Owing it forward #nlpoli

The provincial government will balance its books this year by borrowing $2.1 billion.

Lots of people don’t know that,  as Michael Caine would say.

The government included in its budget plans this year a hike in the HST of two percent.

The tax hike will bring in $200 million.

That $200 million will just about cover the interest in one year on all the new debt the provincial government plans to add between now and 2021.

The $2.1 billion this year is the tip of a very big iceberg of new debt, you see. The new debt will go on top of the other $12 billion we already owe. The total cost just to pay the interest on that debt in 2021 will be $1.0 billion.

When people found out about the HST hike, they lost their minds.

Fast forward to 2017.

Hydro-Quebec to get Muskrat Falls electricity #nlpoli

Under a complex arrangement, Nalcor will send electricity from Muskrat Falls to Quebec in place of electricity from Churchill Falls during some months of the year. 

Nalcor hasn’t disclosed any other details of the arrangement. It appears Nalcor’s Muskrat Falls company will swap the electricity  - possibly free of charge - with its affiliate Churchill Falls (Labrador) Corporation, which will send it to Quebec under the terms of the 1969 contract at 1969 prices.

And rather than getting electricity from Muskrat Falls, Nova Scotians could receive electricity from Churchill Falls or any of Nalcor’s other hydro-electric generating stations on the island

You can find aspects of the arrangement in a clip from NTV.

There’s more to it, though.

The Hollowmen of Newfoundland and Labrador #nlpoli

Some of you may have been surprised to find out this weekend that Nalcor has a scheme to import cheap electricity into the province.

A couple of Nalcor officials could barely contain their excitement in an interview with the Telegram’s James McLeod. Here’s the idea in a nutshell:

Essentially, Nalcor would slow down or shut off some of its hydro dams and let the water build up in the reservoir, while buying cheap power from the market. Then later, during peak demand times on the mainland, Nalcor would run the hydro dams flat out and turn a profit.

You are probably scratching your head because the provincial government has always insisted Muskrat Falls was the cheapest way to supply the province with electricity.

Well, now you know they lied.

But that’s really the smallest implication of the weekend story.

Water Rights, Muskrat Falls, and the Muskrat Falls Disaster #nlpoli

Forget everything else that you know about Muskrat Falls.

The entire project hinged on Nalcor's ability to control water flows on the Churchill River.  Nalcor's internal assessments showed that without the ability to control water flows, Nalcor's Lower Churchill project would reliably produce only about 17% of its nameplate capacity.  That means that Muskrat Falls would have a firm generating capacity of about 140 megawatts,  which is less than the free block of power Nalcor guaranteed Emera and Nova Scotia.

Nalcor gambled on a dubious interpretation of the 1969 power contract and lost.

The impact on Muskrat Falls will be devastating.

Here's why.

A muskrat by any other name... #nlpoli

Memorial University economist Jim Feehan proposed in the December issue of Canadian Public Policy that the provincial government should change the way electricity is priced in Newfoundland and Labrador once Muskrat falls comes on stream.

Now to be clear,  the way government prices electricity will already change for Muskrat Falls.  The project is so financially odious that the only way its proponents could get it off the ground in the first place is to force local taxpayers to bear the full cost of the thing, plus profits to everyone involved except themselves.  That's what will happen.

The provincial government used to have a policy to ensure we had the lowest cost electricity possible. No any more.  With Muskrat Falls, we get the most expensive electricity possible and may well wind up with the most expensive electricity in Canada.

Now Feehan is suggesting that we price electricity  based on the external markets in the fashion that the pricing will be set for the Nova Scotia block.  Unbundled transportation costs and let people see what they are paying for that.  And allow other costs of providing electricity,  like fluctuations in oil prices, show up directly on consumer electricity bills.

Alternatives to the Falls #nlpoli

Since people are wondering if Muskrat Falls really is still the cheapest way to make electricity for local use,  let’s take a look at it.

The tale is actually very simple.

Nalcor argued that Muskrat Falls was cheaper than one alternative:  an island system dependent on thermal generation using some sort of petroleum fuel like the heavy stuff burned at Holyrood.

