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
company.
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.
-srbp-