05 August 2019

Restoring Power: destroying the monster #nlpoli

The threat from Muskrat Falls can only be removed by concerted action that addresses the project’s financial burden, restores integrity to the system of electricity regulation, and that breaks, once and for all time, the fundamentally corrupt relationship between the provincial hydro-electric corporation and the provincial government. This is the only way to restore power to the province’s people so that they may control their own future.
And there shall be plans,  and planning for plans...

This weekend, there’s a story at CBC about a recent study done by a provincial government department into why people from this province leave and what it would take to get them back. Don’t be bothered by that sense you’d heard the story before because you had.

Danny Williams and an unidentified aide unveil
the New Approach, 2003 (not exactly as shown).
Some things are best left buried.
The new CBC story came out of a recent two-parter in The Independent. That came out of questions raised in the House of Assembly in June about the bits the government had cut out of the report it commissioned in 2018.

Everyone fixated on the bits the government cut-out in the recent story but there’s something in the conclusions.  The people surveyed were all under age 35, had higher education, and marketable skills.  They left either to find work or find better work and they would come back to the province if they could find a job or a situation here comparable to the one they already have.

This is something people in this province have known for the better part of a century and it is certainly something the provincial government has known for at least 30 years or more.  Not even a hint of exaggeration in any of that.

The study is part of the current administration’s effort to develop a plan to replace the strategy developed by the crowd that ran the place before now to attract what Danny Williams used to call the homing pigeons back to Newfoundland and Labrador.

And the key feature of the ex-pat report is the same as the key feature of a study on immigration or young people who were thinking about leaving the province.  If there are jobs, they will either stay, come back, or come here in the first place, depending on the current physical location of the group you are studying.

Everything Old called New Again

We might call these studies penetrating insights into the obvious but don’t dismiss them too easily. What they found is less important than what government did with them.  None of the governments since 2003 have come up with an original idea to create the jobs that all those people keep saying they need to get them to stay, come here, or come back here in the first place.  They just keep studying the subject over and over again.  The lines recited by the current minister responsible for these studies is just him mouthing words from his predecessors back to the New Approach started in 2003 and continued – quite literally with those words - in the Throne Speech in 2016.

Supporters of the New Approach will argue they did something.  They will point to the ton of strategies – called plans since 2015 – to address this, that, or another issue.  They created planning sections in departments and a planning section at Executive Council to co-ordinate all the planning for strategies and plans.

But typically, the strategies never had benchmarks and performance targets.  So, they were basically just useless clusters of words designed chiefly to make it *look* like government was up to something useful.

In the few instances where the government actually did something concrete to promote economic development, they went back to a set of ideas from that past that had been rejected after decades of experience because they didn’t work.

Valdmanic Park

The 2005 throne speech put the Latvian model from the 1950s back on the table: “My Government will create sources of capital to enable businesses to establish, grow, diversify, and prosper.”  That was code for a return to the practice of handing out gobs of taxpayer money - often labelled “investments” or “forgivable loans” – to any company that could fill out a form. The government gave out money to all sorts of companies.  Very few of them lasted very long.  The shortest-lived one never even got started before they stopped.

Nalcor remains the ultimate exercise in turning back the clock to a darker time marked by unlimited public financial liability and conflicts of interest that subordinated the public interest to other interests.   Even its name harkens back to NALCO, the Newfoundland and Labrador Corporation created in the 1950s with a mandate to spearhead economic development in Newfoundland and Labrador.

In Nalcor, Danny Williams and the Conservatives resurrected the idea of a provincial petroleum corporation, subordinated Newfoundland and Labrador Hydro to it, and then began to leech policy responsibilities such as negotiating oil development agreements from the government itself. 
The public already legally owned oil and gas resources onshore Newfoundland and Labrador and had de facto control over them offshore along with the financial benefits as well.  The provincial government abandoned the idea of an oil and gas corporation in the 1980s since it already had the means to develop oil and gas policy.  The Atlantic Accord gave it the means to reap the financial rewards as if the resources were on land.  Newfoundland and Labrador simply didn’t need a state-owned oil company the way Nigeria and Venezuela had needed one 40 or 50 years earlier.

Nalcor and its oil and gas division compromised the government’s ability to regulate the offshore industry.  By taking equity stakes in the offshore, the provincial government became partners in the exploitation of the resources.  The partnership agreements such as the one at Hebron even compelled the provincial government to oppose regulations, such as the new environmental review, if the oil companies opposed them.

The financial consequences of equity stakes were no less dramatic.  Bay du Nord brings with it a minimum of $1.0 billion in new debt to pay for construction costs.  In concept and execution, the second oil and gas company that will develop Bay du Nord with other oil companies is merely an extension of Nalcor concept. In Hebron, Nalcor gave up industrial benefits and royalties in exchange for the possibility of cash later on.

On the electricity side, Muskrat Falls speaks for itself as an example of how Nalcor and its political masters perverted everything to build the project against good sense and contrary evidence.  But the dysfunctional relationship between Nalcor and the Premier’s Office was really just a new version of the relationship that had existed between the Premier’s Office and Newfoundland and Labrador Hydro after 1998.  

That relationship allowed the Public Utilities Board to ignore its statutory obligations under Part II of the Electrical Power Control Act, 1994.  The government wasn’t concerned about the PUB’s failure since it gutted the rest of the regulatory regime in the EPCA, 1994 first by granting a series of exemptions from the PUB’s jurisdiction for electricity projects across the province and then, in 2012, to demolish the system of electricity price regulation.

Restoring Power by Killing the Monster

The Newfoundland Power Commission served its purpose in the 1950s and 1960s to co-ordinate electrification in a province that had an undeveloped bureaucratic capability.  The creation of Newfoundland and Labrador Hydro in the mid-1970s married the power commission’s bureaucratic function with the assets from BRINCO in a new organisation was modelled implicitly, if not officially, on Hydro-Quebec.

