07 November 2012

Numbers and stuff #nlpoli

Most of you are likely dissecting the American presidential election or hopped up to talk about the House of Assembly.  Well, there’s plenty of time for that.

Consider this post a minor diversion, more about the backstory than about the discussion of what just happened.  We’ll get back to some new and more involved subjects on Thursday.

Analysis is hard.

You have to take things apart, figure out what the bits do, and then put the bits back together.

Then you have explain the bits.

And then comes the hard part – you have to explain what it means and how the thing you dissected relates to other things.

One of the key parts of analysis is research.  Gathering information.  it’s tedious and sometimes thankless.

But information and understanding based on research are crucial if you want to make comments that are backuppable, as Tom Rideout used to say.

An Old Tale

Earlier this week, some people got wrapped up with some comments by Dean MacDonald about Roger Grimes and a deal Grimes worked on to develop the Lower Churchill.

A decade or so ago, Dean was the chair of Newfoundland and Labrador Hydro, continued in the job by Grimes.  Dean resigned in a very public huff over the Lower Churchill deal.  At the same time, Dean’s former business partner – Danny Williams  - was attacking the deal as was John Hickey, the future Pavement Putin of the Permafrost in Williams’ cabinet. 

Nothing from MacDonald that appeared this week is anything that hasn’t been in public before.  It’s just that some people, seemed to have missed this story.

In any event, one of Dean’s complaints was that Grimes wasn’t too bothered about what Quebec got out of the deal.  MacDonald asked Grimes what ‘Quebec” would get and, according to Dean, Grimes said he didn’t care.


The Problem with Sole Sourcing

You see, right off the bat it’s hard to judge the accuracy of the comment attributed to Grimes since there is nothing to which you could compare it.  You can’t even judge the veracity of it.  MacDonald’s memory could be faulty or the comment could be entirely self-serving. 

Dean wouldn’t be alone in having a problem recalling significant events.  Joe Smallwood went around in his later years claiming something about a power corridor.  Hundreds of people have taken Smallwood’s account as gospel truth.

Truth is there is not a shred of evidence it ever happened.

But what was Dean on about with his concern about what Quebec would get from the Lower Churchill deal?

The Lure of Imaginary Riches

Grimes’ deal sold the power from the Gull Island plant to Quebec at a floor price with an annual escalator.  What Dean was pissed about was the old idea that Hydro-Quebec would take the power and sell it for way more in the American market. 

A few months after his very public split with Grimes, MacDonald was back at the Hydro board working for his old business partner Danny Williams.  A couple of times, Dean spoke publicly about exporting power around Quebec through an underwater cable.  No deals with Quebec, the shaggers.  It was the same rhetoric Williams has been fond of.

At the time, there wasn’t anything anyone could point to that might call Dean’s idea into question.

But fast forward and you have two excellent pieces of evidence that suggest MacDonald’s issue was  - at best – an arguable point.

Number One:  Under the April 2009 wheeler deal, Nalcor is selling electricity from Churchill Falls to Emera in new York through Quebec.  Apparently, they aren’t making money at it.  The reason is that the price for the electricity has been too low in the American markets while the costs for wheeling the electricity ate up any extra cash.

Your humble e-scribbler deconstructed Nalcor’s numbers at the time.  As it seemed, Nalcor was anticipating getting a price for the electricity – less the cost of transmission – that was pretty much on par with the price the company had been getting under a deal with Hydro-Quebec that had started in 1998.

Turns out that was the case.

But here’s a bit more.  If you checked back in 2009 with former energy ministers from before 2003, they’d have told you what they told your humble e-scribbler.  Government had looked at the export idea before.  The price at the border for the recall turned out to be a money maker more often than not simply because they didn’t have to pay wheeling and other costs.  What looked lucrative based on a quick look evaporated when you looked deeper.

Number Two:  Muskrat Falls.  Back in 2005, Dean MacDonald and Danny Williams were thinking about building the two dams and a line back to Churchill Falls, primarily for export. That’s the basic plan that went to the joint review panel in 2007.

Until November 2010, no one was talking publicly about developing Muskrat Falls first instead of the larger dam at Gull Island and doing so primarily for use within the province.  No one has identified markets for export and Nalcor officials have stated from the outset that Muskrat falls will be profitable based on having local ratepayers cover 100% of the project costs.

The reason Nalcor shifted the focus of the Lower Churchill in 2010 was likely based primarily on one fact:  they couldn’t export electricity and make money from it because the price in American markets had collapsed.  They had no markets in Canada. What’s worse, the American markets are likely to stay low for a long time into the future. The solution:  do Muskrat Falls first and have locals foot the bill.


This is not secret information.  Both MacDonald’s comments, information about electricity prices and the history of proposals to development of the lower have been in the public domain for a long time.  The people involved or people who know about the issues to comment authoritatively are still local.  They have telephone numbers and e-mail addresses.

Remember, MacDonald resigned in a huff a decade ago.

Isn’t it very interesting, though, what a very different impression you have of events in 2002 when you see them in a context drawn from more than one source.

Analysis is hard.

That’s why people often don’t do it.