28 September 2020

Policy confusion does no one any good #nlpoli

Last week, the Liberal governments in Ottawa and St. John’s unleashed a bold new innovation in political announcements.

Fridays used to be the day when governments buried announcements, they didn’t want anyone to notice.  They’d take out the trash, as the day came to be known, by slipping out a news release without any fanfare.

Not anymore.

A gigantic news conference featuring both the Premier and the provincial representative in the federal cabinet unleashed a pair of significant announcements.

Problem was there wasn’t enough detail for many people to make sense of it all.

Hence, the new concept:

For-Fuck-Sake Friday.

Because it left observers shouting, “For Fuck Sake!” in either bewilderment or exasperation as they tried to figure out what was going on.

Well, fear not, faithful readers.

As we have done for the past decade and a half, SRBP will blow away all the clouds of confusion furrowing brows across Newfoundland and Labrador and tell you what it all means.

No duff.

No guff.

The Atlantic Loop-Garoux

The feds actually got the ball rolling the day before FFS Friday in what could probably be called “‘The Fuck? Thursday” as in “What the fuck is that all about?”

Included in the Throne Speech was reference to something called the Atlantic Loop “that will connect surplus clean power to regions transitioning away from coal.”

When asked about it on Thursday, Premier Andrew Furey said the Throne speech was the first he’d heard of the Atlantic Loop.

Not a good sign.

Then came the second bad sign, the over-sell.

On Saturday,  “a senior Liberal source” in Ottawa deployed Danny Williams’ favourite shill to tell us what a glorious future awaited us all thanks to the Atlantic Loop.  Veteran news watchers will recognize the phrase “senior Liberal source” as the same one Ryan Cleary used to use whenever Brian Tobin fed him a little morsel for the front page of the Telegram, as it then was, but didn’t want to be easily identified as the source of the bit of media manipulation. 

Anyway, CBC’s David Cochrane even managed to slip in a mention that the Loop might let Muskrat Falls be the splendiferous success Danny’s publicist always told David it was right before David said so on air.

With no hint of sarcasm or irony, one can safely - and openly - quote old Twitchy Hisself and say that nothing could be further from the truth.

The Throne Speech said the Loop was about connecting surplus electricity with markets trying to get off coal.  There’s only one place in Atlantic Canada that fits that description.  Nova Scotia Power’s long-range plan is to get out of the generation business and source cheap electricity from somewhere else to keep Nova Scotia electricity prices low.

Danny Williams was only too happy in 2010 to give the Nova Scotians a block of electricity for free – while promising to double electricity prices in his own province – just to get his legacy project out the door.  Williams’ successor added another block of power for the Nova Scotians far below the cost of making it.  The result is that the Nova Scotians get cheap juice paid for, in full, plus profit by the gullible Newfies… errr… the kind and generous people of Newfoundland and Labrador.

Take away the block for use in Newfoundland and Labrador and all that’s left of Muskrat Falls is only about $60 million’s worth-a-year at current market prices.  Not enough. And besides, if they wanted that cheap power from their northern neighbours, the bluenosers could just run down the Maritime Link.

If Nova Scotia needs more power, there’s really only one place to go.


They have all kinds of low-cost power they are willing to sell for cheap.  The revolution in markets in the United States made the Lower Churchill a bust before Danny Williams green-lit Muskrat Falls in April 2010.  It also meant that Hydro Quebec had lots of power looking for a more lucrative home. Shipping it into the US doesn’t make as much as it used to since the cost of the electricity is low, and the long distances plus new transmission lines means the American markets are not as lucrative as they used to be.

HQ has needed a market closer to home for some time.  That’s why Hydro Quebec has been trying to get it into the Maritime market for more than a decade. Closer to home means lower transmission costs and lower transmission costs mean that low-cost electricity is more profitable going to Nova Scotia than dumping it into Rhode Island or New York.

The Atlantic Loop will upgrade the transmission infrastructure from Quebec into New Brunswick and Nova Scotia at federal expense and let HQ get its piles of cheap electricity into the Maritimes.

There is zero opportunity in the Loop for Newfoundland and Labrador, thanks to the Muskrat Falls disaster.

Speaking of disasters…

That brings us to the provincial contribution to FFS Friday, namely the announcement that Brendan Paddick would lead a completely new “rate mitigation” team. 

Right off the bat, this caused a bit of confusion because there was already supposed to be a mitigation team ready to deliver the goods after literally years of talks with the federal government.

Then there was the insistence this was designed to correct some kind of misalignment – as the Premier put it – between the public servants and the kindly folks at Nalcor.

Yeah, except what Andrew Furey announced was way more than just a minor tweak or a smack on the side of the head to realign a few skulls.

He crowned Paddick some kind of the Hydro Czar, free to gather around himself  a bunch of bureaucrats from government and Nalcor to finish Muskrat Falls, lower electricity prices *and* ensure Nalcor and the provincial government get all the profit they’d banked on, and build Gull Island to boot.

There are lots of major problems with this aside from the dozens of lesser questions, like what is Stan Marshall and that crowd going to be doing besides finishing Muskrat Falls.  Are they out the door?  And why does Paddick need to give up chairmanship of Nalcor to run this outfit which is basically Nalcor with a few bureaucrats hanging on?

We don’t have enough space to get into all that so let’s just focus on three strategic problems with this scheme.

