Well look at that - SaskPower slips through a rate hike at the end of the week. Only a cynical person would think the choice of Friday in late summer was made in order to avoid public scrutiny or debate.
SaskPower issued a press release with a helpful explanation that the rate hike was equivalent to $1.70 per household each month (less than a cup of coffee - that should be fine!). And also some detail on "some of the investments" that necessitated the rate hike;
- $550-million upgrade to the Queen Elizabeth gas-fired power station in Saskatoon
- $33-million in maintenance and upgrades in and around Regina
- $6-million upgrade to a substation in Shaunavon
Well that's all well and good: maintenance, new generation, nice geographic distribution around the province. Check all those boxes.
And its only a cup of coffee.
Right, its Friday, let's go fishing...
Hang on a moment. Are we missing something?
Much of the following material is drawn from our March 2015 Financial Analysis of Boundary Dam CCS. Page references, from the report, are included below for anyone that wants to dive into the details.
The real reason for this rate increase
Would it not be reasonable to expect the aforementioned list of investments, which gave rise to this price hike, to include the single largest? Specifically: the $1.5-billion (pp 32) spent on the Boundary Dam Carbon Capture scheme in Estevan which opened in October 2014.
The list might also note that of the $1.5-billion total, $260-million is due to a capital cost overrun (pp 32). Additional costs are still pending. Maybe its also relevant that the entire scheme is unprofitable and will lose $1-billion over its lifetime (pp 18). That $1-billion can only be recouped by hiking rates for captive electricity users (which is you, by the way).
So where did the missing $1-billion go?
The $1-billion was not really 'lost'. Actually it was transferred (pp 18) to Cenovus Energy: a Calgary-based oil company.
So how does that work?
Cenovus is buying about 1 million tonnes, or essentially all, of the carbon dioxide captured annually at Boundary Dam. For each tonne it will pay about $23 (page 39). The actual price is 'confidential' (call us old fashioned, but this seems strange given the substantial public funds being spent).
$23, for one tonne of what is usually a waste gas dumped into the atmosphere, might seem like a good deal. In fact it would be a good deal if it cost less than $23 to collect that tonne. Unfortunately it cost substantially more: like $40 to $80 more.
Cenovus will pump the carbon dioxide into the ageing Weyburn Oil Field in order to increase crude oil extraction (pp 41). Specifically: Cenovus will recover an additional 2.5 barrels of oil for each tonne of carbon dioxide injected (pp 45). One doesn't need to be a rocket scientist to figure out that, even at current prices of $40 per barrel of oil, Cenovus profits handsomely from the deal. In fact over 30 years it will make well in excess of $1-billion (pp 18).
So, in summary, SaskPower loses at least $1-billion on the $1.6-billion Boundary Dam CCS investment while Cenovus gains at least that much - and most probably quite a bit more.
And how much is Friday's rate hike?
In theory 2 percent, or $1.70 per household per month, sounds quite harmless. But that is not the full picture and to understand why one needs to go back to SaskPower's original rate increase request.
On October 25, 2013 SaskPower submitted a multi-year rate application to the Saskatchewan Rate Review Panel (SRRP). It sought a system-average rate increase of 5.5 percent to take effect January 1, 2014, a 5 percent increase to take effect January 1, 2015 and a further 5 percent increase effective January 1, 2016 (pp 89). Due to the wonders of compounding this represents a 16.3 percent rate increase over 3 years. Nice if you can get it.
After review and in April 2014, the SRRP approved the Year 1 & 2 rate increases as requested but denied the January 1, 2016 request (pp 89). The January 2014 5.5 percent rate hike went ahead as planned but in September 2014 Minister Boyd, always looking out for the best interests of Saskatchewan's hard-pressed electricity consumers, stepped in to reduce the 5 percent 2015 rate increase to 3 percent. What a nice man.
Hang on. Wasn't that random act of kindness reversed by Friday's rate hike? Err - actually it was. So and given that SaskPower reversed a Ministerial decision which was less than a year old; it seems reasonable to assume that the 5 percent requested for 1 January 2016 may also be reinstated. But we'll let that one slide for now..
So the reality is that Friday's 2 percent rate rise was part of a 2-year, 10.8 percent (due to compounding) electricity price increase. Or, to put it another way, this equates to $135 annually per household or just over $11 a month. In other words: more than a cup of coffee (unless you take your coffee at the Ritz) .
For many years there has been under-investment in our electricity network and it would be hard to argue either with the need to invest $1-billion annually in new generation and transmission assets ('Strategic Priority #1', page 38, 2014 SaskPower Annual Report) or in asking ratepayers to pay for it.
Problems however arise when, as has been the case, that $1-billion is being used to line the pockets of publicly traded oil companies at the expense of Saskatchewan ratepayers. Questions need to be asked. Actually questions have been asked - the problem is that nobody is answering.
To be fair: the $1-billion loss at Boundary Dam is a legacy issue which the current SaskPower CEO, Mike Marsh, inherited from the last one (Robert Watson - who resigned in October). It is also to his credit that Mr Marsh, by having his photo in the announcement of the rate increase, did not seek to shirk responsibility for it.
Nonetheless and if Mr Marsh is genuinely "committed to spending your money where it counts – and that’s improving our system for you", a good start would be to publicly cancel the two further carbon capture schemes, with a combined capital cost of at least $2-billion, that are currently planned for Boundary Dam Units 4 and 5.