Multiple Interlocking Rationalizations #nlpoli #cdnpoli

In announcing an inquiry into some aspects of Muskrat Falls on Monday, the Premier muddled up some numbers that suggest the confusion at the heart of Monday’s big news.  He said that the inquiry will explain how a project that was originally supposed to cost $5.0 billion at the wound up costing $13 billion or more.

Then he announced the terms of reference for an inquiry that focused on the pro forma exercise called “sanction” that happened when the project was supposed to cost $6.2 billion.  The $5.0 billion figure is from November 2010.  That’s when many of the crucial decisions took place but, as far as the terms of reference go, its outside the bounds of the inquiry.

Justice Richard LeBlanc also won’t look at the political decisions behind the project, the relationship between Nalcor and the Premier’s Office, the governance of the corporation, or any of the other major elements of what became Muskrat Falls. All of those aspects would explain the political foundation of the project the Premier mentioned in his news conference but none of them are covered by the inquiry terms.  Instead, the inquiry will focus on the internal management decisions at Nalcor after 2012.

The specific subjects of the inquiry are listed in Section 4, which contains four sub-sections labeled a through d. Let’s run through each of them.

Energy Demand and Sanction

Section 4 (a) directs the commissioner to inquire into “the consideration by Nalcor of options to address the electricity needs of Newfoundland and Labrador’s Island interconnected system customers that informed Nalcor’s decision to recommend that the government sanction the Muskrat Falls Project. 

One supporter of the project famously said there were “multiple, interlocking business cases” for it.  What Nalcor, the government and its supporters actually offered multiple, interchangeable rationalizations.

In November 2010,  the key argument for the project was breaking the stranglehold Quebec supposedly held on electricity development in Labrador.  The project would ship power to markets through Nova Scotia.  The mention of Muskrat as the least-cost source of electricity for the island is found in paragraph nine of what is essentially a 10-paragraph news release plus a list of highlights.

Right off the bat, Nalcor didn’t present the alternatives at the time of project sanction, which is the starting point for the inquiry.  That happened in 2010, although it didn’t really because there is no evidence Nalcor ever examined alternatives to Muskrat Falls. The only mention of alternatives has been to the isolated island scenario, which means Nalcor never evaluated all options anyway.

In 2006 Nalcor did evaluate alternatives to the whole Lower Churchill project but that was for a different concept:  the LCP was supposed to be about power for export only, with local needs as a secondary consideration.  That’s an important detail because another key aspect of the 2010 announcement was that this was the original LCP, but with the tiny dam built first.

There’s also no order in council in which the provincial government approved a proposal from Nalcor.  There’s only OC2012-130 that lets Nalcor use Crown land:

 Under the authority of section 7(2)(a) of the Lands Act, the Lieutenant Governor in Council is pleased to authorize the Minister of Environment and Conservation to issue a licence to occupy Crown land to Nalcor Energy for an area not to exceed 4.3 hectares within the fifteen metre shoreline reservation at Muskrat Falls, Newfoundland and Labrador, for the purpose of hydroelectric generation, subject to the terms and conditions normally applicable to the issuance of such licences.

It’s dated December 4, 2012, well before the infamous filibuster and the actual formal ceremony announcing “sanction.”

This section will also not touch on the decision to double electricity rates and the rationale for paying for the project, all of which was political and all of which was decided in 2010.

Key Points to Retain:

•  Without an amendment, the inquiry can’t look at decisions taken prior to December 2012 since the terms specifically identify Nalcor’s proposal for sanction as the focus. That happened in December 2012.  
•  here’s no indication Nalcor presented any project justifications in 2012.
• There’s also no order-in-council in which cabinet “sanctioned” Muskrat Falls.  It isn’t clear, therefore, what the commissioner will be doing to meet the first term of the inquiry.
• The inquiry won’t look at the political decision to force domestic users to pay 100% of the cost plus profit (doubling rates), which was taken in 2010, not 2012.

