Thursday, 22 November 2012

The Pursuit of Apathy

I was lying in my comfy chair listening to evening news.   The forecaster called it the ‘weather bomb’.  This was a term that my old friend Uncle Gnarley had initially despised, considering it yet another example of the vulgarization of the King’s English.  But one could not deny the effect it had in describing the events which he knew was going to unfold in the next 24 hours.  The Avalon Peninsula was going to be somewhat spared.  The low pressure system was moving in from Cape Breton, over the straight and was due to hit the long range mountains by noon tomorrow.    It had come up very quickly, and it was going to be the first winter storm of the season. 

The wind beating off the side of the house was hypnotic and I quickly started to dot off.  My slumber was quickly interrupted by a knock at the door.  Who the hell would be out in this type of weather, at this time at night?  As I opened the door it was there was the cantankerous old economist Uncle Gnarley himself.  Slapped over his shoulder was an old canvas kit bag.  I motioned for my friend to come in.
“What brings you up from the shore”

“Well Nav.. I have sensed that you are getting soft in your old age, and I brought you some provisions in the event that this storm matches the high expectations of Toni-Marie”.   He looked at me, the devious smile was clearly meant as a double entendre. 
He reached into the bag, and hauled out a bottle of Laphroaig  “the peat will keep us warm tonight Nav”.

He sat into the chair next to mine.  Despite the eagerness of opening the bottle I knew the great economist was clearly troubled.  The entire Muskrat debate was starting to take it’s toll on the warrior.  Despite my better judgment, I lobbed the following question “Uncle Gnarley what do you think of all these reports on the Muskrat Falls project”?
“Well Nav….  It brings me to a very interesting subject.  It seems as if my studies in economics have come full circle.  You see when I first entered the Economics school I had a passion for the science of management.  At the time there was a great school of thought which referred to the concept of information overload.  There was even a best seller book dedicated to the subject.  Information wasn’t power, as much as it could be a red herring”.

I thought this was a clearly a symptom of his mental fatigue.  I thought the old economist had gone wet, as I failed to understand the significance of his comment. 
“Nav... Government knew their weakness during the PUB review was that they did not do what should have been done to support the DG2 decision back in 2010.  They had not properly investigated all the options.  Now, like the prodigal parent on Christmas morning, they have compensated by producing a litany of documents trying to win the love of the electorate.  In doing so they have become the advocate of information overload ”.

Uncle Gnarley was clearly building a great head of steam, which I knew that one dram of the west island nectar would not be sufficient to combat. 
“Information overload occurs when the amount of input to a system exceeds its processing capacity. Decision makers have fairly limited cognitive processing capacity. Consequently, when information overload occurs, it is likely that a reduction in decision quality will occur.”1   Uncle Gnarley then lamented “and there has been no shortage of poor quality decisions being made by this Government”.

“Well Uncle Gnarley I can attest that the amount of new information is impressive, but it does legitimately seem to answer most of your previous questions.  Does it not”?

“Nav my friend, you are of a lesser mind someone who clearly has limited cognitive processing capacity.  I can tell from your attentiveness here this evening, that you are tired of the debate, and that you just want it to be finished.  This is what the government has wanted.  Apathy is an unwanted side effect of information overload.  The government has scored a double whammy… confusion and public apathy.  These are the greatest allies of Dunderdale and Kennedy”.
“Just as this ‘weather bomb’ will blanket the island with snow, the Muskrat ‘information bomb’ has blanketed the province with indifference”.

“But Uncle Gnarley these reports are complete, and they pretty much define that Muskrat is the best option”
With this Uncle Gnarley reached into the bag and pulled out the silver Quaich Quaichquaich.  I took this a sign that he was ready to commence a fine session. 

“Nav… luckily there remains reasoned people who still are engaged in this process.  A quick review of the documents, and I stress only a quick review is required to uncover the major omissions in governments latest set of discussion papers on Muskrat Falls”
“Take for example the wind report.  Manitoba Hydro has produced a top quality document.  It reinforced the excellent work done by Hatch.  An infantry of high priced engineering consultants who have confirmed the obvious.  Wind is not a realistic option to replace Holyrood in the isolated option.  As they have been directed by Nalcor they have only examined wind in the isolated case.  There has been no review of wind with the interconnection to the mainland grid in place.  This is despite recommending in their DG2 report that the link to Labrador would allow 400 MW of wind to be integrated into the island supply mix (Ref. 2).  This engineering infantry are well trained, and have flawlessly executed their orders.  But the General has told them to direct their fire to the wrong target”.

