10 July 2014

The Desolation of Smog #nlpoli

The Telegram’s Peter Jackson used the most recent JM paper on consumer electricity prices and Muskrat Falls as part of his Wednesday column.

Peter made some worthwhile observations, so head over and read the column if you haven’t already.  That includes pointing out that current forecasts have electricity prices in Ontario and British Columbia rising by 42% and 45% by 2018.

“All these numbers are maddening,”  writes Jackson,  “both in terms of scale and in terms of variability between Nalcor and critics.”

Absolutely true.

What Peter is feeling there is not really some great cosmic reality but rather the result of Nalcor’s tendency to be very careful in how much they explain about their project. They’ve released  a large volume of stuff, but there there’s lots of stuff missing that would really help understand how the company is managing the project. The result is a kind smog that has settled over any discussion of Muskrat Falls.  Peter expressed the result very well:  it’s maddening, especially considering that the official position and those of the critics appear to be so far apart.

That lack of accurate information from Nalcor is actually one of the things that JM noted at the start of his paper, incidentally.  Nalcor hasn’t released lots of relevant in formation information.  For example, one of their projections actually shows the cost of maintaining existing infrastructure will go down.  That doesn’t go with explanation of the January blackout that blamed the thing, in part, on the old generating plants that the company operates.  Logically, it should cost more to keep up that old infrastructure. That would mean the company would need more money from rates, not less, which is what the forecast of required money suggests.

When you look at something that, though, you can see a good reason why there is a difference between the numbers Nalcor uses and the ones the critics do.  What JM does, incidentally is take Nalcor official figures and out them together in a way the company clearly hasn’t done.  JM adds together a bunch of related costs all with an eye to giving a full picture of what Muskrat Falls and some related projects will have on future electricity prices.

Now admittedly, and as Peter notes,  JM adds a couple of details that you can quibble about.  He assumes a certain price for electricity going to Vale at Long Harbour.  He also assumes a scenario where Nalcor gets less electricity from Muskrat than the company has suggested.  That gives you a more pessimistic scenario than some other possible outcomes.  On the other hand, JM also adds in revenue from export sales to take some of the edge off the negative aspects of his forecast.

So yeah, as Peter says,  electricity prices are going to go up by big amounts in a few others places in Canada between now and the year Muskrat Falls will come on line.  Nalcor’s original projection for Muskrat Falls held out the same basic kinds of increases.The thing to notice about JM’s projection is even if you take into account the stuff you can quibble about,  all the other things he adds in will drive prices up by that 42% or 45% of British Columbia and Ontario and keep right on going.  If JM is right,  the price could well go up by almost as much again as those provinces are going to experience.  If JM is right,  the percentage increase in local electricity prices by 2018  will actually what the crowd in Ontario and BC are forecasting to see another dozen years beyond that!

That’s actually like the experience we’ve already had with Nalcor’s cost projections for the project.  In the beginning, Nalcor said the price was the price and they had already factored in a certain, relatively modest amount for cost increases.  As it turned out,  the costs blew right through that cushion and kept right on going.

Peter also added a couple of observations of his own toward the end of the column and those are worth addressing on their own.

  • This project will, as many critics point out, essentially double our public debt. But it’s a different kind of debt, managed not by sapping conventional government revenue but by electricity rate hikes that would have increased to some degree in any case.

A different kind of debt?  Public debt is debt the public will pay.  The difference Peter points out – electricity rates versus “conventional government revenue” – is not a difference worth noting.  Well, except that what Muskrat Falls does is turn electricity rates from a matter of paying for the lowest cost for an essential commodity to paying a tax.

Muskrat Falls takes electricity rates set – by law - by an independent regulatory board (the public utilities board) to be enough to cover the basic costs for providing the electricity plus  a modest profit to keep a couple of companies solvent and turns it into a source of cash for the government.

If you believe Nalcor’s projections,  Muskrat Falls is a multi-billion new tax on Newfoundlanders and Labradorians.  Provincial politicians of any stripe who back the project actually celebrate this fact every time they hold out all the amazing new “revenue” coming from Muskrat Falls. 

That’s the part that actually makes you catch your breath a bit.  Nalcor and the Conservatives have actually designed this new tax and hidden it in plain sight. And on top of that, they’ve managed to get hundreds of thousands of people not only to support the tax but to support it enthusiastically.  Jack up personal income taxes to raise $450 million a year – the “revenue” projections Nalcor uses for Muskrat – and watch how fast people buy up all the tar and feathers on the island.  With Muskrat Falls, though, they’ll take to the radio talk shows and tell you how these MF critics are all MFers.  This project is great, they say.  It will bring “us” billions.

You can see a bit of the confusion that has crept into people’s thinking in Jackson’s second bullet point:

  • The revenue from export sales of Muskrat power will be minimal due to market conditions, but export sales were not included in the original calculations of Muskrat’s viability. They were considered gravy — even if that gravy will be a lot thinner than projected.

Exports sales revenue wasn’t just “not included” like something left out by accident.  It was never considered at all.  Nalcor knew that the project was just too damned expensive to sell anywhere except in Newfoundland and Labrador.  That’s the only place, after all, where they could get the politicians to pass laws making it illegal for anyone to import cheaper electricity to the province so people could get a vital commodity at the lowest cost.

There is cheaper electricity than Muskrat Falls.  Nalcor plans to buy it.  They admitted it in December last year,  after the government  changed the provincial energy laws to make electricity prices a tax determined, in effect, by cabinet.  That was the same time they made it illegal to import cheaper electricity into the province,  unless you were Nalcor.

There’s another reason why Muskrat Falls is a project that, on principle, people should reject.  Every other tax the government sets must be approved by the elected representatives of the people in the House of Assembly.  But under Bill 61,  passed in December 2012,  cabinet can direct the public utilities board on everything from the terms and conditions of orders to whether or not the board will hold a hearing to determine rates on anything at all.  It’s hard to imagine a more fundamentally anti-democratic thing than a government tax set in secret by cabinet with people only finding out about it when the time comes to pay it.

And yet where was the public stink over that? 

Lost in the smog, it seems.