A chance re-read of the Labrador Hydro Project Exemption Order last week led your humble e-scribbler to a surprising discovery.
The powers granted under the Electrical Power Control Act, 1994 to the public utilities board to manage electricity production in the province are intact.
That means that the lowest cost source of electricity for the province is readily available at Churchill Falls.
The provincial government is dropping $11.3 million to string fibre optic cables from Goose Bay to western Labrador.
The federal government will plunk in $3.0 million with $9.7 million from Bell Aliant.
Of the provincial total, Nalcor Energy will cover $8.3 million.
Just do the math, though. The provincial government has 47% of this project. Both the federal and provincial government shares combined cover a majority interest in the project.
If that doesn’t hit you funny, it might be striking you a bit odd that an energy company is suddenly getting involved in telecommunications. Here’s the quote the people who put the news conference together made up for the Nalcor representative:
“This is one of the many benefits that Labrador will see from the Lower Churchill Project,” said Gilbert Bennett, Nalcor’s Vice-President, Lower Churchill Project. “Nalcor is investing in this project to ensure that critical infrastructure required to build and operate the Muskrat Falls development is in place in Labrador.”
“This is one of the many benefits that Labrador will see from the Lower Churchill Project,” said Gilbert Bennett, Nalcor’s Vice-President, Lower Churchill Project. “Nalcor is investing in this project to ensure that critical infrastructure required to build and operate the Muskrat Falls development is in place in Labrador.”
Not that Nalcor is bullshitting the public or anything, but of course, they are bullshitting. Nalcor has been on a heavy marketing campaign for Muskrat Falls for several months now in all sorts of ways. If they gave money to put new public toilets in a town somewhere, the news release would credit the whole thing to Muskrat Falls.
So yeah, on the crudest level, this is just another version of Nalcor’s publicity efforts for Muskrat Falls.
On another level, this is part of a trend the provincial Conservatives have been pushing since 2003. A key part of the whole effort has been to allow Nalcor – a state-owned, politically directed agency – to use public money to assume an increasingly larger role in the provincial economy.
Weird as it might sound for a Conservative government, that’s part of what is going on here. You can understand it better if you look at what the party does as opposed to importing labels or ideologies from other places. Progressive Conservative is just a label. In practice, the political parties in Newfoundland and Labrador aren’t ideologically based at all. That’s why people can jokingly refer to the Danny Williams Tories as the first NDP government the province ever had and not really be making a silly joke at all.
This sort of project is why the province’s ruling Conservatives inserted clauses in the energy corporation legislation in 2007 that allowed an energy company to do anything the cabinet wants it to do. It was a pretty dramatic change from the old law that governed the provincial hydro corporation.
In fact, this clause was so far away from one one would expect for an energy corporation that most people likely blew it off as being just a meaningless oddity. The whole thing stands out, though, because the clause survived through some pretty significant revisions from the first version of the energy corporation laws in 2006 to the ones that currently govern the corporation dating from 2007.
Cabinet obviously meant for the new corporation to take on anything at all. They didn’t need a way of funnelling provincial government money to the private sector. They already have dozens of ways to do that. They also didn’t need to do this for Muskrat Falls. They’ve been running Churchill Falls, for example, since the 1970s with good old copper telephone lines.
Muskrat Falls wouldn’t be the only new industrial venture that could use fibre optic communications. There are some new mining businesses likely to start in Labrador soon that could claim a far bigger interest in these cables than Nalcor.
And for what it’s worth, Muskrat Falls might not even happen.
What’s going on here is a continuation of the policy laid down by the Conservatives early in their mandate. They want to assume greater and greater control over the provincial economy. Today,it’s fibre optic cables. Tomorrow, it might well be another administration of any partisan stripe getting Nalcor into fish processing or marketing.
As your humble e-scribbler put it in 2006:
Williams' new Hydro corporation returns to an older model based on government subsidy and government dependence. Beyond the attractiveness to some businesses of relying on whatever contracts they can secure from the new Hydro corporation, the political and financial muscle of the state-owned company will likely make it considerably more attractive an investment than a private sector venture, since it will always carry with it a government guarantee of its operations and expenditures. The end result will almost inevitably be a weakening of the local private sector.
Weakening the private sector is one result.
Another is ensuring that local taxpayers pay the full financial cost and then some. Under the Electrical Power Control Act and the public utilities board legislation, the utilities board must set provincial electricity rates to ensure the financial viability of the provincial energy corporation. The company can never lose.
It’s that same combination of powers, incidentally, that Nalcor is using to finance the Muskrat Falls project. Local taxpayers will be forced – by law – to pay whatever rates Nalcor needs to ensure it recovers its costs, makes a profit and maintains its credit rating.
It was an undisclosed risk in 2006, but then again, that’s what the Lower Churchill is all about. It’s what a 2009 Emera deal was all about. Heck, it’s what the provincial Conservatives have been all about since 2003.
No wonder they dropped it out there a couple of days before Christmas.