Now that wasn’t true even in December 2010, as this SRBP post noted at the time. Even if you accept the contrived studies used in 2012 to justify Muskrat Falls,  the massive cost increases for the project have made the Falls more expensive than the alternatives. 

The only advantage Muskrat had over thermal (oil) was fuel and those prices have gone in one direction:  down.  Since you can build a new thermal plant near to the demand source, you wouldn’t need the expensive connections to the mainland.  That all works for oil-fired generation and against Muskrat Falls.

Oil prices have plummeted in recent months and are forecast to stay low,  Muskrat Falls’ only advantage is definitely gone.

Poof!

Nova Scotia would get Churchill Falls power for free #nlpoli

If you’ve been following the ongoing Muskrat Falls saga, you will recall that energy analyst Tom Adams raised some questions a couple of months ago about whether or not Muskrat Falls could actually produce the power Nalcor and the provincial government claimed.

The problem basically came down to this: 

• January through to March is when Muskrat Falls needs to produce the most power.
• That’s when Holyrood would be cranking at full tilt to meet demand on the island for lights and heat in the winter months.
• At the same time, the Nova Scotians will need to get their guaranteed block.
• Upstream, Churchill Falls will be cranking at full tilt to feed Quebec under the 1969 contract and the 1998 Guaranteed Winter Availability Contract
• But the water flows in those three months are the lowest for the year.
• And at that point, Muskrat Falls would have a problem generating much more electricity than Holyrood did, despite the fact that Muskrat is – on paper – considerably larger.

Nalcor’s official line is that the water management agreement imposed by the public utilities board gives Nalcor access to the Churchill Falls reservoir. 

With production at Muskrat Falls completely integrated with Churchill Falls, this means that during May and June Muskrat Falls will be producing at full output, and the resulting production not required on the island will be displacing production at Churchill Falls. This energy will be drawn down when rivers flows are lower, and during peak winter periods when electricity demand is higher on the island.

Problem solved.

Yeah, well not really, as you will see in a little bit.

Nalcor promising Boston cheap electricity courtesy of NL taxpayers #nlpoli

Muskrat Falls is over budget, big time. The latest estimate is $7.4 billion and climbing on a project that was forecast at $5.0 billion just four years ago.

The project will wind up behind schedule, most likely.

There’s a good chance Nalcor won’t have enough control over water flows on the Churchill River to meet its forecast firm generating capacity from the smaller dam let alone the theoretical project at Gull Island.

But that hasn’t stopped Nalcor from pitching Muskrat Falls and Gull Island to the good folks of Massachusetts with electricity at prices that would be – conservatively – about one third of what Nalcor’s owners will have to pay for electricity from Muskrat Falls.

Mitigating Muskrat Falls: Ron, Harry, and Hermione are still baffled #nlpoli

Mitigating the impacts Muskrat Falls will have on taxpayers of Newfoundland and Labrador remains the single biggest unanswered question in the province nine years after the project started and the politicians first started talking about how they might do it.

To mark the 14th anniversary of The Sir Robert Bond Papers,  here's the tale from 2010 to now.

Most people in Newfoundland and Labrador finally noticed the impact Muskrat Falls would have on electricity prices when Nalcor chief executive Stan Marshall confirmed that Muskrat Falls would double electricity prices in the province once it was finished in 2021. 

That was the middle of 2017.

The word “mitigates” - to make less severe or painful - became popular overnight.  Since Marshall’s comments, just about all that anyone in Newfoundland and Labrador has fretted about is how the government will make electricity prices not double because of Muskrat Falls.

But here’s the thing:  Muskrat Falls was always supposed to double your electricity prices. Right from the start – November 2010 – the provincial government talked about electricity prices of between 14 and 16 cents wholesale, which would have made the retail cost in this province about double what it was at the time.  No worries, people like Kathy Dunderdale said.  Oil prices will be so high and electricity prices will be so high by 2017, anyway, that you will never notice Muskrat Falls except that it will stop prices from climbing higher.

Electricity prices, risk, and what the editors didn't say #nlpoli

Okay.

What Muskrat Falls will do to electricity prices is not funny.

