N.L. Hydro to subsidize power rates to the tune of $2 billion for next 6 years

The Newfoundland and Labrador government is finalizinga plan tosubsidize power ratesuntil 2030 which willcost Newfoundland and Labrador Hydro $2 billion.

The proposed planis to cap the residential domestic rate increases on the island of Newfoundland at 2.25 per cent annually called rate mitigation until 2030. It will cover Muskrat Falls and Newfoundland and Labrador Hydro costs.

Energy Minister Andrew Parsons said this will result in savings for affected consumers, citing an example that if an average monthly bill is $300, a consumer will now pay $307 in July 2024 as opposed to $500 they would have to pay without rate mitigation.

He said that amounts to $2,300 in savings during the period of July 2024 to June 2025.

WATCH | Energy Minister Andrew Parsonsbreaks down how rate mitigation will keep power costs manegeable:

What does rate mitigation mean for my power bill? Heres a ministers brief explanation

5 months ago

Duration 0:50

How would Andrew Parsons, Minister of Industry, explain electricity rate mitigation to someone who stopped him at the grocery store? Parsons faced that at a press conference about government efforts to keep power bills down. Parsons kept his explanation to less than a minute.

"It is unfortunate that we are in this situation as a province as a result of the Muskrat Falls project, and that this amount of money has to be spent to mitigate rates," Parsons said during the announcement on Thursday.

"However, finalizing this plan today provides certainty on Newfoundland and Labrador Hydro's annual electricity rate increases associated with the cost of Muskrat Falls, up to and including 2030."

Parsons said it will come into effect by July 1, although the planstill has to be approved by the Public Utilities Board.

The 2.25 per cent cap is also not the total cost consumers may end up paying for power, as Parsons said the PUB could approveother rate changes, such as a rateapplication from Newfoundland Power, ratestabilization, a municipal tax account or other adjustments not related to Muskrat Falls.

Currently, domestic electricity rates on the island are an average of approximately 14.3 cents per kWh.

Parsons also saidwithout rate mitigation, rates would have almost doubled 23.6 cents per kWh.

Frustrations over spending

The funding is from a $5.2-billion deal between the province and federal government to stabilize power prices, which was announced in 2021.

It includes $2 billion in federal financing, cash transfers equal to what the federal government makes from interest in theHibernia offshore oil project,and a $1-billion investment in Newfoundland and Labrador's portion of the Labrador-Island Link.

The provincial government is forgoing hundreds ofmillions of dollarsin revenue itwould otherwise getfrom N.L. Hydro, which the company will use for the rate mitigation.

Parsons said this plan is a step forward in providing certainty for customers who were facing doublingelectricity rates without any mitigation efforts put in place.

But he also voiced his frustration from a budgetary perspective because money allocated to rate mitigation is also needed in other areas, like housing, health care and the technology sector, he said.

"There's a hell of a lot of things we would like to be doing, but we were not given the decision to do that," said Parsons.

"That was the decision that was left to us, that we have had to assume we finally come to a good place because it could have been worse, could have been a situation where every ratepayer in this province was paying double."

Meanwhile, he said the government's financial obligations are increasing.

N.L. Hydro president Jennifer Williams said the Crown corporation has worked to cut costs and will support the government's rate mitigation efforts. Under this plan, she said N.L. Hydro will fund the rate mitigation through its earnings and operations through its foregone dividends.

"The portion customers pay in 2024 is less than 10 per cent of the annual cost of the Muskrat Falls project as a result of this plan. And the rates are some of the lowest in Atlantic Canada," said Williams.

She said Muskrat Falls is in full operation and they are seeing an increase in the percentage of renewable energy used by customers.

Future is uncertain

The proposed rate mitigation is for the next six years, up to and including 2030, but Parsons couldn't say what the plan was for beyond that point.

"Look, nobody can provide a crystal ball on where this world, this province or any of us are going to be in six years' time," he said.

Williams said she's anticipating some big changes between now and 2030 as more people shift from fossil fuel sources to electricity.

She said the challenge will be anticipating how quickly that shift happens and how N.L. Hydro handles it.

"We're really at the very beginning of this transition. By the time 2030 comes around, I think the whole landscape of the electricity sector is going to be radically different," said Williams.

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