Firm and Unfirm #nlpoli

With the House of Assembly open again, the major topic of Question Period was Muskrat Falls and the second version of the deal to ship power to Nova Scotia.

Premier Kathy Dunderdale explained it on Monday in terms of firm and “non-firm”.  Firm power is what you know that the hydro plants will be able to produce reliably.  The unfirm power is the stuff that you can get when there is plenty of water.

What’s interesting is how much of this unfirm power the Premier says is around.  It is:

“half a terawatt to four or five terawatts a year. Based on fifty years of hydrogeology, the amount of snow or rain in this Province, we have been able to commit to Emera 1.2 extra terawatts of power on average; …, some years that might be 0.5 terawatt, another year that might be three.”

On the face of it, that is such a really interesting idea that it is worth digging into the notion a bit more.

Restoring Power - Mitigating the Impacts of Muskrat Falls #nlpoli

Left untended, the Muskrat Falls project threatens the financial well-being of the government and people of Newfoundland and Labrador. The threat cannot be removed merely by directing money from one pot or another to offset the impact the mismanaged project’s costs would have on electricity rates in the province.  

The threat from Muskrat Falls can only be removed by concerted action that addresses the project’s financial burden, restores integrity to the system of electricity regulation, and that breaks, once and for all time, the fundamentally corrupt relationship between the provincial hydro-electric corporation and the provincial government. This is the only way to restore power to the province’s people so that they may control their own future.

Pride goeth, more undisclosed risk, and all that #nlpoli

There are so many ways that Ed Martin, his crew at Nalcor, and the provincial Conservatives and all their supporters have screwed themselves and local ratepayers it is getting harder to tell which one is worse.

On Monday, the Nova Scotia regulator approved the Maritime Link but only condition that Emera secure enough extra electricity at market rates to make the project the lowest cost option.  Meanwhile in Quebec, Hydro-Quebec announced it was seeking a court opinion on its right to access virtually all the output from Churchill Falls.

The interplay of the two things could work together to deliver a horrible result for the people of Newfoundland and Labrador.

The Ongoing Net Debt Fallacy #nlpoli

In a post that starts out about Muskrat Falls, the Telegram’s James McLeod does a fine job of laying out some basic information about debt, deficit, current account, capital account and other bits of the provincial budget.

Read it.  Unless you have been living this sort of stuff up close for years, you will learn something.  If nothing else, you’ll get some insight into how some local politicians have been buggering up this sort of stuff because frankly it is complicated and they don’t understand it.

Regular readers of these scribbles will know that SRBP includes Kathy Dunderdale and Tom Marshall among the people who get confused.  You can add others from all parties.

August Muskrat Round-up #nlpoli

First up, there are lots of ways to make bad decisions.

The Telegram’s Russell Wangersky did a fine job on Tuesday of pointing out that natural resources minister Jerome Kennedy is basically out to lunch when he claims that the Muskrat Falls project won’t likely experience any cost over-runs.

But that’s not the only way Kennedy’s interview On Point With Jonathan Crowe [video] was surreal.

Quebec appeals court decision on Churchill Falls contract no win for Newfoundland and Labrador #nlpoli

Media reports, political comments, and pundit opinions are wrong about the decision last week by the Quebec Court of Appeal in a case about the renewal clause of the 1969 Power Contract between Churchill Falls (Labrador) Corporation and Hydro-Quebec.

The Court decision leaves Hydro-Quebec with virtually all of the electricity produced from Churchill Falls and, most importantly, operational control of water flows on the river.  This will have an adverse impact on Muskrat Falls. As a result, CF(L)Co is likely to appeal the decision.

__________________________________________________

The Quebec Court of Appeal ruled last week that Hydro Quebec retained operational control of electricity production at Churchill Falls. It made a minor change to an earlier decision by the Quebec Superior Court in a decision from 2016.

That’s why Hydro-Quebec issued a statement that it was satisfied with the outcome of the decision.

