One of the hardest things to do is keep track of the numbers the provincial government uses to justify their plan to double the province’s debt and force taxpayers to pay it down through their electricity rates.
Muskrat Math is unlike any other type of math because the numbers the government uses never add up.
Take events in the House of Assembly on Monday as a good example.
According to Nalcor’s final submission to the Canadian Environmental Assessment Agency review panel, the company dismissed natural gas as an alternative source of electricity instead of Muskrat Falls.
This alternative is purely hypothetical, as the current offshore operators have looked into the technical and economic feasibility of transporting and marketing their natural gas reserves and none have identified a viable business case. (page 20)
A Nalcor consultant that was asked to review Nalcor’s decision-making for Muskrat Falls agreed that studying natural gas was a waste of time because there was no commercial natural gas development already in place in the province.
Purely hypothetical.
Not worth the time to review?
Well, not exactly.
According to documents filed by Nalcor with the public utilities board, the company asked consultants in 2008 to prepare a cost estimate to build a natural gas plant with different capacities. According to the consultant’s report, the largest of the variants – capable of replacing Holyrood by producing 550 megawatts – would cost between $617 and $633 million.
According to another document tabled by Nalcor with its PUB submission, the company was still reviewing cost options for natural gas generators. The estimate for a 50 megawatt turbine obtained by Nalcor in 2010 shows that the prices remain comparable to the 2008 study.
In Nalcor’s submission to the PUB, the company acknowledges that it studied and then dismissed natural gas as an alternative based on what turn out to be misleading claims about offshore natural gas.
First, Nalcor states that:
To date, no proposal for natural gas development, either export or “landing”, has been submitted by the offshore operators despite years of technical and economic study. (page 58)
That’s grossly misleading though. Nalcor officials know that at least one offshore company has expressed an interest in studying the economic feasibility of natural gas development offshore.
The problem is that in order to assess the economic potential, the company would need to know the provincial government’s natural gas royalty regime. And – despite studying a natural gas regime since the late 1990s and despite a 2007 commitment to finalise the draft natural gas royalty regime contained in the province’s energy plan, the provincial government still hasn’t produced that crucial piece of financial information.
Four years later.
The provincial government still can’t tell offshore companies who want to develop natural gas what it will cost them.
And then the provincial government’s energy company uses the lack of development as justification for Muskrat Falls.
Talk about circular reasoning.
With that convenient bit of information out of the way, Nalcor’s next reason for ignoring gas – the lack of a domestic market in the province – also falls by the wayside.
Then Nalcor claims that development of the natural gas resource would have to involve all four fields and, well, all four fields have different natural gas strategies:
Natural gas is associated with the Hibernia, Terra Nova, and Whiterose [sic] developments, but each operator has its own strategies for the gas associated with their respective development. Natural gas associated with the Hibernia development is re-injected into the reservoir in order to increase the recovery of oil from the reservoir. This re-injection is a form of enhanced oil recovery, or EOR. In the case of the Terra Nova development, natural gas is re-injected and is also used to reduce the viscosity of produced crude oil, an EOR technique known as natural gas lift. Finally, natural gas from Whiterose [sic] is being stored in an adjacent reservoir for future use. Each operator has developed its own strategy for natural gas use, and to date, no concrete plan for domestic natural gas development exists.
Ultimately, that’s just a restatement of the same original misleading Nalcor claim, combined a bit of additional misleading information along the way.
Hibernia does re-inject natural gas as part of its oil extraction strategy. The companies also use some of the gas to power the platform. But the plan has always been to preserve the gas so that the companies can exploit the gas for commercial sale eventually. After all, estimated reserves are on the order of 2.6 trillion cubic feet.
Ditto Terra Nova.
And, as Nalcor notes, at White Rose – that’s how the name is spelled – the developers are hanging onto the gas so they can exploit it when and if they find a market.
Three things stand out about this most recent revelation:
First, Nalcor continues to rely on misleading statements to justify its decision to ignore lower cost alternatives to Muskrat Falls.
Second, work completed for Nalcor confirms estimates done in 2005 that proposed natural gas as a viable source of electricity for the province and for export. Nalcor makes no reference to the NOIA study.
Third, Nalcor did not disclose this information before. In fact, the PUB submission seems to be nothing more than an effort to rebut a series of substantive criticisms of the Muskrat Falls project that turned up during the CEAA review.
And that’s what is most disturbing of all: Nalcor didn’t disclose this information about natural gas before now. In fact, the final submission to the environmental review made no mention at all of the fact that Nalcor had cost estimates for a natural gas plant.
Given that the most recent disclosures to the PUB further undermine Nalcor’s central claim – that Muskrat is the only viable choice – it’s no surprise Nalcor has tried to hide as much information as they could for as long as they could.
No surprise either that as the public learns more about the project, their support for the Muskrat Falls project is dropping like a stone.
Nalcor has given them good reason to doubt the company’s claims.
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Listening to Leo Abbass on CBC radio Wednesday afternoon, you could almost imagine you were back in the 1970s.