This seemed to jog a memory of my own.  “Well Uncle Gnarley I believe the first independent review of the project by the Joint Review panel recommended that Nalcor consider building the link to Labrador now, but instead of building Muskrat Falls, use wind and thermal to supplement the RECALL power which is presently available from the Upper Churchill”
“Well Nav, there are infrequent times which your mental prowess impresses me… this is one of those times.  You have raised a very valid point.  I would like to see what this option costs, especially we know that in 2041 we will have vast sources of power available to put across on that link.”

“Well, Uncle Gnarley, there is another government paper which discounts this possibility.  It indicates that the power may not in fact be available in 2041”
With that Uncle Gnarley continued over to woodstove in the corner.  “I think it best we get this going, just in the case the power goes out tonight”.  With that Uncle Gnarley started to build a fire. 
“Nav… if you want any evidence that the Government has not maintained objectivity in reviewing the lowest cost options just review the document which reviews the availability of power in 2041.  It reeks of desperation, and is not worth the glossy paper which was needlessly wasted in its production.  As is entrenched in their 2007 Energy Plan, it is clear that the province will have access to power from Upper Churchill in 2041.  I would expect that we would have to pay market rates for it, just as will Hydro Quebec.  But we will get 65% of the money back in our pockets.  The higher we pay for Upper Churchill power, the higher Hydro Quebec will pay for Upper Churchill power.  The more the “market rate” is the more money we make.  It is the cost which is important, and the cost is about 2 $/MWh which has been previously acknowledged by Nalcor themselves [Ref.  3].

It was at this point that I thought that the splits might instantaneously combust from the fire emanating from Uncle Gnarley’s eyes.  He was clearly tormented by this 2041 paper.  I made a mental note to go back a re-read the paper with an open mind.    
“You see Nav we must get back to first principals.  Do we need the power?  Well I agree that for the next 10 years there will be growth on the island.  But Nalcor has assumed that in 50 years we will need 50% more power on the island, even if there is no growth in the population.  It is the greatest example of the ‘Garbage-In-Garbage-Out’ axiom.  Their estimates may be acceptable.  But the fact that they have not explained the risk to people of the province if the demand does not grow as expected, then this is not acceptable.  Ed Martin has failed in his obligation to the people of the province.  He should clearly define what the risk to the rate payer is if the demand grows 0.2% per year as opposed to the 0.8% used by Nalcor”.

To which I thought I clearly had my learned friend “Well, Uncle Gnarley, surely the price of oil is much riskier than the growth in the islands electrical demands”
“Nav… with the predictions that the US may be a net exporter of oil by 2035 this assumption is very much in doubt.  But it must also be remember that Muskrat Falls can be built in the future, should energy prices increase in the US to where Muskrat Falls makes sense.  The link being built (and mostly paid for) would make this a much more palatable exercise…. And one I would support” 

“Nav… which brings me to the next question.  Is it the least cost option?  The rate calculator provided by Nalcor on the website clearly shows that it makes very little difference to our rates, at least in the short term.   We should not only consider what is the least cost option.  We should ask what is the least risk option!”
I think anyone with an open mind would agree that Muskrat Falls can only be considered the highest risk alternative.  From the risk associated with cost growth, to the demand risk there could be a potential perfect storm for rate payers in the province.  Where is the Government handout which explains what our rates may be if things do not go as planned?

In addition to cost growth, and lack of demand there are other risks as well.  If inflation is not 2% per year then we are snookered, left holding a massive debt in the face of declining revenue.  Where has government explained the risk of Emera, or ConEdison or other generators asking permission to sell power into Newfoundland using the Open Access Transmission over the Maritime Link, or Labrador link.  They may come in with cheap electricity generated from Shale Gas, and try to sell it to the industrial customers on the island. 
You see Nav, there is substantial risks associated with the Muskrat Falls project.

There is also a substantial lack of public discussion about how being connected to the North American grid may have on the electrical market in Newfoundland.  There is also no discussion why rate payers in Newfoundland will not pay more for our rates, than our brothers in Labrador.  Their rates will be kept low based on the RECALL power.  Where has this been discussed?
You see Nav there has not been discussion, there has only been talking points.  There is a clear difference.  Without Nalcor appearing before the House of Assembly where will these questions be answered for the public record”? 

