Former Hydro VP defends decision to exclude conservation savings from isolated grid costs

The controversial decision to exclude the potential benefits of conservation strategies on the island's future electricity needs in the lead-up to sanctioning of Muskrat Falls was defended Tuesday by a former executive with Newfoundland and Labrador Hydro.

"Because it's an isolated system, you don't have the luxury of knocking on your neighbour's door when you get in trouble," said Paul Humphries, who was vice-president for system operations and planning at NL Hydro, a subsidiary of government-owned Nalcor Energy, prior to his retirement more than two years ago.

Humphries testified Tuesday at the public inquiry that's investigating Muskrat Falls, and why the project is billions over budget and years behind schedule.

A 50-year forecast

Humphries oversaw a team that prepared an analysis of the future costs of maintaining the isolated island power grid, which was the alternative to the Lower Churchill Project, which includes the Muskrat Falls hydro-generating station and the Labrador-Island Link.

Both options were developed using a 50-year forecast for power demand, and were compared based on the future costs of both options through a formula called cumulative present worth, or CPW.

Studies by Nalcor determined the revenue requirements for the Muskrat option was more than $2 billion lower than the isolated option, with government agreeing to sanction Muskrat in late 2012 as the least-cost option.

'Blatant' disregard

But Nalcor did not factor in any drop in demand for electricity as a result of conservation by residential, commercial and industrial customers.

That's despite the fact a 2008 report by a consulting company called Marbek determined there were "significant" opportunities to lower the demand for electricity.

Energy consultant Philip Raphals accused Nalcor of "blatantly" disregarding CDM — an acronym for conservation and demand management — during his testimony at the inquiry in October.

Raphals said he's not aware of any North American utility company excluding CDM savings when developing a power plan.

Grant Thorton also raised the issue in its forensic and investigative audit into the decision to sanction Muskrat Falls, saying this and other factors may have resulted in an "overstatement" of the island's electricity needs, and therefore a higher CPW for the isolated option due to its reliance on oil-fired generation, which is costly and more unpredictable than hydro power.

'End of the world'

During questioning by inquiry co-counsel Barry Learmonth, Humphries was repeatedly challenged on the subject. But the retired engineer said he just didn't have enough confidence in such savings to include them in his analysis for the isolated option.

He said conservation programs had not achieved very good results up to the point of sanctioning in 2012, and the fact Newfoundland was an isolated system meant the risk was just too great.

"The interconnected North American grid is a very strong grid. With lots of interconnections. Lots of reserves," said Humphries.

"If utilities on the interconnected system do not achieve the full potential they expect, it's not the end of the world. In our isolated case, if we were counting on that load reduction to serve the load, it could effectively be the end of the world from a utility perspective."

If Hydro had relied on conservation to meet its targets, Humphries said, "in all likelihood at some point the lights would go out because we would not have enough generation to serve the load."

Humphries said such a scenario does not exist anywhere else in North America, with the possible exception of Hawaii.

"Back in 2012 there was not enough data available on the success of the program that would lead me to want to take the chance," he said.

"I had a real concern that if that did not materialize we would be left short."

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