Monday, 12 November 2018

THE WONKY ECONOMICS OF MUSKRAT UNVEILED (PART II)

Guest Post by David Vardy

The Economics of Muskrat Falls (Part II)

This post builds on Part I entitled Will Muskrat Falls Pay Dividends? (Part I) which was published on Thursday, November 8, 2018.  That post is recommended reading for this Part II.

I have attempted below to examine the likelihood that Muskrat Falls will cover all of its costs. To make this assessment I have used the “revenue requirement” projections supplied by Nalcor in response to my ATIPPA request for each component of the project, along with the return on equity assumptions used by Nalcor. The return on equity (ROE) for generating assets is 8.4% and is built into the PPA for 50 years. 


For transmission assets the ROE is linked with the return allowed by the Public Utilities Board (PUB ) for Newfoundland Power (NP) which is currently 8.5%, even though the Labrador Island Link (LIL) is not regulated by the PUB. My analysis is summarized in Chart 1 below.

Chart 1

The chart tells the story. Operating and maintenance expenses are shown in blue; those expenses must be paid to keep the operation alive. Interest expense is shown in yellow; it must be paid to the bondholders on a regular basis. Depreciation expense, shown in grey, is a mechanism for recovering sufficient reserves to replace the assets over time. Depreciation for Muskrat Falls is unlikely to be recovered through rates since the grey bars, in the early years, lie above the revenue line (the double broken line marked “Export Sales”. That essentially means that payment of principal will be highly unlikely, without the funds necessary to redeem bonds when they come payable at the end of their term.

The return on equity is shown in orange; this return must cover the cost of the debt borrowed by the province to invest in the project.  The return on equity in excess of interest expense incurred by the province, if there is any "surplus over interest expense", on debt borrowed by the province can be paid to the province as dividends.

The total height of the columns represents the “revenue requirement” or the amount of money needed to be raised each year to pay for Muskrat Falls; it does not include the costs of the existing system the costs incurred by Newfoundland Power and NL Hydro amounting to about $700 million. In 2021 the total incremental cost shown is over $800 million.  

Chart 1 also shows a solid black line labelled “Max ratepayer extra billings”, which is an estimate of the revenue from Muskrat Falls based on rates increasing by 50% and an assumed elasticity of -0.4. The   broken black line labelled “Max Holyrood fuel savings” shows the estimated revenue plus expected fuel savings. 

The inclusion of modest export revenues is shown by the broken parallel black lines labelled “Export Sales. Fuel savings are estimated by the undersigned while export revenues are in line with projections provided by Nalcor. If both are added to revenues from rates then some of the interest expense will be recovered but no revenues will be available to cover depreciation costs (until the latter part of the 50 year period) or to pay a return on equity. 

The distance between the broken parallel black line labelled “Export Sales” and the top of the bar is the deficit. The deficit begins at $500 million in 2021 ($800 million in revenue requirements less $100 million revenue from rates, $150 million from fuel savings, and $50 million from export revenues) and rises continually over the 50 year period.

Nalcor’s cost projections defer payment of the return on provincial equity of equity payments in order to avoid rate shock. Accounting for provincial equity in generation assets is based on “escalating supply prices” using the PPA approach instead of the traditional "cost of service" approach. The result of this is to maintain the real cost of energy over 50 years so that the cost per kwh remains constant in real terms. The total revenue requirement from Muskrat Falls rises from $800 million in 2021 to $2.6 billion in 2069. This is shown in Chart 1 above in the total height of the columns. In nominal terms the revenue requirements for the 50 year period total $78.5 billion dollars.

In contrast, if cost of service accounting, which is the more generally accepted method of accounting for utility capital expenditures, were used, the cost per kwh would decline over time in real terms as would the revenue requirements.

The deficit is shown below in Chart 2. In nominal dollars the deficit rises to a peak of $1.8 billion. Shown in 2021 dollars, it peaks at $700 million. This deficit represents losses or “negative dividends”!

Chart 2 

Dividends
Payment of interest on debt is the first claim on revenues after O & M; the payment of dividends, as the last claim on revenues, will not be achieved. The province will instead be compelled to write off its equity and forego dividends.

In this analysis dividends represent a part of ROE and are a cost to the project. The cost of debt capital is less than the cost of equity capital because it does not have to compensate for the risk which equity investors must bear. This is measured through a “risk premium”, which is approximately half of the 8.4% cost of generation equity and the 8.5% cost of transmission equity. Public utilities try to maintain a balance between equity and debt capital whereby equity capital is kept to an amount no greater than 25% - 35% of overall capital; they do this so as to minimize the overall cost of capital.

In the case of the Labrador Island Link (LIL) the equity component is 25% while for generation assets the equity component is 35%, raising the cost of equity by 40% for generation. This reflects the perception that LIL assets are less risky than the Muskrat Falls dam. This higher equity component magnifies the impact of back end loading of the ROE for generation assets. In simple terms, the PPA (or escalating supply price) approach defers a large amount of the cost of equity capital to future generations to avoid immediate rate shock. Believe it or not, if the traditional cost of service approach had been adopted, along with full rate recovery, the 2021 rates would be much higher than the 22.89 cents reported by Stan Marshall in his February 2018 update shown below in Chart 3.

Chart 3

This would have had an enormous impact on consumers even if the rate elasticity of demand were a modest -0.4%, which is the average rate shown in many demand studies. Chart 4 below, taken from Marshall’s February 2018 update, was based on a “target” retail price (HST not included) of 18 cents per kWh as shown in the footnote to Chart 4, shown below. Chart 4 shows significant reduction in Nalcor’s February 2018 projections, including a slight dip, compared with the projections used at the time of project sanction and yet are probably still too high to reflect fully the impact of demand elasticity.

