30 June 2014

Paying everyone but ourselves #nlpoli

Nalcor boss Ed Martin told everyone in the province last week that his pet project has increased in price by almost another billion dollars.  It’s now more than $8.0 billion, when the 2010 price was $5.0 billion.

That wasn’t news.  Martin and the provincial government knew that last December, as SRBP pointed out last December.  We’ve known it since last year.  Martin and the provincial government just refused to tell the people paying for the project about it when the people building it knew the costs.

Martin insists it is still cheapest.  We know that isn’t true because Nalcor plans to buy cheaper electricity from elsewhere and import it here over the Maritime Link while charging local consumers for electricity that is far more expensive but that they aren’t getting. 

Martin also said something to the effect that we are just paying ourselves for this project and the electricity anyway.  That’s not true either.

We are paying everyone but ourselves.

The Original Plan:  other people pay us

Since someone first had the idea in the 1950s, every plan to develop the Lower Churchill to make electricity as basically the same:  we’d build the plant and sell the power outside the province.  Other people would pay us for the electricity.  That’s how we’d make money.

The money from Gull Island would help pay for Muskrat Falls.  Even in the 1960s and 1970s when it wasn’t clear we actually needed the power from Muskrat Falls,  the scheme was for the province to claim the power for local use.  When people thought Muskrat Falls would produce 600 megawatts, they said the province needed 600.  When they increased the output to 800 megawatts,  they said we needed 800. 

The power for the province was never rooted in actual need, incidentally.  It was always the output from Muskrat Falls.  Gull Island was the far more lucrative project and that was the one that would bring in new money from outside the province to pay for the whole thing.

The 2010 scheme that did nothing but facilitate Danny Williams exit from open politics changed all of that.

The biggest change was the de facto cancellation of Gull Island because there were no export markets for the power and because domestic customers couldn’t afford the massive price tag. Martin and Williams told us at the time that they would build Gull second,  that they were just changing the sequence.  The reality has turned out to be different. Now the project is off until sometime in the unforeseeable future.

The 2010 Plan:  We Pay Everyone Else

The second biggest change in who pays.  We went from exporting power to using some of it locally, sending a bit out of the province and having lots left over.

But rather than having the export sales pay the entire cost plus profit,  the new scheme hatched by Ed Martin and Danny Williams was for domestic consumers – Newfoundland and Labrador taxpayers – to cover the entire cost of the entire project, plus profit for the companies involved.

They had an idea in the beginning that some of the money to build the project would come from oil royalties.  As it turned out, all that money was gone within two years of the 2010 announcement so now the whole thing had to be borrowed.  There’s the $5.0 billion Nalcor borrowed. Everything else comes from the provincial government.  But again, the only people actually paying for electricity were Newfoundlanders and Labradorians.

The money they pay will go outside the province to the banks and other lenders.  Until the full price of the project is paid off,  the only people getting paid from Muskrat Falls will be outside Newfoundland and Labrador. 

Subsidizing Exports, Benefitting Others

Even after all the money is paid back – plus profit -  the people of the province will still be paying other people. One of the parts of this project people don’t talk about is the partial privatization  of electricity transmission.  Nova Scotia-based Emera will get a piece of every kilowatt sent down the Labrador Island link from the time the line opens until some time in the 2080s.

Taxpayers also can’t expect to get a break on electricity prices after all the bills are paid. Well, not if past practice is any guide.  Even today, when the majority of the island’s electricity comes from hydro-generation that has long since been paid off,  electricity rates are on par with national rates.  The only place anyone gets lower prices is in Quebec where provincial law requires that the province’s energy company retain a “heritage pool” of cheap electricity to give consumers a big break on costs.

But in Newfoundland and Labrador, the Muskrat Falls plan is for ordinary consumers to pay the entire cost of the with the money going somewhere else.  Emera will make money off the transmission  line to the island.  Plus, Emera gets a block of electricity for which they pay nothing.  On top of that, they have access to more electricity that Nalcor must provide at Nova Scotia market prices. 

Those prices are far below the costs of making electricity at Muskrat Falls, which of course means that domestic taxpayers will be subsidizing exports to Nova Scotia.  That’s another way Muskrat Falls isn’t about “paying ourselves” but benefitting others.  If Nalcor sells any electricity outside the province from Muskrat Falls,  they won’t make any real profit on it for the people of the province. 

To do that, they’d have to sell it for more than the people of the province are paying, and then some besides.  They’ll be selling it at market prices everywhere else.  Those are the market prices that are so low, incidentally, that Nalcor plans to buy electricity there and bring it here to sell it for much higher prices.

So paying ourselves?


Muskrat Falls hasn’t been about that since 2010.