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Frequently Asked Questions

Why does Hydro adjust electricity rates based on the price of fuel?

Although we expect to use less fuel in the future, today we rely heavily on oil to operate our Holyrood plant and reliably serve customers – this has a direct impact on electricity rates. Because the price and quantity of fuel used is constantly changing, each year Hydro is required to file an application with the PUB to adjust rates – this ensures that customer rates reflect the actual cost of electricity generation from year to year.

This routine, annual adjustment is called the Rate Stabilization Plan (RSP). It is based on the amount of fuel used at our Holyrood plant to produce electricity over the past year, and the forecast price of fuel we expect to pay over the coming year.

How does the price of fuel impact electricity rates?

While most of our electricity in the province (85%) is generated from clean, renewable sources like hydroelectricity and wind, our system still relies heavily on oil to generate power at our Holyrood plant. The Holyrood plant produces about 10-15% of electricity needed by customers on the island each year, and fuel accounts for more than one-third of the cost to generate and deliver reliable electricity service. Because the amount and price of oil is constantly changing, Hydro is required to adjust rates each year based on fuel costs. We expect to use much less fuel in future, when the Muskrat Falls plant is fully online.

What is the forecasted fuel price for 2021-22?

Hydro provides the provincial regulator, the Board of Commissioners of Public Utilities (or PUB), with two fuel price forecasts each year – one for March and another for September. The most recent fuel price forecast for 2021-22 (prepared in March 2021) is $68.84 USD/barrel.

How much will this fuel price forecast impact electricity rates in 2021?

Although the forecasted fuel price continues to be lower than recent years, over the past 12 months Hydro used more fuel than expected at the Holyrood plant to reliably serve customers. As a result, most customers on the island and in L’Anse au Loup will see rates increase by 2.4% (or $2.40 for every $100 on a customer’s bill) effective July 1, 2021. The average rate increase for all residential and business customers as a result of this year’s adjustment is 2.5%.

This rate increase includes the effect of both Hydro’s and Newfoundland Power’s rate stabilization adjustments, and was approved by the Public Utilities Board on June 30, 2021.

How does Hydro forecast the price of fuel?

Hydro uses a long-standing approach, approved by the PUB, to forecast the price of No. 6 fuel.

Hydro uses a third-party oil market expert to provide the base price forecast in US dollars. In order to ensure Holyrood operates reliably for our customers, Hydro also has a very specific fuel requirement which commands a premium on the open market. As a result, a premium of $4.13/barrel is added to the base forecast price.

The following table provides a breakdown of Hydro’s most recent fuel price forecast (for the period from July 1, 2021 through June 30, 2022):

Forecast Price of No.6 Fuel $64.71 USD/bbl
Fuel Specification Premium $  4.13 USD/bbl
Total Forecast Price of No. 6 Fuel $68.84 USD/bbl
March 2021 USD/CAD Exchange  Rate 1.2574
No. 6 Fuel Price Forecast $86.55 CAD/bbl

*Note: Because fuel prices are typically traded in US dollars, they must be converted to Canadian when Hydro pays its fuel bill.

What type of fuel is used at Holyrood?

Hydro uses No. 6 fuel oil with a 0.7% sulfur content to produce electricity at Holyrood. In 2014, Hydro engaged a consultant (Stantec) to recommend a No. 6 fuel oil specification to ensure the reliable operation of the Holyrood plant. Due to this specific fuel requirement, a premium of $4.13 USD/barrel is added to the base forecast price that Hydro pays for fuel for Holyrood.

How much fuel do you expect to use at Holyrood for 2021-22?

We expect to use much less fuel at Holyrood in future. For 2021-22, we estimate that we will burn approximately 450,000 barrels of No. 6 fuel oil. In the past, we would use about four times that amount in a given year, on average.

What happens if fuel prices are higher or lower than expected?

Every month, we compare our actual cost of fuel to the cost customers paid. If customers pay more than the cost of fuel, these extra funds are set aside with interest and returned to customers the following year through the Rate Stabilization Plan (RSP), usually on July 1. Hydro does not make any profit off the price of fuel.

Here are the RSP rate adjustments we’ve seen over the past last several years:

2020 – no change (due to pandemic, one-time bill credit applied on customers’ bills – see below)
2019 – increase of 7.6% (includes rate change resulting from most recent General Rate Application)
2018 – increase of 4.2%
2017 – increase of 8.1%
2016 – decrease of 9.5%
2015 – decrease of 9.7%
2014 – increase of 4.0%
2013 – decrease of 8.0%

Why didn’t rates change on July 1, 2020?

As a result of the pandemic’s impact on the province last year, residential and business customers who would normally see their electricity rates adjusted on July 1st each year, instead received a one-time credit on their electricity bill for 2020.

The credit was based on Hydro’s expected fuel savings at the Holyrood thermal generating plant. The decrease in oil prices worldwide in 2020 meant it would cost us less to produce electricity – those savings were passed directly onto our customers.

For 2020, the one-time bill credit replaced the annual July 1st electricity rate adjustment that normally occurs through the Rate Stabilization Plan. The credit provided customers with our expected savings upfront – providing relief on electricity bills at the time, rather than spreading out the forecasted fuel savings over the usual 12 month-period.

To get information on how to be more energy efficient and save money on your electricity bill each month, visit takechargenl.com