With this monologue Uncle Gnarely was clearly mentally drained.  He appeared out the window.  The snow had started, and the reality of his situation had finally set in.  The silhouette of Gnarley was pressed against the wall, the fire was quietly starting to form into glowing embers, and provided yet again a generous backlight. 
“Nav.  Not to mention the risk of the power line coming down from Labrador.  Another gem which was buried in the MHI report was that Nalcor did not include in their pricing the design of the transmission system to the design condition recommended by MHI for remote alpine area.  This was clearly in contradiction to MHI’s recommendation from their DG2 work.  There is a chance that the transmission line could be out of service for up to a month, while a repair was being implemented”.

With that, the CBC had returned to the National.  The leading story was about the great winter storm on Cape Breton island, which was causing widespread damage and power failures. 
Uncle Gnarley looked at me.  “There is quite a storm brewing…. Nalcor are telling us that Muskrat Falls will make our power supply more secure.  MHI are stating are transmission line will not be designed to industry standard” 
I looked out the Window and then lamented “Maybe Tony Marie will be wrong. Like the V2 rocket this weather bomb may go off course”.    

Gnarley went to the woodbox, took out the great piece of birch, and stoked the fire.  “Nav… you may want to keep this relic a few more years yet”.

JM

References
2)     MHI Wind Recommendation
3)     Nalcor stating 2$

       (Editor's Note: JM is the anonymous author of a 175 page Submission to the Public Utilities Board (PUB) entitled: Muskrat Falls - The Benefits of a Phased Development. He has written several subsequent Reports, related to the Muskrat Falls Hydro Project, including Labrador Mining - A Reason to Rethink and Upper Churchill - The Unexplored Alternative).
 

2 comments:

  1. The RISK to our fiscal situation is the thing that scares me the most. The government and NALCOR are glossing over so many unanswered questions and their assumptions are a fairy tale. Unlike Uncle Gnarley and JM, I am not at all convinced that we will EVER need a power line from Labrador.

    To be clear, I do believe that the Holyrood plant needs serious upgrading, in order to reduce its carbon footprint and the pollutants that it emits. That can be achieved for about $600 million dollars, according to NL Hydro's own estimates. This is effectively only 2 years' interest payments on the Muskrat Falls debt.

    As well, I believe wind power can substantially reduce the power we need from Holyrood and effectively replace it much of the time, thereby further reducing the amount of oil consumed and the emissions that result from it. What they are not telling us is that Holyrood, or a similar system will always be needed as a backup so...thermal power will NOT disappear.

    Wind power is more expensive than hydro, to be sure, but, as a supplementary source, it can be integrated effectively and cheaply with only moderate price spikes. Also, it may be that we can develop additional small hydro sources to increase power output.

    As Winston Adams points out frequently, installation of more efficient electrical units can, and will, significantly reduce consumption and could obviate the need for any additional sources of power.

    I see the solution as being a series of incremental increases, using various sources. However, possibly reducing power consumption through more efficient types of heating, might eliminate the need for more sources, given the lack of population growth or more likely, a declining population, in the next 20 years. That fact alone is sobering and should be a major red flag for government.

    Sadly, the myopia attached to St. John's and environs is skewing the outlook of the government, its bureaucrats, and the business elite. We are heading for dangerous waters and there is no preparation or planning!

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  2. In the governments haste to show the wind was no solution they analysized the silly idea of adding 1200 MW of wind on the island, 600 on the west coast and 600 on the east and a expensive separate transmission line to bring power from the west coast to the east. If that wasn't silly enough they added a battery backup for this at some 4 billion extra. A grade 4 student could probably reason this was not economic.
    But what appears to be overlooked is the other info on wind in that report. We currently have 54 MW of wind, about 3.5 percent of our peak demand. Nine months ago MHI agreed with Nalcor that 80 was likely our maximum wind for technical reasons. Now they say it is ok up to 10 percent of our maximum system demand , and up to 15 percent if some additional controls are used. This permits wind up to 3 to 4 times our present level. At 15 percent this is 177 MW in addition to our present 54 MW. 177 Mw of wind costs about 425 million. As these operate at about 43 percent capacity, this is 77 MW average offset against holyrood oil, saving about 50 million per year in oil. It also offsets the full average load of Vale Inco which is 75 MW, and thus cuts the load forecast.
    For all that , the wind limit is still only about one third of the efficiency savings possible, and which is much cheaper cost than the wind. But this wind is an important supplement to efficiency,along with the 77 MW of island hydro allowing the ratcheting back to zero use of Holyrood in 7 or 8 years instead of 12 years with efficiency alone. This part of the MHI report is a important key finding to require a reassessment of the isolated option, but which must also including efficiency. Winston Adams

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