 Cost over-runs

Section 4 (b)  is about “why there are significant differences between the estimated costs of the Muskrat Falls Project at the time of sanction and the costs by Nalcor during project execution, to the time of the inquiry.”

Key Points to Retain

•   This will be the guts of the inquiry.
•    It will be technical. 
•    None of it is political.

  

Hello, 1998

Section 4 (c)  is about “whether the determination that the Muskrat Falls Project should be exempt from oversight by the Board of Commissioners of Public Utilities was justified and reasonable and what was the effect of this exemption, if any, on the development, costs and operation of the Muskrat Falls Project.”

This one is weird, as if the person who wrote the term had no idea what end was up.  The decision to exempt the LCP from the public utilities board was taken in 1998 because the project was entirely for export.  The PUB was entirely about domestic rates.  In the original scheme there’d have been almost no cost to pass on to consumers.

In 2010, cabinet did not have to decide anything about exemption since it was done long before it took office.

So given the amount of time the Premier spent blaming the former Conservative government for the mess he and his colleagues have cleaned up (not really – ed.),  giving the inquiry the power to call Brian Tobin to the stand is just nutty.

Key Point to Recall

•   The exemption order predates the Conservatives return to power in 2003.

Oversight Committee Mania

Section 4 (d) is about “whether the government was fully informed and was made aware of any risks or problems anticipated with the Muskrat Falls Project, so that the government had sufficient and accurate information upon which to appropriately decide to sanction the project and whether the government employed appropriate measures to oversee the project particularly as it relates to the matters set out in paragraphs (a) to (c), focusing on governance arrangements and decision-making processes associated with the project.”

The adequacy of governance structures is a political question  - or one about internal government operations - but this term is written to focus on what Nalcor told people in government at the time of sanction in 2012.  In effect the wording precludes any discussion of the long-standing relationships involved in decision-making by and about Nalcor and focuses on whether or not Nalcor told government enough.

Since it doesn’t look like the key decision for government was in 2012,  this one might wind up being a lot more fun than informative.  A clever lawyer – like Jerome!  - should have a field day with this bit. As well, since the term is written to focus on what Nalcor did,  the fact the government made a certain decision gives the politicians an automatic excuse, if they want to take it. 

That’s really part of the problem with the whole inquiry terms of reference.  It is structured on the assumption Nalcor brought this forward in the same way it pursued Cat Arm or one of the other projects.  Nothing could be further from the truth.  This one has been primarily about politics since 2003 and arguably as far back as 1998.  

With a faulty set of assumptions underpinning it, this circumscribed inquiry can’t possibly find any meaningful answers to how we got into this mess in the first place.

That last sentence is the big take-away.

-srbp-

SRBP has followed the Lower Churchill project more closely than anyone outside government.  There are both short posts and detailed ones covering the entire thing since 2003 up to 2017.  There’s a tab at the top linking to some of the posts and others are easily accessible by using the search function.

 Feel free to use it and if you want to pose a question on something you may have missed you can find me @edhollett on Twitter or at ed_hollett@hotmail.com

The Quebec Demon #nlpoli #cdnpoli

The fancy word for it is revanchism.

People who study words and language call it a borrowed word, meaning that we use it in English but got it from the French word.  In this case, it is the French word for revenge.

People familiar with history are most likely to associate the word revanchism with the struggle between France and Germany that lasted from 1870 until 1945.  The Prussians defeated the French in 1870 and took two territories – Alsace and Lorraine – that many in France wanted back. 

Desire for revenge for regain of the lost territories was an important aspect of French policy against Germany at Versailles in 1919.  The tension between the two countries lasted until, after another world war,  Germany was simply destroyed as a single country and France got the territories back.

Muskrat, risk, and memory #nlpoli

There's a great column in Saturday's Telegram by Pam Frampton that anyone concerned about Muskrat Falls should read.  It's the latest in a string of columns that Pam's been writing about the troubled megadebt project and events in 2013 around the time that the major contractor on the project produced a memorandum about huge risks that needed attention.

