05 April 2011

A new Sprung Greenhouse in the wilds of Labrador

Insecurity is not a good trait in leaders.

Among local politicians it tends to come across with boasting or, in the more recent examples, with nasty personal digs at other people for supposedly having the faults the politician readily displays.

You can see this, by the way in Kathy Dunderdale.  She delights in telling everyone else how stupid, ill-informed or lazy they are.

In the House of Assembly on Monday, Opposition leader Yvonne Jones asked Dunderdale about comments made on the weekend by former Conservative finance minister John Collins

The octogenarian came out of a self-enforced silence just to point put that the provincial government hasn’t really explained this Muskrat Falls thing to anyone in the province.  He also took pains to criticise the logic Dunderdale’s administration is using.

Her reply?

In that article [former finance minister John Collins] also stated that he did not have much information on the project. Like her, he decides to speak and find out later.

And to Jones on one of the questions:

Therein lies the danger of going down this road, Mr. Speaker, because her ignorance is so vast.

John Collins, incidentally, is no slouch. He and his colleagues at the time – including Bill Marshall – understood very well the economics of Lower Churchill hydro-electric power. They knew that the thing should only be developed if export markets paid for the project.  The smaller of the two dams – Muskrat Falls – would then come along as a bit of a freebie to give power to the island or anywhere else it could be sold profitably.

Collins also knows that the province already had the federal government on the hook for the project through the Lower Churchill Development Corporation.  That was the provincial Crown corporation created in a deal between Frank Moores’ administration provincially and Pierre Trudeau’s federally in 1978.  Danny Williams and Kathy Dunderdale scrapped it in 2008 only now to have to go cap-in-hand to Ottawa looking for a promise of far less than what they would have done through LCDC.

Anyway, the funny thing is, of course, that whenever Dunderdale actually does explain anything even in a very simplistic way,  she usually confirms what Jones has been saying.  The project doesn’t make economic sense and taxpayers in the province are going to be shafted with enormous electricity bills and public debt.

Some electricity might go off to other places but the sale of it will be subsidised by local taxpayers.  That’s the opposite of what every provincial administration since Joe Smallwood wanted to do.  They wanted to have the exports subsidise the costs for people in Joe Batt’s Arm and Quirpon.  Kathy wants the people of Grey River to pony up so some people in far wealthier places have cheap power.

Do not simply believe that because it is written here. 

Look at what Dunderdale said in the House on Monday.  She admitted that the Muskrat Falls project will produce power that is too costly for export:

Mr. Speaker, Nova Scotia needs power. They need power and they can provide it to themselves for 10 cents or 11 cents a kilowatt hour. They are not going to buy it from us, Mr. Speaker, for 14.3, so we have to go into the market and sell at what the market can bear.

If that wasn’t bad enough, Dunderdale makes it clear she has no idea of basic economics when she tries to claim that this export of discount power will actually lower the cost of producing electricity and reduce the price paid by consumers in the province:

Now, Mr. Speaker, we can let the excess water spill out over the dam and not get anything for it, but we can sell it where there is a market and we can decrease that 14.3 cents further for the people of Newfoundland and Labrador.

Right off the bat, everyone will recall that Dunderdale has already stated that the project is being paid for based on forcing domestic consumers to bear the full cost and Nalcor’s profit on the project.  That’s the basic premise of her statement and it is something Dunderdale and others in her administration have said from the time Danny Williams announced this deal;  it works without a federal loan guarantee or exports.  Local ratepayers will carry the cost and, if need be, the provincial government will drop oil money into the thing as well.

Then consider that the figure of 14.3 cents per kilowatt hour is actually the low-end estimate for the cost of producing power at Muskrat Falls.  It isn’t the price consumers in the province will pay.  It’s the cost.

And it is the lowest cost estimate.

In an interview with CBC Radio’s St. John’s Morning Show last fall, Dunderdale figures of between $143 and $165 per megawatt hour to produce power at Muskrat Falls.  That translates to between 14.3 and 16.5 cents per kilowatt hour.  If that’s what it costs to produce power just at Muskrat Falls, then the cost to domestic consumers will actually much higher than that.

But here’s the thing, if it costs 14.3 cents to produce the electricity, it will cost more than that to ship it to market. Those power lines cost something to build so those loans have to be paid back.  At the same time there are maintenance costs and so forth.

So right off the bat, just getting the power from Labrador to the border of the province will likely cost more than 14.3 cents.

If it goes to Nova Scotia, that’s one thing but since they already get 35 years of free power under this deal, then let’s push it a bit beyond.

Maine?  New Brunswick?  Ontario?

Take your pick.

Then start adding on the costs to send power down the lines to those places.  Wheeling power through Quebec already costs Nalcor something like $19 million annually in wheeling fees under the April 2009 deal, for example.

Incidentally, on that deal, the provincial energy corporation is actually losing bags of money because the price they get for the power is far less than the cost of making it and shipping it.

So with Muskrat Falls, 14.3 cents per kilowatt hour to produce the juice becomes the better part of 20 cents of cost just to get the power to some place like Ontario  by the time you whack on the handling charges. The farther you ship it, the more expensive it becomes and the more the consumer will have to pay just for Nalcor to break even.

Now go back and look at what Dunderdale said about export markets:

They are not going to buy it from us, Mr. Speaker, for 14.3, so we have to go into the market and sell at what the market can bear.


Nalcor will sell power on export markets for less than it costs to produce it and get it to market.

Talk about a recipe for disaster.

It’s essentially the problem Brian Peckford and his colleagues ran into with the Sprung greenhouse.  They spent about a buck and a half to produce each cucumber which they then sold for about fifty cents in local grocery stores.

Some basic math and you can see pretty quickly that they lost a dollar on every cuke. 

Lucky for them and taxpayers in the province that the Sprung fiasco only cost about $23 million before the government had to shut it down.

Muskrat Falls is supposed to cost at least $6.2 billion.  That assumes that their estimates are accurate and that they can build the power lines and the dam for less than what they would have cost in 1998.

And that doesn’t allow for the fact that since 2003, this administration routinely delivers projects that are years behind schedule and 70% or more over budget.

This could very well wind up being  a gigantic Sprung greenhouse in the wilds of Labrador. 

And if it does, we won’t need Kathy Dunderdale to us all who was stupid.

- srbp -