18 January 2012

Locke and Muskrat Falls: some quick points #nlpoli #cdnpoli

Memorial University economist Wade Locke delivered a presentation on Tuesday night about Muskrat Falls, a project he had already endorsed publicly.

The Harris Centre at Memorial University, the Atlantic Provinces Economic Council and the MUN economics department’s Applied Economics Research Initiative sponsored the talk.

The pdf of Locke’s slides should be available from the Harris Centre website along with the video of the presentation plus the question and answer session that followed.

You can tell the topic is hot for two reasons.

First, they packed the main hall plus a couple of fair-sized rooms in which people could watch via the Internet.

Second, Locke started out his talk with a pre-emptive declaration that he was doing the talk on his own, that he wasn’t sponsored by anybody, under contract to anybody and that he valued his professional reputation above all else.  Locke insisted he believed everything he was saying, which should be pretty much a given.

Here are some quick observations:

You will pay for it all, plus profit.  Right up front, Locke pointed out the most obvious thing of all, namely that taxpayers in this province will pay for the entire project, plus a rate of return of as much as 12%.  Now Locke never said it straight out.  In fact, Locke never made it plain at any point during his talk who actually was paying the bill.

But it was there, just as your humble e-scribbler noted in October 2010.  That’s not clairvoyance.  That’s just what comes from research.

Toward the end of his presentation, Locke blew off any concern about the debt since that would all be recovered from the rates, no matter what.

Wade just never noted that the people in the room would be covering the entire shot.

Plus profit.

When an online question asked about Nova Scotians getting the electricity cheaper than the people who own the dam, Locke blew it off as an irrelevant consideration from an economic standpoint.

Situating the Estimate.  That’s what they call it in staff college.  You present the information that fits your pre-conceived solution.

And having already endorsed Muskrat Falls, presumably before he really knew anything about it, Locke basically recited the reasons why his initial conclusion was right and everyone else is wrong.

Locke started by torquing his description of the cost of the project.  A mere 7.5 cents per kilowatt hour.  As Jim Feehan pointed out in the Q and A, Locke had lowballed the number.  The cost of delivered Muskrat electricity would be 14.3 cents per kilowatt hour based on current estimates.

At least.

And that of course made all Locke’s subsequent comparisons useless.

They were useless because they effectively compared a misleading – bordering on the false – Muskrat cost to a cost for some alternatives.

Once you realise that Locke torqued the cost, you’d have to be suspicious of the basis on which he presented the costs of other projects.

Did he highball them?


Problem is we don’t know.  People would have a right to be suspicious because Locke didn’t make it clear how he got either his Muskrat figures or his other cost figures for projects he contended were more costly.
Locke blew his own credibility, at least among people who actually knew what he had done.  Expect to hear more about that in the days ahead as word spreads.

Burn, Straw Man, Burn.  Early on the presentation, Locke savaged colleague Jim Feehan with a caricatured presentation of Feehan’s paper for the C.D. Howe Institute.  Locke presented Feehan’s argument [as] though Feehan believed government could use pricing to wipe out demand such that Muskrat wouldn’t be necessary.*

Feehan didn’t say anything close to that. 

Locke even trotted out the melodramatic – and ultimately childish -  line Ed Martin tried on about old people in the winter.

Feehan sorted Locke out at the end but Locke’s comments about Feehan were insulting to Feehan professionally and to the audience’s intelligence.  For a guy who defensively moaned about his own professional reputation at the front end of the talk, Locke had no trouble tearing into a colleague based on what was utter crap.

Controlling the Escalation.  As much as Locke got weepy over old people and high electricity prices and for all his teary comments about the impact of policy ideas on real people, Wade didn’t give a toss about Muskrat Falls and the impact its high prices would have on the same people he supposedly wanted to defend.

Locke referred to Muskrat Falls as giving government the ability to control price escalation.  The alternative – a completely false one – was to be at the mercy of fluctuating oil prices. 

Muskrat Falls will take care of the potential hike in electricity because of oil prices by guaranteeing the prices will shoot up regardless of what oil does.  And if oil goes down in price, local consumers will be stuck paying for Muskrat.

Former PUB consumer advocate Dennis Browne noted during the Q and A that Locke’s assumption of escalating electricity prices due to oil was false.  Electricity prices don’t jump up every year, like clockwork, and they sure don’t jump every time oil prices go up. 

Locke didn’t really answer Browne’s point.

Humour High Point:  Moderating the Q and A, Harris Centre director Dr. Rob Greenwood said that the Harris Centre was a spin free zone.  Evidently, Locke’s presentation  - after the price bullshit alone – wasn’t covered by the anti-spin rule or Rob didn’t pick up on the heavily torqued comments by the presenter.  Either way it was about the funniest thing that happened during the evening.

What debt problem?  There isn’t one according to Locke.  He flashed a slide that showed annual costs Nalcor would pay for given amounts based on certain interest rates. 

Worst case scenario, as your humble e-scribbler would put it: the gross public debt would show up as close to $20 billion (the current $12 billion-ish plus an additional eight billion in borrowing from Locke’s slide).

That would add annual debt servicing costs of $800 million for Nalcor.

That would show up on the annual public accounts, incidentally.

The debt would be funded, of course, because local ratepayers would be forced to pay the full amount need to pay the loans plus deliver a guaranteed profit.   But…

Locke didn’t do any calculation of the wider implication of any of that.  He just said any added debt would be no problem since there’d be revenue to cover it.


All those old people on fixed incomes would be paying the guaranteed high prices Locke ranted against at one point and ignored at another.

What the Harris Centre should do next:  Locke’s presentation was weak.  All his pre-emptive apologies at the front end couldn’t cover over the flaws.

Locke’s analysis was far from complete and he torqued too many details for it to meet the standards people should be getting on such an important subject from the Harris Centre.

Aside from apologising to Jim Feehan for Locke’s remarks, the Harris Centre should organize a series of talks on Muskrat Falls.  The public would definitely profit from a better presentation on behalf of the project proponents as well as a fair presentation of arguments by Feehan and David Vardy.

40 slides too many:  Opponents of Muskrat Falls can explain in a few minutes why they have doubts about the project.




Give a  knowledgeable supporter of the current administration and Nalcor, one hour of uninterrupted time, 48 slides densely packed with verbiage, and an attentive audience and he still can’t  explain why Muskrat Falls makes sense.

That should tell you all you need to know.

- srbp -

*  [word in square brackets added to earlier version for clarity]