24 October 2010

Williams announces political exit plan

Danny Williams always said that building the Lower Churchill was the only thing he wanted to do before leaving politics. He took a huge step down that road in 2006 when he rejected other options in favour of the supposed go-it-alone strategy.

With no markets and no money for the project, and with setback after setback in the environmental and land claims fronts, the odds were slim he could achieve that dream.

Slim odds, that is, until this weekend. Williams told provincial Conservatives he is trying to lure Nova Scotia and Emera  into a deal to build a greatly scaled down version of the project.  That confirms he is trying to cut a deal so he can leave politics.

The Telegram reports that:

The agreement would develop the smaller of the two parts of the project — Muskrat Falls — first and work towards the larger part — Gull Island — later on.

If the deal comes to fruition, Lower Churchill power would travel from Labrador to the Island part of the province first, to eliminate the Holyrood generating station.

There are more than a few problems with that proposal as the Innu Nation pointed out in a recent submission to the environmental review:

  • the capital cost of Gull Island includes the costs of the 230/735 kV switchyard (est. $130M), communications infrastructure (est. $70M) and other costs associated with construction of the first of the two projects – these costs would need to be borne by Muskrat Falls if it is constructed first;
  • cost savings, such as reuse of the construction bridge and construction camps, and staged mobilization from Gull Island will no longer be available to Muskrat Falls and must be added to its capital cost (est. $50M total);
  • construction costs at Muskrat Falls could potentially increase for other reasons as a result of Gull Island not being in place during construction, including costs for larger diversion facilities and cofferdams (est. to be determined);
  • based on the information in Table 23 of the Supplemental Report, the capital cost of Muskrat Falls is $2682/kW compared to $1902/kW for Gull Island meaning that it has a lower rate of return and will generate less cash flow; adding an estimated $250M to the capital cost of Muskrat Falls results in an estimated capital cost of $2985/kW.

On top of that, the residents of eastern Newfoundland would wind up bearing most of the costs for power they actually don’t need.  There is no plan to shut down Holyrood, as NALCOR has already acknowledged publicly, so the power isn’t needed to displace the diesel generators at that plant. Still, taxpayers would left paying for it.

And even if NALCOR did shut down the Holyrood diesels, the 2008 seizure of hydro-electric assets owned by three private sector companies coupled with the shutdown of the Abitibi mill at Grand Falls meant that NALCOR has more than enough generation to meet existing and forecast demand already. They just don’t need the juice.

It gets better. Weak electricity prices coupled with the front-end loading of capital on on Muskrat Falls would likely mean power sent to Nova Scotia, New Brunswick and the United States could only sell at heavily discounted prices. Even Muskrat Falls power at a break even price would likely be too expensive for the markets to bear.   That’s an old and fundamental problem with trying to sell Labrador power so far away from Labrador.

No problem for NALCOR, these days. Thanks to changes made to the Electrical Power Control Act in 2006, the Hydro Corporation Act, the Public Utilities Act,  and government policy, NALCOR wouldn’t suffer any losses. The company can export all the discounted power it wants  knowing that the people of Newfoundland and Labrador will wind up paying for it.

As for a federal loan guarantee mentioned in the Telegram story, the Premier can look forward to a truly sweet deal. In 2006, federal Conservative party leader told Premier Williams that a federal Conservative government would consider joining in the project in the same fashion as Hibernia.  That would mean only one thing:  an equity stake. What a massive climb down that would be to go from attacking Stephen Harper as a kitten-eating alien to welcoming him in on the Williams Legacy Project.

None of that would actually matter if Williams was planning to stay in Florida permanently before the next election, though.  He need only announce a memorandum of understanding with Nova Scotia and Emera to give him the excuse he’d need to go wheels up on the private jet. His successor would get the job of negotiating a deal.  And if the whole thing fell apart, Williams could just point to his successor and shrug.

If Williams is close to any sort of announcement on the Lower Churchill it can only be part of a plan for him to exeunt stage right, tout de suite

Well, that or this is just another part of Williams’ revival of the 1964 ploy conveniently timed for polling month. That could be another version of something BP noted in another post:

Interestingly enough, the rumour started to sputter a couple of weeks ago with talk of an impending Lower Churchill announcement in November.  Those of us who’ve been following the latest saga of the Lower Churchill didn’t see anything obvious on the horizon.  The environmental assessment process is bogged down with  significant problems. There are no markets and no money and the provincial government itself can’t afford to backstop the $14 billion project all by its lonesome.

Anyone who seriously thinks this is exactly what the Premier announced is in for a rude shock.

