Irresponsibility of power: Dunderdale flip flops on Muskrat electricity rates

My, oh my what a little public angst over electricity bills will do for a government’s talking points.

The public angst has turned up in Labrador where a who mess of people are concerned they won’t get any of the benefits of the power and yet will wind up paying for it instead.

Premier Kathy Dunderdale zoomed into Happy Valley-Goose Bay late last week to reassure the unhappy valleyians on a few things.

Among the things she talked about was electricity pricing.   According to the Labradorian, Dunderdale said that Labradorians would not see rate increases once Muskrat is on line.

Fair enough.  They will still be getting powered by diesel along the coast since it is apparently too expensive to sling off lines to the coastal communities from the giant lines that will run right along the coast to get the power to Newfoundland.

“The responsibility of power will be charged to the people who use that power,” she said.

Garbled sentence to one side, that “responsibility of power” would not fall to Nova Scotians.  They’ll pay whatever Emera wants to charge them and Emera is getting its power from Muskrat for free if the final deal turns out to be the same as the one Danny Williams inked in order to catch his plane to retirement.

That “responsibility of power” would definitely be the people on the eastern end of Newfoundland. They are getting the power and will have to bear the full load of the cost and potentially more more besides even though they really don’t need it. 

And how much will they be responsible for?

That’s where Dunderdale went wobbly.

Last fall, natural resources minister Kathy Dunderdale, later morphed to be premier, was absolutely adamant that the Danny Williams Legacy Dam project was absolutely wonderful.  It was splendiferously necessary, sayeth Dunderdale, because by 2017, electricity prices in the provinces were going to skyrocket thanks to the price of oil. 

She even had a number she swore by:  120 American bucks a barrel, sustained, by 2017 and as much a 200 bucks a barrel within the next decade. And with crude running at those sorts of prices, it would be damn expensive to generate electricity at Holyrood. Enter Danny Williams Legacy Dam to save the day.

Some of you may recall her interview last November with CBC radio’s West Coast Morning Show.  Your humble e-scribbler even wrote about it for those who don’t normally tune in to the show:

Dunderdale claimed that electricity prices would increase an average of five percent each year from now until 2017. That’s the year Nalcor would supposedly bring Muskrat Falls on line. So electricity prices would be about 35% higher than they are now, according to Dunderdale.

And then on top of that you’d have to whack on the cost of Muskrat Falls power which Dunderdale estimated to be between 14.3 and 16.5 cents per kilowatt hour.

But with all the public concern over rate increases, Dunderdale is now not so sure about her projections.  As the Labradorian reported:

“The project is not advanced enough at this point to determine with that degree of accuracy what you are going to pay per kilowatt hour in 2017.”

She said at the average rate of increase of 5 percent per year, Newfoundlanders could expect to get about the same bill on current power in 2017 as they would under the Muskrat Falls hydropower with similar rates of increase.

Not advanced enough to determine with that degree of accuracy.

Riiiight.

And yet last fall, Kathy had great confidence that the prices would be exactly as she described.  After all it was the absolutely concrete, cast-in-stone, sure-as-Danny-made-little-green-apples certainty of the energy price forecasts that justified upping the gross public debt by about 50% of its current level.

And now Dunderdale can’t be sure what domestic electricity prices will be when the dam is finished in 2017.

That’s a gigantic change in just a few short weeks.

Expect more changes if the public starts paying more attention to what Danny Williams Legacy Dam will cost them.

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Think federal equity stake

So the provincial Conservatives are still looking to Uncle Ottawa for a loan guarantee to build the Danny Williams Memorial Money Pit, a.k.a Muskrat Falls and a bunch of transmission lines. This is a really old story.

Danny Williams claimed he had a commitment at one point but for some reason the provincial Conservatives have to keep asking for it.

In the latest version, Kathy Dunderdale – Williams’ chosen heir – is asking again, and Prime Minister Stephen Harper is carefully examining the whole project that he supposedly already committed to fund.

Well, at least that’s what Kathy told us what Stephen said which is basically what happened before when Danny told us over an dover again that Stephen gave a loan guarantee which he apparently never did since Danny and Kathy have to keep asking for it.

Yes, yes, it is just more of the same but let’s just make this really simple.

Let’s remind everyone of what Stephen Harper said in 2006 when Danny Williams asked him to finance the Lower Churchill:

A Conservative government would welcome discussions on this initiative and would hope that the potential exists for it to proceed in the spirit of past successes such as the Hibernia project.

Hibernia project.

1992.

8.5% Equity stake.

How big a piece of the Muskrat Falls pie is Kathy willing to sell to Stephen Harper to build Danny Williams’ legacy?

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Feds and province release Lower Churchill transmission line EIS document

The federal and provincial governments released the environmental impact study scoping document on Monday for the proposed transmission line that will carry electricity from the Lower Churchill to St. John’s.

The draft environmental impact study guidelines and scoping document identify the information that Nalcor will be required to address in order to prepare the environmental impact study.

Members of the public now have until March 21 to submit comments on the document. The Canadian Environmental Assessment Agency has up to $200,000 to assist groups and individuals to participate in the project review.

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Financials key to Lower Churchill

From 2006, an article by Craig Westcott that appeared originally in the now defunct Independent. 

Premier Kathy Dunderdale went to Ottawa today with her hand out looking for some federal financial aid to get the Danny Williams retirement project off the ground.

The key is still in the financials.

Let’s see what, if anything, she gets.

And then let’s see what that will cost us.

Growing interest:  Solving interest rate riddle critical to Lower Churchill project

At a Memorial University lecture hall one evening last week, Gilbert Bennett stood and gave a 45 minute talk on the challenges and opportunities of the Lower Churchill River hydroelectric project.

Then his real work began. For the next 45 minutes, people in the crowded lecture hall peppered the vice president of Newfoundland and Labrador Hydro with questions.

They asked him about everything from the chances of getting redress on the infamous Upper Churchill deal to what kinds of benefits the Innu Nation members can expect from the project.

Then came one of the toughest questions to answer, but one that is critical to the viability of the $6-billion to $9-billion project that Hydro is hoping to have on stream by 2015.

“The surprise for me tonight,” said one man, “was that this project, to get off the ground, is going to take as much as 10 years. Interest rates are starting to rise. Isn’t there a risk in taking this project so far out?”