In the very first sentence,  Pam mentions a book she's apparently just been reading.  It's called Megaprojects and risk.  It's written by three Scandinavian scientists who studied huge construction projects to try and find out why they tend to go wildly over-budget. They found that the folks behind gigantic projects over-estimate the benefits and underestimate the costs.

Note the date of Pam's column.

2017.

Traces of the Grossly Impudent Lie #nlpoli

There's a phrase in Pam Frampton's Saturday column on Muskrat Falls.

A bunch of words dropped in easily,  maybe offhandedly.

Nothing that really stands out.

Just a simple fact.

The kind of thing that you might just skip past, unless maybe you'd been writing about this Muskrat Falls project since before it was a gleam in some old twitchy-shouldered man's eye.

"Now, the project is more than 75 per cent finished, two years behind schedule and 70 per cent over budget."

No Market Research Required #nlpoli

In the House of Commons, members can put questions to cabinet ministers several ways.  One of them is called Questions on the Order Paper.

Ask a sensible question.  Get a sensible answer.

This is a truly amazing idea given that the House of Assembly got rid of the notion 20 years ago. Actually telling people something useful instead other uncommunication that remains all the rage in provincial government circles.

Bloc Quebecois member of parliament Marilene Gill put a Question on the Order Paper about Muskrat Falls and the recent federal loan guarantee for $2.9 billion.

Here are the questions from Gill and the answers from natural resources minister Jim Carr.  Note the underlined bits for anyone not aware of this information.

Sovereignty #nlpoli

Newfoundland and Labrador is one of the very few countries on the planet that got itself into such a financial mess that it gave up self-government.  The people gave up their right and power to govern themselves. That is, they gave up their sovereignty.

They took it back in 1949,  no matter what sort of fairy tales some people continue to believe.  Now with massive public debt coming from chronic overspending and the crushing debt of the insane Muskrat Falls project, some people are raising the prospect that Newfoundlanders and Labradorians may once again see their sovereignty in jeopardy.

Energy analyst Tom Adams has raised the issue of sovereignty with Pete Soucy and Paddy Daly recently.  Muskrat Falls is likely to create such financial problems that the federal government will have to bail the province or Nalcor out, argues Adams.  And it is almost certain that the federal government would look for some "austerity measures", as Adams put it,  as part of whatever deal lets the money flow.

A muskrat by any other name... #nlpoli

Memorial University economist Jim Feehan proposed in the December issue of Canadian Public Policy that the provincial government should change the way electricity is priced in Newfoundland and Labrador once Muskrat falls comes on stream.

Now to be clear,  the way government prices electricity will already change for Muskrat Falls.  The project is so financially odious that the only way its proponents could get it off the ground in the first place is to force local taxpayers to bear the full cost of the thing, plus profits to everyone involved except themselves.  That's what will happen.

The provincial government used to have a policy to ensure we had the lowest cost electricity possible. No any more.  With Muskrat Falls, we get the most expensive electricity possible and may well wind up with the most expensive electricity in Canada.

Now Feehan is suggesting that we price electricity  based on the external markets in the fashion that the pricing will be set for the Nova Scotia block.  Unbundled transportation costs and let people see what they are paying for that.  And allow other costs of providing electricity,  like fluctuations in oil prices, show up directly on consumer electricity bills.

Putting the sunk in sunk cost #nlpoli #cdnpoli

Muskrat Falls is basically an $800 million tax on the people of Newfoundland and Labrador. That's roughly the amount you get using numbers Nalcor chief executive Stan Marshall made public last summer.

Muskrat Falls is a tax on the people of Newfoundland and Labrador.  Always was that.  Never was anything else.  The plan was to collect the tax by doubling electricity rates.  Regular readers have known this since *before* Danny Williams announced the scheme.

Take all that as the starting point when you hear Dwight Ball tell Anthony Germain on the CBC St. John's Morning Show that Ball is spending a lot of time trying to figure out how to keep our electricity prices from doubling.

Public Support for Muskrat Falls #nlpoli

Corporate Research Associates isn't the only pollster in the universe, no matter what some people locally seem to believe.

