Thursday, 6 June 2013

DAMN-NATION: ROLLING THE DICE IN NL, TOO

Graham Lane is not a known name in Newfoundland and Labrador.  Perhaps, he could be. 

He is well known in Manitoba.  Like David Vardy, he has served in a multitude of roles in that and several other Provinces, including roles as Chairman of the Public Utilities Board of Manitoba and  Vice-President of the University of Winnipeg.  A retired Chartered Accountant, his career has spanned fifty years and his CV suggests he has enjoyed more public sector policy challenges than one individual and one career ought to face.  

He recently delivered a Paper to “Frontier Centre for Public Policy”, a private think tank.   His Paper was entitled "Damn-Nation, Rolling the Dice on Manitoba's Future".
His expertise, on matters dealing with hydro electricity, must be acknowledged.  Though his remarks are directed towards Manitoba Hydro and the Government of Manitoba, much of what he has to say could be applied to Nalcor and how that Crown Agency has emerged as the greatest single threat to the financial stability of Newfoundland and Labrador.

Mr. Lane addresses the need for “independent expert review” of Manitoba Hydro (MH), its consistently poor estimates and forecasting, its poor debt to equity ratio as compared to private utilities, its reporting “opaqueness” and the fact that cheaper options are available to meet that Province’s electricity needs. He speaks of “plans that were conceived before the global credit crises, the recession….shale gas production…and America’s move for energy security”.  

Graham Lane addresses the matter of 'risk', especially to the rate payers, not just from understated budgets for capital expenditures but also that associated with the potential for subsidy to Manitoba Hydro's export power contractual commitments.  He speaks to poor management and poor governance.

The Government of Manitoba does not enjoy a stellar record of successful hydro development.  What Graham Lane refers to as the “WUSKWATIM DISASTER” contains many lessons for Muskrat Falls.

It might do well to remember that it was Manitoba Hydro International (MHI), an arm of Manitoba Hydro, whom Nalcor and the NL Government employed as its “Consultant”.  When you have read Graham Lane’s Presentation, likely you will ask yourself if MHI really was the most expert and most independent advice we could have gotten.

It seems Manitoba Hydro has built up a substantial expertise for ‘boondoggles’ that contribute to their empire building mission.

Still, don’t blame Manitoba Hydro.  We elect Government’s to protect the public interest, to control overly ambitious bureaucrats and to kill policies which expose us to more risk than is needed or our economic heft affords.

Most citizens rightly do not want to become public policy experts in the field of electricity.  But, whether its electricity, fisheries, mining or in some other field, citizens have an obligation to keep an eye on what their government is up to, especially when its decisions are risk laden to a degree in excess of what is prudent for a small society, like ours.  
Like most public policy issues, it is always a good idea to get the views of others experts.  Graham Lane will most certainly leave you something to think about.  "Damn-Nation, Rolling The Dice on Manitoba's Future"
  

3 comments:

  1. In Newfoundland we have Nalcor, who are at a real crossroads in their existance. There has been over 1 Billion invested since 2006 in either deferred dividends or equity infusion. Their annual expenses have doubled in that time. Their revenues have doubled as well. Yet the profits have not. They have remained flat. Their Return on Equity has been reduced from 14% in 2006 to just over 6% last year. Now we are asked to invest billions more in Muskrat Falls and Hebron. Yet despite all the talk of returns to the people of Newfoundland and Labrador there is very little information from nalcor as to when the equity will be returned to the province, and what is the rate of return to the people of Newfoundland and Labrador.

    Then we have a CEO who has publically proclaimed that the Maritime Link will be built with or without UARB approval. What an reckless statement to make. The UARB, and the people of Nova Scotia are not dumb. They know that if they do not approve to have the maritime link embedded into their rate base (along with the 130 $/MWhr cost) they will have access to the power at the market rate of 50$/MWhr. They would be entitled to this, as any National Energy Board permit to export energy would specifically state that the people of canada must be given first chance to buy the power on equivalent commercial terms.

    Ed Martin was careless in his words. His decision to proceed with this project without partner approval was equally careless. Unfortunately we will all suffer the consequence. The only way Emera will be involved in the ML, outside being able to put it in the NS rate base, to get more than the 1000 GWhr of energy in the annual energy allocation. Nalcor will have to give them more free power in exchange for funding the Maritime Link.

    Meanwhile if it all goes to plan (and I hope it does) Nalcor aknowledge that they will have to have more generation in about 2035 to meet all their obligations. They forget to mention that they have sold the same power twice. They will have to bring on new generation, with no revenue. How will they do that?

    Marin responds with "Its a great opportunity" or "For the first time we are in the drivers seat"

    Maybe it is Gull Island, which will be too large for the Maritime Link, or through the existing infrastructure through Quebec. But how will this be paid for?

    If we had a elected government with any credibility in this province Martin would be hauled to the floor of the house of assembly and questioned on his series of very risky decisions. I would like Dave Vardy and Graham Lane to question him.

    There are many things in Lane's paper which are applicable to Nalcor. Many such as the accounting practices are very applicable to the situation at Nalcor.

