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.

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