In other words, English-language media reports and political commentary got it wrong when they claimed “Quebec's top court rules for N.L. in Churchill Falls dispute with Hydro-Québec” (Canadian Press) or “A Victory For NL In Long-Standing Legal Battle With Hydro-Quebec On Upper Churchill” (VOCM).

The English-language reports focused on the idea that Hydro-Quebec could only buy electricity from Churchill Falls up to a maximum each month under the terms of an automatic renewal to the 1969 power contract between Hydro-Quebec and Churchill Falls (Labrador) Corporation.  VOCM went a step further in the mistake department my making it sound like both Hydro-Quebec and Newfoundland and Labrador Hydro could sell electricity from Churchills Falls. 

The clue that something was amiss in the English-language coverage is the statement from Nalcor that said the Quebec Court of Appeal “had ruled substantially in favour” of CF(L)Co on the question of Continuous Energy.

Here’s why.

Tom Johnson is Redundant #nlpoli

Pity Tom Johnson.

The St. John’s lawyer landed a steady source of billable hours when the provincial Conservatives made him the consumer advocate at the public utilities board.

Tom has been doing a fine job of advocating for consumers, even if his version puts an interesting twist on what he is advocating for consumers to do.

Take last year, for example.  Johnson advocated during the Muskrat Falls hearings.  He advocated  for the Muskrat Falls project.  That means, in effect, that consumers will be forced to pay for the entire Muskrat Falls project in their electricity bills, plus profit for the companies involved. 

Well done, Tom.  Consumers will be thanking you in the future.

In the meantime, though, Tom is not resting on his laurels.  This time, Tom is hard at it advocating during an application by Newfoundland Power for its return on equity. 

A fresh smear of lipstick #nlpoli

CBC’s online version got the story right from the most recent episode of On Point with David Cochrane:

Natural Resources Minister Jerome Kennedy says the Newfoundland and Labrador government is not back-pedaling in how it is handling the Muskrat Falls hydroelectric project, even though the governing Tories are already planning measures they had ruled out.

And Kennedy is being absolutely straight with people:  the provincial government is not changing its direction.

Most emphatically and absolutely no change.  It’s Muskrat Falls or bust.

The ruling Conservatives are just changing the tone.

They are changing the appearance of things as they try and recover from the very serious blow delivered recently by the public utilities board

Look at what Jerome told David Cochrane.  two phrases in particular leap out:

“You have to show as a politician that you are flexible and open to listening to what the people are saying … what we are trying to do is assure the people of the province that everything is being considered…”

Show.

Not be.  Not do.

Show.

Open to listening.

Not actually listening. Or listening and then changing.

Just listening.

And that’s what this latest development is really all about: the appearance of change without actually changing.

Odds are very good that the government’s polling – done by Nalcor’s advertising agency – is showing that the government’s intransigence is undermining their credibility even further. Their strategy isn’t working.  People aren’t willing to just put blind faith in Jerome and Kathy and Fairity O’Brien.

That polling would very likely lead to advice for Nalcor and the government to change how things look.  Image, after all,  is everything for some people.

You wouldn’t need to poll, though, to hear people wonder aloud why the government is proceeding with this project at break-neck speed and despite the thoughtful criticism from a bunch of very smart people with tons of credibility.

You could also tell earlier on that the critics’ comments about Muskrat Falls did serious damage to the government case for Muskrat Falls.  Jerome Kennedy attacking them personally.

So now there will be a debate in the legislature.  As Jerome noted for On Point, the government has to introduce a piece of Muskrat Falls legislation this session anyway so they will now just have a bigger form of that debate.

Hang on a second.

What piece of Muskrat Falls legislation?  They’ve never mentioned that before.  Maybe we’ll find out what the legislation is about but notice that for all the promises Jerome made about assuring everyone that the government will put information in front of people, he hadn’t mentioned that important piece of information before.

The problem is not image.  It’s credibility.  They say one thing and do something else.

This new piece of legislation for Muskrat Falls will come before project sanction.  Logically, friends, that pretty much wipes away any suggestion in Kennedy’s comments later on with David Cochrane that Muskrat Falls might not happen.

