19 December 2012

Perspective #nlpoli

Premier Kathy Dunderdale likes to pretend that the critics haven’t been able to find a problem with Muskrat Falls.

Well, that’s simply not true. 

They’ve found tons of problems with the project that Kathy Dunderdale is finishing on behalf of Danny Williams.  Dunderdale either doesn’t understand the project at all on any level,  has deluded herself into believing what she says is true even when it obviously isn’t (the PUB loves Muskrat Falls!),  or she just doesn’t give a rat’s bollocks about anything. 

That’s pretty much what it comes down to.  Take your pick but that’s it:  one of those three

Regardless of any of that, though, you can be assured of one thing.  Muskrat Falls is not a very good idea.  It is not the lowest cost option for taxpayers. 


Without question. 

Not the lowest cost option.

We know that Muskrat Falls is an enormous cock-up because natural resources minister Jerome Kennedy has spent so much time over the past couple of days saying over and over again that sometimes governments must make tough decisions.  Jerome has been saying it so much that you start to wonder who he is trying to persuade.

We know that Muskrat falls is not the lowest cost option to supply the people of Newfoundland and Labrador with electricity because Premier Kathy Dunderdale, Kennedy, and their mates have done everything possible to ensure that Nalcor can get whatever it wants out of taxpayers’ pockets in Newfoundland unhindered by any competition or oversight by an independent regulator.

After all, if Muskrat Fall was truly the lowest cost option to supply taxpayers with electricity, the provincial government wouldn’t have to close the market and rig the electricity price-setting process as they are doing.  Jerome wouldn’t have to keep telling himself things will be alright.

Take a step back from the details and you can get a good sense of what might be jangling Jerome’s nerves.  Once you get a bit farther back from the details of the project, you can see things a bit more clearly.  You can get some perspective. 

Like the change in perspective some people got on Tuesday.  Yes,  taxpayers of Newfoundland and Labrador are going to pay all the costs and face all the financial risks.  Natural resources minister Jerome Kennedy acknowledged that simple fact during a briefing Tuesday for reporters on Bill 61.

That shouldn’t come as any surprise. 

The basic idea was right there in the way the Conservatives set up Nalcor in their 2006 amendments to the old Hydro Corporation Act.  What became Nalcor could do anything cabinet wanted but the public utilities board had to set the electricity rates to make sure that Nalcor was always financially strong with a first rate profit. [“Newfoundland and Labrador Hydra”,  SRBP May 2006]

The next year, when the Tories brought two entirely new bills to the House to set up Nalcor as we now know it, that little income protection scheme is one little tidbit they made sure to preserve. [“New Hydro Corporation; same problem.”  SRBP June 2007]

Just before Danny Williams announced his retirement scheme, your humble e-scribbler said it again.  We already had alternatives to Holyrood.  Muskrat Falls power would be too expensive even for the markets as they were two years ago, long before the shale gas revolution truly took hold.

From October 2010:

No problem for NALCOR, these days. Thanks to changes made to the Electrical Power Control Act in 2006, the Hydro Corporation Act, the Public Utilities Act,  and government policy, NALCOR wouldn’t suffer any losses. The company can export all the discounted power it wants  knowing that the people of Newfoundland and Labrador will wind up paying for it.

All the Tories have done in Bill 61 is ensure that Nalcor will get its way without any risk for their enterprise.

Nor should anyone be surprised at the measures in Bill 61 that will secure Nalcor’s monopoly.  The 2007 energy plan describes Nalcor’s monopoly.  The 2008 expropriation removed what potential competition for electricity generation that existed in the province at the time. The evidence of the provincial government’s goal has been there in plain view for years.

Jerome Kennedy spoke candidly on Tuesday.  Kennedy said, in so many words, what SRBP noted a couple of years ago in reference to the offshore stakes:

We get the liability and the cost.  Martin and his crowd get the cash.

Perhaps now more people will understand that when the Tories and other Muskrat Falls supporters talk about the revenue stream at Muskrat Falls, they are speaking about the project from Nalcor’s perspective. 

Nalcor gets a revenue stream. 

Nalcor gets the stream guaranteed to them by Dunderdale, Kennedy, and the cabinet.   Nalcor gets the money from the pockets of taxpayers across the province.

If Muskrat Falls and the line to St. Johns costs $8 billion, as now seems likely, then Newfoundlanders and Labradorians will borrow the entire $8 billion.  Taxpayers will borrow money to cover some of Emera’s costs and perhaps even pay to build the Maritime Link.  Then the taxpayers will pay the loans off, plus interest, plus profits to the companies involved over the course of 55 years.

Muskrat Falls supporters call it an investment.  But here’s the thing about investments.  People earn money from the money they investment.

Imagine if Newfoundlanders and Labradorians were living in Ontario or Quebec.  Imagine that they invested their current cash holdings of $1.4 billion in Muskrat Falls and, over the course of 55 years, earned  2% annually.  They’d have their money back plus another $1.5 billion in interest charges.  And if they stuck the cash in another type of investment, compound interest at the same rate would deliver them more than $4.0 billion.

That’s how the original scheme for the Lower Churchill was supposed to work.  Newfoundlanders and Labradors would earn their money back plus more besides.  The idea was simple:  sell the electricity outside the province for more than it cost to make.  Any cash that Newfoundlanders and Labradorians put into the project would earn more on the way back.  Plus, the cash would have come from outside the province.

At the end of the 55 years of the Muskrat Falls scheme, Newfoundlanders and Labradors will have nothing other than the receipt for the billions they have paid out.  Investors everywhere else will make money. Mining companies will get discount electricity.

Nalcor, on the other hand,  will have a tidy profit. 

But not Newfoundlanders and Labradorians.  Sure, they will have received electricity, but they would have received that in any event.  In the earlier Lower Churchill schemes, the money earned from outside the province would have paid for the portion of the project used inside Newfoundland and Labrador.  With Muskrat Falls, they will have to pay and make no profit for themselves.

Some will point to the money that might come from Labrador mines.  Well, for Nalcor that is gravy as they like to call it. The money is gravy because taxpayers will cover all of Nalcor’s costs that – in the Grimes plan for example  -  the export customers were supposed to cover. 

The only way taxpayers could profit from the Danny Williams/Kathy Dunderdale scheme would be if Nalcor sold the 40% of the project’s output that isn’t already spoken for and got all the costs of the project plus even more besides.  Then they’d have to pay the profit back to the investors, the taxpayers.

As it turns out, the price the government plans to get for that power from miners is something like 75% less than the cost of making the electricity and delivering it to Soldier’s Pond.  So much for the taxpayer’s gravy.

For taxpayers,  the Muskrat Falls scheme converts an investment into an expense.  Since it is an expense, it doesn’t matter what they get  beyond the basic service, from the electricity.  All taxpayers are concerned about is getting the service at the lowest cost.

Taxpayers won’t be getting electricity at the lowest cost, though.  That just isn’t possible. That’s because the provincial government is looking at Muskrat Falls from Nalcor’s perspective.

To give the provincial Conservatives some credit, they’ve been consistent about that, all along.  It’s just too bad some people are only just now figuring out that the provincial government doesn’t look at Muskrat Falls from the perspective of the taxpayers of Newfoundland and Labrador.