Muskrat Falls Cost Estimates: the Skinner Numbers #nlpoli

Former natural resources minister Shawn Skinner said this past weekend that he expected the next cost estimate for Muskrat Falls will be around $8.0 to $8.5 billion. [video; Skinner comments are at about 14:00]

Assuming that is for the dam, line to St. John’s, and the line to Nova Scotia, Skinner’s estimate would mean that Nalcor’s cost estimate in 2010 was between 29% and 37% out.

Sadly for proponents of the Muskrat Falls megaproject, those cost increases won’t be the end of it.

Great Gambols with Public Money: Muskrat Falls version #nlpoli #cdnpoli

While she is telling others to stand by for tough budgets and tight times, Premier Kathy Dunderdale is planning to spend more than $3.0 billion in accumulated oil surpluses to build the Muskrat Falls dam.

Now that is no surprise to SRBP readers nor is it a surprise to people who’ve been paying attention to information disclosed as part of the public utilities board hearings into the project.

Nalcor boss Ed Martin confirmed it on Tuesday in a call to Randy Simms on VOCM’s Open Line.  Here’s the relevant bit of the Simms and Martin exchange:

Randy Simms:  Government of Newfoundland?

Ed Martin:  And the Government of Newfoundland will also be putting some equity in as well. They’ll transfer cash to us to put in as equity.

Simms didn’t ask how much, but the amount is right there in Nalcor’s answer to a question from the PUB.  CA/KPR-NALCOR- 20 includes a table that lays out the “Stakeholder Equity”. The only Nalcor stakeholder is the provincial government.

Note that it shows financing for the generating facility is 100% equity.  The amounts shown in the column “Plus Equity Contributions” adds up to $2.853 billion. That’s the cash transfers Martin was talking about.

On the other side, the ledger shows another $460 million in equity – cash, that is – and that represents 25% of the cost of the transmission line.

What’s most interesting is that Martin didn’t discuss 100% equity with Simms, even though the Nalcor submissions to the PUB discuss it repeatedly. Martin said:

The 60 / 40 is generally what it is going to be. That may end up being 57 /43 or whatever. But it will be around that.

60% debt.

40% cash, that is equity.

Still, it would likely be safe to start from the premise that Nalcor’s calculations and the provincial cabinet’s endorsement of this project is based on having very little public debt, except on the transmission lines.  That’s a pretty wild assumption, of course, given the provincial government’s miserable experience with delivering capital works projects on time and close to budget. 

Still, if they think they can do it, Nalcor and the provincial government might be tempted to believe they can get the whole thing for cash on hand with only a few hundred million in borrowing.  As Martin noted, Nalcor will use other revenue of its own – like from the equity stakes – to add more cash to the pile if need be.

That would also explain how they think they can keep electricity rates low.  Without much of a debt load to repay, they can just cream of any profits. If things are worse than expected, the provincial government just won’t make any money back on the project at all.  They’ll tell the punters that their great dividend from oil and gas is discount electricity.

You can see that kind of thing in Ed Martin’s closing remarks:

But any cash that goes into this project, any returns that come from it, are staying in the province and results in 100% ownership of an asset for the people of Newfoundland and Labrador, essentially forever.

Sounds wonderful.

Sounds marvellous.

Sounds fantastic until you realise that  Martin knows that this project won’t sell electricity anywhere but inside the province. 

That means that the people of Newfoundland and Labrador will pay for the Muskrat Falls project up front with their billions in cash from oil.

Then they will pay for all the electricity that comes from it, including the stuff shunted off to Nova Scotia for free.

In effect, the people of Newfoundland and Labrador will be paying themselves back for the money they borrowed from themselves in the first place.

In order to make that work and to keep the electricity prices at a rate people wouldn’t scream about, the provincial government and Nalcor plan to let the people of the province pay themselves back over the course of a half century.

Now you can understand that all this makes a bitter lie of the claim by project proponents that this project will have a revenue stream and pay for itself.  The only “revenue” is what the ratepayers will pay annually for their electricity.  As SRBP noted before, people will be forced to pay for the costs annually plus a profit because that’s the way the public utilities board sets electricity rates.

