Ah that old contribution margin sneaking up on NS Power the way it did for NB Power. I noticed the following tweet from a CBC reporter yesterday:
Witherscbc Paul Withers: NS Power and stakeholders consider the future of power rates without NSP’s largest customer: NewPage. “Situation very serious.” #cbcns
There continues to be a fairly large group of folks who believe that large industrial power clients are ‘subsidized’ by the poor small business and residential customers. And it it strictly true that large customers pay less (just like just about any business under the sun there are volume discounts) but if you back out the power utilities fixed or semi-fixed costs, the very large customers are eating a huge portion of these costs that will not go away when the large customer goes away (i.e. that is why they are called ‘fixed’ costs).
Large industrial power customers could be charge a rate structure based on ‘contribution margin’ – that is they could be charged a rate that was lowered down to the point of the variable cost component – at that point other rate classes would be in a real subsidy mode.
This is a bit obtuse this morning, I guess – I hope it makes some sense. The bottom line is that residential and small business customers will have to pay more for energy if NewPage stays offline for a long period or closes forever.
I have argued that the best approach would be for NB Power and NS Power to treat the very large customers separately – maybe even a separate utility – where rate structures could be set to align with an average of competitor jurisdictions. Maybe we should let these companies buy power directly from a merchant supplier or some other solution.
Playing chicken with them where the choices are either ‘pay a high rate’ or ‘go under’ doesn’t seem to make sense to me.
A while ago I looked at several big U.S. forest products firms and they were increasingly producing their own power (directly). Maybe we should look at this although if we do – we will end up with more tweets about the eventual cost to other ratepayers.