This is part of his article:
Now, almost 7 years after it was first used to describe the Muskrat Falls project, it is time to re-introduce the phrase that perfectly describes something far worse than a “boondoggle”.
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voo·doo ec·o·nom·ics
noun
An economic policy perceived as being unrealistic and
ill-advised, especially a policy of maintaining or increasing levels of public
spending
As the project nears completion, and the bills
bear down on us with ever greater certainty, it is becoming very clear just how
ill-advised this project really was. Nalcor was forced, long ago, to
acknowledge that its demand forecasts were hogwash. Even the demand at sanction
is not expected to be met again until 2032!
As to Brendan's reference to long-term bonds, some
of the bonds are actually fairly short-term and have the protection of the
Federal Loan Guarantee. If the Province can still borrow when the first series
of bonds comes due, the FLG will likely not be available and interest rates may
have risen even further than they have already. Any “roll-over” — borrowing to
pay off those having matured — will only compound our fiscal crisis.
On July 20th, NL Hydro filed their
General Rate Application to the PUB.
In this document, NL Hydro made reference to the
June 2017 prediction by Nalcor that electricity rates would be in the range of
23 cents an hour in the event that there is no rate mitigation. However, Hydro
have advised to not worry — the media having reported that government will hold
the rates at 18 cents/kWh.
Within the formal submission to the PUB there is
the following statement: “Therefore, rate mitigation to limit residential
customer rates to 18¢ per kWh will require funding in the range of $280 million
to $350 million per year.”
Back in 2013, Muskrat was expected to generate $200
million in profits to the government. Now Hydro has acknowledged that, in order
to keep rates within a level that will not cripple the local economy, the
Provincial Government will have to interject $350 million a year into the crown
corporation!
But this is not where it ends.
Staying true to the term “voodoo economics”, the
province continues to pay interest on the ‘equity’ given to Nalcor over the
last 5 years. Most, if not all, of that $4 billion has been borrowed, and the
taxpayers are already paying several hundred million a year in additional debt
servicing.
Once Muskrat Falls is fully commissioned in 2020
(based on Nalcor's current commissioning schedule), the province will spend
over $500 million a year on rate mitigation and to service the debt on the
borrowed equity. This will be coming from the taxpayers. Dr. Jim Feehan's Submission
to the PUB regarding the effect on electricity demand from higher rates —
including at 18 cents per kWh — only confirms this long-held assertion.
Newfoundland is on the verge of a socioeconomic
crisis. The PUB Hearings need to acknowledge this crisis. Realistically, where
will the province find this $500 million in cash on an annual basis to service
Muskrat Falls?
How will our society survive an 80% increase (optimistically)
in electricity rates, and how do NL Hydro engineers claim that electricity
demand will hold constant under this burden?
The reality is the province doesn’t have $500
million a year, and the majority of households in NL cannot endure an 80%
increase in rates. Therefore overall consumption will decrease. To make things
worse, come 2025 we will still have reliability issues. Despite 3 years of
discussions at the PUB, it is still not clear where the province will get extra
generation in 2025 to meet reliability standards, and what that will mean to rates.
Brendan was right in calling Muskrat Falls “voodoo
economics” some 6 years ago.
The Tories skated through two elections — in 2007
and 2011 — on the crazy idea.
The current Premier's prescription is to create more
delusion as time evaporates, important policy decisions are avoided and Federal
complicity — which puts them on the hook for some of the responsibility for
this debacle — is given no attention.
I suggest that, no matter how hard Premier Ball
may try, he will not be able to skate through the election of 2019 with those
issues unresolved or even barely discussed.
While “voodoo economics” was employed to get us
into this mess, more of the same won't help us get out of it.
Finally — and this is as much a warning for the
media as for anyone else — don't let the politicians bamboozle you with
promises of lower rates unless they can also define exactly where the money for
rate mitigation is coming from.
So far they have no answers, which suggests that
we have not yet heard the last of “voodoo economics”.