- srbp -

Almost immediate update:  Added reference to rumour about polling month from earlier post.


Mark said...

"On top of that, the residents of eastern Newfoundland would wind up bearing most of the costs for power they actually don’t need"

Labradorians get their river dammed with no local access to power. Meanwhile, residents of the northern peninsula and the West Coast get the province's most popular tourism scarred with a set of transmission lines, which bypass them to placate the Townies.
Then - if and only if there is surplus power, it might get sold elsewhere through a subsea cable, the cost of which will be backstopped by the provincial treasury. Whatever shred of political capital remains with the federal government is used to fund the rest of it, and any profits shared on Emera's terms.

I don't see how residents of eastern Newfoundland wind up bearing much of anything - they're the only ones receiving any benefit.

Edward Hollett said...

There is no need to build a line to Sin Jawns.


There are others who will be shafted by this scheme as well. I just singled out the townies because the townies are the ones who are supposedly benefitting from this.

Guess again.

Everyone should know that labradorians were never supposed to benefit under the export scheme. If they don't then thanks for reminding them.

WJM said...

At least we'll be proud.

PoscStudent said...

I think it's a great.

Why are you saying that Holyrood would not be shut down when that's exactly what Danny Williams said the plan was.

pig said...

This certainly goes a long way to confirming what you and WJM have been saying all along - that the Lower Churchill was just an imaginary project that would never be developed.

Same goes for yours and WJM assertions that there is no interest in or need for Lower Churchill power. If Emera and NSPI sign on to purchase power from the Lower Churchill you and WJM will be proven right once again.

Edward Hollett said...

@POSC: all you have to do is look at Hydro's long-term capital plan. They need to run Holyrood at about 25% capacity 24/7/365 to provide load balancing. In one post, I even quoted the phrase from NALCOR, something to the effect that Holyrood is essential.

@pig: it still is imaginary. The markets aren't there, the money isn't there, the enviro isn't there and the Innu aren't on side with the land claim.

He is trying to find a way to clue up so he can leave. That doesn't mean he'll find it and it doesn't mean what he said this weekend will wind up with anything concrete within the next 12 months. Still, it will be worth watching the details to see how many previous commitments will disappear.

It's a bit like doing the LC without redress. He already tried Quebec on that one for five years: equity, redress set aside but HQ just wasn't interested.

Still the biggest unreported story of 2009, at least in the conventional media.

Wm. Murphy said...

I see your close friend Danny Dumaresque and yourself are off the mark this morning with all of the answers about LC.

Well done!

Wm. Murphy said...

Interesting news from Canada's leading public policy think-tank, the Fraser Institute, in today's news.

I'm surprised you are not plucking away on your keyboard on this....if your previous comments about the work of the Fraser Institute is any indication, then I am all ears on how you reconcile this one??

Mark said...

Wm. - I'll take that one.

The Fraser Institute survey measures the fiscal performance of provinces and applies them to premiers. In the one hand, government expenditures, that's a fair methodology. On the revenue side, however, it doesn't make any sense.

Any thinking person can see quite readily where NL's revenues are coming from. And contrary to your own view, it isn't from Danny Williams' arse pocket or Oxford education. It comes from oil and mineral royalties.* And more specifically, it comes from oil and mineral royalties off of projects that have nothing to do with the current regime.

So if you were to look at the Fraser Institute's analysis for only those items over which the Premier did have some degree of fiscal influence - i.e. the expenditure side - the Premier's ranking is dead last.

Go read for yourself. The conclusion of the report should be that were it not for oil royalties, Newfoundland's Premier would be the least fiscally responsible in the whole country. The problem with the methodology is that the report presumes all revenue streams are sustainable, which is clearly not the case in a province which now relies so heavily on revenue streams from non-renewable sources.

*and, of course, a $2+ billion gift from Ottawa

Wm. Murphy said...

Thanks for setting the Fraser Institute straight Mark.

A couple of points

you said..."And contrary to your own view'

You have no idea what my view is...I only threw out the comment concerning the study by the FI.

also I find it interesting when you referred to the 2 Billion as a "GIFT"...nice choice of words don't you think.

Btw, have you heard the news that George Murphy has bailed on the Party...any thoughts or observations on that?

pig said...

@ Ed

You're certainly right about the markets and the demand not being there. Emera's interest in purchasing this power confirms that there is no demand and also confirms the Innu's suspicions that no one wants to purchase this power.

The fact that there is a party interested in purchasing the power, that is also not interested in purchasing the power, will only lessen the chances of environmental approval (which takes into account if there is a market and what the overall environmental impact or benefit will be).

