05 October 2012

Masters of our debt-ridden domain #nlpoli

Premier Kathy Dunderdale confirmed on Wednesday that companies looking to develop Labrador mines have been getting good results from their inquiries about buying electricity from Hydro-Quebec.

According to Dunderdale, the companies “understand that if Muskrat Falls does not go ahead, what happens in Labrador from that point on lies squarely in the hands of Hydro-Québec and the province of Quebec.”

She added:
Think about that! Does anybody have any confidence that, when mines in this province go to Hydro-Québec looking for energy for development in Labrador, they are going to get the best industrial rates in Atlantic Canada?
The provincial government wouldn’t be worried about the issue unless Quebec had power to sell. 
Think about it.

Quebec has loads of power available.  Their sales into the United States have plummeted what with the American recession and the advent of ultra-cheap electricity from shale gas.

Last year, Hydro-Quebec cut a 25 year deal to sell electricity to Vermont at five cents a kilowatt hour.  That’s how much juice they have to spare.  Hydro-Quebec announced on Thursday they were going to shut down a nuclear reactor rather than refurbish it.  The release cited increased costs and “falling market prices” for the decision.  That’s the real history of Hydro-Quebec that Dunderdale was talking about, not the fairy tales she and her predecessor have been spreading to fool the ignorant and gullible.

As Dunderdale knows, Alderon is talking publicly about getting electricity for its Labrador mine at four cents a kilowatt hour.  That’s well below the current industrial rate in Labrador.  There’s only one way they could get that price right now: buy it from Quebec.

That isn’t the story Dunderdale spun, but it is the reality of the electricity markets these days.  Hydro-Quebec can profitably sell electricity into Labrador at very low rates because it has so much electricity of its own from plants built decades ago.

Dunderdale’s story is a fiction simply because Hydro-Quebec and the Quebec government really don’t get anything out of shutting down development of mines in Labrador. To the contrary, they win if they get to sell electricity that otherwise wouldn’t be sold anywhere. And if the ore mined in Labrador goes out through the nearest port in Sept-Isles, well, that’s all good too.

Politicians like Dunderdale display nothing but utter contempt for the people of the province when they tell the sorts of demented fairy tales she told to the Board of Trade. 

And shame on the members of the board for swallowing such utter garbage. What’s worse is that not only did they give the Premier an endorsement and a standing ovation, the combined leaders of the province’s business community did not realise the simple business reality of Dunderdale’s speech.

Kathy Dunderdale is worried that miners can buy cheap electricity in Quebec. That means, logically, that Hydro-Quebec can ship the electricity into Labrador. If they can do that now, what would stop them from doing it after Muskrat Falls comes online?

Nothing, of course. 

Not a thing.

Well, not unless the provincial government here wants to abandon its plan to sell electricity to the United States.  After all, the same American FERC rules that allow Nalcor to wheel electricity through Quebec to the United States today mean that Newfoundland and Labrador must extend the same access to its transmission grid. 

If Newfoundland and Labrador shuts the border to electricity transmission, then the export rationale for the Lower Churchill vanishes faster than Danny Williams ran from office in 2010.

Pretty simple concept.

And if they keep the border open, having Muskrat Falls doesn’t ensure anything other than a big win for the miners like Danny Williams and the gang at Alderon. Instead of having Hydro-Quebec as the sole source, the miners will have two suppliers competing to sell electricity. The price the miners will pay will only go down. That’s the way the market works.*

In that kind of battle, Hydro-Quebec has the upper hand.  They already have huge amounts of electricity they can sell cheaply because the plants that make it are bought and paid for.  Kathy Dunderdale’s plan is to build a massive new project that would produce electricity at five or six times the cost Alderon is already talking about.

Remember:  the price will go down from four cents.

And that was using old numbers.  The new numbers for Muskrat Falls will likely be something like 40% higher.  And by the time the thing is done we can expect the cost to be another 20% or 25% higher than the new numbers.  You don’t have to be a math genius to figure out who wins in that case.

It won’t be the taxpayers of Newfoundland and Labrador.  You see, building Muskrat Falls doesn’t take Hydro-Quebec out of the picture. if the project is really all about Labrador mines, as Kathy Dunderdale now claims, then Muskrat Falls guarantees that taxpayers will deliver electricity to the companies at a tiny fraction of the cost of making it. Those mining jobs will be the most expensive jobs taxpayers in this province have ever bought.

That’s if the miners buy their electricity from Nalcor, of course.  If they let HQ and Nalcor beat each other senseless on price, they might well wind up buying cheap power from HQ.  If that happens, the people of Newfoundland and Labrador would be left with a lovely dam, an enormous debt, and no customers to pay for it. 

Well, none that is, except themselves.

We, as Newfoundlanders and Labradorians, are already the authors of our own destiny. The thing is, if Kathy Dunderdale and her associates write it, the book of our destiny will not end well at all.
 
-srbp-


*  Words added for clarity.

2 comments:

bouchecl said...

There is something I'm missing here. If Muskrat Falls was required to supply energy for new mining operations in Labrador, then Nalcor would not have to build the two subsea links and the north-south power line on the island. They'd connect the new generating station to the existing grid feeding Lab City/Wabush and solve Newfoundland's supply woes by different means (such as converting Holyrood to natural gas or build some potential hydro projects on the island). But at first glance, Alderon's power requirements are pretty minimal. On page 8 of their summary EIS for the Kami project, the company talks about building a new 46 kV substation or set up 2-1,200 kW diesel generators for construction, and 2-800 kW generators, one for the crusher and one for garages and offices. We're talking ~ 4 MW at peak. Frankly, I believe she's blowing smoke.

Edward Hollett said...

It's pretty much BS, Claude, if we were only talking about KAMI. other projects in various stages of development would need more electricity (firm demand) than MF could produce.