Bennett allowed there is. “I’m with you in that interest rates are going to be essential,” he admitted.

And that was putting it mildly.

<Growing interest>

As Bennett himself pointed out, there are a number of key factors that have to be resolved before the Lower Churchill hydro project can get sanctioned for construction. A land claim and impact benefits agreements must be negotiated with the Innu Nation. The federal and provincial governments have to agree on the form the environmental impact statement will take and who will head the review. And the province must decide who will develop the power plants at Gull Island and Muskrat Falls, who will get the power from them, how they will get it and how the whole thing will be financed.

“As you can see, we have a lot of work to do,” Bennett told the gathering.

But among all the challenges and risks, perhaps none is more important than the matter of interest rates. If the Upper Churchill was a boondoggle because of BRINCO's inability to negotiate a re-opener clause to cover inflation, the killer for any Lower Churchill project could be interest rates. And that’s because just like the man in the lecture room observed, this project is going to take a long time to develop.

“If you had the right contract, it doesn’t matter,” says Cyril Abery. “You’d have to build into the contract that the price you’re agreeing to (sell the power for) is based on certain interest rates and you’d have to have a clause that if interest rates went up, the price gets adjusted. Otherwise you could get screwed. There has to be re-openers in there. If they do that, there‘s no problem. But if they don‘t do that, yes, it is a problem, especially since today interest rates are low and they‘re probably going to go up.”

When it comes to interest rates and the Lower Churchill project, Abery knows what he’s talking about. From 1985 to 1991, he was the president and CEO of Newfoundland Hydro. He helped negotiate a Lower Churchill deal with Hydro Quebec in 1991 that Premier Clyde Wells ultimately rejected.

“He was nuts in my opinion,” says Abery. “It’s a long story, but the long and short of it is I thought he was nuts. I’m not so sure we haven’t got another one now.”

Abery wasn’t at Bennett’s lecture, but he well understands how interest rates could cripple the development.

So does another former Hydro president and CEO, Bill Wells. He headed the provincial Crown Corporation from 1995 until about a year and a half ago. Like Abery, he too tried hard to reach a development deal on the Lower Churchill.

The problem is that while interest rates may be low now, nobody knows what they will be in 15 years time, if the project is even completed by then. Nobody even knows what they will be next year. And once the project is sanctioned, the developer will be borrowing money every year until it gets built.

“You’re borrowing, borrowing, borrowing, spending, spending, spending (until 2015),” explains Wells. “Somebody’s got to lend you that and that interest cost during the period of construction, that just adds on to the principle because you’re not paying anything back. So at the end of the day you’ve got this lump sum of money that you owe and when you close out your financial agreement going forward for 30 years or 40 years financing, what you’re going to pay in interest is determined at that time, it’s not determined now. So interest rates in 2016, who knows? They may be up, they may be down. And one of the things is, who takes the risk on interest? That used to come up in previous negotiations. It‘s a critical factor.”

Wells says the province, or Hydro, could try at the outset of the construction project to get a lender to agree to a range of future interest rates, as some measure of protection, but that would cost a lot of money.

“Interest is a big factor and then it depends on how you’re financing it,” Wells says.

<Quebec again>

One of the ways the province is looking at raising money to build the project is on the strength of a power purchase agreement with a future customer of the power. That’s how BRINCO financed the Upper Churchill deal in the 1960s. Back then, the only customer BRINCO could get to sign a guarantee that it would buy the electricity was Hydro Quebec. With Ontario and some United States utilities facing the prospect of energy shortages, it may be easier to find other buyers this time around. There will be enough electricity from Lower Churchill to power 1.5 million homes.

But the power will still have to go through Quebec.

“You can’t get the power out of Labrador without going through Quebec,” says Abery.

Williams has raised the prospect of building a transmission line through the Maritimes.

Abery is sceptical.

“We always put that out there to make it sound like we had options,” Abery says. “But everybody in the business knows that’s foolishness. It sounds good in the newspaper. Joe Smallwood started that back in the 1960s calling it the Anglo-Saxon route. It was crazy then and it’s crazy now.”

Abery says any talk of a Maritimes route doesn’t fool Hydro Quebec.

“They just smile,” he says. “I mean you’re in the middle of Labrador. The only border we’ve got is with Quebec. So you’ve either got to sell it to Quebec, or go through Quebec. And there’s no reason you wouldn’t sell it to Quebec. Their money is just as good as anybody else’s money as long as you got enough of it.”

Abery says Newfoundland could sell the power to another customer, in Ontario say, and simply pay Hydro Quebec to wheel it across its transmission lines. The fee for doing it wouldn’t be unreasonable, he notes.

“But the farther you sell it, the more transmission lines you’ve got to build and the costlier it is,” he points out. “The simpler thing is to just sell it to Quebec and let them deal with it. But if you’re getting enough money out of Ontario, then sell it to them. If you’re getting enough money out of Manitoba, I suppose you’d sell it to them. But it would be expensive power. The further you go, the more expensive it is. Transmission lines are not cheap. And you lose energy on the transmission line. That’s why you can only go so far with the transmission line, otherwise there’s no energy at the end of it.”

Wells, meanwhile, sees one way around a purchase power contract with Hydro Quebec or any other customer as the main way of financing the project. But it’s one that didn’t get anywhere in the past.

“If the federal government said ‘We’ll back the project,’ well nobody is going to argue the federal government is going to go broke over (it),” says Wells.

Bennett says obtaining federal backing is an area the utility is going to explore very carefully. He notes Premier Williams raised the idea with all three parties during the last federal election. Stephen Harper, then the Conservative Party Leader, now the Prime Minister, said his party supported the idea of a project “in principle.”

Whether that includes a financial commitment remains to be seen.

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No power cable for PEI?

Federal transport minister Chuck Strahl said Thursday the federal government won’t be helping the province fund an electricity line from the island to the mainland, saying that the project didn’t make the province’s own Top 20 priorities.

The provincial government is trying to secure funding for the project through a federal green infrastructure fund.

According to the Charlottetown Guardian:

Prince Edward Island isn’t the only province looking for an electrical cable.