CRA released  the results of a question the company asked during its omnibus last November.  They found support for Muskrat Falls at 45%.  That's down from 54% in May 2016,  65% in May 2015, and 63% in February 2013.

"For the first time",  CBC reported on Wednesday,  more people don't support the project than support it.

First time?

For CRA maybe but not for others.

Spin, illustrated #nlpoli

Spin is a bit more than a mere biased interpretation or a clever reframing of an idea.  In other words, there's more to it than saying the glass is half full rather than describing it as half empty.

Spin is deliberately deceptive.

On Wednesday,  the folks at Nalcor announced they had a new contract with Astaldi valued at more than $1.8 billion.  Nalcor boss Stan Marshall told reporters and they all dutifully repeated the comment that the new contract would add "$270 million" more to the $11.4 billion estimated cost of Muskrat
Falls.

The original contract with Astaldi had a value of  CDN$1.0 billion.  Astaldi actually booked the contract at about CDN$1.24 billion.  That was 2014. In its online account of the latest twist in the tale, CBC actually inflates the announced price of the original contract to the number Astaldi claimed in 2014.  Make no mistake:  Nalcor pegged the cost of the contract at $1.0 billion. Period.

By late 2016,  after Nalcor disclosed that the company had completely screwed up the contract, Nalcor folks started to describe the original value of the contract as $1.1 billion and allowed that a "bridging agreement" meant Astaldi could earn up to another $150 million by meeting performance milestones on construction of the powerhouse.

So now we have a new contract that increases the original contract by $830 million,  not the $270 figure Nalcor used to describe the increase in their most recent estimated cost of the whole project.

Why against $11.4 billion,  $270 million sounds like nothing at all and it is precisely that deceptive comparison  - dutifully repeated by every reporter on Wednesday  - that Nalcor is relying on to mask the real magnitude of Nalcor's shag-up with the Astaldi contract. In truth,  the new Astaldi contract is responsible for an 83% cost overrun on the contract price of the powerhouse and we are not done yet.

The original estimated cost of the dam and line to Newfoundland was supposed to be $5.0 billion.  We are now more than double that figure and well on the way to tripling it.

-srbp-

Megawreck #nlpoli

Over the past couple of weeks, the people of Newfoundland and Labrador have been shown more and more the lunacy that is Muskrat Falls.

Nothing better exemplifies the crazy world of the Muskrateers than Dwight Ball's claim in interviews that he has wrestled the project back under control.  Not long after, we learned that problems with the cofferdam and the powerhouse go back to the summer and yet the public have only just learned about the cost over-runs that will continue on a project that is as far from under control as possible.

We don't need to review all of this because you can find posts about the decision-making failures at Muskrat Falls long before now.  In light of the recent revelations, it's worth going back tos ee how may of the problems turned up way before anyone started building.  So enjoy these posts from 2012 on decision-making.

Try not to cry.

• "How to make bad decisions"  (May 2012)
• "The inevitable Muskrat Falls"  (July 2012)
• "Cost over-runs and Muskrat Falls" (July 2012)
• "High politics and Muskrat Falls"  (July 2012)
• "Executive Politics and Muskrat Falls"  (July 2012)
• "Going down by the front end"  (July 2012)

"The past decade has shown that even the best owners and contractors have been largely unable to scope, define, plan, estimate and execute these mega-projects with any sort of predictability. Cost overruns of 100% or more have been widely reported, along with years of schedule delays. In fact, such experiences are so common there is even a word for it: a 'megawreck'." (Westney Consulting Group)

• "The stuff we don't know" (July2012)

For fun, take a look at a post from February 2012 about the cost of Muskrat Falls and the impact on consumers.  When Danny Williams set us down this road,  Kathy Dunderdale said the thing would raise electricity prices to something like 17 cents a kilowatt hour.  