Chart 4

Conclusion

•    Q1: Is Muskrat Falls self-supporting? No, rates will not recover costs.
•    Q2: Will Muskrat Falls generate dividends for GNL? No, it will generate losses not  
             dividends.
•    Q3: Is the Power Purchase Agreement appropriate collateral for this project? No it is                       an agreement between two related Crown Corporations whose purposes are       
             inconsistent and inimical to the public interest.

 David Vardy
_______________________________
Note: This post is a variant on a power point presentation I made to the Muskrat Falls Symposium hosted by Memorial University on September 29, 2018. I want to acknowledge the help which PlanetNL gave me in preparing this analysis but I remain fully responsible for any errors it may contain.

85 comments:

  1. So, in conclusion, we have two crown corporations colluding to create a project that has no chance of being self sustaining, no chance of paying the interest generated by the project, resulting in a province at the edge of bankruptcy.

    ReplyDelete
    Replies
    1. So NL owns an asset — namely the debt to build this hydro generating facility at a time when the demand for electricity is increasing.

      Delete
  2. Beware: The wolf at your door WILL be GovNL, with a Dwight like smile.

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  3. Along with the govt. will be the monster nalcor, until we demand that it be cut down to manageable size. Less we forget who created this dam mess.

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    Replies
    1. Do you mean the 6 million dollar albino who was created, enabled and enriched by the future governor of Galway? and others, many still at Nalcor and government because Dwight and Stan the man thought they were good people?

      Delete
  4. On schedule and budget with a loan guarantee it was a decent project. The province would put oil revenues into the equity portion (not blow it on deficits) and first power would have been more than a year ago. The loan would be $4 Billion plus perhaps $400 M or less for interest during construction (IDC). The oil savings from Holyrood at $60 oil would pay the interest. Surplus power could pay most of the O&M and there would be lots of additional low cost power to encourage mining and other projects considering all the costs are already picked up with only a small increase in power rates or no increase if the demand on the island grew.

    What happened was $10.1 vs $5 B with more than 2 years added to schedule so IDC increases it to $12.7 B and entire equity was borrowed. Jerome Kennedy managed to have a $500M deficit on operations (not capital spending) when oil was $140 a barrel. In addition in order to secure the loan guarantee a large chunk of the surplus power went to NS at very low spot rates for firm power and Emera increased their equity share in the Labrador Infeed Line to 60%.

    Based on the testimony to date it is clear that it was a political project with most of the key witnesses either having some amnesia or blaming it above. The key questions are "WHY were the costs low balled and why were overruns and risks hidden?". Generally it is either some sort of legacy monument, an ideology, or a means to make money. It is not much of a legacy to build a boondoggle and a dam is hardly green so making money appears to be the most likely motive. I wonder if the Inquiry will ever uncover the real reason

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    1. Listening to some of the testimony at the inquiry, I am reminded of the Kristofferson song, "The silver tongued devil and I". "All he's good for is getting in trouble and shifting his share of the blame"

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    2. This comment at 9:57 is perhaps one of the most coherent, and relevant opinions I have heard in the last 5 years following the Muskrat Falls project. At 5 Billion it was a marginal project, the upside has been negotiated away, and the cost have ballooned.

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    3. You are wrong my friend. The real crime in this debacle is that it was a boondoggle at the original estimate. The result now is that the picture is far worse for the people of NL who were betrayed by the devious people they put in high offices to represent their interests.

      Delete
    4. Yeah, "cost over-runs happen", now says DW, as just another fact of life. How come Buddy the Puffin didn't crash the Sanction Party with a sign reminding of this basic fact? Where were you Buddy?

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    5. Whatever comes out of the CIMFP, the ultimate accountability to the public for what would become the MRF fiasco rests entirely with one KATHY DUNDERDALE.

      It was this DUNDERDALE individual who made the final go/no-go decision to proceed with this debacle. She was in charge, so the over-arching responsibility for the mess must be assigned to her.

      DANNY WILLIAMS may have fuzed the Muskrat bomb, and NALCOR senior/executive management under EDMUND MARTIN ensured it would be a colossal dud.

      But it was DUNDERDALE who lit that fuze.

      The rest is history...



      Delete
    6. I believe you are being far too kind to the original promoter/enabler or chief cheerleader or as you put it, the fuse lighter.

      Delete
    7. Danny used Hebron as "overruns happens" justification went from $5 billion to $13 billion yet NL has only a tiny equity stake in that offshore project V the 100% equity in Boondoggle Falls and oil is a worldwide commodity whereas expensive power has no market here or in the NA power grid. Media never challenged Nalcor or the fool politicians that backed this disastrous project.

      When Danny was rambling about his popularity and polls at the inquiry I wanted someone to ask "so being popular always makes your decisions right?"

      Another thing about NLs demand forecast, not once did Nalcor (Or Wade Locke) mention the fact that we will be facing a steep population decline in the next 20 years (10%) and the majority of new demand were from pipe dream industrial projects for MF.

      Dannys eloquent response to Confederate Board of Canada on NLs population decline was "bullshit" Rhodes Scholar yet uses Trump language calling people traitors and bottomfeeders - has the inquiry asked why he bolted so fast after signing MOU with NS/Emera and why there was no leadership convention after he tucked tail and ran? 'didn't want to split the party' like Grimes Effort or wanted a stooge in Dunderdale to see the project through sanction?