Ursula said...

Murphy ,your last comment begs the question ,are you more interested in debate or character assassination ?

WJM said...

Emera's interest in purchasing this power

Emera is interested in talking about potentially purchashing "this power" - whatever "this power" would mean after you dedicate 500MW of Muskrat Falls' output, the more expensive of the two, to displacing Holyrood, and 200MW to Labrador West. That leaves 100MW, which can't be transmitted to NS (or anywhere else) economically.

Being interested in talking about maybe purchasing is not the same thing as purchasing. It's not so much the difference between window shopping and shopping, it's more like keeping a flyer that comes in the ad-bag instead of summarily pitching it into recycling.

(Sorry, St. John's residents who still don't know about this "recycling" thing and don't get the reference.)

Edward Hollett said...

Actually, Wally, it looks more like Emera would be a development partner with an equity stake in some or all of the project.

They'd still have to find buyers for the power and the capital to build it based on whatever markets are out there.

One of the things I noticed early on was the way a combination of legislation basically meant that ratepayers in the province would be carrying the financial load for this project. Looks like that might turn out to be the case.

The island already has stable supplies of low cost power, virtually all of which is provided by hydro. If they spent a few millions to upgrade the isthmus line, we would only need enough juice from Holyrood to balance off the load from the seized properties in central.

NALCOR's own demand forecasts don't justify any power from the LC at all and that was BEFORE GFW and S'ville closed.

ClaudeB said...

I sure hope Emera has good lawyers if they ever sign a contract with Nalcor... considering the cavalier way "property rights" are handled in Danny Williams' world.

Mark said...

Wm. - honestly I don't quite understand what all the fuss is, let alone what the fuss is about, not being an addict of Newfoundland talk radio.

It sure would be interesting to see how the local media would react if a former liberal were to become the director of communications in a Tory premier's office. Imagine how the media would react then. Similarly, I'm sure, just to be consistent

And I'm happy to correct the Fraser Institute on a lot of things. I like questioning pontificating know-it-alls. You should try it some time.

Mark said...

Surely, if taking an equity stake in an offshore project is a universally and unquestionably good thing, then giving an equity stake away to a Nova Scotia company on a Hydro project must be a universally and unquestionably _______ thing.

Edward Hollett said...

And don't forget, Mark, that the Old Man said part of this deal would be an approach to the feds. Well, as I already noted before the feds don't like loan guarantees. They prefer equity stakes.

If that were not enough, Stephen Harper has already indicated his support for an involvement a la Hibernia: equity stake.

Plus the Old Man already tried to sell HQ an equity stake, with redress put to one side.

Mark said...

Ottawa's loan guarantee will probably come from the revenue Ottawa gets out of Danny for the Hibernia stake.

Remember - Danny Williams and ahis lackeys, along with Jack Harris, Jack Layton and Ryan Cleary have been demanding and/or promising for several years to give that stake to Newfoundland for free, so to see the province paying for it (while reasonable) is quite a swallowing of crow on all of their accounts.

pig said...

@ Ed

"it looks more like Emera would be a development partner with an equity stake in some or all of the project."

According to whom or what Ed would Emera be a development partner? It may be so but you seem to be extrapolating from William's comments.

"They'd still have to find buyers for the power and the capital to build it based on whatever markets are out there"

Perhaps you don't know this but Emera, as the owner of Nova Scotia Power, is currently scrambling to find a way to meet its clean energy requirements mandated by NS. Nova Scotia Power relies on fossil-fuel energy for more than 80% of its load (which is over 2000MW) - Emera doesn't need to look for a market.

WJM said...

Remember - Danny Williams and ahis lackeys, along with Jack Harris, Jack Layton and Ryan Cleary have been demanding and/or promising for several years to give that stake to Newfoundland for free

Mark, Mark, Mark.

Nothing could be further from the truth.

The haven't been asking for it for free.

They have been asking that it be "returned", "repatriated", "patriated", "transferred", "allocated"; lot of other verbs, but not "given for free".

Edward Hollett said...

Part of the problem pig is that your political hero is pretty skimpy with factual information. After seven years though people are used to the 60 cycle hum from any Williams comment.

NL can't afford to build the project - even this scaled down version - on its own. It needs equity partners and Emera fits the bill.

You may have forgotten but I've mentioned the NS energy plan here before. NS is proceeding without the LC in the mix largely because they know it is a dodgy proposition.

As well, the intertie to NB would allow them to import power if need be much more cost effectively than from the LC via Newfoundland. The LC isn't the only green game in town. Lots of others are under development including ones in Nova Scotia. I've commented on all this before. Perhaps it wasn't included in your TPs.

