04 June 2015

The Persistence of False Information: free electricity version #nlpoli

An exchange on Twitter reminded your humble e-scribbler on Wednesday evening of the power of false information to persist despite either being disproven or, in this case, being an obvious nonsense.

Not surprisingly, the discussion was about Nalcor, Emera,  the Maritime Link and a block of electricity that Nalcor gets under the Muskrat Falls deal.  There is a lot of false information about these subjects that just won’t die.  Let’s just deal with the free block of electricity.

Emera gets a block of electricity, guaranteed for 35 years, for free, sez your humble e-scribbler.

Not so, sez a correspondent.  Who said it is not important.  It’s the contention he made that is important: Emera pays for the electricity.

$1.56 billion.

This is the way Nalcor has always portrayed the deal.  Emera will spend $1.56 billion and in exchange they get 35 years of electricity.  They pay money and get a product in exchange,  as another correspondent put it.  Not free electricity,  They pay for it.

Of course, the truth is that Emera does not pay for the electricity.

Emera will pay $1.56 billion for a transmission line.  They will charge Nova Scotia ratepayers an amount approved by the Nova Scotia regulator to recover the cost of the transmission line.

But for 35 years they will not give Nalcor a single copper for the basic block of electricity they will receive each and every year.

An analogy might help

Think of it this way.

Let’s imagine this guy goes to the store and picks up a bag of potatoes every week.  By arrangement with the grocery store, his receipt for the potatoes reads zero dollars and zero cents.  No debit card.  No cheques, cash, or credit card.  No money changes hands at all.

As part of the deal,  the guy bought  a new truck and uses it to go to the store and pick up the bag of potatoes.  If the grocery store wants to sell potatoes to someone else or buy cheap potatoes from somewhere else, the guy will let them rent the truck at a really cheap rate.  At the end of 35 years,  the guy will give the truck to the grocery store for free.

How much did the guy pay for 35 years of potatoes?

Zero dollars and zero cents.

35 times zero is zero.

Even with the New Math, the guy with the truck doesn’t pay a single copper for his potatoes.

Who does pay?

Now the guy with the grocery store grows the potatoes on a farm.  it costs him money for the seeds and manure.  It costs him for the farm hands to tend those potatoes and then to pick them and bag them up.  It also costs him to bring them from the farm down to his store.

If the people who own the farm (Muskrat Falls) and the store (Bay d’Espoir) go in and buy those same potatoes, they will pay the cost of making them and getting them to the store. 

For the sake of our simple story, this farm makes five bags of potatoes.  We are getting one bag.  The people who own the store and the farm get two bags. They will pay for the whole operation – making the potatoes and moving them to the store – for the equivalent of the two bags..

But this guy with the truck doesn’t even pay the cost of making the potatoes and getting them from the farm to the store.

He doesn’t pay half the cost.

Truck guy doesn’t pay one one thousandth of the cost.

He pays nothing.

He doesn’t have to pay for the potatoes because the farm owner is going to pay for everything.

Just to be clear, the guy with the farm does think he is getting something in this deal besides the truck 35 years from now.  Farm guy wants to be able to sell potatoes to other people.  He wants to use Truck Guy’s truck. 

So the guy with the truck says that he will help out, if the farm guy wants to move some potatoes.  And the truck guy will charge the farm guy to move the potatoes.  The farm guy will pay the truck guy to move potatoes to market.

It gets better…for the guy with the truck.

Farm guy knows he can buy potatoes more cheaply than he can grow them on his farm.  At some times during the year,  Farm Guy will buy potatoes and bring them to his store to sell to the folks who own the farm and the store.  The guy with the truck will help move those potatoes as well and, for good measure, he will get paid  - by the guy with the farm - for moving them.

But for all that,  how much will the guy with the truck pay to the guy with the farm for the bag of potatoes.?


So why do people argue that he pays for the potatoes?

Good question.