    It should be noted that Nalcor in their 2012 Annual Report indicated that they have deffered the application of the International Accouting Standards until 2015. They were originally to be implemented in 2010. In the 2012 report they also transferred the entire 600 million spent to date on Muskrat Falls into Property Plant and Equipment. It will be capitialised instead of expensed.

    Under the new international accounting standards not all of the 600 million would be eligable to capitialise. If 200 million of the early Lower Churchill engineering was expensed, rather than capitialised, Nalcor would of had a 100 million loss last year.

    Accountants are smart people.

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  2. This report is a damning condemnation(pun intended)of, not only Manitoba's government and its hydro utility, but of the NL government and its corporate money pit, NALCOR. Virtually every criticism of Manitoba Hydro can be levied at NALCOR, and then some. The behaviour of this corporate behemoth is eerily similar to MH but I guess we should not be surprised, since they "chose" MHI to be their "experts" too. Anyone who thinks this was based on MHI expertise is labouring under the illusion that this was a well-conceived project.

    There may have been some merit to developing the Lower Churchill, at one point, but rapid developments in the energy sector, have basically made huge hydro dams obsolete. To compound the "big dam" problem, our government took a small producer of hydro power, in the form of Muskrat Falls, and made it into a mega project in terms of cost. What stupidity! What folly! All for the sake of edifying the man whose dream it was to go out with a hydro legacy.

    MH is going to cause inestimable problems for its own politicians down the road and they have written the same script for NALCOR. One has to ask: Why? What possible logic can there be in building such an ill-conceived and uneconomic project at this time? Who is driving it? Who benefits? When we know the answers to these questions, and I can speculate, we will realize that this has nothing to do with energy supply, self-sufficiency, and "green" energy.

    Sadly, it will be too late to take back the additional billions the government, and NALCOR, are about to spend on our behalf. That we, and future generations, will have to pay through the nose, that we will have NO recourse, that we will be fiscally handicapped.... is burdening my soul. Unlike the scoundrels in Ottawa, we will have no recourse with our local politicians who, with our tacit approval, chose to go with this project, in the face of strong and compelling evidence to the contrary. It may yet become a scandal but that will be small consolation once the dollars are gone.

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  3. When I first read that MHI endorsed Nalcor's energy forecast I was surprised. The forecast and basis for MF was that we needed more wintertime electric heat. But anyone with a knowledge of modern electric heating knew that we could upgrade our housing to use half the electricity we now use, and at a quarter of the cost of MF. Efficient heating has been used in the newer commercial sector here for more than two decades , and is now cost and reliable for the residential sector. Despite this, Nalcor, to justify their forecast, said we are "approaching saturation" in efficiency gains. To ensure a position of deniability for that statement they have refused to use "end-use" research, which other utilities use. End-use would prove their assumption false.
    As MHI endorsed Nalcor's assumption, I wondered if the MHI engineers were aware of the current standard of efficiency for buildings. The this summer I read that their own new headquarters in Winnipeg has met the platinum level, with about 70 percent reduction in energy use! They must know the assumption of "saturation" is false.
    Meanwhile here,in 2012, we have just brought in a new housing code that reduces energy use by 27 percent, to comply with national standards.
    This past winter, at my own expense, I did a small pilot study for the potential of the new cost effective heating units. This is an end-use analysis, which the power companies here refuse to do. For an older 2 story house it gave a reduction of about 60 percent for heat energy (42 percent average electric bill reduction for the winter months). For a new code type house, it gave a 27 percent energy bill reduction for the winter months, and that is on top of the 27 percent reduction from the code construction methods. For both the new code plus the efficient heating combined the cost is about 1/3 that, on a kilowatt basis, of new generation from MF. And these costs are fully recoverable in about 7 years from reduced energy bills due to using less energy.
    Now this is not rocket science. It is current technology being used worldwide.
    The PUB has now ordered Nfld Power to revise its Efficiency and Conservation Plan and to report, by the spring of 2014 on the benefits of these heating systems. Dave Vardy says MF is fatally flawed. Likely in more ways than one.
    For Nalcor and MHI to suggest Efficiency saturation for housing is wrong. They should know better, or otherwise intend to deceive the public. To say "approaching" saturation is like saying we are approaching old age when 10 years old. Hardly a good engineering analysis for forecasting power needs for the island for a 7.7 billion project. And then the politicians frighten the people to suggest we will have blackouts and be without winter heat, saying we have no good alternatives. This, in my opinion, is one hell of an engineering, economic and political scam. As an engineer, I point out this flaw in their forecasting analysis. Dave Vardy and others are more knowledgeable to point out the economic and political flaws.
    Meanwhile, in the past 10 years. Holyrood generation, as a percentage of our total, has gone from about 30 percent down to 10.5 percent. The paper mill closures has aided this, but since the closures, the trend for Holyrood production is still downward. Isn't it time for a proper forecast analysis? But first let Ed Martin read the Edison Institute report of Jan 2013. It contains some good information on risks, that could save his ass, and our economic future. So much hinges on that very questionable power forecast.

    Winston Adams, Logy Bay

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