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Premier Kathy Dunderdale may like to tell people her Muskrat Falls project is the lowest cost option to supply the province with electricity but she is planning to use changes to the Electrical Power Control Act and the Public Utilities Act made in 1999 to hide important details of the Muskrat Falls deal from public scrutiny.
Under the 1994 Electrical Power Control Act, the Public Utilities Board had a mandate to ensure that power generation came from the lowest cost option available to whatever company was proposing a new power source.
As well, the PUB itself could direct a power company to supply energy destined for export to meet provincial needs. That included recalling power from Churchill Falls beyond the power covered by the 1969 contract with Hydro-Quebec.
In 1999, Brian Tobin’s administration amended the two acts in 1999 to cover a situation in which the provincial might have to find additional electricity to meet anticipated demand on the island but didn’t have an a transmission line rom the Lower Churchill project to the island.
Then energy minister Roger Grimes explained the entire situation in debate on the amendments in the fall 1999 sitting of the House of Assembly.
The [ 1994] legislation absolutely required that the only way Hydro or anybody else could consider bringing on new sources of electricity was to go to the PUB and prove that it was the least cost power, the lowest cost. That is the only thing allowed to be considered under the present legislation.
He then added:
…there will be circumstances where we will need electric energy - it will have to be generated because we do not have it available at the present time - sometime in the next decade or longer, while we are waiting for an in-feed from Labrador. If the only way you can bring it on is to go through a proposal where it has to be lowest cost, then there may be circumstances whereby a development that needs to occur because it is in the best interest of the Province, either for continued social development or continued economic development, that we need to be able to consider something, even though it might be marginally a little higher in cost than some other options that could occur that would not fulfill the immediate need but would provide energy to the grid but not necessarily fulfil an immediate need.
Of course, the situation changed dramatically in the dozen years since Grimes shepherded the amendments through the legislature.
Despite that, however, the Dunderdale administration will be using the exemptions to make sure the Public Utilities Board doesn’t examine the project to see if it really is the lowest cost alternative. CBC’s David Cochrane reported the exemption story on Monday night but later tweeted this correction/clarification:
On Muskrat: exemption doesn't apply to PUB rate setting process. It applies to PUB cost benefit analysis. Means no public hearings. 1/2
Govt says it will consult PUB on project. But its oversight function will likely be restricted from its normal reach 2/2.
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Great Gambols with Public Money Update: Having broken the exemption story on Monday, David Cochrane added some important details on the St. John’s Morning Show on Tuesday.
The biggest new point: government is rationalising the exemption by claiming the projection is outside the mandate of the PUB. The board is supposed to set electricity prices and regulate the industry, according to the debriefed account of government’s line. This project is about economic development and the poor old PUB shouldn’t be bothering with those things.
That’s bullshite, of course. The board is supposed to be regulating the industry to make sure consumers are getting the lowest cost power. By exempting Muskrat from scrutiny, Kathy Dunderdale and her cabinet are specifically and deliberately keeping the PUB from doing its job of protecting consumers.
More importantly, the exemption rationale confirms that Muskrat Falls is definitely not the most economical way to bring new power to the island.
Now the project is being sold as “economic development”. Using the Sprung Greenhouse rationalisation, that’s government code for a project that makes no economic sense whatsoever. Every provincial government in this province that wanted to build something that turned into a financial disaster insisted that the thing was about economic development and therefore worth all the spending, cost over-runs etc.
Taxpayers can get ready for a disaster of historic proportions. All the signs are there.
Add Edward Hearn, a former director of Newfoundland and Labrador Hydro to the growing list of people publicly questioning the proposed Muskrat Falls development.
In a letter to the editor of the Telegram, Hearn supports former Tory finance minister Dr. John Collins’ criticisms of the project.
Hearn says the project is liable to huge cost over-runs and that the resulting energy may be too costly to attract industrial development in the province.
Hearn suggests the province’s energy corporation should explore alternatives, including exercising taxation powers under the constitution.
While he doesn’t state it explicitly, Hearn is referring to the potential use of the public utilities board powers under the 1994 Electrical Power Control Act. That Act was designed in part to allow the PUB to allocate power generated in the province for domestic use in a way that would not violate the terms of the 1961 Churchill Falls lease or the 1969 Churchill Falls power contract.
Under sections 8 and 9 of the EPCA, the public utilities board may order producers and transmitters to meet a power allocation ordered by the board. The order would have to come as a result of an inquiry ordered under section 7:
(1) Where a producer or a retailer believes that it may not be able to supply power sufficient to satisfy the current or anticipated power demands of its customers and prospective customers in accordance with the power policy set out in section 3, it may request the public utilities board to conduct an inquiry into the matter.
The Clyde Wells administration revised the Electrical Power Control Act in 1994. The basis for the new Act was a report presented to the Brian Peckford administration in 1986 by Wells and other officials of Newfoundland Power at the time. The Act as it was originally laid out applied equally to all electricity producers and transmitters in the province.