The $1-billion green infrastructure program has already funded an electrical cable in British Columbia at a cost of $440 million. The federal government picked up $130 million. The program also funded a $160-million power cable in the Yukon. The federal government picked up $71 million.

Newfoundland and Labrador and Nova Scotia have a joint application for a cable between those two provinces. That mega-project will cost between $800 million and $1.2 billion. They’ve asked the federal government for $375 million.

Strahl said he recognizes the province wants to construct the cable and the federal government is working to find the money to fund the project.

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Ontario flush with electricity

And so much for that market for Lower Churchill power…

Ontario residents were bemused to discover that on New Year’s Day 2011, on average, they were paid to use electricity.

If that seemed unusual – and it is – it’s only the start.

Within the next two years, the conditions that produced the bonus New Year’s power could crop up about one day in every seven, according to an analysis by the agency that runs Ontario’s power market.

A big reason: about 5,000 megawatts of wind powered generation is due to be connected to the Ontario grid in the next few years, producing surges of power that are more than the province needs.

via Toronto Star

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A sweet energy deal for someone

The following op-ed piece is from opposition leader Kelvin Parsons.  It appeared in several conventional news media last weekend.

 

A sweet deal, but not for the citizens of Newfoundland and Labrador

by Kelvin Parsons

The proposed Term Sheet to develop hydroelectric power at Muskrat Falls, Labrador with Emera Energy of Nova Scotia is badly flawed. If it proceeds, it will cause an exorbitant rise in electricity rates and increase our provincial debt by as much as 50 per cent, a worrisome development given that we already have the highest per capita debt in Canada.

The Government of Premier Kathy Dunderdale would have us believe this deal is necessary to provide stable, long term energy prices and that if it doesn’t proceed our energy prices will be even higher. However, neither the premier, nor Nalcor, has provided any information to substantiate that claim. Neither has Ms. Dunderdale or Nalcor offered any proof that energy demand is increasing on the island and that we actually need the additional power Muskrat could provide. It would be instructive to see Nalcor’s energy demand projections given this province has lost two pulp and paper mills under the current government’s watch and our population is projected to decrease over the long term.

As for her contention that replacing the thermal plant at Holyrood with Muskrat power would make this province 98 per cent green, Ms. Dunderdale is not telling the full story. She is failing to disclose that Holyrood generates only 20 per cent of the island’s electricity and that the other 80 per cent is already “green energy” that comes from hydroelectric stations such as the ones at Bay d’Espoir and Cat Arm and from wind farms such as the one at St. Lawrence. Using the premier’s own formula for calculating our “greenness,” which includes the 5,400 megawatts of energy already being produced on the upper Churchill, this province is already 91 per cent “green.”

The premier is proposing that we spend $6.2 billion to build a new power plant in Labrador and run lines thousands of kilometers over land and under water to replace just 20 per cent of our energy production. Adding such a huge financial burden on top of our existing debt - for such limited gain - makes no financial sense.

Refurbishing Holyrood to reduce its emissions is a far cheaper option. Eliminating Holyrood also eliminates the prospect of eventually using this province’s large stores of natural gas for electrical generation here at home. There is much more gas in the oil fields now under production in the Jeanne ‘d’Arc basin than in the Sable reserves off Nova Scotia. And that’s not counting the potential reserves in Western Newfoundland or the large gas reserves off Labrador.

As well, the citizens of this province should be told there are several other potential hydroelectric and wind projects that can be developed on the island of Newfoundland to meet any incremental growth in electrical demand for many years to come. These projects can be developed at far less cost than Muskrat Falls and with much less impact on us as taxpayers and electricity consumers.

Make no mistake, Muskrat will be a financial burden. By the premier’s own admission, the generating and transmission costs of Muskrat Falls power will be at least $143 per megawatt hour. That’s a 120 per cent increase over the base rate Nalcor now charges Newfoundland Power, the main provider of energy to consumers on the island. If there are cost overruns on the project, the base cost will be even higher.

If this project is approved, we will go from having the cheapest power rates in Atlantic Canada to the most expensive. Muskrat’s exorbitant energy costs will also hurt businesses, impair job creation and drive up the cost of living for everyone in this province as the higher electricity charges are added to consumer goods.

But there will be some beneficiaries – just not in Newfoundland and Labrador. Take the case of Emera Energy of Nova Scotia. Ms. Dunderdale claims Emera is paying $1.2 billion for 20 per cent of Muskrat’s energy. That is untrue. That $1.2 billion is being invested in a transmission line that Emera will wholly own for 35 years. The power that will run across that line to Emera will be provided for free. Emera will then sell its free power to consumers in Nova Scotia, recovering its $1.2 billion investment with a guaranteed rate of return. All this has been confirmed by Emera’s president, Bruce Huskilson, in a conference call with investment analysts.

This arrangement is akin to me letting my neighbour take water from my well for 35 years for free, as long as he pays for the hose. Whatever money he gets from selling that water, he keeps it all, not a cent of it comes back to me.

Premier Dunderdale claims the benefit of such a lopsided deal is that Nalcor will be allowed to run excess energy from Muskrat over Emera’s line for sale in the Maritimes and New England. That is true. But Nalcor will have to pay all the associated tariffs and very likely use Emera as the broker. That means more fees paid to our Nova Scotia “partner” and less revenue for the people of this province.

As well, any Muskrat power going to the Maritimes or New England will be sold at a fraction of its production cost. Comparing the current market price in New England of about $50 per megawatt hour with Muskrat’s production cost of $143 per megawatt hour, the people of this province would end up subsidizing two thirds of the cost of electricity going to New England. While Americans and people in the Maritimes would enjoy paying the lower market rate, consumers of electricity here on the island of Newfoundland would have to pay Muskrat’s full production cost plus allowances for profit.

There are other problems with the deal that Premier Dunderdale doesn’t want to talk about. For instance, while Nalcor has agreed to pay half of all cost overruns on the construction of Emera’s Maritime Link, there is no reciprocal agreement on Emera’s part to pay any cost overruns on the transmission line running from Labrador to Newfoundland. That’s despite the fact Emera is getting a 29 per cent ownership stake in our line and will enjoy 29 per cent of all the profits derived from transmitting power from Muskrat Falls to consumers here on the island.