Never was.

But what *is* extremely funny are columns like Russell Wangersky's latest hand-wringer about the most recent round of electricity rates hikes.

Remember when we were told that Muskrat Falls was needed to stabilise electricity rates? 

Now, it’s pretty clear that it is destabilising them —- in a frightening fashion.

Let's review some information that has been in the public domain since the beginning of the project.  Russell has clearly either forgotten or chosen not to remember details because none of this stuff is new.

SRBP. "Fear and loathing on the energy campaign trail" from November 2010.

Note the date.

$#*! politicians say: Jerome! edition #nlpoli

Everyone’s favourite natural resources minister outdid himself last week for saying things that were just so far removed from reality that they were just funny.

He said them in the House of Assembly and if that wasn’t good enough he repeated them for this week’s episode of On Point with David Cochrane.

By the by, here’s the real take-away from Cochrane this weekend:  the Tories are in such political shape generally and are saying such complete rubbish that Cochrane looked like he was trying desperately not to break down laughing at Kennedy and David Brazil.

This is the hardest pounding Cochrane has delivered to any politician in years and he did it to two of them on the same program.  Make no mistake:  Cochrane was thoroughly professional and fair.  What he did was just refuse to let utter crap go unchallenged.

And it was crap.

Kennedy insisted he wanted to hear all sorts of criticism to point what is wrong with the Muskrat Falls project.  “Show us where we are wrong,” Jerome says.

But as everyone have seen over the past few months, the government simply attacks the critics personally (they are just politically motivated according to Kennedy) or dismisses the criticism.

And when they aren’t doing that, the government just makes shit up.

Like when Jerome claimed that Nalcor and the government had studied natural gas as an option and dismissed it. 

They dismissed it alright, out of hand. They’ve been stuck with all the assumptions they found in a 1980 study, long before anyone found natural gas offshore.  Read the feasibility study done in 1980 and notice the strange similarity to the current thinking about which two choices to think about and which one is cheaper.  You’ll be amazed.

But there’s absolutely no sign that anyone connected to the provincial government has ever given natural gas a moment’s serious thought for what it is:  a much lower cost alternative to Muskrat Falls that would actually produce more electricity than Muskrat Falls ever could.

A natural gas plant with 824 megawatts of installed generation could produce the full amount.  Muskrat Falls will produce – on average – about the equivalent of 570 megawatts or so. The cost would be considerably less than half the cost of Muskrat Falls and the line to Nova Scotia, which incidentally, is now $8.9 billion.

Perhaps the funniest new line Kennedy is using is that Muskrat Falls will be needed to generate electricity for new mining development in Labrador.

That’s a new one.  Until now, Muskrat Falls was supposed to be a replacement for Holyrood. But that’s only for three months a year   A bit of electricity will go off to Nova Scotia for free and the rest was supposed to be sent off to some unknown foreign lands.

During the environmental review process, Nalcor couldn’t produce a single concrete sale to show just how much greenhouse gas Muskrat Falls would displace.  The reason is simple:  MF electricity is too expensive.  No one will buy it.

So now Jerome’s got a new story:  Labrador mines.  The mines will need all of Muskrat Falls and then some besides.  So where we will get the electricity to replace Holyrood?  Someone should ask Kennedy that one so he can invent a new answer.

Last week in the House, Kennedy had another gem:

MR. KENNEDY: …

Gull Island is not possible because we cannot get through Quebec, Mr. Speaker, wind is not an option and we know that natural gas is not an option. I say to the Leader of the Opposition: What options are you talking about? What is it you want us to explore? We have explored everything. Muskrat Falls is the lowest cost and best option to secure the future of this Province.

“Gull Island is not possible because we cannot get through Quebec.”  That is exactly what Kennedy said, word for word.

And not a word of it is true.

Nalcor current sells electricity to New York by running it through Quebec.  They’ve been doing it since 2009.  If they had someone to buy any electricity from Labrador, they could move it through Quebec without a problem.  The reason they aren’t developing Gull Island is because they don’t have any customers for the power.

Full stop.

