20 November 2012

Kennedy’s Krazy Kost Kalculations #nlpoli

One of the hardest things to do is keep track of the numbers the provincial government uses to justify their plan to double the province’s debt and force taxpayers to pay it down through their electricity rates.

Muskrat Math is unlike any other type of math because the numbers the government uses never add up.

Take events in the House of Assembly on Monday as a good example.

Kennedy’s Kost Konfusion

Natural resources minister Jerome Kennedy said:

The Decision Gate 3 numbers deal with the capital costs of the project, and the capital costs of the project are indicated to be $5 billion for the Muskrat Falls generating plant and the Labrador transmission; the Maritime Link is currently at $1.2 billion.



Those were the numbers in November 2010, a.k.a. Decision Gate 2.

Since Kennedy obviously buggered up his briefing notes, here’s the actual numbers from the news release he issued with the Premier on October 30.

The capital cost for the project is now $7.4 billion. The cost to Newfoundland and Labrador is $6.2 billion. The cost of the Maritime Link remains at $1.2 billion until Emera Inc. completes their cost analysis.

There’s even a quote in the release that points out how the costs have increased, not stayed the same.

And then something went horribly wrong…

It didn’t get any better for the Minister in the sixth and seventh sentences of the same answer.  There were only nine sentences in it.  That’s a lot of basic mistakes in one short response.

What we have here is a situation where, at the estimate we now have, it is plus or minus 10 per cent. Unlike the Decision Gate 2 process where there was a very wide range, the figures are accurate.



And no.

Decision Gate 2 numbers were accurate within a wide range.  The number given in November 2010 – $6.2 billion  - could have been 30% lower or up to 50% higher.  MHI explained this neatly to the PUB, incidentally.  Check slide 31.

At Decision Gate 3, the numbers are supposed to be within a range of plus 30% or minus 20%..  So to go back and make sure everyone is clear, the new DG 3 number – $7.4 billion – could be up to 30% more than that in actual practice.

It gets a little trickier here since that $7.4 billion includes a figure for the Maritime Link that is actually left over from November 2010.  Let’s take it out for a second a just look at the number for the dam and the line from Labrador. Whenever Emera gets around to updating its Maritime Link number we can add it back in.

The Dam and the Line to Soldier’s Pond Costed

DG 2 = $5.0 billion.

DG 3 = $6.2 billion.

If you take out the cost over-run contingency in there, the DG 2 number was actually farther out of whack than the 24% those numbers look like. The DG 2 number was actually 40% off 

You see the estimate of $5.0 billion at DG 2 included $1.1 billion for cost increases.  In the end, Nalcor actually blew past that and went what looks to be another $500 million or so beyond that again. 

So anyway, that DG 3 number includes about $730 million for potential over-runs in addition to the plus 30/minus 20 range of the DG 3 itself. 

So that $6.2 billion?  Consider that, given the Nalcor performance at DG 2,  it could be as much as 30% higher than when we actually get to the next gate.  For those who don’t want to do the math, that would give us a possible revised cost for the line and the dam at DG 4 of around $8.06 billion.

Dam and Line at DG 2 was $5.0 billion.  Now it is $6.2 billion.  We could be looking at $8.0 billion and then some.

Wade Locke said last summer that we should rethink this if the project could possibly cost more than $8.0 billion.  Well, friends, Freddy is already scraping those blades down the walls. We are there.