Not surprisingly, financial analysts have hailed the project as a great deal for Emera. They have not made the same assessment for the residents of Newfoundland and Labrador.

The bottom line is this: Premier Dunderdale and her government is asking the residents of this province to pay more than double for their electricity and take on an additional $4.5 billion in debt to finance a project that will provide free energy to Nova Scotia and subsidized energy to consumers in the Maritimes and New England.

As for her contention that keeping Holyrood on stream will lead to energy costs that are even higher than Muskrat’s, to date neither her government nor Nalcor has provided any evidence to back that claim despite our repeated requests to see any such documents.

The Term Sheet to develop Muskrat Falls looks like it was slapped together in a hurry. Incredibly, it’s even worse than the historically unfair Upper Churchill contract. At least in the case of the Upper Churchill, Hydro Quebec pays something for our energy, albeit a pittance of its market value. If Ms. Dunderdale gets her way, Emera Energy will receive Muskrat’s energy for free as well as a 29 per cut of profits on all transmission of energy to our island. Meanwhile, the people of Newfoundland and Labrador will be financing this atrocious deal with even higher debt payments and exorbitant electricity bills.

It’s a sweet deal, alright, but not for the citizens of Newfoundland and Labrador.

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Undisclosed Risk: the cost of freedom is loss

You won’t hear the provincial Conservatives talking too much about an April 2009 deal to sell surplus power from Churchill falls to Emera in New York.

They talked about it a lot when they cut the deal. 

Back then, Danny Williams said the five year contract proved that Labrador hydro power wasn’t isolated any more.  Nalcor wheels Churchill falls power through Quebec to markets in the Untied States.  Nalcor pays Hydro-Quebec a fee for wheeling the power.

And Danny Williams was absolutely right.  Labrador hydro power isn’t isolated.  if Nalcor had customers for Labrador hydro, they could send the power through Quebec tomorrow.

The reason Nalcor isn’t developing the Lower Churchill and shipping the power through Quebec is because there is no market for the power.  Everything else you’ve may have heard from provincial Conservatives in Newfoundland and Labrador and from the local media about a big Quebec conspiracy to block Nalcor is – in a word – crap.

You can see that the Conservatives wouldn’t want to talk about the Wheeling Deal.  it proves that their more recent line, the one that supposedly justifies the Muskrat falls project is – in a word – crap.

Turns out there may be another reason why they aren’t talking about it.

Danny Dumaresque, a former director of Newfoundland and Labrador Hydro, issued a news release on Wednesday claiming that Nalcor is losing money on the Wheeler Deal. The story got decent media coverage across Newfoundland and Labrador and even made it onto the Radio Canada website. There’s also a short story about 20 minutes into the CBC’s Here and Now broadcast on January 5, 2010 and on NTV News from the same date.

Dumaresque looked at the Nalcor annual report and calculated that the company lost money on the deal compared to the previous deal to sell the power to Hydro-Quebec:

Over the past 18 months I have been told various figures of costs and revenue but because these figures were much different than the previous contract with Hydro Quebec, I was reluctant to cite them. However, today I can confirm that this province has lost $15 million in the last 9 months of 2009 under this ‘historic arrangement’ than we would have received from the contract with Hydro Quebec, a reduction of 40 percent.

My information is that results have not been any better in 2010 and up to $20 million will be lost. Therefore, in less than two short years we have lost $35 million of precious taxpayer’s money and the potential to lose up to $100 million over the life of a 5 year agreement which we had with Hydro Quebec!

In addition to this loss of revenue to the province I am also able to confirm that NALCOR has paid nearly $34 million to the Government of Quebec since this deal was done and $7 million to Emera Energy of Nova Scotia. [bold in original]

In the media interviews, natural resources minister Shawn Skinner doesn’t dispute the losses.  In fact he admits that under the deal, Nalcor would lose money when electricity prices are low but it could make them back if prices are high.  Even he uses the line with CBC to the effect that losing money is the price of freedom.  When a politician has to use complete bullshit like that you know he’s been caught out.

There are three things to note from this.

First of all, this is pretty much what you might expect from the deal.  It was clear at the time Nalcor inked the deal that – based on the numbers they released – the deal would only deliver about the same price per kilowatt hour to Nalcor that they were getting under the old fixed-price deal with Hydro-Quebec.  Sure electricity retails for 20-odd cents per kilowatt hour in New York city.  But by the time you take off the wheeling charges to Hydro-Quebec and all the other middlemen, and allow for Emera’s cut, the net for Nalcor was 3.5 to 4.0 cents per kilowatt hour.

As it turned out, electricity prices dropped in the United States what with the 2008 recession and all. They are so low that American producers can sell electricity produced by natural gas from the United States across the border into New Brunswick.  And as it stands right now, prices are going to stay down for the duration of this first contract. 

Newfoundland and Labrador Hydro considered wheeling the power in 1998 but figured out exactly what has happened.  They opted for selling power for the best return as opposed to going the Danny Williams route and losing money.  Pure business genius at work there signing a deal that only works if prices stay high or keep going up.

Second of all, you have to appreciate that this is exactly the same sort of financial wizardry that underpins the Muskrat Falls deal. 

In order for Danny’s retirement plan to work and for the taxpayers of Newfoundland and Labrador not to take it in the derriere, oil prices have to double from their current level within the next decade and keep going from there.

If anything else happens, then the taxpayers get jammed up badly.  The reason is simple:  Nalcor is building the whole project based on the only guaranteed sale being for power inside Newfoundland.  They can sell power to other provinces or to the United States and if the prices fall far short of the cost of production, then the taxpayers of this province will cover the loss through their electricity rates.  That’s exactly what provincial laws – amended since 2006 – require.

Notice that none of the other players involved lose anything.  Emera gets cash no matter what.  For $1.2 billion they get 35 years of essentially free power to sell to Nova Scotia.  They can sell other power for less than the cost of production and even at the end of the 35 years they will pay less for the power than it cost to produce it in 2017 when the first power is supposed to flow.

It’s the same as the Wheeler Deal.  Hydro-Quebec gets its fees for carrying the juice to the border.  Emera gets its fees and commissions.  The only people who come up short on the deal are the taxpayers of this province who – one way or another – have to cover Nalcor’s losses.