But as a number of people have pointed out, there is a huge difference between what the Old Man said and a real project that is under construction. Wait and see. This could be as nebulous as the NS intertie secret deal that sort of wasn't.

Ultimately the problem here is that they don't have the cash, the markets or anything else needed to get it going. This scaled down version is a desperate attempt to meet political rather than business needs. It's like 1969 all over again.

Edward Hollett said...

And this just in from Canadian Press, pig:

"Emera spokeswoman Sasha Irving will only say that talks are ongoing with both Newfoundland and New Brunswick on an energy link."

Doesn't look like Emera is looking to buy power.

pig said...

Ed, I don't know how you have convinced yourself that Emera is not looking to buy power. It already buys energy from NB that is created by burning fossil fuels. It is currently trying very hard to develop a biomass project that will involve clear-cutting and is highly controversial in Nova Scotia. This year a cry went up when NS Power sought to increase residential rates by 12% and industrial by 20% - all because the cost of coal has increased(especially the cleaner stuff they're required to buy in NS. NSPI is required to replace several hundred MWs of dirty power with clean energy by 2020 and you say they're not worried about finding a steady source of affordable clean energy? Emera says they're negotiating with NL and you deny it? Emera has also said in the past year it is negotiating with HQ - what do you think they're negotiating for if they don't need to buy energy? Where is all of this clean energy coming from you claim is available - New Brunswick? PEI? New England?

Wm. Murphy said...

@ Mark

I like questioning pontificating know-it-alls. You should try it some time.

I thought I try it a lot...why do think I have a speed pontificating dial, to the comment section to this blog??

Also...you seem to forget that a former Liberal is the head of Tory communications on the 8th

Wm. Murphy said...

Ultimately the problem here is that they don't have the cash, the markets or anything else needed to get it going. This scaled down version is a desperate attempt to meet political rather than business needs. It's like 1969 all over again.

Ed...might as well get rid of the entire NALCOR team assembled for the LC.
Your observations are completely based on a blinding rage for the Premier. It is quite evident in your comments. The only way I can see you coming on side with anything remotely relating to NALCOR is if they gave you a job carrying around purple files.

Ifthey announce any plan then I assume that it will be based on cash, markets and "other things" (wha??) to make this work. If you honestly believe that anyone will go the 1969 route on this...then you are ceratinly not living in the real world. What an absolutely silly and stupid comment.
I also chuckle when you said that Williams announces an "Exit Plan"...so let me get this straight...the man is prepared to do a 1969 deal before he leaves politics...all righty then!!!

Edward Hollett said...

Read the CP article, pig, b'y.

Emera said it is negotiating a link.




Perhaps if you didn't approach these things with assumptions and preconceptions you might have an easier time being a wee bit skeptical about claims that, in the past, haven't been borne out. of course you'd also lose your automatic membership in the cult, but hey that might be a worthwhile price to pay.

Take the claim. Test it against known information. Draw a conclusion. If you assume the outcome you are bound to make a mistake.

So what if they are planning to buy the power? That doesn't preclude Emera from being an equity partner and it doesn't mean the power is going for sale in NS or NB. Remember that Emera is the customer in the wheeler deal but it is really just a middle man. So what if they aren't buying power and are just brokering it on?

Does your version ensure that what Williams said is 100% correct and the whole thing will be built for absolute sure?

You might want to go back and check to see what he actually said. Williams used a huge amount of conditional language.

That seems to me to be much more relevant. I've cast doubts on the whole thing based on information. You've been tossing speculation based - apparently - on your misreading of Williams and/or of what I've written.

Try a little skepticism sometime. You'll find it works wonders.

In the process, take a second look at:

a. the cost of the project.
b. the prices in the marketplace.
c. the cost (break even) for LC in any configuration.

Then see if you can make any of those match currently or on projections for 10 to 20 years down the road.

Go read the EIS documents and look at the comments about markets, capital etc and the financial viability of this approach.

Mark said...

Wm., re "seeming to forget"...get a dictionary. Look up the word sarcasm, and then re-read my previous comment.

Wm. Murphy said...

...another reason why we need a sarcasm font...;)

Ursula said...

Is the premier so "DESPERATE" for a "LEGACY"with the Lower Churchill Falls project, that he is willing to "sell the rest of us down the river", no pun intended .

At the rate he is going , our great , great ,great grandchildren will be footing the bill for this colossal mistake (ego).

Mark said...

@Ursula - the short answer is yes.

He knows what we're fighting for. It just changes month to month, on a go-forward basis.