Not surprising that Jerome didn’t mention it before now. Makes it kinda hard to assure people you could walk away from Muskrat Falls without batting an eyelid if you are planning to change the laws to pave the way for it before you’ve supposedly decided to get on with it.

So anyway, once again Jerome Kennedy wants to reassure people in the province that they will have all the information the public utilities board couldn’t get plus reports on wind and natural gas in order to assure the people of the province that Nalcor has considered all options before picking Muskrat Falls.

He mentions reports on wind and natural gas that some companies will complete for Nalcor. 

Just remember what Nalcor and the provincial government have always said.  You can find it in a blog post by Nalcor boss Ed Martin over at Nalcor’s “leadership” blog, posted April 5:

Nalcor examined a broad selection of generation supply options to meet the island’s growing and long-term electricity needs including: nuclear, natural gas, liquefied natural gas, coal, continued oil-fired generation at Holyrood, simple and combined cycle combustion turbines, wind, biomass, solar, wave and tidal, hydroelectric developments on the island and Labrador and electricity imports.

They looked at it all before picking MF.  You name it: they studied it.

Supposedly.

So what’s with the new studies?

Good question. 

If the MFers had really had looked in detail at everything before picking Muskrat Falls, then they would  - Number One – already have those studies and would not need to produce “reports”, and  - Number Two – they’d have already released them to show that the alternatives just don’t work.

Yes friends, you are already getting the distinct aroma in your nostrils of the spore from rattus politicus pinocchiosa.  That is one honking big rat turd you smell, too.

You see, we know what these reports will say.  We know because Jerome told us.

March 6 in the House of Assembly:

MR. KENNEDY: … We have looked at natural gas, Mr. Speaker, extensively. In fact, I can say to the Leader of the Opposition, I met with Ziff Energy out of Calgary on the weekend while in Toronto on another matter. They concluded, clearly, that the importation of gas from the United States is not economically feasible. Mr. Speaker, we know, clearly, that the building of a pipeline from the Grand Banks is not feasible. If the Leader of the Opposition has other options, I would like to know what they are.

March 7:

MR. KENNEDY: … I have met with different consultants in this area, most notably Wood MacKenzie out of New York and PIRA out of New York. We have discussed the issue of the pricing of natural gas and the effect of shale gas on markets and electricity markets.

This past weekend, Mr. Speaker, I met with a company called Ziff Energy out of Calgary. I met with them in Toronto. We outlined to them the proposals that had been put forward by various critics of the project and the conclusion reached, Mr. Speaker, by all of these consultants, experts, not self-professed experts, Mr. Speaker, the conclusion reached is the importation of natural gas is not economically feasible, nor is the building of a pipeline from the Grand Banks.

Remember Jerome’s penchant for slagging the critics”  “Not self-professed experts”.  You can tell that all those critics, none of whom are self-professed anything, are causing Jerome and his mates lots of trouble.

And if that doesn’t jog your memory, here’s Jerome from March 13:

MR. KENNEDY: Thank you, Mr. Speaker.

Mr. Speaker, Mr. Ed Martin, the President of Nalcor, outlined in great detail the steps that they had taken in terms of looking at the options for Muskrat Falls, Holyrood refurbished. They indicated that at the Decision Gate 2 process, liquefied natural gas was screened out. Mr. Speaker, as Mr. Martin indicated, it was a fairly easy decision at that point because the viability of building a 350 to 650 kilometre pipeline from the Grand Banks just did not work. I am not aware of any LNG study.

Mr. Speaker, I have indicated on several occasions, I have met with experts, notably Wood MacKenzie in New York, PIRA in New York, and Ziff Energy of Calgary and discussed natural gas. I have indicated that the opinions given to us unanimously are that natural gas is not going to work. There are no studies or reports that I am aware of. If there are, they are in the eight boxes and I suggest that the Opposition go through them.

To paraphrase Jerome’s line until now:  We looked at it all.  We’ve talked to the experts.  They tell us we were right the first time.