Not bad, eh?

Now the thing is that nobody mentioned this at the time Danny Williams announced the deal in April 2009. Danny never said taxpayers could lose money at all. He never even vaguely hinted at it.  In fact, while he acknowledged prices at the time were low, Nalcor boss Ed Martin said that

[b]ased on current electricity prices, Newfoundland and Labrador could earn about $40 million to $80 million in profits annually….

That’s the third thing and it is the biggest thing of all:  it’s called undisclosed risk. And in business circles, failure to disclose significant risk to investors -  or the de facto owners in this case - is a pretty big deal.  It goes straight to the trust that the ordinary people of Newfoundland and Labrador have placed in these politicians who are now acknowledging, in effect, that there are very important things about these deals that they haven’t bothered to tell people about.

It makes you wonder what other little secrets, what other little time bombs there are ticking away.

What other undisclosed risks are the people of the province facing that they didn’t face before 2003?

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Undisclosed risk: financing the Lower Churchill

“We had discussions about loan guarantee, and if they’ll do that, we think we could drive hydro rates down even lower and save millions.”

Finance minister Tom Marshall, December 2010

Ah yes, it is all so simple.

One little loan guarantee and everything is solved. 

Borrow billions and save millions.

The provincial government could issue bonds to cover the billions it will take to build Muskrat Falls.  No sweat.  Apparently, someone told Marshall the bonds would sell out in 15 minutes.  Well, at least that’s what Tom said in December.

Of course government-backed bonds would sell out in 15 minutes. Investors can’t lose.  Governments don’t evaporate in a cloud of financial pixie dust like companies do. Governments  - especially provincial governments inside big G-8 countries - always pay off. 

And that’s where Tom’s assessment starts to go off the rails:  disclosure.

Fin min admits power rates are sensitive issue

Finance minister Tom Marshall admitted last week that electricity rates resulting from the Danny Williams Legacy project are a very sensitive political issue.

In a year-end interview with the Western Star, Marshall said that he’d recently spoken with the federal finance minister about a federal loan guarantee for the project:

“We had discussions about loan guarantee, and if they’ll do that, we think we could drive hydro rates down even lower and save millions.”

Until now, the Marshall and his colleagues insisted that the project would be great from rate payers even without a loan guarantee.

Marshall’s comments mirror those of Premier Kathy Dunderdale in what is fairly obviously a concerted effort to allay concerns about massive increases in electricity rates resulting from the Williams’ legacy project.

.

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Dunderdale admits financials are problem for Muskrat project

In an interview with NTV news, Premier Kathy Dunderdale admitted last week that costs for consumers are a sensitive political issue with the proposed Muskrat Falls memorial project to Danny Williams.

Dunderdale said that the provincial government is interested in a federal loan guarantee for the project because it would lower the interest rate Nalcor – the provincial government’s energy company - would have to pay to develop the project. She said that the provincial government would pass on any savings resulting from the loan guarantee to consumers.

Until now, Dunderdale has insisted that the project would be a financial boon to ratepayers in the province by keeping  electricity rates down from what they might be without the project.

 

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Is Gerry Byrne completely nuts or what?

Byrne says to saddle his constituents with massive debt and increased electricity prices.

That’s not exactly how Gerry Byrne might want to say it but that is exactly what the federal politician is looking to do.

The member of parliament for Humber-St. Barbe-Baie Verte wants the federal government to backstop Danny’s Get Outta Dodge legacy plan.  Danny wants exactly the same thing and, to be frank, that’s one of the few ways this pig of a deal will fly.

The other way is for Byrne’s constituents to pay for it with a guarantee of doubling their electricity rates – or worse – for electricity they could get more cheaply using other ideas.

Now why, in a likely election year, would a federal politician want to shaft his his constituents twice over with double their electricity rates and increasing their public debt by $4.0 billion or more?

Has he gone completely insane?

Totally bonkers?

Been spiking the eggnog with oxy?

Heavens knows, but Byrne is obviously getting very, very bad political advice from someone who clearly hasn’t thought this through and who most definitely doesn’t have Gerry’s political best interests at heart.

And rest assured, gentle readers, that whatever imp perched on Gerry’s shoulder, he certainly doesn’t give a toss for Gerry’s supporters. So how did this ludicrous thought get inside Gerry’s skull?  There’s a question begging for an answer.

Someone ought to get the miserable idea out damn quickly though before it festers any further and we ordinary mortals get screwed.

From VOCM, in case they disappear the story:

Liberal MP is encouraging the federal government to step in with support for the Muskrat Falls hydro development. Ottawa has been asked to help finance the subsea link across the Cabot Strait, as well as for a federal loan guarantee. Gerry Byrne says the latter wouldn't cost anything and says the federal government should recognize that when it comes to climate change the development of the Lower Churchill is vital. Byrne says the Lower Churchill is an absolute essential plank in the overall Canadian climate change strategy and for that reason there should be no hesitation in participating.

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Counting your chickens

There’s something very odd about the way the provincial government and its agencies make huge announcements about not much.

Like say just before Christmas when Nalcor announced that it had signed a letter of intent with SNC-Lavalin to oversee construction of a generating plant and overland transmission lines if the Muskrat Falls deal goes ahead.

Big deal, right?

Well, maybe not. Here’s a line from the Montreal Gazette:

Leslie Quinton, SNC-Lavalin's vice-president of global communications, said: "We don't usually comment on letters-of-intent signings, but in this case we can say it's very good news for our Newfoundland office."

It will be even better news if the project goes ahead.  you see an experienced company like SNC-Lavalin usually doesn’t count its chickens before they are hatched.

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Muskrat Falls: Internal contradictions 2

A $6.2 billion megaproject is green partly because it is supposed to displace 500 megawatts of electricity generated at Holyrood by burning Bunker C oil. 

But now this green project will also open the chance for Nalcor to build a new thermal generating plant as well, this time burning natural gas. This is a new opportunity, supposedly.

Bonus contradiction:  “Displace” is the word Nalcor uses to bridge the contradiction between what the politicians will tell you about the Holyrood generators and what Nalcor tells the public utilities board.