Don’t miss the point though - Muskrat Falls is not a revenue stream:  it is a tax on the people who own the resource in the first place.

One can scarcely imagine or a more cynical political gambol with public money.

- srbp -

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Dateline: Desperation, Newfoundland

Finance minister Tom Marshall called the province’s major radio talk show on Thursday to promote the Muskrat Falls power project.

He quoted from a book by Wally Read and L.J. Cole.  The quote runs down opponents of the Bay d’Espoir megaproject in the 1960s as ignorant, blind or politically motivated people of dubious character who lacked the foresight to undertake the marvelous project.

You can hear the whole call courtesy of Dave Adey.  Before going any farther, take a second and listen to Tom in all his persuasive majesty.  Then, when you are finished being awestruck, come back to these scribbles.

Fair warning:  if you are awestruck at Tom, you’ll be gobsmacked by the end of this post.

You were warned.

Now if you don’t know – and your humble e-scribbler didn’t know until he went looking – that book was in fact no book at all.  It was a 28 page pamphlet produced by the Newfoundland and Labrador Power Commission in 1972 to mark the inauguration of their new power plant at Bay d’Espoir. The Commission was the forerunner of Newfoundland and Labrador Hydro.

And if the words Marshall read sounded familiar, if they sounded as though you heard them before, if it struck you that the language used by Read and Cole resonated in a way you may have heard before, if the sentences seemed to come with bow tie and dark-rimmed spectacles, then you would be right.

The visionary Read and Cole were praising, the champion-in-chief of modernity, progress, and the future of His People, the one who stood out among the one or two the authors obliquely referenced in the text was none other than the Only Living Father of Confederation at the time.

Yes, Joe Smallwood.

So right off the bat, you have a fellow who got his current job as part of a crowd who campaigned against foolish megaprojects, gigantic wastes of money and enormous give-aways quoting favourably about the fellow who was chief among their targets.

And the fellows of low character and small minds the two others lambasted were Marshall’s political predecessors in the provincial Conservatives.

And if the full story be told, Tom probably campaigned for some of them and fulminated against Smallwood himself four decades ago.

Now if you are feeling a bit weak in the knees, we can all wait for you to catch your breath.

This is only the beginning.

You see, we are not dealing here with mere irony.

No.

That would be too common a theatrical device for people of such enormous vision and unparalleled ability.

This, my friends, is the stuff of Greek tragedy.

If someone among the current administration plucked out his own eyes after slaughtering his own father, bedding his sister, and marrying his own mother, you could not have anything more fundamentally twisted, demented and frigged in the head than Tories justifying themselves by borrowing words of praise for Joe Smallwood.

The whole thing enters another dimension when you realise that Bay d’Espoir was conceived and built in the 1960s not as a simple project to meet identified need as Tom Marshall would have you believe.

No, sir.

Bay d’Espoir was the centrepiece of yet another scheme by which the ratepayers of Newfoundland would give megawatts of power at bargain basement prices to create not one, not two, not three or even four or five, but something like eight new industries.

A paper mill for the east coast.

A hockey stick factory.

A refinery.

A petrochemical plant.

A phosphorus plant.

And on and on it went.

Joe Smallwood gives the thing a couple of paragraphs at the bottom of page 375 and the top of page 376 in I chose Canada.  After reciting the efforts to get companies to take power for the project, Smallwood writes on page 376:

The killer was the cost of the transmission line, but we agreed to build the line and charge Brinco nothing for it until after the enterprise had begun to make money.

You won’t find the full story of the Bay d’Espoir saga in the Read and Cole monograph of in Smallwood’s memoir.  You’ll get a much better sense of the dubious economics of the whole affair in a paper done in 2007 1974 by Peter Crabb.

Bay d’Espoir was supposed to do magical things.  Many of the same claims of magic Tom Marshall and his friends are using for Muskrat falls are the same ones Smallwood and his associates used for their mega-failures. As it turned out, the only new industry Bay d’Espoir attracted was the phosphorus plant at Long Harbour.  The scheme to attract new industry by providing heavily discounted electricity to industries was a complete bust.