      No economic basis was ever shown for MF and it is 100% a political project, sorry PCs you have NOT been punished enough for your part in the disastrous project and your leader has already had his "not a crises" moment "I never said MF was a mistake" All of the PCs coming out of the woodwork Ches won't give you Danny's coattails to ride on, don't run again and besides many of your have a date with the inquiry.

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    8. I'm voting NDP to speed up the Bankruptcy/ Bail out. Lets get on with it.

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  5. At 60$ a bbl, oil costs for HLY over the 10 yrs' from 2006 - 2015 would average $102, 664,800 per year.

    Now if the province's equity had been used to pay down debt (interest savings), plus the savings on not having to pay interest on a further loan of $4.4 billion --- the cost for oil would not even come close to potential savings.

    Muskrat never was a good project.

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    1. Also, over that same 2006 - 2015 period HLY was needed to provide only 13.3% of the energy needs of the island, so even if oil cost doubled, those costs would be blended with the 87% of the cheap island power and would mean only a comparable marginal penny or so increase in rates.

      And that does not factor into the equation that for every dollar oil prices increased and would cost ratepayers an extra $1.7 million a year, government would rake in approx. an extra $25 million a year.

      So the high oil price fear mongering that went on was a total deception/fraud on its own citizens (and there was nothing accidental about it). Ignorance had nothing to do with it.

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    2. Right - sadly that fuel cost number approximates the Muskrat O&M cost only. Everything else in the PPA is an unnecessary cost to the ratepayer.

      Rather than choosing an alternate course to pay down debt as you properly suggest, it appears we will soon have to start borrowing billions more to cover the losses on Muskrat.

      Danny's plan to overheat the economy (for his own post political life real estate gains?) has backfired. We will soon sink into an economic deep freeze we may never come out of.

      Delete
    3. And how about this perfectly 'honest' -- "truth, the whole truth and nothing but the truth" statement?

      In the House of Assembly on May 3rd, 2012, Minister Kennedy (the Minister responsible for Muskrat Falls) said "When Holyrood gets to its full rate of capacity, Mr. Speaker, it burns 18,000 barrels of oil a day. Holyrood is used at its full rate of capacity in the wintertime."

      The bottom line is that he said --- "Holyrood is used at its full rate of capacity in the wintertime". That is not even technically true.

      On average it operates 'at capacity' for less than 1.6% of the year (whereas winter lasts for about 30% of the year). It operates 'at capacity' for less than 6 (24 hr.) days a year (and some years not 'at capacity' at all).

      And on average it operates at only about 30% capacity (burns on average 5-6,000 bbls of oil a day ---- not 18,000 bbl a day ----- and just recently our consumer advocate let Tom Marshall once again, even now, repeat that 18,000 bbl a day deception at the public inquiry --- and did not even challenge him on that oft-repeated and misleading statement.

      Where is the anger from our so-called representatives?

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    4. Oil is always quoted in US dollars so $60 US is $80 Cdn. The price was only below $60 Cdn for a short while. In 2017 NL Hydro burned $226 M in oil and $168 M in 2016. https://www.assembly.nl.ca/business/electronicdocuments/NLHydro2017ConsolidatedFinStatements.pdf.

      Oil was in the $60 range in 2016. Most of the oil went through Holyrood. The average interest rate on the loan guarantee $7.9 B is about 3.4% so about $150 M in interest cost on $4.4 B which is roughly equal to savings in oil.

      The province, however, has to borrow the whole $12.7 B and the incremental rate above the loan guarantee is higher than 3.4%. It also drives up the cost of financing the deficits which are not even built into a lot of the counterarguments as to why the project is so devastating.

      It was never the lowest cost option but it was a boondoggle because the estimates for everything including demand were all made to make MF look like a winner. When evidence mounted to knock it off the top of their pyramid it was always suppressed. WHY?

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    5. So, what do you expect from the oil over-supply;

      https://www.silver-phoenix500.com/article/will-oil-find-support-near-60.

      Alberta in trouble again; Near time to leave it in the ground again:-)

      Delete
  6. "In 2017 NL Hydro burned $226 M in oil and $168 M in 2016."

    And $244 million in 2014, $163 million in 2015 were part of the 10 year average.

    Much higher cost for fuel for the new turbine perhaps helped drive up the recent cost increases (as well, due to low rainfall (supposedly) I think Hydro cut back on using BDS hydro in recent years).

    But we also have to consider MF in terms of its operating costs (as well as the massive 'dividends' (hidden tax) scheduled to be taken out of ratepayers' pockets)

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  7. It is nice to see so many people "woke" finally to the MF debacle brought to you by the "Laird of Gall Way".

    An examination of the EIS in 2010 made it clear of 3 things.
    1. There is no need for the power.
    2. The least cost options were not all explored.
    3. At 5.2 billion (a fantasy) the project loses money

    Most important is the fact that these idiots are attempting to build a dam tied not to rock but to glacial till undermined by quick clay!

    This idiocy borders on criminal neglect to slake the vanity of politicians.

    Stop Muskrat now before it is too late!

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    Replies
    1. FYI, it is WAY too late already! The ground have been flooded already and to drain it will increase the risk of a slide. The money is already spent and the power, already committed to NS.

      WAY too late to stop this.

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    2. You are mistaken. The risk is when the reservoir is filled.

      The money spent is irrelevant. Only money to be spent and the risk of failure matters. What do you say to people downriver?