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Dunderdale blunders on term sheet power sale provisions

Kathy Dunderdale obviously needs a briefing on her old boss’ retirement plan.
In the House of Assembly on Tuesday, Dunderdale said:

Mr. Speaker, while it is true that Emera will own the Maritime Link for thirty-five years, they will only have the ability to wheel one terawatt of power across that link.   Mr. Speaker, all rights above the one terawatt lie with Nalcor.

Unfortunately, for Dunderdale that isn’t what the term sheet says. Under Term 7 (d), Emera can buy additional power for sale in Nova Scotia, and under 7(e), Emera can step in between Nalcor and a power sale to a third party:

The company can buy that additional power and run it down the line or build new lines to carry it either with Nalcor as a partner or on its own.

If that weren’t good enough for you, there’s nothing in the term sheet that says Emera cannot buy power in addition to the Nova Scotia Block for its customers in the United States or anywhere else in the Maritimes. After all, Nalcor would be foolish to turn down the prospect of selling power to help pay off its massive debt burden, should it wind up up building Muskrat Falls along the lines in the term sheet.

So if Dunderdale can get such an obvious point completely wrong, it makes you wonder what else she doesn’t understand about this proposal.

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Shawn through the Looking Glass

Shawn Skinner is the latest Conservative cabinet minister to find himself swept through into the looking glass world of the province’s natural resources ministry.

This is the bizarro world, you may recall, where the complete cock-up by the provincial government – expropriating an environmental mess – turned magically into a world where AbitibiBowater appeared to abandon its responsibilities and the provincial government rode in to save the day.

There is the truth.

And then there is a natural resources news release and never the twain shall meet, so it seems.

Or to paraphrase a famous old, former politician:  nothing could be further from the truth.

On Tuesday, the newly minted minister issued a news release to tell the people of the province that a draft bill in front of the legislature is about denying compensation to AbitibiBowater for the expropriation in 2008.

The action we are taking through these amendments will ensure that Abitibi-Consolidated will receive no compensation from the Government of Newfoundland and Labrador.

And so in this looking glass world, Skinner tells us, a thing is not what it is;  it is what it ain’t.

Abitibi is already compensated to the tune of  $130 million federal tax dollars for the clusterfrack called the expropriation.  They do not need any further compensation, since they already have it.  Thus, in Skinner’s construction, the bill is not about what it is, but what it is most definitely not about.

Don’t worry if your head is spinning at this point.  Skinner’s is too.

His noggin must be twirling since Skinner then describes Fortis, Enel and a raft of other companies whose property was expressly seized and whose legal rights were brutally extinguished to have been mere “bystanders” to the whole affair. 

Once again, there is the truth of what the bill expresses says  - take Schedule E as the bit we are talking about - and there is what Skinner says. Those two things can only exist in the world inhabited by the average Dannystanni cabinet minister.  Here is Schedule E:

1.  The "Acknowledgement and Consent Agreement (Water Use Authorization)" dated 24 April 1997 between the Star Lake Hydro Partnership, the Mutual Life Assurance Company of Canada ; and the Crown, and all amendments including the Supplementary Acknowledgement - Crown Water Use Authorization dated 9 May 2001 and assignments of them.

2.  The "Acknowledgement and Consent Agreement (Crown Water Power Licence)" dated 24 April 1997 between the Star Lake Hydro Partnership, the Mutual Life Assurance Company of Canada ; and the Crown, and all amendments including the Supplementary Acknowledgement - Crown Water Power License dated 9 May 2001 and assignments of it.

3.  The "Hydro Consent and Acknowledgement Agreement" dated 31 July 2002 between the Exploits River Hydro Partnership, Clarica Life Insurance Company, and Newfoundland and Labrador Hydro and assignments of it.

4.  The "Agreement for the Purchase and Sale of Power and Energy" dated 18 September 2001 between Abitibi-Consolidated Inc. and Newfoundland and Labrador Hydro, and all amendments, including the Assignment dated 31 July 2002 between Exploits River Hydro Partnership, Abitibi-Consolidated Inc. and Newfoundland and Labrador Hydro, and assignments of them.

5.  The "Restated Agreement for Non-Utility Generated Power and Energy" dated 24 April 1997 between Abitibi-Price Inc. and Newfoundland and Labrador Hydro, and all amendments, including the Assignment dated 24 April 1997 between the Star Lake Hydro Partnership, Abitibi-Price Inc. and Newfoundland and Labrador Hydro, and assignments of them.

6.  The "Acknowledgement and Consent Agreement" dated 25 April 1997 between the Star Lake Hydro Partnership, the Mutual Life Assurance Company of Canada ; and Newfoundland and Labrador Hydro, and all amendments and assignments of it.

7.  The "Acknowledgement - Power Purchase Agreement" dated 24 April 1997 between the Mutual Life Assurance Company of Canada, in its own right and as agents for the Canada Life Assurance Company, the Maritime Life Assurance Company, Sun Life Assurance Company of Canada, the Standard Life Assurance Company and Industrial-Alliance Life Insurance Company, the Star Lake Hydro Partnership; and Newfoundland and Labrador Hydro, and all amendments and assignments of it.

So let us have no more of this nonsense, shall we?

Instead, let us talk of what this bill is.

It is a step toward settling the outstanding claims for companies who have a legitimate right to compensation for the brutal and unnecessary seizure of their property and for the cancellation of their rights gained by entering into good faith agreements with the provincial government and its Crown corporation Newfoundland and Labrador Hydro.

Fortis defaulted on a loan.  The provincial government has now assumed the payment of that bill.  Sunlife, Manulife and the others can likely produce comparable evidence of injury.

Neither politicians nor the media have bothered to talk about these companies.  The politicians did not speak of them because it was uncomfortable to talk about the facts of the expropriation. You can tell how uncomfortable it is since politicians never seem to want to talk about the facts of the matter. This release is confirmation of that, if nothing else.

As for the media, it remains a mystery as to what they report and what they don’t but that is another story entirely.

And let us not forget that the bondholders who suffered demonstrable financial loss as a result of the brutal and unnecessary seizure are also the sorts of people one would like to invest in a new hydro-electric project in the province.  They are much like the people who invested in another hydro-electric project oh so many years ago and who had to go to court to protect their investment from government’s ill-considered legal measures.