Proponents of megaprojects grossly exaggerate the benefits and grossly underestimate the risks, in case you haven’t heard that one before.

Skip ahead 40 years and you have tom Marshall marvelling at how history is repeating itself.  Indeed it is, except not in the way Marshall supposes.  He and his colleagues are on the wrong side of the story.

Now just so that there is no one with any sense who thinks this is a conspiracy,  Randy Simms did a grave disservice to his audience during the conversation with Marshall when he tried to turn the arguments against Muskrat Falls into something they aren’t.

Undoubtedly, Tom Marshall and Kathy Dunderdale sincerely believe they are doing the right thing.  They have convinced themselves that this is the way to go, just as Smallwood did in the 1960s repeatedly.  Just as Brian Peckford and his crowd did with the cucumber factory. 

Desperation makes politicians – even normally sensible ones like Tom Marshall -  do strange things.

But make no mistake about it:  Muskrat Falls has absolutely nothing to do with a power need on the island just as surely as the Bay d’Espoir project and nothing to do with consumer power needs.  We know this because Nalcor could not produce figures that demonstrate their forecasts of an impending power shortage are real.

We also know it because this project has never, ever been justified on the basis of urgent need.

Tom Marshall and his colleagues pushed the development of the Lower Churchill in the beginning as a way to make money by selling power to people outside the province. 

Go back to January 2005.

Not a single peep about a need for electricity on the island.

The joint review panel found the same thing.

Muskrat Falls is not about need.

It is about want.

More specifically, it is about a political want.  Danny Williams wanted to cap off his term by saying he had a deal.  the economics of it had long since vanished.  The project – as originally planned – simply could not fly.  So he cut a deal for something that would look good in theory but that fails when anyone with half a clue looks closely at it.

Williams’ political want for an excuse to cover his exit became the political want of his successor to have something to tide her through an election.

We know this project is not driven by public need because neither Nalcor nor Tom Marshall nor anyone else pushing it ever more frantically down our collective throat has been able to give a simple, consistent and factual set of answers to a simple set of questions. They squirm and they dodge and they toss out red herrings and they attack their critics.

Tom and his associates spent two years with a hand-picked panel of five intelligent, sensible people looking over this Muskrat Falls thing. Those five people told Nalcor that the company had not made its case.

Not once, mind you, but twice.

Those five people on the joint federal-provincial review panel recommended giving the whole thing to someone without a vested interest in the project in order to make sure that all the evidence was there.

That’s as serious an indictment of Nalcor’s poor performance as one could get.

So the people Tom Marshall claims know so much about electricity needs and megaprojects couldn’t knock off a two year review process successfully on the crucial component:  the need for it in the first place to meet local energy demand.

And ultimately we know this project is driven by politics because of Tom Marshall’s obvious desperation that he would praise the Churchill Falls development and Bay d’Espoir as models to follow.

There is obviously no claim so ridiculous and no argument so transparent that Marshall and his colleagues would not toss it out to try and fight off the public worry about Muskrat Falls and what the project will do to electricity rates and the public debt.

Somewhere in the Great Beyond, Joe Smallwood is looking down on this all.  He is sitting with John Shaheen and O.L. Vardy while Valdmanis plays waiter and freshens their drinks every now and then.  They are kicked back enjoying fine cigars and letting the sand scrunch between their toes.

And on that magnificent Panamanian beach beyond all time and care, Joe is shitting himself laughing. 

He is crapping his Bermudas at Tom and Kathy and Danny.

The rest of us could join him in the chuckle too.  We could bust open our pants with a hearty belly laugh. We could do that if only we were not faced with the embarrassing spectacle of Tom Marshall’s desperation.

We could maybe even manage a smile, were it not for the fact that – if the province’s Conservatives and New Democrats get their way -  we will be footing the bill for yet another megaproject give-away to rival the greatest ones of the last century.

And we will have to listen as our children and grandchildren as they ask us over and over again how some people could have become so utterly deluded that they could make the same miserable mistake twice inside a half century and use the first fiasco as proof of the genius in the second.

We could laugh except that some of us cannot explain it.