The most recent estimate - now long out of date  - was for about 21 cents a kilowatt hour.  When people talk about the new loan guarantee shaving off a bit of the cost, understand that the loan guarantee will only have an impact on future cost increases.  In other words,  we are still talking about consumer prices of at least 21 cents a kilowatt hour.  Remember that number.

In February 2012,  Nalcor calculated the cost of service price for Muskrat Falls electricity, including the approved rate of return was 21.4 cents per kilowatt hour. That's not the cost of electricity to consumers but even at that point,  Nalcor was talking about taking consumer prices from around 11 cents a kilowatt hour to 17 cents in order to cover off the cost of Muskrat Falls.

That 21.4 cents didn't include construction of the transmission facilities or any of the subsequent cost over-runs on the project. The cost of the project is roughly double what it was in February 2012.

Now do a bit of math.

Try not cry.

-srbp-

Faint hope #nlpoli

Nalcor won't be able to install a boom upstream from the powerhouse construction.  The result is that there will likely be damage to the dam construction, according to Nalcor boss Stan Marshall.

Well, likely if the winter is normal or colder.  But maybe not.

"It’s weather dependent,"  said Marshall. "So if we have a very mild winter, we probably won’t have any damage at all. If we have a severe winter, we’ll probably have substantial damage to the structure."

Local knowledge would put it a little differently.

A "mild" winter usually means thicker, harder, ice.  The thaw-freeze cycle of a "mild" winter puts about three additional feet of thick, solid, concrete-like ice on the bay and rivers and lakes as the surface melts, floods, refreezes, and repeats.

Yeah.

Mild winter.

Looks like there's another thing the geniuses at Nalcor got right about Muskrat Falls.

-srbp-

Mazel Tov Cocktails #nlpoli

Scottie Nell Hughes is one of the legion of ident-a-bots who turned up on news programs during the recent American election spouting lines from the Trump campaign. She's already famous as the one who gave us the mazel tov cocktail flub.  She grabbed some headlines last week for making the comment that there is no such thing as facts.

Specifically, Hughes said that "...one thing that has been interesting this entire campaign season to watch, is that people that say facts are facts—they're not really facts. Everybody has a way—it's kind of like looking at ratings, or looking at a glass of half-full water. Everybody has a way of interpreting them to be the truth, or not truth. There's no such thing, unfortunately, anymore as facts."

The graveyard of ambition #nlpoli

Think of it as an inside joke.

James McLeod interviewed Premier Dwight Ball about the horror show that has been Ball's first year in office. "Ball also came under heavy fire,"  McLeod wrote, "for his handling of Nalcor Energy and perceived dishonesty about what he knew about outgoing CEO Ed Martin’s exorbitant severance package." McLeod quotes Ball:  "'I understand why people would suggest that, well, this guy, I can’t trust him, simply because of the HST or because of this or that.'"

This or that, of course, would be Ball's claim that he knew nothing of the plan to pay Ed Martin any form of severance although he'd quit as the head of Nalcor. That's the sort-of joke part. I can see, said Ball understatedly, how people might think I have some trouble telling them the straight story.  Subsequent evidence made it pretty clear Ball knew about severance payment Martin got, even if it was only to the extent he believed Martin was entitled to a severance payment under his employment contract and didn't know about the elaborate fraud perpetrated by the Tory-appointed Nalcor board.

un autre pet de cerveau de Jones #nlpoli

Labrador member of parliament Yvonne Jones got so effercited at the prospect of more hydro-electric development with Hydro-Quebec that she wanted to offer arctic and sub-arctic regions outside Labrador as potential customers for surplus Muskrat Falls power.

Seriously.

There are people in Labrador slaved to diesel generators.  Some of them can see the wires from Muskrat Falls headed off to the island.  No Muskrat juice for them, said Nalcor, because it wasn't cost effective.  And Jones knows this because the dweebs at Nalcor told her this when she was the member of the House of Assembly representing them.

Plus...

North Spur sideshow #nlpoli

Jim Gordon, an engineer previously critical about the design of the Muskrat Falls dam has revised his opinion.  Gordon had earlier believed that the landmass known as the North Spur was potentially unstable and could collapse under certain conditions.  He's now revised his view based on new evidence.