Nothing changed at all in his discussion with David Cochrane over the weekend, except the cosmetic shift in tone we’ve already noted.  Any claims or suggestions to the contrary are simply unfounded.  you won’t need an expert study to see why.  To borrow a phrase the lawyers like:  the thing speaks for themselves.  Res ipso loquitur.

And even with a make-over, Muskrat Falls is still in trouble and the strategy the government is following is still Arnold Ziffel with a new smear of lipstick.  They are ploughing ahead with Muskrat Falls and all the sound advice in the world won’t persuade them to change their course.

We know that because finance minister Tom Marshall said it on province-wide radio this week, before Jerome tried to change the tone of government’s MF message track:

The opposition will get its say, then the government will get its way.  That’s how democracy works.

That isn’t how democracy ought to work. It is, however, how Jerome and his friends know it does work around these parts.  They just get shy when people realise it.

- srbp -

Decision-Based Evidence-Making #nlpoli

The government’s “renewal initiative” is supposed to be guided by something called “evidence-based decision-making.”

It’s right there, right after “affordable and sustainable public services” as one of five principles listed in the colourful little hand-out the government has been using as part of its “engagement” exercise.

How odd then that so far the Liberal administration has failed to apply the principle of supporting decisions with evidence.

The Desolation of Smog #nlpoli

The Telegram’s Peter Jackson used the most recent JM paper on consumer electricity prices and Muskrat Falls as part of his Wednesday column.

Peter made some worthwhile observations, so head over and read the column if you haven’t already.  That includes pointing out that current forecasts have electricity prices in Ontario and British Columbia rising by 42% and 45% by 2018.

“All these numbers are maddening,”  writes Jackson,  “both in terms of scale and in terms of variability between Nalcor and critics.”

Absolutely true.

The 2011 Muskrat Falls Referendum #nlpoli

Some people want a referendum on Muskrat Falls.

In an enthusiastic support of democracy, some other people don’t want to have a referendum on Muskrat Falls because the punters are not sufficiently enlightened as to the details of this major issue to make an intelligent-enough choice.

Those same punters are able to pick governments in general elections, though.

Election.

Referendum

What does Kathy Dunderdale think?

Muskrat Falls electricity prices... again #nlpoli

The infamous JM is at it again.

"Top 10 Muskrat Myths" (via Uncle Gnarley) rebuts 10 of the arguments in favour of Muskrat Falls. All of this has been argued before in several places, but this is a one-stop summary of the key points.

One to notice is the idea that Muskrat will make money from export:

“It will generate Export Revenue”:  Initial export sales of 2,000 GWhr (40% of MF output) will generate about $80 million annual revenue, based upon current market pricing.  To put that figure into perspective, interest on the ~$8 billion (the final figure may be much higher) which will have to be borrowed for this project will cost about $320 million a year.  Muskrat Falls will not be a significant revenue generator for the province until it is paid off in 2067.

In the second part of his myth-busting extravaganza, JM tackles the claim that Muskrat Falls will stabilise electricity rates.  This is a long, dense post with lots of charts.  it will turn most people off.

The big take-away is that, as SRBP and others have told you,  Muskrat Falls is going to double electricity rates, guaranteed.  Double the rates, at least.

But the bigger point is that doubling rates will push electricity consumption down, despite the fact that Nalcor sold Muskrat Falls on the assumption that consumption would only go up.

The problem is that we pay for Muskrat Falls whether the energy is needed or not.  "The impact on ratepayers will be profound," JM notes.  If we have to distribute the cost over fewer kilowatt hours, you can expect the price for each kilowatt hour will go up. That will induce even more conservation with a similar pressure on prices.

JM notes that Nalcor hasn't produced a simple set of rate projections.  The reasons is likely that Nalcor doesn't know how it will translate the final cost of Nalcor to rate payers.  For example,  a future government may find itself under pressure to keep electricity prices down.  One way to do that would be to limit how much of the total cost of Muskrat Falls is recovered through rates.

Here's how that might look. If MF costs $10 billion all-up,  half of that is covered by the federal loan guarantee while the other half is provided by the government through additional borrowing. The provincial government might decide to only recover the half of the cost covered by the federal loan guarantee.  The government itself would pay back the other half through other taxes.