We only know that we will be paying for their folly.

Again.

- srbp -

Venus in Furs: Muskrat Falls edition

There’s a kind of political writing that makes you squirm.

On the face of it, and in isolation, a sentence can be perfectly correct.  The problem comes when the politician, political staffer or bureaucrat puts that perfectly correct statement in another context where it’s purpose is to make other stuff that isn’t so correct seem better.

Think of it as the reverse of guilt by association.

The good sentence makes the bullshit seem better than it actually is.

You can find an excellent example of this sort of writing in a statement Kathy Dunderdale issued on Monday about a sooper sekrit visit by two New England governors this past weekend to tour the Churchill Falls hydro plant.

It was sooper sekrit because Kathy didn’t bother to issue any sort of notice that the two governors would be dropping by.

That way no one could ask them any pesky questions.

Kath just got to send out a bullshit statement telling us what these two fellows may well have thought.

In any event, here’s the sentence:

Creating revenue from our development of the Lower Churchill with the sale of excess power, and doing so in a way that maximizes benefits to the people of Newfoundland and Labrador, is an exciting prospect.

As sentences go, this is one that not even its mother could love.

It’s passive, for starters.  We don’t know who will find that creating revenue is exciting.

Then there’s the phrase “creating revenue”.  Blech!  Truly horrid.  “Creating revenue” sounds a bit like it means making a profit when it could be as simple as bringing in some cash even if it is a lot less than one needs to pay the bills.

Then consider this revenue will come “with” the sale of power.  Not through the sale, as in,  getting cash as a result of selling power, but “with”:  as in, creating revenue goes alongside of and may not be connected to the power sale.  Don;t ask how.  this is just looking at the words.

Once you get beyond that, there’s that little subordinate clause stuffed in the middle:  “and doing so in a way that maximizes benefits to the people of Newfoundland and Labrador”.

What exactly does it mean?

Whatever it means, though, the sentence seems to be saying that selling power from the Lower Churchill would be exciting.

Not is.

Not will.

But would be.

It’s a prospect, after all and prospects are things that are indefinite.  Uncertain.  Conditional.

And that certainly is true:  selling power from the Lower Churchill would be exciting. People have dreamt about it for decades in this province.

The only problem is that any sale of Muskrat Falls power outside the province using Kathy Dunderdale’s scheme will be a gigantic money loser.

Electricity is forecast to be so cheap  - outside newfoundland and Labrador only - that the incredibly expensive stuff from Muskrat Falls will only flow outside the province’s borders if the taxpayers of the province carry the whole cost and a handsome profit for the two companies involved.

Yes, selling power like that would be exciting, if only in a Marquis de Sade kind of way. 

Masochists everywhere would sign up for that in an instant. If you tossed discount video of flogging in on top of the pillaging of household bank accounts needed to prop up the little scam, you could probably make more money from the Internet porn rights than you would from selling Muskrat Falls power to New England.

But anyway, the truth of the sentence is still there – somewhere – and it appears in the government’s news release in order to make the rest seem better.

How can you be sure?

Because the last sentence in the release piles on the raft of reasons why Muskrat Falls must go ahead:

But it only complements the reason why we are developing Muskrat Falls – to meet our own electricity needs in the most cost-effective manner and to stabilize rates over the long term. Job creation, attraction of industry, and the creation of significant income for business, not to mention the environmental benefits, make this development the right one for our province and one that the rest of the country and North America has its eye on.

Yes, folks.  The only thing Muskrat won’t do is cure cancer.

Give it time, though.

It wouldn’t surprise your humble e-scribbler if a Nalcor release popped up one day promising amazing health benefits from Muskrat.  it’s about the only thing, the megadebt project won’t do.

After all, as you should know by now, people who push megaprojects over-estimate the benefits and under-estimate the costs.

- srbp -

Megamania: Wacky edition

A 40-year-old hydro-electric megaproject, on a river already home to massive hydro development, estimated to cost at least $6 billion, that will add dramatically to the provincial debt load for 30 or 40 years.

Lower Churchill?

Nope.

British Columbia.