In fact, if they had customers to justify Gull Island, that’s the one they’d be building because it would be more cost-effective than Muskrat Falls.  In fact, if you look at Nalcor’s own information provided to the public utilities board, it appears they never started looking at Muskrat Falls as a stand-alone project until 2010.  It’s worth quoting a couple of paragraphs from that Nalcor document:

In 2010, Newfoundland and Labrador Hydro was faced with a decision relating to generation expansion for the Island Interconnected System for the timeframe ranging from 2015 to 2020. As ensuing analysis indicated that the least-cost expansion option would involve a Labrador-Island HVdc (high voltage direct current) infeed, it was determined that priority should be given to the Muskrat Falls Development. This development would be sufficient to meet forecasted demand in for the Island Interconnected System, while providing some additional capacity for potential export to the Maritimes.

Based on this change, the proposed 1600 MW multi-terminal HVdc scheme would be replaced with a smaller point-to-point system from Muskrat Falls to Soldiers Pond. With an estimated annual plant capability of 4.9 TWh at Muskrat Falls and up to 300 MW of available recall capacity from the Upper Churchill, it was determined that the HVdc link should be sized for 900 MW.

Looking at what Jerome Kennedy said last week about Muskrat Falls, you’d almost think he was making this $#*! up as he goes.

- srbp -

A tax to build a tax #nlpoli

A tax to pay a tax.

Interesting idea, no?

Well, that’s what Jim Feehan suggested last week.  He told a luncheon meeting of the St. John’s Rotary Club that the government should consider financing the rest of Muskrat Falls through a special tax. Start paying today,  Feehan said, and avoid borrowing money and paying that money plus the interest in the future.

Don’t dismiss the notion quite so quickly.  There is some sense in the idea.  But before you give a big thumbs up to Feehan’s idea, though, consider all the details.

Traces of the Grossly Impudent Lie #nlpoli

There's a phrase in Pam Frampton's Saturday column on Muskrat Falls.

A bunch of words dropped in easily,  maybe offhandedly.

Nothing that really stands out.

Just a simple fact.

The kind of thing that you might just skip past, unless maybe you'd been writing about this Muskrat Falls project since before it was a gleam in some old twitchy-shouldered man's eye.

"Now, the project is more than 75 per cent finished, two years behind schedule and 70 per cent over budget."

Policy is people #nlpoli

Kim Keating is a member of the newly-appointed council to advise the provincial government on oil and gas issues.

She's a professional engineer,  a senior official with a local company in the oil and gas business, and in the recent past she was the president of the St. John's Board of Trade the year that the Board wholeheartedly endorsed Muskrat Falls.

That's important because the Board not only endorsed Muskrat Falls for all the benefits that flowed to companies like the one Keating works for, but also because the Board was willing to trade away free enterprise in order to get those juicy business goodies. A key element of making Muskrat Falls work was the creation of a monopoly for Nalcor so that the company could force local consumers - and local businesses - to pay whatever it would take to satisfy Nalcor's creditors.

In other words, no matter how high the price for the project went,  local consumers would be stuck with the costs. Keating and her associates were okay with that.

But there's more to the issue than that.

Fourth time a charm: Kennedy changes MF “key point” …again #nlpoli

How many times should anyone need to change the key point in any discussion?

Well, this past weekend, natural resources minister Jerome Kennedy signalled what is the latest shift in strategic messaging on the Lower Churchill project since October 2010.

Six Rationalisations Pretending to Be Policy #nlpoli

Policy solves problems.

At it's simplest level,  policy answers a question.

Cancelling Muskrat Falls is a good example.  We are facing a financial crisis.  Muskrat Falls is a huge expense.  There's the problem.  Turn it into a question and it becomes whether or not we should cancel Muskrat Falls.

To answer the question, you'd have to look at other issues. Muskrat Falls  was supposed to be the answer to our power needs. We'd have to look at that issue:  do we need the power?  We'd have to look at finances:  can we afford it? What would it cost to take one course versus another?  We'd have to ask about legal implications:  what do our legal commitments say we must do?

Implicit in those questions is the idea of alternatives.  What choices do we have?