For all the concern lots of people have had about this issue,  it was never really a show-stopper for the Muskrat Falls project.  As it is, Nalcor has taken measures to reduce the amount of water in the clay, thereby limiting the potential for landslides.  In the worst case, Nalcor would have just extended a conventional concrete dam across the same span.  That would have driven up the cost of the project, but since the government is already committed to finishing the project at any cost that was nothing to worry about.

Natural resources minister Siobhan Coady has been in the witness protection program for months. The most folks have heard from her is the odd statement issued by her office.  A staunch and unquestioning supporter of the Muskrat mess from the beginning, Coady issued a statement about Gordon's change of opinion Thursday evening.

Coady's comments come across like a "told-ya-so" from one of the last die-hard boosters of the boondoggle. There's basically Danny Williams, Ed Martin,  the rest of the Tory party... and Siobhan Coady.  That's probably why her statement sounded like the sort of politically tone-deaf statement made famous by her predecessor Kathy Dunderdale, another unflinching charter member of the Muskrateer's Club.

Coady should save her energy for 2019 when she has to face voters' wrath for the insanely and needlessly high electricity bills Coady's project will bring.

-srbp-

Feds offer more help with Muskrat #nlpoli

The federal government delivered a $2.9 billion additional loan guarantee Thursday in time for the Liberal Party convention this weekend in Gander.

The added guarantee is less than the provincial government wanted - they went looking for $5.0 billion, apparently - but it will help to defray the escalating cost of the project.

The federal government can justify the money in a number of ways.  The most significant justification for helping with the debt is that the provincial government is in desperate financial shape. The federal government had the choice of helping or of almost certainly taking over the provincial government as a bankrupt in short order. As it is, the federal government may well have to take the government in hand in a few years' time anyway.

The $2.9 billion in the new loan guarantee brings the total backed by the federal government to $7.9 billion. At the rate things are going, the project may well cost another $7.0 billion beyond that before things are done.

The federal government will charge one half of one percent as a charge for the loan guarantee.

-srbp-

Muskrat Math #nlpoli

Stan Marshall told the province Tuesday that the people of Newfoundland and Labrador can never get their money back on this pig of a project called Muskrat Falls.

On Wednesday, people were bending their brains trying to figure out how this happened.  Must be a recent thing.  Blame it on fall in prices.

Well, no.

"Never get our money back" was the entire premise of Muskrat Falls from the day Danny Williams announced it in November 2010.  Amazing how folks missed these details.

The Muskrat Circus rolls back into town #nlpoli

Stan Marshall appeared out of the shadows on Tuesday to do a round of interviews with every media outlet in town.

He told NTV what he told everyone else:  the cost of the protests and the environmental work coming from the agreement that ended the protests will slow the project and cost money.  Stan also said something that is true but that upset a lot of people.  We don't know for sure that the clearing  called for under the agreement will actually reduce the methylmercury output from the project.

In the CBC version of his interview, Marshall acknowledged that the folks at Nalcor hadn't always done a good job of explaining what was going on with the project.  Marshall pointed out something that is both undeniable and true:  lots of people involved in the protests really had no idea what methylmercury was. They were legitimately afraid but they were afraid of the unknown.

The Mustafa Principle #nlpoli

Go back to Friday's post about false choices.

That's where you will find the explanation for the 11 hour marathon meeting.  The final agreement is more about the Premier's need to appear to be in control than it is about the substance of the decision.  That's because the government had already agreed to the major demand for clearing.

This was always a simple choice between clearing or not clearing the Muskrat Falls reservoir area of soil and trees before the final flooding.  In the meantime, Nalcor needed to hold back water to avoid an accidental, uncontrolled flood that would damage the work site.

The government accepted the major demand last week when they accepted the notion of some clearing of soil and vegetation.  Some morphed to all in the final version and, in the meantime, Nalcor gets to carry out its planned hold-back of water.

So what changed?