06 June 2013

Get Worried #nlpoli

Not surprisingly,  a band of familiar faces turned up at Nalcor’s annual public meeting to put questions about Muskrat Falls to Ed Martin, the man more and more people are calling the de facto Premier of Newfoundland and Labrador.

And equally unsurprisingly, Ed Martin continued with the sort of uninformative or misleading comments of the sort he made most notoriously about water management and generating capacity in 2012.

The fact that Martin does not speak plainly and therefore honestly about anything Nalcor is doing should make people extremely nervous.

Martin has a free hand to spend billions of public dollars and he is not the least bit interested in telling people what he and the rest of his crew are doing. At the meeting, someone asked about the cost of the North Spur problem.  Martin didn’t answer.  Instead, he said the problem’s been known for a while and there’s money in the budget to cover it. 

Sure there is, but the question was about how much.  Martin’s evasion is troublesome. The North Spur is potentially a huge problem and could add billions to the cost of what is already one of the most costly hydro projects in Canadian history.

When it came to talk about Gull Island, Martin was vague.  As NTV reported, Martin appeared to push other projects ahead of Gull Island.  That’s despite the provincial government’s commitment that Gull Island would come hot on the heels of Muskrat Falls.  Well, not necessarily, said Martin.  Nalcor has other options including small hydro projects and wind power, none of which the company has previously been interested in.

The problem with any of this is that Nalcor would only need that electricity for export.  Those markets are gone for the foreseeable future for the sort of hugely expensive megaprojects Nalcor is wedded to.  The markets started to vanish before Nalcor and the provincial government moved ahead with Muskrat Falls in early 2010.  The lack of export markets is why they decided to build the smaller of the two dams and to pay for the whole thing by forcing local taxpayers to foot the entire bill.

If you want to get a sense of how badly wrong Ed Martin and Nalcor seem to be, take a look at Manitoba.  Graham Lane is the former chair of the Manitoba public utilities board.  In a paper released on Wednesday by the Frontier Centre for Public Policy, Lane describes a situation very similar to the one in Newfoundland and Labrador.

Despite the absence of significant demand for new capacity in the province, Manitoba Hydro is planning a multi-billion expansion of generating capacity.  At the same time, the company’s “accounting
embellishes the Utility’s annual net income, while transferring costs and further rate hikes into the future.” 

That’s not unlike Nalcor’s scheme to finance Muskrat Falls by pushing the costs off to future ratepayers.  And in Newfoundland and Labrador, industrial demand on the island has dropped dramatically in the past decade with no serious forecast for an increase.  There are other ways to replace old thermal generators but Nalcor simply failed to evaluate any other option but Muskrat. In Labrador, there also isn’t any massive new demand on the horizon.  What mining developments that are underway will use diesel generation, not hydro, to meet their needs.

Manitoba Hydro has been looking to export markets to make money.  Currently about 30% of Manitoba Hydro’s output is sold on the export market.  Only about half that – 15% – is tied to long-term purchase agreements.  The rest is sold on the spot market where the prices are low thanks largely to changes in the American market that are forecast to last well into the future.

As Lane put it in the Winnipeg Free Press on Tuesday:

Construction costs [for new projects] are now many multiples of the cost levels of 50 years ago, while export sales to America, which serve as the foundation of Hydro's plans, are dominated by spot sales bringing only three cents or less per kilowatt hour (Manitoba's electricity exports have been subsidizing American electricity consumption since 2008).

To put it in perspective, understand that Nalcor has no export purchase agreements other than the 1969 deal with Hydro-Quebec.  What’s more they have no prospects for any, as shown by the development of Muskrat Falls paid for only by local ratepayers.  Emera won’t pay for the electricity it gets under the Muskrat Falls deal and, as we learned earlier this week, Nalcor won’t sign a long-term sales deal with Emera for electricity beyond the deals basic block of free power.

Manitoba Hydro is also ignoring the potential from natural gas, according to lane.   That’s the same as Newfoundland and Labrador where Nalcor simply didn’t bother to investigate ways of using local natural gas supplies to generate electricity.  Instead, Nalcor officials used analysis conducted in 2006 for a completely different project concept and configuration to support their decision in 2010 to develop Muskrat Falls for domestic use.

And as for claims by Nalcor and its supporters last year that there were no local natural gas supplies available to the company?  Husky Energy is reportedly studying ways to bring natural gas on stream before the end of the decade. 

If Nalcor was a private sector company, the current management team would be a problem for the shareholders who could dump them at an annual meeting, if they wished.

Nalcor isn’t a private company, unfortunately.  Its lone shareholder – the provincial cabinet – is already under Nalcor’s control and so ed Martin has nothing to worry about for the near future.

That’s why taxpayers in Newfoundland and Labrador should be worried.  What happened in St. John’s on Wednesday was just another Nalcor dog-and-pony show, a pantomime imitation of an annual general meeting for shareholders, that was, in truth nothing more than a joke.

A cynical, sick joke.