A written report on those questions would have some structure to it.  You'd expect it to start out with a clear statement of the question the author reviewed.  It might even be posed as three options: continuing as we are,  halting the project completely, or an intermediate options like slowing the project,  cancelling bits of it, and so on.

The paper would review the existing state of the project and then project ahead based on what we knew.  Then it would have to branch off from today to examine each of the answers to our string of questions.  Given the size of Muskrat Falls and the complexity of itl you'd imagine any serious discussion of cancelling the project would take months to prepare, would involve a great many people, and would certainly take more than 10 sheets of paper.  Just to make sure you appreciate the magnitude of what we are talking about, go back and look at just a tiny bit of the paperwork prepared for the public utilities board review of the project.  The Manitoba Hydro report was enormous.

Now read the 20% of a document prepared for Dwight Ball's cabinet released to CBC under the access to information law.This briefing note is apparently about the implications of cancelling the project.

Not with a bang, but a whimper #nlpoli

The longest filibuster in Newfoundland and Labrador legislative history ended quietly Saturday morning.

This was the second filibuster this year and the  Telegram’s legislative reported posed a simple question via Twitter before the House closed.

What does it say about current Newfoundland and Labrador political culture that we’ve had two such filibusters in a single year?

Normally a filibuster is an opposition tactic to hold up a government proposal the opposition doesn’t like.  That was the case with the Bill 29 filibuster in the spring.

As it turns out, the Muskrat Falls filibuster was different things for different parties.

The Stuff We Don’t Know #nlpoli

Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns: there are things we know we know.

We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns: the ones we don't know we don't know.

And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones.

Former defence secretary Donald Rumsfeld will likely be best remembered for the 30 seconds or so that it took those words to come out of his mouth during a media briefing on the lack of evidence linking Iraq to weapons of mass destruction.

As tortured as the words seem to be, Rumsfeld actually describes the fundamental problem that bedevils all of us who are trying to do anything. 

It is called uncertainty.

Self-massaging the message #nlpoli

The Telegram’s Pam Frampton has a neat column this weekend on Jerome Kennedy, Muskrat Falls, and the provincial government’s problems with explaining to people in simple terms why Muskrat falls is a good idea.

Frampton nails the biggest problem simply enough: 

The problem with the government’s Muskrat Falls message till now is that it has been a moving target. One week the project was all about clean energy, the next it was job creation, then it was all about being an affordable energy source, then it was a means of foiling Quebec, then it was a lure for mining companies.

Then she notes the critic’s arguments and the fact they they were,as Frampton, puts it often “shrilly spun” by government officials and others.

Kennedy tried to put a new face on government’s messaging during his appearance at the Telegram’s editorial board. as much as Kennedy seemed to change both his tone and his content, none of that stopped Kennedy from spinning  - to use Frampton’s word - either his own position or that of the critics. 

How surprising.

Restoring Power: The Section 92A Option #nlpoli

One of the potentially most valuable revenue sources would be a new tax on electricity production that could yield upwards of $450 million a year. The bulk of the tax would be paid by Emera and Hydro-Quebec, both of which currently profit from free or near-free electricity through two patently unfair agreements. 

The basic problem of the Lower Churchill was always how to pay for it. 

Everyone who tried to build it before wanted people outside the province to use the electricity and pay for the whole project, with the profit flowing to the people of Newfoundland and Labrador.  When they couldn't get that to work, they simply didn't pursue the project. 

The politicians and bureaucrats behind what became Muskrat Falls were smarter.  They decided in a meeting at The Rooms in April 2010 they would force the people of Newfoundland and Labrador to pay for the entire project through their electricity rates, even though they would use very little of it. The benefits would flow outside Newfoundland and Labrador. 

The Dwight Ball-Ches Crosbie rate mitigation scheme is still about having Newfoundlanders and Labradorians alone pay for Muskrat Falls with others reaping the benefit.  On top of that, the Ball-Crosbie approach includes money that doesn’t exist.  Their scheme also doesn’t address other problems with Muskrat Falls that are as troublesome as the problem of the government’s proposed scheme to have only one small group of people bear the whole cost.  So, it won't work.