First, the approach is basically the same one that delivered Muskrat Falls. For those who don’t know what that means, start with the executive summary to LeBlanc inquiry report.  Friday’s announcement puts a personal friend of the Premier in charge of a gigantic project although he has with no discernable experience in this sort of intergovernmental negotiation, not to mention the delivery of a multi-billion dollar megaproject.  Then it takes all the people  - deputy ministers - who should be advising the Premier and cabinet about Paddick’s performance and subordinates them to Paddick.  Brendan controls the flow of information and, as such, appropriate oversight is all but impossible.

What’s worse, Paddick’s terms of reference are vague. This violates Rule One of accountability, transparency, and good project management. If you don’t know clearly what the goals are, there’s no way to properly monitor progress and assess performance.  This basic problem has bedeviled governments for the past 15 years and this is just more of the same.

You  cannot oversee a project properly if there’s no clear statement of what the project is about.  One of the objectives is so grammatically different from the others that it and the reference to the Atlantic Loop (which the Premier knew nothing about on Thursday, don't forget) look like they were tossed in at the last minute.

Not good.

Second, Gull Island isn’t big enough to pay for itself in the current market. And if it cannot pay for itself, then it cannot also pay for Muskrat Falls.   Add in the requirement to produce the impossible financial miracles set in 2010 as well as the rate mitigation task and we are just going farther down the same rabbit hole Danny dragged us into a decade ago using precisely the same failed management approach. This will not end well.

For the record, there is a way to fix the mess at Nalcor/Hydro and maybe build Gull Island. But to do that sort of restructuring, you’d need a far bigger re-organization than the one described in the Friday announcement.  And you’d be hiring a team of lawyers and bankers from New York to do it, not another cable guy.

Third, and perhaps most importantly, there isn’t time.  Building Gull Island is a five to seven-year project.  We need cash next year.

To be specific, Paddick has to deliver his miracle in less than 12 months.  And since the people behind Muskrat Falls have been trying to mitigate rates and maximize profits (two of Paddick’s goals) for 12 years and cannot do it, there is no reason to believe Paddick will do better in a tiny fraction of the time they had.

And we are talking months here.

The contracts and other agreements for Muskrat Falls make it plain the whole thing needs to be done, finished, up, and running no later than the end of February 2021.

Or else.

There is a single, allowable six-month extension, if Nalcor asks for it.

They did.


While everyone was freaked out about COVID.

And so, they now have the wall facing them on August 31, 2021 with no chances of further extension.  Don’t let the announcement of first power fool you.  There are big hurdles left to finish Muskrat Falls.  The asynchronous condensers at Soldier’s Pond are still shagged up.  And if that wasn’t enough, Nalcor is still grappling with the controls software needed to manage the transmission on the lines.

 Things were so bad and so uncertain earlier this year that the folks at the oversight committee started talking about a Plan B in the event General Electric failed completely to deliver the software.   Altogether, there is almost a billion in potential project costs associated with four major contingencies that could throw the project off the rails, still. 

Now admittedly the most recent information we have in public on this is the quarterly report from March  that was released in June.  The minutes for the oversight committees June meeting are - deliberately - an indecipherable mess.  But if you squint, you can see more than the appalling lack of disclosure to the public about Muskrat Falls.  What you can see is that the problems are serious enough for the project to run even more overbudget than it already is  - almost a billion dollars – or,  God forbid,  they might not even get the whole thing finished by next August.    

But let’s assume they do.

Paddick and a gaggle of bureaucrats have to do in less than 12 months what, in the most optimistic scenario, the same gaggle was unable to accomplish in the previous 60 months.

How likely is that?

FFS Friday, for sure.

Uncertainty where certainty is paramount

The last installment of the FFS announcement was the $320 million for the offshore to cover job creation, green energy, and the like and nothing to actually get drills back in the ground.  That is, after all, what the offshore oil folks have been crying about since the winter. 

We don’t know specifically what the money is for.  We do know that a couple of industry insiders will decide where the cash goes. And we know that the cash comes from the asset-backed federal transfer announced last year, also known as Fake Atlantic Accord 2.

 This money was originally supposed to go to general revenue and help deal with the government’s massive deficit.  Now it is heading to the local oil industry, along with another fund the provincial government announced on TF Thursday to use forfeit exploration bid deposits to subsidize exploration offshore.  

While this looks good on the surface, there are no details.  Companies need certainty when planning expensive offshore drilling programs. That’s a problem.  There’s no concrete amount involved.  It will vary, apparently. There could be cash some years and there could be very little or none.  Will the money be used primarily to support develop of wells in the Jean d’Arc basin, where the oil is cheaper to extract and easier to process?  Or will it go to the Orphan Basin and other deep-water prospects that are expensive and unlikely to be developed in the foreseeable future? What about natural gas, which does have a market value, but which government and the industry continue to neglect?

The major problem here is that neither the provincial nor federal governments have viable energy strategies for the offshore.  The federal government isn’t really interested and the provincial government has not decided if it is still governed by outdated ideas  - where the local industry association remains mired – or wants to develop a new strategy that reflects where the world is today and will be in the future.

That political uncertainty is what really will make Newfoundland and Labrador less attractive than other places when companies want to know where they can develop oil and gas predictably and reliably. 

And on a much simpler level it will also make the partisan discussions more problematic either.  After all, the entire industry premise – aligned as it is with both federal and provincial Conservatives – that that they want to be happy.  Not surprisingly on Friday, the general message from them was that the amounts the federal and provincial government announced was not enough.  Make us happier, they said.  

This sort of thing will keep going as the governments in St. John’s and Ottawa struggle to get some control of the political agenda.

Policy confusion.

That’s the real meaning of FFS Friday.

It does no one any good.