30 January 2015

Gil Bennett: fact checker #nlpoli

Gil Bennett, Nalcor vice-president in charge of the Lower Churchill project, took some exceptions to comments in yesterdays posts on Muskrat Falls and electricity prices.

Rather than go back and deal with his comments in a re-write of the original post, let’s deal with Bennett’s comments here and link the two together so people can get the full effect.

For those of you who didn’t read the original post, go back and do so.  It will help.  In this post, Bennett’s tweets are in bold print.  Your humble e-scribbler’s reply is in regular type.

Fact check 1 - sanction decision made in 2012, not 2006

The fact is the statement in the post did not use the word sanction about the project.  It said “before they decided to build Muskrat Falls in 2006.”

Nalcor passed the Lower Churchill project through the first decision gate in 2006.  At the time,  they defined the project as a dam at Gull Island,  a line to the island, and a smaller dam at Muskrat Falls.

In 2010,  the project changed definition.  When Nalcor announced the Emera deal in November 2010,  it had become Muskrat Falls first, with the smaller dam being paid for by domestic consumers to meet domestic need. 

Gull Island was still there as a second project to be built at an unspecified time in the future.  As time wore on, it became obvious that Muskrat Falls was it.  Gull Island wasn’t happening any time soon and given recent market trends it likely will remain a paper project.

Here’s the thing:  the reason Nalcor switched the project priorities and definition in 2010 was because Gull Island was no longer viable. The cost had gotten to a point where Nalcor couldn’t do it alone. After five years trying,  Nalcor and the provincial government couldn’t get Hydro-Quebec to take a co-owner stake. Nalcor had no confirmed markets for the power.

So they redefined the Lower Churchill as Muskrat first, which quickly became Muskrat project.

Fact check 2 - much material on alternatives powerinourhands.ca/alternatives.a… esp. MHI report

In a subsequent exchange on Twitter, Bennett pointed to Exhibit 99 from the public utilities board review of Nalcor as further evidence that Nalcor had looked at all the options and shown MF to be the lowest cost option.

Here’s the statement from the original:

“Nalcor claims that Muskrat Falls is the lowest cost way of meeting electricity demand on the island in the future.  The truth is Nalcor didn’t produce any evidence that they compared potential sources of electricity…”

The documents Bennett referred to are well known. They present two alternatives.  One is Muskrat Falls.  The other is an isolated island with new generation coming from some additional small hydro and more thermal. A key component of the Nalcor scenario is the assumption that thermal fuel prices remain high.

If you accept that this constitutes looking at alternatives, the sentence from the original post is wrong.

However, the issue of alternatives has been a contentious one.  You’ll find lots of reference to it at SRBP, dating back to the point during the joint federal/provincial review when Bennett said Nalcor didn’t look at locally-sourced natural gas as a potential source of fuel.  Bennett said that the project proponents  - the oil companies – hadn’t figured out a way to develop the gas commercially, so Nalcor hadn’t looked at it.

Back in 2006,  Nalcor apparently looked at several alternative ways to produce large volumes of electricity for export.  Curiously enough, in 2010,  they only looked seriously at one alternative to Muskrat Falls to meet domestic needs. That one alternative also had a specific assumption – high oil prices – that helped to make it easy for Nalcor to come out on top..

Frankly, it looks like what one would expect if the goal was to situate the estimate, instead of estimating the situation.  In other words,  the approach Nalcor took looks to your humble e-scribbler like it was driven by the imperative to build the dam rather to take the Hydro perspective and deliver electricity to consumers at the lowest cost.

Nalcor LCP apparently didn’t look at demand management or  importing electricity from other sources as potential ways of meeting domestic needs.  That last one is especially interesting in light of what happened in 2012.  Through changes to the provincial laws governing electricity regulation,  the provincial government gave Nalcor a monopoly on electricity generation and wholesaling on the island.

That means the provincial electricity retailer can only buy from Nalcor.  Even if Newfoundland Power could import electricity more cheaply from the United States than they could get it from Nalcor,  NP could deliver the savings to consumers.  They have to buy from Nalcor.

Ditto importing electricity from Hydro-Quebec, for example, as suggested by JM.  NP couldn’t import electricity from HQ even if HQ sold them electricity that originated at Churchill Falls for the same price HQ buys it from Churchill Falls (Labrador) Corporation. Not allowed, by law.

The only reason the provincial government gave Nalcor a monopoly is to preclude an electricity retailer from importing cheaper electricity from outside the province. If Muskrat Falls really was the lowest cost alternative to meet domestic needs,  then Nalcor wouldn’t need a monopoly to protect its interests.

Fact check 3 - all in costs will include much more than price of oil today - see isolated expansion plan

As a last point, there’s the issue of oil prices.  If your humble e-scribbler is reading that point correctly,  Bennett is talking about the cost of the whole scenario over time.

Fair enough.

It’s fair enough to point out, as Bennett does, that the costs (projections ?) aren’t based on the price today.

By the same token, though,  that was true when oil prices were high and Muskrat Falls proponents were pointing at the high price of oil today and projecting it forward until 2067.

There’s no question that oil has been a big part of Nalcor’s justification for Muskrat Falls. Take a government news release from 2012 as a good example. The word oil appears 25 times. Muskrat Falls will “stop the trend of increasing rates based on oil prices” according to Jerome Kennedy.

At the end, it’s up to you whether or not the original post got things  right or wrong. 

Maybe it’s telling that Bennett didn’t challenge the main point of the post.  If Muskrat Falls has been premised on electricity rates hitting a certain level by 2017,  then consumers are in for a big shock.  Right now and for the foreseeable future,  oil prices will remain much lower than Nalcor’s forecasts.  As a result electricity prices for consumers will stay well below Nalcor’s forecast prices even from estimates made last August.  To fit those forecasts,  electricity prices will have to climb almost 50% in about two years. 

That’s going to come as a big shock to a whole bunch of people.