The whole thing is a throw-back to British Columbia’s longest-serving Premier.  W.A.C. Bennett  - known derisively as Wacky - served from 1952 until 1972.

The Lower Churchill dates back to the time of Newfoundland and Labrador’s longest-serving Premier.  Joe Smallwood – who many considered wacky – served from 1949 to 1972.

-srbp-

Great Gambols with Public Money: The Stunnel

Normally, governments in Newfoundland and Labrador don't turn to the freakishly large, insane, totally whacked out, over-the-top, no-evidence-to-support-it kind of ideas until, like the Peckford crew, they are at the end of their time and have run out of all the good ideas.

That's what happened with Sprung, basically.

Smallwood didn't get into them - including the Stunnel, incidentally - until he was at the end of what for most people would have been a normal political lifespan.

Some, like Wells, for example, never got into them. Tom Rideout, Roger Grimes, Beaton Tulk and Brian Tobin just weren't around long enough for the air to get a little thin in the New Ideas department.

Not so with the current crew.

They endorsed a tunnel across the Straits of Belle Isle from Day One. They even commissioned a feasibility study of the whole idea even though - on the face of it - the thing just didn't add up.

Well, the nutty ideas haven't gone away. The stunned tunnel - or Stunnel - is good enough to get ministerial junkets to Norway and prompt the odd letter to the local papers. No word, incidentally, from transportation minister Trevor Taylor on what he found out from his fact-finding mission to Norway.

Take a look at that letter to the Telly by the way and you'll see all the classic warning signs of megaproject proponents. You got your gross and unsubstantiated claims of benefits and pretty much no talk of costs, risks or alternatives.

Don't take Dave Rudofsky's letter in isolation, by the by. It comes hot on the heels of a mention for the project in an interview the Premier gave to yet another safari journalist. If the Big Guy is still talking about these things, others will take the cue.

Megaprojects are like the crack cocaine of ideas: all hype, buzz and spin and a great feeling on the way up.

Followed by a hideous crashing sensation when the high wears of and reality returns. They are highly addictive too, especially in places like Newfoundland where there has been so much of this crap going on that short-term memories have been affected. In Newfoundland (not so much Labrador) some people can't remember what they did politically yesterday so the peddlers of the nuttiest of schemes can find a willing buyer for their wares.

Way back in those early days, your humble e-scribbler took a look at the whole Stunnel idea and put some numbers on it. Since the nutty idea never went away, here's the link to that again for your mid-August reading enjoyment.

And if you want something even better, try Megaprojects and risk, a devastating study of megaprojects by three Scandanavian academics. One reviewer described it as "a warning against the betrayal of public trust when hubris and profit come together." The book could have been written in Newfoundland and Labrador.

-srbp-

Great Gambols with Public Money: Sprung Cukes

Ah, how quickly they forget, these pleasant but heavily indebted, taxpaying people of Newfoundland and the sorry experience of governments that gamble (or is it gambol?) with public money on all manner of ventures.

How quickly they forget just how they got to be the most indebted people in the entire country.

More than anything else, they got into hock up to their eyeballs from cheering government after government as it poured thei tax dollars into this hole and that, each of which was supposed to gush barrels of cash so that God's Other Chosen (But Seemingly Forgotten) People could at last have their Eden here on Earth.

How quickly do they forget?

Apparently 20 years ago is too long for some of the poor darlings.
From the Memory Hole, the first newspaper cutting about that gloriously foolish venture known as the Sprung Greenhouse.

Bear in mind though that at the time there were a great many supporters of the regime du jour who cried that any amount (in this case upwards of $22 million) was fitting.

"Spend a buck to make a buck" they cried. 

"Brian can gamble with my money any day" they shouted. 

"How can anyone be so negative all the time and oppose this idea?"

"Sure they'll create a few jobs and get it all back in taxes."

"We will be the world leader in cucumber production."

At the end, all the pod-houses did was induce an epidemic of insomnia among the good residents of Mount Pearl and add another $22 million to the public debt.

"Skepticism rains over hydroponic greenhouse"
The Toronto Star
Friday, May 22 1987

by Alan Story

ST. JOHN'S, Nfld. - In a province with a mere 380 farms and the poorest soil, a raging agricultural debate has been at the centre of politics - and over-the-back-fence conversations - here for the past two weeks.