This bill is about calming them down as well, a point that is likely too close to what is really going on for any provincial cabinet minister to admit.  It is about trying to repair the considerable damage done to the province’s reputation as a result of the brutal and entirely unnecessary seizure bill. What actually happens, what compensation the government does wind up paying for the brutal and unnecessary expropriation will be the real test of whether or not the wounds to the province’s investment climate have started to heal.

As for the unnecessary expropriation bill itself, it would have been unnecessary only if one accepts the the claims made about it at the time.

But that too is another story for another day.

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The joys of monopoly

From Dan Leger at the Chronicle Herald comes a simple description of how taxpayers get shafted in any scheme of regulated monopolies:

Emera now pays an annual dividend of $1.30 per share. An investor who has held the stock since it went public has collected $14 in dividends for every share in the portfolio. In 2010, Emera shares have returned 40 per cent, including dividends and stock price appreciation. And at very little risk, because of that whole regulated monopoly thing.

The company also keeps some cash for shopping sprees. Emera owns a hydro company in Maine and is expanding in California and the sunny Caribbean, with investments in St. Lucia, the Bahamas and Barbados. And it’s doing that with profits spun off from its most lucrative market: good old monopolized Nova Scotia.

It’s beautiful when you think about it. Emera gets 95 per cent of its revenues from captive, regulated markets and most of that comes from Nova Scotia and its guaranteed return. The company uses that money to diversify into new markets and new industries, like Labrador hydro, an energy brokerage, a pipeline, wind, tidal and natural gas. And it’s all subsidized by the Nova Scotia ratepayers.

And there’s nothing requiring any of those new businesses to soften the high rates here. For shareholders, that’s sweet. For the rest of us, not so much.

Things don’t promise to get any better for Nova Scotia ratepayers if, by some chance, Danny Williams’ retirement excuse announcement turns into an actual deal.  Emera will be able to buy power for a mere $95 per megawatt hour.  Even at the end of the 35 year deal, the company would only pay $125 per megawatt hour and that’s for the very small payment up front of $1.2 billion for a line between Sydney and Port aux Basques.

Do the math.  That’s considerably below current electricity rate sin Nova Scotia, even 35 years out.  Are Nova Scotian ratepayers likely to get the full benefit of that?  Only time might tell.

Consider, by contrast, the position Newfoundland and Labrador ratepayers will face, guaranteed by Danny Williams and his successor.  They anticipate that,by the time electricity starts flowing from Muskrat Falls, rates on the island will be 40% higher than they are currently. That works out to a bit over 13 cents a kilowatt hour in St. John’s.

And that point, Muskrat Falls cuts in.

Premier Kathy Dunderdale recently estimated it will cost about 14 cents a kilowatt hour to produce power at Muskrat.  On the face of it that looks like rates in Newfoundland would  - at the very least - double from what they are in 2017.  And that would be on top of the 40% increase expected to happen in the meantime.

Nova Scotians would be getting a pretty sweet discount, by comparison, at a mere nine or nine and a half cents.

But if Dan Leger thinks that Nova Scotians have been screwed by bungling politicians and a failed energy policy, he should look across the Cabot Straits.  Newfoundlanders could teach them a few lessons after 40-odd years of politicians who wanted to be energy magnates but who wound up giving rate payers a shock.

The upside, though, is that the most recent example of lousy energy policy is just rancid enough to rouse a few people slough from their torpor and ask a few questions. When Randy Simms and the Telegram editorial board start questioning things, you know it’s got to be pretty bad.

For her part, Premier Kathy Dunderdale seems incapable of answering even the simplest of simple questions. Asked why the proposed dams at Muskrat falls would be connected to Churchill Falls, all Dunderdale would say is this:

As I said last week, Mr. Speaker, we were happy to provide members of the Opposition with a briefing when we did an announcement of this project. I have offered again, because it is a large, complex piece of work, Mr. Speaker. To offer further briefings to the Acting Leader of the Opposition and members of his party, I make that offer again, Mr. Speaker, so he understands the nuances of this deal in a very particular way. Perhaps we can have a more enlightened discussion here on the floor of the House.

Dunderdale is not famous for understanding very much of anything.  At least when Danny was around, people could have some comfort that there was someone around with a clue. Now Dunderdale is in charge. She’s Danny hand-picked successor even if she is just a caretaker until someone else takes the helm.

But the odds are that if Danny’s successor’s successor keeps pushing the Danny Legacy Option for the Lower Churchill,  Dan leger and his fellow Nova Scotians will be in a much sweeter place than anyone in Newfoundland or Labrador.

Leger is right:  political bungling in energy policy tends to leave taxpayers the poorer, but Nova Scotia isn’t the best example of that situation.

NB Tories and NL politics

Corporate Research Associates president Don Mills thinks that the Conservatives should break whatever promises and do whatever else it takes to get the province’s financial mess under control.

He thinks they can get away with it since it is early in their mandate.

“They shouldn't worry about their performance numbers or their voter support in the first year and a half of their mandate," Mills said.
"They should just make the decisions that need to be made, apologize for it, say it wasn't their fault, and just get it done.
"Two or three years later when things are looking much brighter they can take credit for taking tough action when it was needed to be taken.”

That’s interesting advice if for no other reason than it is exactly the opposite of what Mills’ favourite client did when ostensibly faced with the same situation.

Danny Williams never ever stopped worrying about his performance numbers of voter support.  When the numbers fell after Williams’ first six months in office, he abandoned the whole plan announced in the spring of 2004 to get the province’s finances under control.

And he never apologised for anything.

That’s not the only difference between the two provinces and CRA.  In New Brunswick, CRA’s latest news release on their quarterly poll included figures from the recent New Brunswick election.  Let’s just say that CRA’s polling is actually close to the election result.  In 2007,  Mills missed the provincial election here by a country mile.

As you scan the chart, get a load of the party support numbers on which Mills is offering his advice.  Conservative support is at 42% of respondents. 31% of respondent’s were undecided.  The Liberals and the New Democrats together didn’t add up to the UND number but that doesn’t matter.  If you look at CRA’s numbers over time in New Brunswick and you can see that it doesn’t take much to piss people off and keep them pissed off.

Ask Shawn Graham.

