19 June 2013

The Ever-Changing Provincial Energy Plan #nlpoli

Premier Kathy Dunderdale told delegates to the provincial offshore oil and gas industries association on Tuesday that the provincial government wants to see more exploration offshore.

“Newfoundland and Labrador is past peak production from existing fields,” Dunderdale told delegates at the NOIA conference.  “To sustain growth, we need to find new fields.”

To compete globally for the limited exploration dollars, Newfoundland and Labrador is “not just open for business, … we are aggressively pursuing it.”

That’s was government policy from the 1970s onward.  More exploration means more oil and gas to develop.  Through the local benefits provisions of the Atlantic Accord (1985),  local companies could gain the experience to compete globally on other projects. That has been the successful policy in places like Norway and Scotland and local politicians and industry experts.

But that hasn’t been government policy since about 2009.

That’s the year that the Big Giant Head from one corner of the continent went offer to meet with the Big Giant Head at the opposite corner of the continent and talk energy.  Ego campaigner met ego campaigner and in a news release issued by the provincial government afterward,  Newfoundlanders and Labradorians learned that

The Premier also discussed the province's Energy Plan objective of using non-renewable resource revenues to fuel a future based on renewable sources of energy.

Danny Williams must have been talking about a secret version of the provincial energy plan known only to him and a select few others. The 2007 energy plan released to the public said that “ensuring revenues from these resources today will benefit future generations is a core component of this plan.”  The only talk of hydro resources was 2041when the province could benefit fully from the Churchill Falls project or Lower Churchill and other projects that would offer more energy for what the Conservatives called the province: an energy warehouse.

The 2007 energy policy was not a complete break with previous government plans.  Conservative policy after 2003 did deviate from earlier policy, though,  by creating a single provincial energy corporation that would replace private sector corporations and local entrepreneurs in developing local energy resources.  Where earlier administrations had rejected the failed 1960s approach of government-controlled development, the Conservatives embraced it wholeheartedly.

That trip to California marked the first time, though, that the provincial government had openly tied oil revenues to construction of what was then still the major project,namely Gull Island.  As that 2009 release quoted the Premier, 

“As a province currently heavily dependant on oil and other non-renewable resource revenues, we are a perfect global example of how we can use these revenue sources to combat climate change in a meaningful way.”

By 2009, the provincial government had its equity stakes in some offshore projects and had turned control of them to the provincial energy monopoly, Nalcor.  The Lower Churchill project was in trouble, though.  Nalcor could find neither markets nor investors and by 2010 those factors combined with the skyrocketing cost estimates for the project caused the corporation to completely change the Lower Churchill project concept. 

Rather than a project primarily for export, the new version of the project would be for domestic use primarily.  That allowed Nalcor to force local ratepayers to cover the entire cost through their electricity rates. 

The 2007 energy plan forecast the cost of Gull Island at $9.0 billion, at most. But by 2010 even that was out of reach. So Nalcor switched to the smaller of the two projects, the one with the least amount of potential output and some huge and largely unexplored engineering challenges of its own in the soft soil of the North Spur.

Nalcor decided not to go back to Decision Gate 1 as management practice would normally entail with the changed project concept.  Nalcor didn’t look at alternative ways of meeting domestic needs.  Instead, the company proceeded to Decision Gate 2 by the fall of 2010, conveniently Danny Williams to retire from politics claiming to have kept his promise of a Lower Churchill development.

Williams left his hand-picked successor and the rest of his former colleagues to finish the project.  That was no easy task given the technical and other problems with the project and the political climate that grew up through 2011 and into 2012. 

By the time the provincial government formally sanctioned Muskrat Falls in late 2012, such was the political pressure facing the provincial Conservatives that they had invented a new policy objective for Muskrat Falls. The provincial government was too dependent on oil money, Kathy Dunderdale told Conservatives at their October annual convention.   It would bring a new revenue stream to replace the oil money on which government had become too dependent.

Not supplement or diversify, but supplant.

No more oil.

Just nice clean, renewable energy driving a clean, renewable economy.

“Muskrat Falls will provide the province with a stable revenue stream,” in the words of the news release about the project sanctioning ceremony. 

The release included a quote from the Premier:

“With the development of Muskrat Falls, our province will make the transition from an economy dependent on non-renewable resources to a diversified renewable economy fueled [sic] by clean renewable power that will provide benefits and opportunity for future generations of Newfoundlanders and Labradorians.”

“Generations to come will look back on this decision as the dividing line between short-lived riches and sustainable, renewable wealth,”  Kathy Dunderdale said in her sanctioning speech.

By the following spring, the idea of replacing oil and gas revenue with money from something else made its way into the fundamental statement of government policy, the annual throne speech:

We must diversify away from an overreliance on oil if we are to put our economy on a solid, sustainable footing. My Government made this crystal clear in its 2007 comprehensive energy plan. That is why developing the renewable energy resources of Muskrat Falls is so important to Newfoundland and Labrador’s future.

Muskrat Falls would bring its own revenue plus encourage other development, according to the throne speech. Finance minister Jerome Kennedy said much the same thing in the spring budget speech.

That is one of the major reasons why we are investing in Muskrat Falls; because, unlike oil, where prices and production volumes are volatile, hydro provides a stable, predictable, reliable revenue stream year after year for generations to come. It is a solid footing on which to build a sustainable economy.

How strange, then, that the provincial government policy has swung back to one that encourages even more oil and gas exploration and eventually development.