Since taxpayers and ratepayers are the same people,  the final cost will be the same.  The difference is that government can hide half the cost of Muskrat Falls with a bit of creative accounting.  There are reasons why the House of Assembly destroyed the province's transparent electricity rate system in 2012 and replaced with one ultimately dictated by cabinet.  Hiding the real cost of Muskrat Falls from consumers is one of them.

-srbp-

Pride and Failure #nlpoli

‘”Pride is a big factor”  a manager at Muskrat Falls told the Telegram’s James McLeod on Monday during the latest media junket to the Big Dig North. People come to work every day and say “I built this.”

Pride is the essence of Muskrat Falls. 

Go back to 2012.

All the business people who looked forward to making a fortune off the project never talked about risk, profits, cash flows, return on their investment, and other stuff you’d expect business people to talk about.

They say stuff like “We believe in good things for our province.”  Or “… we believe we have the courage to harness the opportunity before us and make these things happen.”

The parties and Muskrat Falls #nlpoli

The mighty Muskrat Falls turned up a few times in the leaders’ debate on Monday night.

Now that the project’s huge problems are plainer,  folks like Earle McCurdy of the New Democratic Party are working hard to capture the anti-Muskrat vote.  They’d like you to believe that the NDP opposes the project.

The truth is that all three three political parties in Newfoundland and Labrador support Muskrat Falls. 

No party wants to stop the project.

That’s it, in a nutshell.

But for the fun of it, let’s go through this old chestnut again, in detail.

When engineering becomes imagineering #nlpoli

Nalcor issued a news release on Monday to correct inaccurate statements about the water management agreement between Nalcor and Churchill Falls (Labrador) Corporation.

Sounds good, except that Nalcor didn’t identify who made the statements.

Nalcor didn’t indicate hat the statements were.

Nor did the company indicate how the statements were inaccurate.

So basically, the company corrected nothing about nothing.

While that is telling – Nalcor claims aren’t backed by evidence -  that’s not the interesting thing.

The little savory details #nlpoli

Nalcor chief executive Stan Marshall said so much last Friday about Muskrat Falls, it's probably true that most people couldn't possibly take it all in.

One of the folks having a hard time understanding all this is Tom Johnson.  He's the guy the Conservatives appointed to serve as consumer advocate at public utilities board hearings.  In practice he has sided with Nalcor and the Conservatives on everything, including their plan to force consumers to bear the full cost of Muskrat Falls, no matter how much it cost in the end.

The past few days he's been turning up in the media saying that the government will keep the cost of electricity down so consumers don't see much of an increase.  Not much like supposedly what the Conservatives promised.  Even Nalcor hasn't been pushing that nonsense for a year or more so it's astonishing that Johnson sounds like he is still taking orders from Danny Williams' missus.

Methylmercury and Muskrat Falls #nlpoli

Muskrat Falls has been the big issue in two successive elections.

In 2011, the parties wanted to talk about the project, while voters didn’t.  It never showed up in the list of any Top Five issues for voters.

The parties wanted to talk about Muskrat Falls because it was something they all agreed on.  The 2011 election was a good example of an election in which the three parties ignored what the voters wanted to talk about and chattered instead among themselves.

Well, in 2015,  Muskrat Falls and its impact on the economy is a huge issue but none of the parties want to talk about it.  The best they’ve done is insist that non-existent export sales will help keep electricity prices low.  It wasn’t true in 2011 and it certainly is nonsense now.

Another Muskrat Falls issue turned up recently and it could prove to be one of the most significant things so far.

Adams and Nalcor: Second Round #nlpoli #cdnpoli

Energy analyst Tom Adams’ latest blog post on the Muskrat Falls project takes direct aim at the water studies used by Nalcor to support its claim that the plant will produce 4.9 terawatts of electricity each year.