      Delete
  8. So: Dave Vardy sets it out, MFs that was to cost 5 billion and now 12.7. Also very questionable if it will be reliable power or operate at all, so may be a complete stranded asset. And he says the revenue requirements will be be 78.5 billion over 50 years. But it's only money!
    Can we keep inflating the dollar?
    Now with the least cost option being no more than 2 billion (CDM, wind, and island hydro combination. and new gas turbines), 2 billion would add about 4 cents to rates. That would be offset by efficient heat reduction on a yearly power bill of about 30-35 %, which would largely see household electricity costs stable, or a small increase.
    Now the analysis here is for 12.7 billion. Even if for 5 billion , compare that to 2 billion and less energy used.
    Can Dave Vardy do those figures for the same time period and see the difference. By that we would know the extend of the crime committed. The Iquiry is spending much time addressing .5 billion as to hidden risks, while ignoring 3 billion of more to compare to the true least cost option.
    Who will do the numbers? That economic analysis is a key one.
    Winston Adams

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    1. Should read : The Inquiry is spending much time addressing 0.5 billion of hidden risks, while ignoring 3 billion original least cost difference, which is now 8 billion difference.
      WA

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    2. Has any indications appeared that would suggest a whole new approach to setting Energy Policy in NL, back on track? What is M. Ball running on in 2019? Is there a Low Carbon future in NL? When does the big MUN building open? What average daily person distance to work at this edifice? mode of transport, litres, kwh per day? Anybody doing the risk analysis, annual cost, capital payback? With all the cost engineering expertise available, some answers need to flow before casting votes.

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    3. Hope the inquiry can distinguish the forest from the trees. Don't get bogged down in a contingency fund of 500$ million or so. There are bigger fish to fry. Like the difference between the isolated and integrated island cost. No doubt billions in the difference, as many have pointed out. Plus the integrated option doubling in cost. For Christ sake hope the inquiry gets a grip. Put the pressure on says Joe blow.

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    4. WA, i was thinking the same thing. Why all the time spent on the $500 million hidden risks? Seems sad that that sum sounds so insignificant now. $500 million to cover over runs? If only.

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  9. A great piece laying out the future. This is the type of analysis that needs to be examined when debating NL's future. Instead, in good NL fashion, the government kicks it down the road, so afraid of losing the next election that they ask the PUB to give them the answers. The PUB will examine all the entrails and come to much the same conclusion as Mr. Vardy. Another year goes by and deeper in debt. Dwight fiddles while NL is engulfed in the flames of bankruptcy. L'il Trump and Ed and KD and Jerome take their circus on the road, outta here. NL becomes Canada's biggest nature preserve.

    ReplyDelete
  10. Here's some history for Winston;

    https://www.cbc.ca/news/canada/manitoba/hudson-bay-railway-history-construction-1.4712287

    A political boondoggle of another era.

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  11. The last chart is the simplest to understand and the most troublesome. There is no demand in NL, and when a 60% increase is rates is properly accounted for there will likely be a decrease in demand. Without the steady increase in demand the Muskrat Falls business case implodes.

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  12. Winston this gives a look at the 120 billion battery market changing storage and renewable energy accommodation.

    https://www.bloomberg.com/news/articles/2018-11-06/the-battery-boom-will-draw-1-2-trillion-in-investment-by-2040

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  13. Can we raise funds to distribute David’s two articles to every household in Newfoundland?

    It is the only way I can see to wake the populace to their predicament.

    ReplyDelete
    Replies
    1. Stats Canada says 218,675 households in Newfoundland, first class postage would be huge. However, Canada Post does deliver advertising flyers cheaply.

      "For Neighbourhood Mail, you’ll need to send 1 flyer to every address on a postal route (approximately 500 addresses). We’ll charge you as little as $0.162 for each flyer. You pay: $0.162/flyer x 500 (sample # of houses on a postal route) = $81. Prices are exclusive of taxes and are subject to change without notice. Terms and conditions apply.

      Do you send more than 100,000 direct mail pieces (like flyers, samples or postcards) annually? Contact us for volume-based discounts."

      So 16 cents * 218,000 households = $34,880 if there is no bulk discount. We would have to reduce the arguments into easy to read pieces that would fit on a flyer or whatever Canada Post is willing to deliver at that price. And printing costs of course.

      Delete
    2. Ok, let’s get started.
      What about those online money raiders, like Kickstarter? 35k is peanuts

      Delete
    3. Just post it on social media b'y...

      Delete
    4. Good idea, go ahead, I don’t know how.

      Delete
  14. I hope Maurice and Winston and others are listening to the inquiry this morning. Lots of discussion on CDM, wind, Holyrood replacement etc. Learmonth is probing the flimsy Nalcor assumptions and receiving more of the same. Looking forward to critical comments from the guys who have the time to do so.

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  15. Yes, good to see Learmonth continuing to probe the issues of load forecast, integrated resource planning (IRP), sensitivity analyses, CPW process, etc.

    Load forecast I have questioned since 2011 (if NL Hydro did 50 year forecasts before, why did MHI check only Nalcor's 10-year historical forecast for accuracy before concluding that Nalcor's forecasting history was 'reasonable'?

    I raised IRP is a letter to The Tele a couple of weeks ago, showing that IRP 'concept' had been around for a long time, and Learmonth made that point.

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  16. The number of people 0-4 years old has dropped from 24,070 in 2013 to 22,695 in 2017. Each age group (5 year buckets) gets larger up until 55.

    If the birth rate was to stabilize at this new level for the next twenty years and you shift up the age groups, leaving the 65+ age groups alone (they are smaller anyway because of old age), we would have a population in 2038 of 454 thousand, or a 14% decline.

    If the recent decline in the 0-4 year old population accelerates because there are few jobs for parents to support a family, then the decline will be worse. I see two problems: 1) Low fertility rates due to global trends and made worse by young people leaving to other provinces for jobs and 2) the baby boomers will be rapidly expiring.

    Yet, electric loads were forecast to go nowhere but up.