By the 1990s, though, and certainly by the early 2000s, Newfoundland and Labrador no longer needed to farm its core policy functions to a Crown corporation.  Nor did it need the same corporation to carry out what was essentially a regulatory function for the electricity industry.  

Whatever policy function the power commission and Hydro had fulfilled was gone.  And the rest of Hydro and Nalcor’s role as resource developer could be done more effectively and efficiently in the private sector, overseen by an agency like the Public Utilities Board.  Indeed, by proposing that Nalcor/Hydro and the private sector electricity distributor streamline their operations, the government and consultants hired by the Public Utilities Board have admitted that the current arrangement is not as efficient as it could be.

Nalcor/Hydro no longer serves a legitimate policy goal that couldn’t be accomplished more effectively and more efficiently another way. The existing arrangement has shown itself time and time again to compromise the public interest in resource developments both in the offshore and in hydro-electricity.

The relationship between Nalcor and the Premier’s Office not only contributed to the Muskrat  Falls fiasco but threatens to produce more of the same type of fiasco in resource development.  Before anyone thinks this is a joke in the wake of Muskrat Falls, understand that the current Premier’s Office is pursuing the Gull Island project as vigorously as any of its predecessors since 1998. 

For those reasons, SRBP proposed, in Restoring Power, that government either divest of Nalcor and its constituent parts or radically restructure the corporation:

“There may have been a reason for its creation almost 45 years ago but there is no public policy goal that could not be achieved in 2019 by a private sector electricity system regulated by an authority that is accountable to a government that is not tied to a regulated entity. Since 1975, Newfoundlanders and Labradorians have lost hundreds of millions in a futile political fight with an imaginary enemy in Quebec. Muskrat Falls, justified as a way of putting the screws to Hydro-Quebec, put the losses from the war in the billions. What is worse, the dispute has prevented the sensible development of hydro-electric resources in Labrador.

“Divesting of Newfoundland and Labrador Hydro would produce the immediate benefit of reducing public debt by whatever amount of it that went with the new company. The provincial government could retain the Muskrat Falls debt and pay some or all of it off with the proceeds of the sale. Hydro’s assets are worth that much and more.

“The divestiture proposed here is much broader than the sale of some Newfoundland and Labrador Hydro assets proposed in the 1990s but the current divestiture should rely on the same goals:
  •          The elimination of the guaranteed debt of Hydro from the Province's financial statements is to take place as soon as possible, and the government is to have no future financial responsibilities.
  •         To achieve the most efficient and effective provincial electrical industry.
  •           Either by restructuring the industry or privatising on its own, government would intend to divest itself fully of its shareholdings in the electrical industry as soon as practical, byway of a broad public offering of common shares in Newfoundland and Labrador, the rest of Canada, and possibly elsewhere.
  •          To ensure the restructured and privatised industry is well capitalised and credit worthy so that it will be able to finance the Province's future electrical requirements,
  •          To achieve stable or improved revenues for the provincial treasury from the electrical industry, and
  •          Within the context of these objectives to minimise the rate increases charged industrial, commercial, and domestic customers in the immediate and longer terms.

“At the very least, the relationship between the Government of Newfoundland and Labrador and Newfoundland and Labrador Hydro must change fundamentally. The corporation must be re-organised so that it can be run as much like a private sector corporation as possible. Its shareholders may give general, clear direction but the provincial government should deal directly and almost exclusively with the board of directors to ensure government’s objectives are met. The corporation should be taxed like any other company. It should be regulated through the new Energy Regulatory Authority like any other company. To the extent possible, taxpayers/ratepayers should not be responsible for ensuring the company is financially sound regardless of mismanagement by its directors and senior executive officers as was the case with Muskrat Falls.”

Whatever Nalcor and Hydro are doing now to carry out the function of electricity system planning should be removed and given to the new Energy Regulatory Authority.  That would break the pattern of behaviour originally established in the 1950s and 1960s that lingers in the bureaucratic processes of government.  That would further minimise the likelihood that government would turn to Nalcor/Hydro for advice about anything again.  After all, the restructured corporation, whether in the private sector, would simply be responsible for making and delivering electricity to customers.
The remainder of Nalcor/Hydro would be re-organised into three corporations that would be responsible for generation, transmission, and distribution (retail sales).  It would be logical for Newfoundland Power to acquire the distribution assets, possibly as part of an exchange that would give its alternating current transmission assets to the new TransCo. This could take place even if the whole corporation was not sold over to the private sector. 

On the oil and gas side of things, the same principles apply.  If sold off, then the conflict of interest inherent in the oil equity stakes is immediately removed.  If government retained the assets. moving the policy advice and analysis capacity to the new energy regulator or back to government – where it belonged anyway – would similarly change the relationship between the politicians and the oil 

Face the Future

We are long overdue for substantive policy change in Newfoundland and Labrador.  The Muskrat Falls debacle has only increased the urgency for Newfoundlanders and Labradorians to reform energy policy.  The province must replace the existing dangerous and dysfunctional approach with one that is founded on basic principles that recognise the modern social, political, and financial circumstances that the province now faces and will face in the future.

Divestiture is the preferred option.  If government cannot get fair value for the assets, then it should re-organise them in a way that destroys the monstrosity that produce Muskrat Falls.  It must also make away with Muskrat Falls’ twin, the oil and gas company, which has only escaped scrutiny because it is hidden behind its brother’s shadow.

The people of Newfoundland and Labrador must mitigate all the impacts of Muskrat Falls if they are to face the future with confidence.  They must take control of their own future.