Adams writes:

it appears that Nalcor took a study that estimated the energy production available from Muskrat Falls as delivered to an unconstrained interface at the Quebec/Labrador border and applied those study results to the Integrated Island/Nova Scotia system instead. Since the constraints of the Integrated Island/Nova Scotia system bear heavily on the potential output of Muskrat Falls, I believe that there is no basis for you to assert that Muskrat Falls will ever generate close to 4.9 TWh given the system you are now seeking approval for.

Adams appeared on VOCM Nightline and explained his concerns.  Your humble e-scribbler talked to Adams afterward and got more details.

His comments are based on information Nalcor provided to the public utilities board. They are a 1999 study by SNC and an Acres power study done in 1998 and apparently re-affirmed by more recent work described in a four page summary that omits any details.

Adams notes that the water flow studies were based on particular configurations, including building Muskrat Falls as part of a complex including Gull Island. No one has looked at a river system consisting of only Muskrat Falls below the Churchill Falls complex.

Take a look at the table from the Acres study filed with the PUB.  You can see someone’s simple calculation for Muskrat falls.  He or she just looked for the difference between Churchill Falls and Gull and another scenario with Churchill Falls, Gull and Muskrat.

Does that make a difference?  Adams thinks so. 

Your humble e-scribbler might go a bit beyond that.  The higher energy numbers for Muskrat Falls in this table – the ones closest to current estimates – come from a scenario that includes water from two river diversions planned for 1998 but subsequently abandoned. That’s more curious than anything at this point but it suggests Adams may be onto something.

When it comes to delivering electricity to Nova Scotia, Adams has a new point.  He notes that the Nalcor claims about Muskrat’s output come from a different transmission scenario:  one way into Quebec or into Quebec and onto the island.

Adams suggests that congestion on the island lines, especially routing through the hydro lines through the central part of the island, may produce significant congestion.  That congestion could adversely affect how much electricity flows to Nova Scotia.

Is Adams right?

Let’s see if Nalcor answers him this time with something more enlightening than simply claiming that he’s wrong.

- srbp -

Danny and Jerome! on Muskrat Falls financials #nlpoli

Former member of the House of Assembly and Newfoundland and Labrador Hydro director Danny Dumaresque made the news over the weekend with a claim that he had a document showing that the provincial energy corporation had no luck raising $4 billion in the money markets.

On Monday natural resources minister shot back with the claim that  - according to VOCM - that the document Dumaresque had was a hypothetical situation drawn up by Nalcor itself.  VOCM also reported:

Kennedy says the project has been well received and he doesn't anticipate problems with funding.

He said.

He said.

Sort of.

What Dumaresque was referring to, most likely, was information that is also contained in an answer Nalcor provided to the public utilities board last week. Unless Dumaresque’s got something else,   this is really just part of the analysis of options that Nalcor ran.

At the same time, it isn;t something that you can just blow off with the Chip Diller assurance that everything is just fine.   As you’ll see below,  there’s a lot more in this particular bit of information than might meet the eye.

Here’s the entire document filed with the PUB with some notes and comments in between to help you understand what it is all about.

Consumer Question: In the reply to PUB-Nalcor-1 46 regarding a cost of service (COS) price for Muskrat Falls power in year 1, Nalcor states that an internal rate of return (IRR) of 8.4% was used "On this basis the cost of service in year 1 would be $214/MWh".

“Cost of service” is the usual way that the utilities board prices electricity.  As the province’s natural resources department website puts it:

Legislation directs the PUB to use cost of service methodology to derive rates, allowing an appropriate rate of return on a rate base of allowed costs. The PUB determines the allowed rate of return according to financial market conditions.

$214 per megawatt hour translates to – take a breath – 21.4 cents per kilowatt hour.  Go get your ‘lecky bill if you need to see that you are paying about half that rate right now for what you get.  When you stop hyperventilating, read on.  The question continues:

(a) Is the cost of the TL [transmission line] from Labrador included in the $214 /MWH?
(b) If so, provide a breakdown of the $214 /MWh cost between the Muskrat Falls site and the TL.
(c) Provide the in service capital costs (separately for the Muskrat Falls site and for the TL) used to calculate the COS $214 MWh year 1 price.
(d) Please provide a breakdown on debt/equity ratios/interest rates/return on equity used for the $214 MWh cost (separately for Muskrat Falls site and TL).(e) Instead of using the 8.4% IRR, can Nalcor provide the COS Muskrat Falls power price in year 1 (for the Muskrat Falls site plus TL) using the same assumptions as used for TL COS pricing regarding debt/equity ratios same interest rate for debt and the same return on equity)?