Just to be sure, look at CRA’s satisfaction numbers.  The New Brunswick  Conservatives are exactly where Shawn Grahams’ Liberals were before the election.  The only difference is that 33% of the population think it’s too soon to judge the Conservatives’ performance.

With Graham, they were somewhat dissatisfied.  CRA seems to misreport the question they asked on that one, incidentally.  Might be that the 33% of respondents who aren’t ready to give the Conservatives either a thumbs up or thumbs down just yet are the same crew who turned away from Graham over ideas like selling the provincial power company to Hydro-Quebec.

That could make things interesting if the Conservatives took Mills’ advice.

For a second, let’s just suppose they took Mills’ advice and voters didn’t plan a neck-tie party for the provincial government.  Frankly, if they got things under control, voters would be more likely to reward them even if it meant nice cheap electricity came from Quebec.  Mills’ advice is reasonable enough even if it isn’t based for a fraction of a second on his polling.

Nice for the New Brunswick Conservatives.

Not so nice for their cousins across the water in the former Republic of Dannystan. If nothing else, Danny Williams helped stir up anti-Quebec sentiment among the New Brunswick anglophone Conservative voters because he needed to keep open the appearance of an option of selling his very expensive Lower Churchill power to them. When Williams said on October 29, 2009 that he feared being stranded, what he apparently meant was that the last potential markets for his super-expensive juice would be gone.

It worked.

Just remember though that Danny Williams was shit-baked, to use an accurate term for it, over the prospect that not only New Brunswick but Emera would fall under the spell of the hydro seductress with the French accent.

Things appear to have changed in the year since Williams voiced his fears.  There’s a new deal on the table and with it comes the possibility of shipping that expensive Muskrat Falls power to New Brunswickers.

But if the New Brunswick government decided to listen to Don Mills?  Well, let’s just say if they did consider a new deal to offload New Brunswick Power to Hydro-Quebec, regional politics in 2011 could get even more interesting than they are shaping up to be already.

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Russell launches survey on Muskrat Falls proposal

Now this should cause a bit of a stir in some quarters:

Labrador M.P. Todd Russell today announced that he is conducting an opinion survey throughout Labrador, in order to gauge Labradorians’ opinion of the proposed Muskrat Falls hydro project, recently announced by the provincial government and Nalcor.

“The proposed Muskrat Falls project has been planned for decades,” Russell said. “This important Labrador resource can only be developed once. If it is to be developed at all, it has to be done right. This survey is intended to give Labradorians a collective voice before final decisions are made that will impact generations to come.”

The survey consists of twelve simple questions on various aspects of the proposed Muskrat Falls project. Survey forms have been distributed by mail to every residential address in Labrador. In certain communities, the survey forms will be distributed in bilingual Innu-aimun/English or Inuktitut/English formats.

“I appreciate that this proposed project is of great interest to people in other parts of the province and the country,” Russell said, “and I thank them for their interest.”

“As Member of Parliament for Labrador, I need a clear picture of where my constituents stand on this issue. Only those responses from people who live in Labrador, or who are eligible to vote in Labrador, will count towards the final results.”

In order to be included in the tabulation, contact information will be required. Additional demographic information may also be provided by survey respondents if they choose to do so.

Russell assured all participants in this survey that their personal information and individual responses to survey questions will be kept strictly confidential.

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You can get the survey, online, in four languages at www.toddrussell.ca.

The Cable Atlantic solution

They say that you can never go home again but Danny Williams’s parting gift to the people of Newfoundland and Labrador seems to be more than a massive guarantee they’ll bear an ever greater public debt than the crushing one they carry now.

The guy who made his fortune delivering Detroit television stations to townies just couldn’t resist adding some cable to the deal.

Seems that Nalcor, the government-owned energy monopoly Williams created is now promising the people of Labrador that if they go along with his plan to bring Labrador power to townies, they will get cable.

Now to truly understand just exactly what this little bait and switch deal is really all about, recall that Danny Williams once promised, in writing, that

[c]onsistent with our energy policy objectives, a Progressive Conservative government will make use of the hydroelectric potential of the Lower Churchill and any electricity that can be recalled or reclaimed from the Upper Churchill to accomplish the following priorities:

•   Promote industrial development and meet domestic energy demand in Labrador and then on the Island of Newfoundland. [Emphasis added]

But that promise went out the window right as soon as Williams got into the business of trying to build his debt-laden legacy. They’ve been offering cash for the past couple of years for people to study small hydro projects as an alternative to powering these coastal towns with diesel.

If the Old Man and his hand-picked successor get their way, power lines from Muskrat Falls will run right by communities now served by diesel generators.  Power lines will run by the towns and take that Labrador power off to St. John’s and down into Nova Scotia, but none of it will go to the people closest to the dam, if it is built.

So, as it turns out that promise about using Labrador power for Labradorians is headed for the same dustbin that holds the one about only developing the Lower Churchill with Hydro-Quebec if there was redress for the 1969 deal.  As it turned out, Williams spent five years of his seven in office trying to get HQ to take an ownership stake without redress.  Set redress to one side is the way Premier Kathy Dunderdale described it last year.

What was that some famous politician said once about greatest frauds and unkept promises?

Anyway, …

The people in different parts of Labrador are none too pleased about this idea, apparently.  You can tell because there are suddenly Internet and telephone cable lines in the mix for the Lower Churchill.  The existing lines in Goose Bay are apparently at capacity and can’t handle any more subscribers.

Only a handful of years ago, back when the Old Man’s party was cutting a deal to subsidize some private sector cable companies, the cost of adding the lines to Labrador was something they needed to study.  And at a cost of $80 million or so back in 2006, it seemed to be a bit much, apparently because the provincial government couldn’t manage to step up.  Billions in public infrastructure but no cash for a Labrador cable line.

And then in 2009, Danny Williams was mongering any scare he could find just to sling a power lines through a World Heritage site.  The cost of going around the park was about $100 million according to Williams, and that was too much since it might jeopardize granny’s heart surgery or some such foolishness. 

But now – suddenly – they can find the cash.

If…that is.

Even though fibre optic lines would be a completely separate thing from the Nalcor project, government is now talking it up.  Maybe they are counting on the gullibility of the people of the Big Land.

Maybe they should think again.

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