The Muskrat Falls inquiry is hearing some dire warnings as it enters a new phase that looks at the financial impact of the hydroelectric megaproject.

On Tuesday the inquiry heard from eight people who shared concerns about what will happen when the annual $700-million bill for Muskrat Falls needs to be paid.

"Without rate mitigation electric heat may no longer by an affordable option," said Kevin Fagan, who's in charge of regulatory affairs for Newfoundland and Labrador Hydro.

Rates going up

Even under the original plan for Muskrat Falls, power rates would have gone up 20 per cent. But with cost overruns, and the total bill hitting almost $13 billion, rates are expected to spike up 86 per cent.

The province has come up with a plan to reduce that increase, but is using hundreds of millions of dollars of government money.

And that plan covers only consumers; Muskrat Falls could also double power rates for industrial customers. That's bad news for a small number of big customers like Corner Brook Pulp and Paper and the Vale processing plant at Long Harbour.

The Muskrat Falls Inquiry heard from eight people on Tuesday, including, from left, Denise Hanrahan, deputy minister of finance; former NDP leader Lorraine Michael; Jerry Earle, the president of the Newfoundland and Labrador Association of Public and Private Employees; and Bernice Hancock, head of the Community Education Network, who presented their perspective on the impact of the project on the financial future of the province. (Peter Cowan/CBC)

Increases like that "could prompt the closure of industrial facilities," said Fagan.

It could also lead them to generate their own power and unplug from the electrical grid — bad news for all customers because if they stop helping to pay for Muskrat Falls costs, those costs must be passed on to everyone else.

Fagan said they may need to look at subsidizing power rates for industrial customers to keep them on the electricity grid.

Reduce power, pay more

The head of Newfoundland Power told the inquiry that energy usage actually declined last year, while the number of heat pumps being installed went up almost 60 per cent.

If that turns into a trend it could send electricity rates even higher, said Peter Alteen. Even just a five per cent drop in electricity demand would send rates up four per cent.

The drop in demand would free up power to be sold on the open market, but customers elsewhere won't pay nearly as much for the power as customers in Newfoundland will, and the costs for Muskrat Falls are fixed and need to be paid.

Rebate programs may go

Right now there are rebate programs to encourage people to insulate their basement or attic, or switch to LED light bulbs, because it reduces the amount of expensive oil needed to generate electricity at Holyrood.

But reducing demand only drives up costs, and so the head of Newfoundland Power said changes are coming. He said many of the programs are wrapping up, and in the next six to nine months there will be different programs with different aims.

"I think that the next generation of (consumer demand management) programs will be more focused on shifting load to off-peak hours and making your energy system less peaky to the degree that it can," said Alteen.

Avoiding a death spiral

The concern is that prices will keep rising, which in turn causes people to reduce their energy usage, which continues to drive prices higher, in what's known as a "death spiral."

"Its hard to draw conclusions on the likelihood of a utility death spiral," said Brandon Schaufele, an assistant professor at the Ivey Business School in London, Ont. He said there aren't many examples where rates took a large leap in a short period of time.

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