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    Replies
    1. According to Nalcor witness Humphries, we are far from saturation on electric heat, electric hot water, televisions, dishwashers, etc. What has this guy not read a report since 1980? These were our trusted expert managers folks. Almost equally outdated were his views on CDM and wind penetration. Still committed to his inflated load forecast and saying it was the best available information they had at the time. Its amazing to me just how weak and unpersuasive this consistent type of witness testimony is. Its appalling that senior executives manufactured this sham and that so many middle management professionals bought in with sheer stupidity. I guess they did it as a survival mechanism to the point they know no other way.

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    2. Humphries is incompetent, or willfully blind. His own consultants at MHI told Nalcor they were using outdated demand forecasting methodology. Unlike MHI and most utilities, Nalcor, looks only backwards, to come to a load forecast. They do not take changes in technology into account (eg. mini splits etc.)

      I doubt Learmonth pointed that out to Humphries.

      Delete
  17. We need to read Melvin Baker, to get historical context on people like Humphries. Hydro Engineers, a bunch of good guys, were compelled to look only at dams and long transmission solutions to rampant wasteful demand factors in a rural landscape. Annual $ per rate payer was taken way of the efficiency scale. But it was a great boost for political fodder;

    https://journals.lib.unb.ca/index.php/nflds/article/view/905/1258

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  18. It is indeed disappointing that an early '80s Engineering Graduate seemingly did not pursue technology transfer options, with respect to energy generation and transmission, demand management, renewable energy, etc. Carried on the traditional, very expensive , inefficient, narrow lazy-minded way to solving NL's power needs of today and future.

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  19. Humphries appears to have been a yes man for the Muskrat promoters and is now trying to justify his complicity in their collective stupidity.

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  20. Try these on for size:

    https://www.renewableenergymagazine.com/energy_saving/energy-vault-announces-transformative-utilityscale-energy-storage-20181113

    https://www.renewableenergymagazine.com/panorama/university-research-group-developing-emissionsfree-energy-system-20181003

    https://www.renewableenergymagazine.com/miscellaneous/researchers-develop-artificial-photosynthesis-system-that-generates-20181030

    I somehow don't think that we will need nor be able to sell power from Muskrat Falls within ten years. The research and development that are be carried out throughout the world is astounding.

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    Replies
    1. Thanks, good links but be careful you don't give Winston a stroke! He still believes storage is very expensive and will not see that now wind and sun are unlimited in energy mixes with storage backup.

      Delete
    2. At Anom 16:46:

      I truly believe that within ten years there will be a replacement for fossil fuels.

      Delete
    3. Anonymous13 November 2018 at 16:30 The rock storage of potential energy is interesting as it does not require a change in elevation so is it very flexible. However I doubt it can be used to stabilize the system like battery storage can.

      Delete
    4. Some of those links, like using concrete blocks instead pumped hydro seem a little sketchy. However, I do agree that a vast amount of research is being carried out on all aspects of power generation, battery chemistry and efficiency. The result of all this research will be a very different world. Sort of like in the 1970's had you imagined what would happen to the telephone you'd probably still be thinking of a central service model. Even the star trek communicators went to the bridge. Instead we got pocket sized decentralized service / ability to call anyone on earth without going to the star trek bridge / global position tracking, voice recognition and artificial intelligence to interact with.

      The remote hydro dam feeding cities via thousands of kilometers of wire might just be as obsolete as copper telephone land lines feeding a central office.

      Battery storage has tremendous potential. Even if you only have storage for several minutes, it allows the use of more renewable sources like wind. If a storm forces wind generation to shut down suddenly or some other renewable generation fails or protection circuits trip, batteries can fill the void until other generation facilities come on-line.

      Delete
    5. Bruno says that Winston may have a stroke as he still believes(battery) storage is very expensive.
      Winston is busy today, in preparation for going to the NA wind generation capital: Texas, at 5 am tomorrow. So today on issues of PET/CT scan, and other medical issues planning for my wife's surgery there. Here we can see a tumor down to 1/4 inch, there they can see down to 1/8 inch. Here they removed a tumor from the liver 3 inch in diameter, and other in the colon and lymph nodes. All this here under Medicare. Now this little one, likely a thousand times smaller in volume is a big problem. There it is private so we pay. How much? Here is the figure quoted : $203,274.56, and in US funds. There may be some discount that applies. Add too the prior visit, and travel and hotel now for 3 weeks. Now if that does not cause a stroke, then storage battery high cost is not likely to do it. Why can this not be done here? A good question, perhaps needing it's own Inquiry. This since June has been shrunk by chemo from about 1.25 inch diameter. If it goes too small, they can't find it, and then it grows again. Ideally if about 1/4 inch now, they can get it, so likely a cure. They call it NED(No Evidence of Disease). If I run short on cash , I will send an SOS to Bruno. He can say I am in danger of a stroke. But he suggested this also a year ago. My father died of a stroke, so I am at risk. But I take Bruno's comment in fun, unless I actually get a stroke, then I will say: Bruno's curse.
      I try to stay tuned in from Houston to UG and the Inquiry, but rely upon comments here for things I miss.
      Colon cancer: starts with polyps that can take 10 years to turn to cancer. Major cause: fatty food. Red meat and pork. Processed meats. Beware, get screened if over 45 years old. Insist that your doctor get you screened. Once cancer gets outside your colon your chance of a cure is 10-15%. If caught in the colon, it is 90% curable easily. Free medical advise. Nfld has one of the highest rates of colon cancer in the world. World class you might say, for the wrong reason.
      WA

      Delete
    6. Winston:
      A safe and speedy recovery for your wife

      Delete
    7. Best wishes for your wife Winston. I am recovering (i hope) now from colon cancer too.