Harry Hibbs.
Banana seat bicycles.
Joan Morrissey.
All around the circle.
John Crosbie with muttonchops.
The whole shooting match.
Radio Noon had Abbass, the mayor of Happy Valley-Goose Bay, as the guest for its hour-long call-in show. He was talking up Muskrat Falls, the economic disaster doing business as Danny Williams’ memorial to Hisself.
Some guy called in to point out that after construction ended, there’d only be a handful of jobs left keeping an eye on the gauges as all the power streamed off somewhere other than Labrador. Abbass disagreed. After all, he reasoned, there’d be all that cheap power available to lure some industry or other and hundreds of jobs to boot.
Flick your mind back 40 years - if it goes back that far - and you probably remember another bunch of politicians who said exactly the same thing. That was the big idea for Churchill Falls back to the 1950s when Joe Smallwood supposedly first dreamed his first dream of immortality: cheap power for aluminum plants and lumber mills.
Ditto Baie d’Espoir on the island. That one was supposed to support not one, not two, not even three or four major new industries. By the time Joe Smallwood and his crew got around to that one, their cheap power was supposed to sustain seven new industries.
Seven.
With one blow.
Paper mill.
Refinery.
Petrochemical plant.
Hockey stick factory. Betcha never heard that one before.
Phosphorus plant.
A bunch of new industries.
Hundreds of new jobs.
All with cheap power.
2 mills, even less than at Churchill Falls.
Not even the pretext of trying to make the thing break even.
Just like the aluminum smelter in Labrador. That old chestnut is still good for all sorts of mileage even from the most highly educated members of our population.
What do the hydroqueen, at least one recent premier, the odd economist, and now maybe a mayor have in common?
Your first two guesses don’t count but if you get it right, you could win the chance to cut the ribbon at the Grand Opening of the latest Great Unnamed Industry to Save Newfoundland (and Labrador).
The gigantic load of horse manure is that much a part of our culture that when they get done with the 60th anniversary of the Fisheries Broadcast, CBC should celebrate 60 years of aluminum smelter rumours in Newfoundland and Labrador.
Oh dear. Was that sarcasm?
There’ll probably be a Telegram column now defending the honour of this beloved fairy tale. If two university professors get a quote in the paper noting its turd-like aroma, you can bet there’ll be at least two columns, one of which will point out that the two learneds are – whispers – you know.
That way.
What way?
You know:
Different.
You mean mainlanders?
YES! For Gawd’s sake.
And as such, they are unfit to comment at all on our revered customs and venerated observances.
Like Screech-ins and gravel-pit camping, both of which have been practiced in the province (and maybe even Labrador) since John Cabot’s time at least.
Surely, that long.
And they are definitely not – respectively – a cheesy 1970s marketing gimmick by the liquor corporation and a relic of the post-war era when the government actually had enough money to build roads for people to drive cars on.
And it isn’t just this Labrador hydro power stuff.
Take a look at municipal politics. Some poor sod who went into a coma around the time of the Canada Summer Games in 1977 and who sprang back to life this week would look at the TV and wonder what the frig was going on. Some woman from city council with a hat on then talking about being verbally beaten up by her fellow councillors when his lights went out. Now that the lights are back on, he sees some woman from city council with a hat on…
You get the idea.
Then there’s the fishery.
Only difference is that this cartoon today would have the one guy with four hands covering ears and eyes and with both feet in his mouth.
Since 2003, it’s like the province – and Labrador - is one giant trip back to the 70s.
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Natural resources minister Shawn Skinner is in Halifax talking energy co-operation with his counterparts in the Maritime provinces.
Odd that the provincial government didn’t play it up more than issuing a few lines in a media advisory on Monday, the day the meetings started.
After all, New Brunswick energy minister Craig Leonard is interested in some of Skinner’s Lower Churchill electricity. As Leonard told the Telegraph Journal:
"There will be a considerable amount of energy that's moving through the province," Leonard says.
"That's an opportunity for us. That's clean, renewable power that will be moving through our transmission system, whether it's en route to New England or we could utilize it ourselves."
Now as regular readers of these scribbles know, the Muskrat Falls proposal is a hugely expensive proposition that Premier Kathy Dunderdale and her Conservatives expect Newfoundland and Labrador residents to pay for. The cost to produce the power, according to Dunderdale back before Christmas will be at least 14.3 cents per kilowatt hour.
Now that is interesting given that the old NB Power deal with Hydro-Quebec was supposed to lower electricity rates in the near term. When the New Brunswick government unveiled the deal, consumer electricity rates were around 11 cents per kilowatt hour. Hydro-Quebec had oodles of electricity, some of it from very low-cost operations and could have made a tidy sum off New Brunswick customers even at reduced current rates.
Leonard and his colleagues campaigned against the deal and if they now buy Muskrat Falls power, they’d be doing exactly the opposite from what the Shawn Graham deal would have delivered.
Maybe the crowd in Fredericton will just settle for making some cash off the power that Nalcor will wheel through to the United States.