Now comes the answer:

A. (a) The cost of the Labrador Island Transmission Link is not included in $214 /MWh provided in response to PUB-Nalcor-46. The cost of service price in year 1 of operations is based on an 8.4% return on equity coupled with the sales profile for the Island to be comparable to  Nalcor’s alternative pricing model for Muskrat Falls of $ 76 /MWh ($2010, escalating at 2% annually).
(b) Please refer to Nalcor’s response to (a) above.

So right away, Nalcor confirms that the 21.4 cents per kilowatt hour they have already given as the cost of service pricing does not include transmission.

(c) The in-service capital cost for Muskrat Falls assuming an AFUDC rate of 8.4% is $3.6 billion. 

This part is a bit technical but here’s what it says.  If you use a method called “allowance for funds used during construction” or AFUDC then the cost of the dam at Muskrat Falls is $3.6 billion.

(d) The key financial parameters used in the calculation of the alternative cost of service for Muskrat Falls were 100% and an 8.4% return on equity in order to maintain comparability with Nalcor’s pricing approach and model.

Maybe that’s clear to super-duper insiders but when they asked for a group of ratios, Nalcor gave them two.  The 8.4% is clearly identified as the return on equity or profit. 
But what’s the 100%?  Good question.

(e) In an escalating supply price analysis framework, leverage of 75% debt is not finance able because the initial low sales volumes and associated revenues would result in  inadequate debt service coverage as required in capital markets. During the first 6 years of commercial operations there was insufficient cash flow for debt servicing as the debt service coverage ratio was below 1.0. For years 7 through 12, the debt service coverage ratio was below the minimum threshold of 1.4 times recommended by Nalcor’s financial advisors.

Here’s the fun bit.

This paragraph tells you that Nalcor’s analysts ran a scenario in which they borrowed 75% of the money they would need.  They also included – apparently – an entirely new pricing scheme for Muskrat Falls that would see Nalcor pass on to consumers only one third of the actual cost of producing electricity and shipping it to them.  Those costs would have to be made up somewhere else, even if they weren’t coming directly from residents of the province as ratepayers.

That’s why they keep talking about an “alternative” pricing scheme.  Presumably they’d have to change legislation to get this in place but that’s really just the tip of the very big financial iceberg that neither Nalcor or the provincial government will discuss publicly.

In any event, when Nalcor and its advisors ran the scenario using the projected sales in Newfoundland only, Nalcor could not make enough money in the province to service the debt for the first six years after construction. 

For the second six years they made a bit more but not enough to hit the minimum recommended by Nalcor’s analysts.

Another thing to note here is that  we’ve been assured all along that this project made financial sense and that it would produce a “revenue stream” that would the project.

Yeah well, that didn’t turn out to be true.  For one thing, there are no export sales for any of this power.  The project is supposed to come entirely from provincial sources. And as this analysis shows, Nalcor couldn’t make the thing fly – even hypothetically on paper – using some favourable assumptions and a pricing scheme that was designed to make the project work.

- srbp -

Blind in one EY #nlpoli

The new Liberal administration is firmly, irrevocably committed to completing the Muskrat Falls project regardless of the final cost to the people of Newfoundland and Labrador.

We know the Liberals will build the MF project because Dwight Ball said precisely that several weeks ago. We cannot let it fail,  Ball told a CBC audience in September.

We know Ball is committed to building Muskrat Falls because he told reporters on Monday that “cancelling this project is not what this review is about.”

Ball and the Liberals have argued for some time now that the problem with Muskrat Falls was nothing more than bad management.  To prove this, Ball and natural resources minister Siobhan Coady announced on Monday that they would send an accounting firm back to do what the same firm just finished doing a few months ago.