      Delete
  21. In previous anonymous comments, cronyism has been mentioned. Let's look at two documented examples from the Auditor General's report on the province's English school board (NLESD). This behaviour, specifically hiring unqualified people (friends, relatives, connected people), promoting them and finding ways to pay them well above the standard payscale -- is all too common in this province.

    I have every reason to suspect that Nalcor does similar things and I can tell you from experience that all core government agencies do things like this on a regular basis. I would also bet that these two examples are just examples -- they are many more. I do find it interesting that the AG felt it was worthy of inclusion in her report.

    Despite the AG report, no media reported on hiring unqualified people. They instead focused on catchy headlines like lawn services during snow storms and buying tires that fit no vehicle in the fleet.

    I don't fault people from accepting a job they need. I do fault their boss, boss's boss and the HR department for violating their own regulations. The unfortunate thing is not so much that they displaced a better person or were paid too much - it is that incompetent people in positions of power can create tremendous financial damage. They also thwart qualified and competent people below themselves as these people are perceived as career threats. In the school boards case, the cost was likely tens of millions. In Nalcor's case, it was billions.

    Consider the following expert from the Auditor General's Report:

    Employee 1

    In 2010, the individual appointed to the position, through an external competition, did not meet the job competency requirements, as they did not possess a Certified Engineering Technology Diploma as required by NLESD’s own standards.

    Although not qualified, the individual was appointed and approved as an “upscale hiring” at a higher salary level which is only permitted when an individual is the sole qualified candidate for the job.

    In 2012 and 2013, this individual was promoted to progressive management positions through internal competitions, again without possessing the required competencies or direct experience. For example, the 2013 competition required a degree in engineering or a related field as the qualifications were expected to have been normally acquired through an engineering degree and direct experience in design and construction management of large multi-discipline building projects.


    Employee 2:
    In 2012, the individual was appointed to the position without a job competition and the individual did not meet the job competency requirements, as they did not possess a degree in engineering as required by NLESD’s own standards.

    In 2013, this individual was promoted to a progressive management position, again without possessing the required competencies, following an internal competition where this individual was the only applicant. Given that this individual did not possess the required competencies as set by NLESD, consideration should have been given to proceeding to an external competition.

    How can you competently run government departments and agencies when they are completely full of unqualified people and cronies? - just look at the quality of some of the witnesses.

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  22. Poor Paul ...graduated from MUN ...made his way all the way over to the hydro/nalcor building where he roosted for his entire career. Never ever thinking outside the box. Spent his entire career farming in the hydro field. Farming (forming) excuses, of why they couldn't, didn't, or were unable to develop any of the dozens of hydro projects on the island. Environmental concerns, a wilderness area, too close to national park, government regulations, water too far away, just run of the river. Wind destabilizing the system, and on and on.... But if we were connected to the mainland grid, all our problems would be solved. Bring in tons of power from Nova Scotia, whenever we needed it, because of a black out etc. Lol.. What a red herring says Joe blow.

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    1. The old "won't work" here syndrome. City couldn't undertake night-time road maintenance cause it "won't work" here. Can't have vehicle licences transferred with owner cause it "won't work" here. Etc.

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    2. I wonder was the newly created "VP" job given to Paul for all his good work or for his helping in making MF 1st ?

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  23. Missed the entire Inquiry show: the testimony of Paul Humphries due to other priorities (what could take priority over CDM? )
    So I go by comments here on UG and the CBC report:
    1. CDM here would be the END OF THE WORLD, that was his words. It wouldn't work in Nfld, he assumed, based on his past experience, and so we would need power we didn't have, and so get blackouts: hence END OF THE WORLD, DARKNL because conservation won't work in Nfld . So said Paul. That false assumption is now costing us many billions, and risk of actual blackouts, even this winter.
    2. Seems Raphals of the Grand River group, said he's not aware of any other North American utility that does not use CDM as a part of forecasting. I know our neighbour, NS. is on a path to reduce their load by nearly 500MW by CDM. And they have a very small link to the other grids.
    3 Paul says depending on CDM without tied to another grid does not exist anywhere else in North America, except Hawaii. Hawaii must have moved? Tectonic
    plate activity big time.
    And what of Texas? Essentially an isolated grid. Guess they force some CDM with 4.00 power rates in an heat wave. That can force higher efficiency for AC, and more insulation etc, and they avoid blackouts.
    3. Paul not a fan of wind? Did he get Hatch and MHI to rewrite their analysis to suit the answer Paul wanted? Wind don't work in Nfld , for the same reason CDM don't work. Because Paul said so.Yet Texas sometimes have wind produce 40 % of their load, here , about 2%. Our our wind profile is actually better.
    In 2012 there was not enough data available on the success of the CDM program, he said. What program? Was he talking about Take Charge, of Efficiency Nova Scotia, or similar programs in the NE USA, some decades old, and NS since 2008. Take Charge ,designed by the scallywags. Paul, the chief scallywag? Designed to fail, much like Muskrat.
    4. Yes the Maebek report says the CBC. Who ever heard of it? Paid for the ratepayers for about 300,000.00 , then hidden away, least the public learn of the potential of CDM. I never head of it in 2012, though I was presenting to the PUB on CDM. One wise old owl noted my interest, and referred me to the Maebec Report, the bible for CDM. Of course that guy was suffering from "gone past his best before date" . The guy was was Dave Vardy. Maebec has since been replaced by ICF report, a shocker for what CDM can offer for Nfld, but that too manipulated by the power companies (Nfld Power and Nfld HYdro) to discourage CDM.
    5 Raphals said that Nalcor "blatantly" discarded CDM. Paul was that type of engineer? Another MUN doozie. Maebec said there were significant opportunities. ICF Build on that. I have estimated a potential for 600 MW reduction form CDM.
    6. CDM should be part of a four prong approach for the Isolated option: CDM, wind, more island hydro and gas turbines (that work well with wind, unlike the old Holyrood units). CDM alone is a red herring. It is a important component. It also reduces yearly household costs . Did anyone at the power companies push back against Humphries?
    Later I hope to see his testimony. Maybe Gil Bennett will later give insight to avoiding CDM. Does Paul understand END-USE forecasting? That is where evidence is for CDM benefit. But Paul ignored END-USE forecasting too. And the guy made it too VP! World class or worst class? Ask KD. She brought out the 2011 Efficiency Plan to reduce energy use by 20 % by 2020. Did Paul kill that idea?
    Winston Adams