The subject: hydroponic cucumbers.

With the active encouragement and financial assistance of the Peckford government, an Alberta firm is dismantling its 3.2-hectare, high-tech greenhouse in Calgary and shipping it east to St. John's to begin growing hydroponically produced cucumbers, tomatoes and other vegetables.

The $18.5 million joint venture between the Sprung Group of Companies and the Newfoundland government is being touted as a solution to several of Newfoundland's problems.

Among them:

• The lack of cheap, high-quality produce available locally. Neither the price nor taste of a tomato or a cantaloupe you buy at a St. John's supermarket matches what you can find at Toronto's Kensington Market.
• The lack of jobs. According to company president Phil Sprung of Calgary and the government, which will put up to $11.5 million into the project, 330 construction jobs and 150 permanent jobs will be created.

Even if all Newfoundlanders became vegetarians, the Sprung greenhouse would produce far more tomatoes and cukes than the local market could ever consume. Sprung's surplus would shipped to the mainland.

"For once, Newfoundland will be first in new technology and not just in unemployment rates," Peckford said on May 8 when he announced the deal. It's not only skeptical mainlanders who are questioning the wisdom of setting up a giant food factory based on technology that failed to perform properly in Calgary and on market studies the premier won't release.

Peckford's mad hunt for employment has brought him "full circle to the insanity that premier (Joey) Smallwood pursed when he tried to set up a chocolate factory, a rubber factory and orange juice factories in the middle '50s," declared Newfoundland New Democratic Party Leader Peter Fenwick.

Worried about the Sprung greenhouse's potential surplus entering markets in the Maritimes and even Ontario, James Keizer, president of the Greenhouse Growers' Association of Nova Scotia told Peckford that "if this greenhouse is built and operated as Sprung claims, it will fail within two years and take some Maritime growers who have built their business - one stick at a time over many years - with them." Letter-to-the-editor writers and editorial cartoonists have had a field day too.

Last week's Sunday Express, a new and brightly written St. John's weekly newspaper, featured a cartoon of a moronic-looking Peckford, clenching a stem of grass between his teeth and overseeing a Rube Goldberg-like operation known as "Peckford's Pickle Farm."

The main serious questions being raised are whether a major hydroponic greenhouse is technically feasible in Newfoundland - hardly Canada's banana belt - and whether it makes economic sense. Hydroponics - growth with water, instead of soil, as a medium - is recognized as a viable method of producing vegetables which is just starting to come into its own across the North America..

Sprung's somewhat secret hydroponic process involves planting seedlings in trays of water containing various nutrients, but no pesticides, and rapidly raising them to maturity under natural or artificial light in greehouses. Sprung makes big claims about the level of productivity. At his former Calgary greenhouses, he says 28,000 tomatoes and 22,000 cucumbers were produced daily. The cukes matured in less than a week.

But can his process work in often foggy and cloudy Newfoundland? Agricultural scientists have pointed that in St. John's, the number of degree days (a measure of natural heat available) is 1,600 while southern Alberta has 3,100 days. The extra heating required and the extensive use of artificial lights proposed for the St. John's greenhouse may significantly boost the costs of production, they warn.

Others following the great greenhouse debate aren't sure what to make of Sprung's claim that gas leaks from the soil at his Calgary site were the only reason why he had a major crop failure last year and why his tomato plants turned grey.

 The economics of the project are also in doubt. Some here are surprised that Peckford, who has tended to avoid getting sucked in by the industrial dream-peddlers who regularily come calling in Atlantic Canada, has become the project's biggest promoter.

Will all of the tomatoes and cucumber grown - more than twice Newfoundland's entire current level of consumption - actually be sold?

Why is the project so large after a recent provincial royal commission specifically warned against the dangers of getting tied into mega-projects?

What will be gained if other Maritime greenhouse producers are put out of business by the government-financed Sprung operation?

Before the Sprung story is over, Peckford may realize that tomatoes can be thrown as well as grown.

-srbp-