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.
Quebec.
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.
Quietly.
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.
-srbp-