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  24. Agree that most of these people at NLH spent their entire careers rehashing the Lower Churchill and finally got the opportunity to strut their stuff with Muskrat and boy did they strut.Poor Paul didn't have the head start that Jason Kean had,growing up with the remnants of an old hydro plant in his backyard,a great asset when it came to plannjng Muskrat.Seems like no other options were given consideration,just plow ahead with satisfying the big ego of the Little Man.q1

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  25. If I heard Paul Humphries testimony correctly this morning, I thought I heard him make a reference that even after Muskrat Falls in 2030 we will still have to refurbish/replace the thermal generation units at Holyrood?

    In other words after spending whether it was either $7.4 Billion or the $13 Billion we are faced with now we are going to have to upgrade Holyrood?

    My understanding of some of the Muskrat Falls “sales pitch” was that Holyrood would be eliminated as well as our dependence on fossil fuels.

    Can anyone confirm this or did I misunderstand what was being said?

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    1. We need 'backup" at Holyrood, regardless. So ideally burning little fuel. So why not replace Holyrood with gas turbines as part of the Isolated option? So yes , we spend 13 billion knowing we need to replace or refurbish Holyrood. Is it prudent to refurbish something that is obselete? And the old Holyrood don't work well with wind as does gas turbines, when wind is low. So, some more great ideas by Humpheries, all in the master plan of Muskrat.
      Winston

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    2. Killing "Big Wind" in Labrador was also part of the MF first plan.

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  26. So we have the Isolated Island Option that required an overhaul of Holyrood and that was considered too expensive?

    Then we have the Muskrat Falls Option that also includes a complete overhaul of Holyrood, only a few years later in 2030 which apparently makes this option cheaper?

    I’m no accountant by trade, but how exactly did we get here?

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  27. Was this optioned looked at?.....Interconnect to NA grid via Line to NS, develop Gull Island in partnership with Que. This Gull Island power can help power NB, NS, NL, PEI-All one big partnership with 5 provinces. Sounds too logical to work.

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    1. Hey Levy Payer,

      Ontario and Quebec offered something like that to NL not so long ago. NL turned the offer down.

      Main reason why NL refused was that electricity was to be re-sold though HQ instead of selling it directly itself. The thing is, when it is time to power such a significant load, not GI or even UC can do it all by itself. Even if powerful enough, to rely on a single power plant to power an entire region is not strategic at all. For that reason, every plant must be managed as part of a bigger fleet. In this case, that means being part of HQ's fleet.

      NL refused the idea of such a collaboration. Instead of selling that power for it to be used in such a larger scenario, NL preferred not having the project built at all.

      Delete
    2. Repeatedly, any suggestion to our leaders at the time to work with QC, on any collaborative deal was met with an emotional No way! Logic was discarded in favour of the NL "Hydro via Anglo Saxon route policy". This policy then as now is the "only and final solution". Muskrat is a continuation and consequence of such narrow thinking. Note this morning's witness has an air of Mr. Clean certainty on all this.

      Delete
  28. Wind and batteries - have a read
    https://illumination.duke-energy.com/articles/how-batteries-make-more-renewables-possible

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    Replies
    1. Bloomberg is predicting Lithium ion battery cost to fall to $70/kwh by 2030, one third of today's price. Storage opportunities are coming which improve wind and solar utilization and stability and make obsolete expensive baseload generation like nuclear, coal, oil, and even natural gas and remote mega hydro. If only Stratton's technology factor included this!

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  29. Watching Paul Thompson’s testimony at the Inquiry this morning there is definitely a theme that is emerging?

    Government officials considered Nalcor to be a Government department therefore they are us, and we are all Government.

    We trusted and believed whatever we were seeing, and/or hearing from Nalcor as being factual and correct to the best of their knowledge!

    As a result we didn’t seek to ask for documents etc. they just accepted whatever Nalcor had put in one of their “infamous” power point decks!

    If I recall Paul Stanley’s testimony he said the entire project was communicated by power point decks?

    Amazing!

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    Replies
    1. Hey Bottom Feeder - one question for you
      1. is everyone named Paul ?

      Delete
    2. Note that historically, Paul was an exponent of "Faith over Law". NL political regimes, promoting Muskrat , relied on faith over due process.

      Today, Paul's epistles continue to be vital roots of the theology, worship and pastoral life in the Catholic and Protestant traditions of the West, as well as the Orthodox traditions of the East.[19] Paul's influence on Christian thought and practice has been characterized as being as "profound as it is pervasive", among that of many other apostles and missionaries involved in the spread of the Christian faith.[8] Augustine of Hippo developed Paul's idea that salvation is based on faith and not "works of the law". Martin Luther's interpretation of Paul's writings influenced Luther's doctrine of sola fide. Wikipedia on St. Paul:-)

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    3. So many Pauls that contributed to the "pall"over our future.