Oh.
That’s right.
There’s a power glut south of the border.
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Add talk show host Randy Simms to the pile of people who now appreciate that the Lower Churchill announcement wasn’t about a deal to get the thing done.
His column in the Saturday Telegram (not online) couldn’t have been any plainer:
Premier Danny Williams did much the same thing, declaring, "Today will go down in history as the day that finally eclipses that day back in
1969 when the Upper Churchill Contract was signed."Really?
…
I think the spectacle we saw at the term sheet signing was more
political than practical. It was done for the benefit of the home
audience.
And it only took a couple of weeks.
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CBC quotes Toby Couture, an energy specialist with with London-based E3 Analytics:
"The investment case for selling that power to New England is actually not looking very good, partly because they have more than enough natural gas — cheap natural gas — to meet their own electricity needs for the next decade, at least," Couture said in an interview.
Nalcor boss Ed Martin disagrees but doesn’t say how he plans to overcome the economics of Danny Williams very expensive project.
You can get an idea of the expense of the project from earlier Bond Papers posts:
As for what sort of windfall Martin may be counting on, consider that taxpayers in Newfoundland and Labrador will be shouldering the cost of this enormously expensive deal and, in all likelihood passing on the savings to energy consumers elsewhere. That’s an idea floated around these parts before Danny Williams announced his retirement.
And in case you thing Couture is wrong, some very influential people agree with him.
Maybe this all doesn’t matter because the Muskrat Falls was a vehicle for Williams’ retirement and not a way to build a generating plant.
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To help you get ready for the splendiferous announcement later today, here are some things to keep an eye on. Undoubtedly, there’ll be more spin than a baton twirlers’ convention riding on the Mad Hatter’s Tea Party ride at Disneyworld.
Just keep your head and you won’t get nauseous.
1. Ready for a better tomorrow. Just remember that tomorrow is a day that never seems to get here.
There have been memoranda of understanding before that came to naught. Remember 1998? Brian Tobin and Lucien Bouchard dropped a half million to announce not only a Lower Churchill deal but a reworking of the Churchill Falls project as well. Result: Nada.
Then there was the memorandum of understanding to sell 200 megawatts of power to Rhode Island. That fell apart because NALCOR couldn’t deliver the power to Rhode Island at a price anyone could afford.
Don’t forget Frank Moores’ big explosions on either side of the Straits.
And as we look at a likely memorandum of understanding between NALCOR on one side and the Government of Nova Scotia and Emera on the other, let’s not forget that NALCOR already has one: signed in January 2008.
If this isn’t a concrete deal to start work soon, then Thursday’s announcement can all evaporate as easily as the others did.
2. Cost. The lower the number the less likely it is real. CBC’s David Cochrane mentioned a figure of $4.0 billion.
The line from Muskrat Falls to Soldier’s Pond, just outside St. John’s came with an estimated cost of $2.2 billion in 1998. That would be close to $3.0 billion today. There’s an estimate of the Nova Scotia line that runs between $800 million and $1.2 billion. Take the upper one just to be on the safe side since proponents tend to underestimate megaproject costs big time. So just the lines alone are likely to cost more than $4.0 billion.
A 900 megawatt project in British Columbia (Site C) is coming with a $6.6 billion price tag so it is safe to work with a cost estimate for this project of around the same amount.
The 70/30 debt-equity ratio NALCOR boss Ed Martin has mused about publicly would give you a borrowing requirement of around $4.0 billion. There’s David Cochrane’s number. The rest of the cash would come from NALCOR’s small equity stakes in three offshore projects, unless Emera is coming on board with an ownership stake.
3. How much is being exported? A couple of weeks ago 60% of the project’s estimated 800 megawatts would go to Nova Scotia. According to reports on Wednesday, 60% of the power is now coming to the island and – here’s the kicker – the island portion of the province doesn’t need it. However, NALCOR does need the captive market in Newfoundland to help underwrite the massive project.
Keep your eye on this one because it will tell you how expensive electricity will get in Newfoundland and Labrador. As it looks now, things are lining up to prove Danny Williams was right when he said last fall that “…good, cheap, competitively priced energy, can't be offered to that whole region.”
4. Environmental process Day Zero: As regular readers already know, this thing will have to go through an environmental review with a whole new section never before considered.
5. Holyrood. For some unfathomable reason, no one seems to want to believe NALCOR’s own words on Holyrood:
It is important to consider that whichever expansion scenario occurs, an isolated Island electrical system or interconnected to the Lower Churchill via HVDC link, Holyrood will be an integral and vital component of the electrical system for decades to come. In the isolated case Holyrood will continue to be a generating station; in the interconnected scenario its three generating units will operate as synchronous condensers, providing system stability, inertia and voltage control.
The diesel plant at Holyrood will not be shuttered, mothballed or otherwise displaced or taken offline. To the contrary, it will run 24/7/365 but at a reduced capacity. Holyrood will be an “integral and vital” component of the province’s electrical system.
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