In answering a question from opposition leader Len Simms at the time, Wells said:
It authorizes the Public Utilities Board to redirect any power - any power, no exceptions - to meet the needs of the people of this Province. Not expropriating anything from anybody. It is to manage the power that is generated in this Province in such a manner as to first and foremost meet the needs of the people of this Province. It makes no specific reference to Upper Churchill. It makes no specific reference to power companies. It makes no specific reference to any individual generator of power.
What it does is establish the principle that the Public Utilities Board has to supervise the management of all hydroelectric power generated in the Province in such a manner as to meet first and foremost the needs of the people of this Province, and it sets guidelines as to what are the principles under which they can do it.
Wells introduced the bill at second reading on March 3 when he described the Act in detail.
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Even in the Land Through the Looking Glass that is Newfoundland and Labrador these days, a news release about an emergency session of the House of Assembly to deal with an amendment to a single piece of legislation is very odd, indeed.
As the official version puts it:
In the course of negotiating a water management agreement for the Churchill River, CF(L)Co advised Nalcor that it felt aspects of the Energy Corporation of Newfoundland and Labrador Water Rights Act infringed upon its water rights lease for the Churchill Falls development. This was not the intent of the act, and government has agreed to amend it so as to avoid any ambiguity.
First of all, one must realise, of course, that NALCOR is the parent of Churchill Falls (Labrador) Corporation or CFLCo. It holds 65% of the shares, in fact, and the two companies are not completely separate entities. They are rather closely and intimately connected, in fact.
Second of all, one must also note that the section of the Electrical Power Control Act 1994 requiring a water management agreement came into effect this past January.
In 2007, the current administration introduced this amendment in the legislature requiring two companies trying to generate hydro from the same river to come to some agreement on water sharing have one imposed by the public utilities board. For whatever reason the current administration did not give it force of law until early 2009.
Third of all, the original lease that CF(L)Co holds has been around since 1961. its provisions are well known to a host people inside and outside the provincial government. in fact, given the history of the lease, it’s probably one of the most well studied and well-understood pieces of legal documentation existing anywhere in Canada.
And that’s the really odd thing.
Well, aside from the oddity of the company effectively negotiating with Itself, and then notifying Itself in the course of negotiations that Itself had a problem with something Itself had been party to previously because that infringed on something else Itself had also been party to much earlier.
You see, there is nothing that would have been noticed during the negotiation of a water management agreement for the Churchill River since January 2009 involving NALCOR, Energy Corporation, Newfoundland and Labrador Hydro or CF(L)Co or whatever name the Crown version of Sybil is using at the moment that wasn’t painfully obvious to NALCOR, Energy Corporation Hydro or CF(L)Co or Sybil, as she then was, when the provincial government introduced the changes to the EPCA, 1994 in 2007 and then introduced the Energy Corporation of Newfoundland and Labrador Water Rights Act in early 2008.
What seems to be up for discussion here is something your humble e-scribbler pointed out back in February.
If that weren’t enough, changes to the Electrical Power Control Act – passed in 2007 but only quietly implemented after the expropriation in December 2008 – ensures that NALCO can enforce its control over future developments through the Public Utilities Board.
If one takes the implication from a set of Hydro Quebec questions about the Lower Churchill environmental assessment, the proposed water management regime appears to require that Churchill Falls be run in such a way as to maximize the generation at the Gull Island and Muskrat Falls dams under all contingencies.
This might adversely affect CF(L)Co and some of its contractual arrangements to supply power. It would also seem to go against several sections of the original lease.
If the government news release is clear – and that is by no means obvious – then the emergency session of the legislature is likely to be about passing an amendment that removes the last clause of the water rights act. That’s the one that requires a water management agreement be reached or that one be imposed by the public utilities board.
What’s so interesting – if that’s the case – is that this is coming in an emergency session and not simply held for the fall sitting. An amendment to the legislation could have been made later on with the requirement to produce the amendment being made a condition of any water management agreement.
There must be some sort of threat at work here, something much more significant than the prospect of an agreement between “Nalcor Energy or its subsidiary and CF(L)Co”. Incidentally, CF(L)Co is a subsidiary of NALCOR.
Rather, there might not be much hope of a deal at all in the near term. Instead, CF(L)Co - perhaps at the insistence of one of its shareholders – is protecting its interests and ensuring that the legal problems inherent in the EPCA amendment and the water rights act be eliminated now, without question or condition.
And if it was anything else, like say a repeat of the old water rights reversion act, then the thing would have been trumpeted in news conference held by the Premier. Something says he just wouldn’t be able to resist the temptation to grandstand against any slight.
Nope. This is something government is trying to downplay, somewhat.
But rest assured: emergency sessions like this one don’t happen every day and they sure as heck don’t come for a routine amendment, even if it is one intended merely to avoid “ambiguity”.
There’s something big behind this.
And it may not be pretty for the Lower Churchill project.
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