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    4. I remember Ricky Cashin commented about Gov. policy being akin to Theocracy.

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    5. What is the point of having a manager and director of the electric industry (Department of Natural Resources) if there is a generation monopoly (Nalcor) and it is all government anyway? They could just let Nalcor run the show provide them with a nice self-inking stamp that states "approved by all AHJ" (authorities having jurisdiction). Perhaps another stamp for "this powerpoint approved by DEW" or "Crony seal of approval".

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    6. Anon 1329

      My mistake his name is Robert. Lol

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    7. The other guy was Todd.

      Wow 2 brain farts in the one day! Lol

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  30. So what did we learn new today about this teavesty. Probably not much but reinforces and confirms the understanding that there was just one integrated team. The premier, high ranking bureaucrats, and the top managers at nalcor. But the nalcor team was dominate, they called the shots having convinced the others that they were world class. The came from the oil industry. So they were experts in whatever. I remain to be corrected, but I suspect those oil people were mid to low level managers in the oil industry. That were not the types that dwelt in the high castles of New York and London and others oil capitols of the world, except in the eyes of the bureaucrats. They were not the types that gave the word on the "Go ...No..Go for a major oil project around the world costing billions. They may have taught they were, but just in their own minds because they worked in the oil industry. The burceruates were willing to be carried around on the backs of nalcor where they could do their oversights from that lofty position. Nalcor would be the gatekeepers of all the documents and slide shows and others could only view them under strick supervision. The might Dracular would show his fangs and the towering Frankeistein stood by as the cold eyes review, should any indepth question arise. That was the relationship of the integrated team. This is how the province was being governed and billions spent. Where was my elected representive, there to represent the average Joe and jane. No where to be seen. They were religated to the lower levels of the John Q. Public. Occasional cabinet was asked to look, but no questions allowed, and the elected MHA s only role was "yea" when it came time to vote on the sanctioning says Joe blow.

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    Replies
    1. I keep hearing Todd Stanley’s testimony, “The tail was wagging the dog!”

      I can’t think of a better description of Nalcor?

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  31. Your UG correspondent is no an hour from Houston. Being a computer dummy, needed some help in getting into the airplane WiFi. Heard that Nfld power system went out this morning. Was that true, and what the cause? Late leaving St johns, 1.5 hrs for deicing. Watched a little of the Inquiry at Torono Airport, Evasive Thomson I think, who could not confirm Nalcor had world class hydro mega project engineers. WOW, what a revelation.
    Repporting form 30,000 ft. So this Inquiry watched almost from outer space.
    Winston

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  32. "I understand that you were satisfied with the steaming pies of bullshit propaganda excreted by Nalcor in a purely perfunctory manner so as to grease the way to sanction of what was soon to become a colossal fiasco and consequent betrayal of the public trust, I fully understand that... but wouldn't you agree that there was no rational basis to your satisfaction?"

    "No." said Dodgy Bob with a sickeningly arrogant smirk.



    To gaol with those who would deceive the public into penury.

    Right to gaol with the lot of them...

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  33. This is also another interesting area of research. As I said in my post at 16:30 on the 13 November, we here in newfoundland and the rest of Canada are out of touch with the research and development taking place throughout the world. Part of the problem is that most of the research dollars are being channeled to areas of fossil fuel development. On only has to look at the number of sites in the capital cities that are named after an oil field or oil company to realize that these corporations also control our research and develop arms which is nothing more than recycling dollars back into their coffers. This type of research must be considered in long term planning for the future since technology could be developed that will wipe out you investments.

    There is the possibility of a 30 to 40% efficiency for solar panels very soon and should these researches succeed, it will upend the energy markets.

    https://renewablesnow.com/news/perovskite-silicon-tandem-solar-cells-reach-255-at-hzb-633158/

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  34. M. Thompson confirms the extent that Gov. Policy drove the process. NALCOR just implemented the policy, to perfection. Still there is slim awareness of the risks deemed acceptable under a highly questionable Energy Strategy. Had there been heavy industrialization, (a la Smallwood/Valdemanis), providing jobs jobs jobs, paying the overblown capital costs, (Bowaters, AND, Long hr, Come by chance, etc.), Mr. Osmond would have no problem balancing the budget, keeping civil servants salaried, hospitals and schools open, eh wot?

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  35. Going back to Mr. Vardy's wonky economic post, we have from table 2, an annual MF financial deficit of 500 million dollars in 2010 rising to 700 million over time, and that is assuming nothing else goes wrong. It also assumes they up our power rates, manage to sell excess electricity and doesn't include additional major expenses like upgrading Holyrood or spare parts or the North Spur failing etc.
    http://unclegnarley.blogspot.com/2018/11/the-wonky-economics-of-muskrat-unveiled.html
    In the 2018 fiscal update, everything is going bad. https://www.fin.gov.nl.ca/fin/publications/2018_Fiscal_Overview_Presentation.pdf
    We are currently running a budget deficit of $550 million. If we were to add another $500 million to pay for the MF debacle, it means we would have to cut the budget by a billion dollars to break even. The 2018 expense budget is 8.4 billion.
    Is it possible to permanently cut the budget by 12 percent? Even that wouldn't be enough with a declining population, lopsided age distribution (with boomers retiring), health costs going up due the ever aging population, MF asset write-downs resulting in higher borrowing rates, and oil prices staying low.
    I'd guess we would have to shoot for a 20% permanent reduction in expenses in order to have a balanced budget and small cash reserve. I don't think I could stomach that without seeing several of those responsible in the penitentiary.

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