falls as the lowest cost

ti ?


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The UARB Decision

References

1 http://www.pub.nl.ca/applications/MuskratFalls2011/files/comments/11-JM-2012-02-29-Rev1.pdf2 http://nsuarb.novascotia.ca/sites/default/files/documents/muskratfalls/m-2.pdf3 http://nsuarb.novascotia.ca/sites/default/files/decisions/m05419_decision_maritime_link_project.pdf4 http://www.pub.nl.ca/applications/MuskratFalls2011/files/presentation/Nalcor-ProjectOverview-July18-

11.pdf

5 http://www.pub.nl.ca/applications/MuskratFalls2011/files/rfi/CA-KPL-Nalcor-177.pdf6 http://www.pub.nf.ca/applications/muskratfalls2011/files/rfi/CA-KPL-Nalcor-27-Rev1.pdf7 http://nsuarb.novascotia.ca/sites/default/files/documents/muskratfalls/m-11_revised.pdf8 http://www.nl.dailybusinessbuzz.ca/Provincial-News/2013-01-10/article-3153832/NL%3A-Nalcor-to-

provide-energy-for-Alderon%26rsquo%3Bs-Kami-project/1

9 http://www.powerinourhands.ca/pdf/UpperChurchill.pdf10 https://www.neb-one.gc.ca/ll-eng/livelink.exe/fetch/2000/90466/94151/94159/94196/94260/1994-12-

01_Reasons_for_Decision.pdf?nodeid=94264&vernum=0

11 http://www.powerinourhands.ca/pdf/Agreement.pdf12 http://www.emera.com/en/home/mediacentre/recentnews/2013/newsreleasedetails.aspx?SourceParams

=reqid-1846769

13 http://thechronicleherald.ca/novascotia/1144536-dunderdale-link-never-hinged-on-review-board-decision
http://www.pub.nl.ca/applications/MuskratFalls2011/files/comments/11-JM-2012-02-29-Rev1.pdfhttp://www.pub.nl.ca/applications/MuskratFalls2011/files/comments/11-JM-2012-02-29-Rev1.pdfhttp://nsuarb.novascotia.ca/sites/default/files/documents/muskratfalls/m-2.pdfhttp://nsuarb.novascotia.ca/sites/default/files/documents/muskratfalls/m-2.pdfhttp://nsuarb.novascotia.ca/sites/default/files/decisions/m05419_decision_maritime_link_project.pdfhttp://nsuarb.novascotia.ca/sites/default/files/decisions/m05419_decision_maritime_link_project.pdfhttp://www.pub.nl.ca/applications/MuskratFalls2011/files/presentation/Nalcor-ProjectOverview-July18-11.pdfhttp://www.pub.nl.ca/applications/MuskratFalls2011/files/presentation/Nalcor-ProjectOverview-July18-11.pdfhttp://www.pub.nl.ca/applications/MuskratFalls2011/files/presentation/Nalcor-ProjectOverview-July18-11.pdfhttp://www.pub.nl.ca/applications/MuskratFalls2011/files/presentation/Nalcor-ProjectOverview-July18-11.pdfhttp://www.pub.nl.ca/applications/MuskratFalls2011/files/presentation/Nalcor-ProjectOverview-July18-11.pdfhttp://www.pub.nl.ca/applications/MuskratFalls2011/files/rfi/CA-KPL-Nalcor-177.pdfhttp://www.pub.nl.ca/applications/MuskratFalls2011/files/rfi/CA-KPL-Nalcor-177.pdfhttp://www.pub.nf.ca/applications/muskratfalls2011/files/rfi/CA-KPL-Nalcor-27-Rev1.pdfhttp://www.pub.nf.ca/applications/muskratfalls2011/files/rfi/CA-KPL-Nalcor-27-Rev1.pdfhttp://nsuarb.novascotia.ca/sites/default/files/documents/muskratfalls/m-11_revised.pdfhttp://nsuarb.novascotia.ca/sites/default/files/documents/muskratfalls/m-11_revised.pdfhttp://www.nl.dailybusinessbuzz.ca/Provincial-News/2013-01-10/article-3153832/NL%3A-Nalcor-to-provide-energy-for-Alderon%26rsquo%3Bs-Kami-project/1http://www.nl.dailybusinessbuzz.ca/Provincial-News/2013-01-10/article-3153832/NL%3A-Nalcor-to-provide-energy-for-Alderon%26rsquo%3Bs-Kami-project/1http://www.nl.dailybusinessbuzz.ca/Provincial-News/2013-01-10/article-3153832/NL%3A-Nalcor-to-provide-energy-for-Alderon%26rsquo%3Bs-Kami-project/1http://www.nl.dailybusinessbuzz.ca/Provincial-News/2013-01-10/article-3153832/NL%3A-Nalcor-to-provide-energy-for-Alderon%26rsquo%3Bs-Kami-project/1http://www.nl.dailybusinessbuzz.ca/Provincial-News/2013-01-10/article-3153832/NL%3A-Nalcor-to-provide-energy-for-Alderon%26rsquo%3Bs-Kami-project/1https://www.neb-one.gc.ca/ll-eng/livelink.exe/fetch/2000/90466/94151/94159/94196/94260/1994-12-01_Reasons_for_Decision.pdf?nodeid=94264&vernum=0https://www.neb-one.gc.ca/ll-eng/livelink.exe/fetch/2000/90466/94151/94159/94196/94260/1994-12-01_Reasons_for_Decision.pdf?nodeid=94264&vernum=0https://www.neb-one.gc.ca/ll-eng/livelink.exe/fetch/2000/90466/94151/94159/94196/94260/1994-12-01_Reasons_for_Decision.pdf?nodeid=94264&vernum=0https://www.neb-one.gc.ca/ll-eng/livelink.exe/fetch/2000/90466/94151/94159/94196/94260/1994-12-01_Reasons_for_Decision.pdf?nodeid=94264&vernum=0https://www.neb-one.gc.ca/ll-eng/livelink.exe/fetch/2000/90466/94151/94159/94196/94260/1994-12-01_Reasons_for_Decision.pdf?nodeid=94264&vernum=0http://www.powerinourhands.ca/pdf/Agreement.pdfhttp://www.powerinourhands.ca/pdf/Agreement.pdfhttp://www.emera.com/en/home/mediacentre/recentnews/2013/newsreleasedetails.aspx?SourceParams=reqid-1846769http://www.emera.com/en/home/mediacentre/recentnews/2013/newsreleasedetails.aspx?SourceParams=reqid-1846769http://www.emera.com/en/home/mediacentre/recentnews/2013/newsreleasedetails.aspx?SourceParams=reqid-1846769http://www.emera.com/en/home/mediacentre/recentnews/2013/newsreleasedetails.aspx?SourceParams=reqid-1846769http://www.emera.com/en/home/mediacentre/recentnews/2013/newsreleasedetails.aspx?SourceParams=reqid-1846769http://thechronicleherald.ca/novascotia/1144536-dunderdale-link-never-hinged-on-review-board-decisionhttp://thechronicleherald.ca/novascotia/1144536-dunderdale-link-never-hinged-on-review-board-decisionhttp://thechronicleherald.ca/novascotia/1144536-dunderdale-link-never-hinged-on-review-board-decisionhttp://www.emera.com/en/home/mediacentre/recentnews/2013/newsreleasedetails.aspx?SourceParams=reqid-1846769http://www.emera.com/en/home/mediacentre/recentnews/2013/newsreleasedetails.aspx?SourceParams=reqid-1846769http://www.powerinourhands.ca/pdf/Agreement.pdfhttps://www.neb-one.gc.ca/ll-eng/livelink.exe/fetch/2000/90466/94151/94159/94196/94260/1994-12-01_Reasons_for_Decision.pdf?nodeid=94264&vernum=0https://www.neb-one.gc.ca/ll-eng/livelink.exe/fetch/2000/90466/94151/94159/94196/94260/1994-12-01_Reasons_for_Decision.pdf?nodeid=94264&vernum=0http://www.nl.dailybusinessbuzz.ca/Provincial-News/2013-01-10/article-3153832/NL%3A-Nalcor-to-provide-energy-for-Alderon%26rsquo%3Bs-Kami-project/1http://www.nl.dailybusinessbuzz.ca/Provincial-News/2013-01-10/article-3153832/NL%3A-Nalcor-to-provide-energy-for-Alderon%26rsquo%3Bs-Kami-project/1http://nsuarb.novascotia.ca/sites/default/files/documents/muskratfalls/m-11_revised.pdfhttp://www.pub.nf.ca/applications/muskratfalls2011/files/rfi/CA-KPL-Nalcor-27-Rev1.pdfhttp://www.pub.nl.ca/applications/MuskratFalls2011/files/rfi/CA-KPL-Nalcor-177.pdfhttp://www.pub.nl.ca/applications/MuskratFalls2011/files/presentation/Nalcor-ProjectOverview-July18-11.pdfhttp://www.pub.nl.ca/applications/MuskratFalls2011/files/presentation/Nalcor-ProjectOverview-July18-11.pdfhttp://nsuarb.novascotia.ca/sites/default/files/decisions/m05419_decision_maritime_link_project.pdfhttp://nsuarb.novascotia.ca/sites/default/files/documents/muskratfalls/m-2.pdfhttp://www.pub.nl.ca/applications/MuskratFalls2011/files/comments/11-JM-2012-02-29-Rev1.pdf


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The UARB Decision

Table 1: Summary of Take or Pay Contract between Nalcor and Newfoundland Hydro Showing Increased Output

from Muskrat Falls. (Source: RFI-KPL-27-Rev. 1)


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The UARB Decision

A Muskrat Falls Discussion Paper Volume II Page 1

Exerpt from UARB IR-37 showing how the blended rate was calculated.


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The UARB Decision

A Muskrat Falls Discussion Paper Volume II Page 2

Documents

UARB Decision - Final