Thursday, 8 November 2018

WILL MUSKRAT FALLS PAY DIVIDENDS? (PART I)

Guest Post by David Vardy

Part 1: Is the PPA another Churchill Falls Contract?

Russell Wangersky was right when he said in the Telegram on October 27, 2018 that Muskrat Falls is “a win for investors but the risk’s on us”, the ratepayers.  “The fundamental assumption in the financing of the project is that the revenues charged to island ratepayers for the generation and transmission of Muskrat Falls power will flow unfettered to the lenders to satisfy debt payments.”  

In this post I examine the underpinnings of this “fundamental assumption”, beginning with the take-or-pay power purchase agreement (PPA), the role of equity and the concept of freedom of choice. Does the PPA lock us in to an abusive relationship, not for 65 years but for 50? Is it another Churchill Falls Agreement which strips us of our rights? In my next post I will ask if the PPA makes Muskrat Falls self-supporting and whether revenues from rates will cover all costs and generate dividends for the government of Newfoundland and Labrador (GNL).  


Power Purchase Agreement

The PPA is an agreement signed November 29, 2013 which guarantees that NL Hydro (NLH) will purchase a defined amount of energy from Muskrat Falls Corporation (MFC) over a 50 year “Supply Period”. NL Hydro must purchase this power regardless of the level of demand for power in the province. Both companies signing this PPA are subsidiaries of Nalcor Energy. They are not “at arm’s length” from each other. Regulators are very wary of transactions between related companies and for good reason. When I was chair of the PUB we reviewed transactions between Newfoundland Power (NP) and other Fortis subsidiaries to ensure that costs charged were no higher than they would have been if NP had been procuring the same services in a competitive marketplace.  

Section 5.1 of the Hydro Corporation Act reads:   “The objects of the corporation are to develop and purchase power on an economic and efficient basis …” NLH was set up to make power available on an economic and efficient basis to serve the people of the province. The object of MFC is to recover the cost of building Muskrat Falls.  

By signing the PPA NLH has abrogated the rights of our citizens to benefit from other more affordable sources of energy over the next 50 years. The PPA locks the province into old technology in a world where technology is improving more quickly than at any time in human history and this is particularly true for technology relating to energy and communications.  

The PPA, combined with the 2012 amendments to legislation governing electric power supply, enshrines Nalcor’s position as an unregulated monopoly. This abridges the freedom of our citizens to participate in the benefits of a free market economy, which has generated more economic growth over the past 100 years than any other economic paradigm.  

There is a trend toward increasing competition in the energy sector, notwithstanding the power of behemoths of electricity represented by crown corporations across Canada such as Hydro Quebec, Manitoba Hydro and BC Hydro. At a time when growing competition is reducing the cost of power across North America our province is returning to the industrial structure  of 19th century monopolies, before regulation evolved as a surrogate, albeit imperfect, for free market competition.  

The PPA is established as an asset to be monetized through the federal loan guarantee, thereby enabling Nalcor to secure loans of $7.9 billion dollars.  

How can two crown corporations, with conflicting objects, both owned by citizens of the province, usurp so many of the rights of citizens in a democratic society? Surely the PPA should be challenged by a class action on behalf of consumers? The PPA is an attempt to lock consumers into a situation where sufficient revenue will be extracted from them to ensure that those who lend the money and those who guarantee it will bear no risk. How will consumers and citizens react to this contemptuous treatment, knowing that their rights may be abridged even as they supposedly continue to enjoy rights and freedoms guaranteed in the Canadian Charter of Rights and Freedom?  

Were those who orchestrated this debacle successful in undermining the rights of citizens and turning citizens into automatons, with no freedom of choice? The answer is no. As of this point in time we continue to enjoy freedom of choice, which is fundamental to our democracy and to the functioning of our free market economy. 

Risk and Equity

We turn now to the economics of the PPA, beginning with the concept of return on equity (ROE). Equity is the capital investment which investors commit to an enterprise or project. Those who invest equity are fully exposed when things go wrong. They bear the losses if the project or enterprise turns sour. In the context of a limited liability company the risk is limited to the assets of the corporate entity, whether public or private. 

If, on the other hand, the enterprise is successful the owner of the enterprise will enjoy the profits and will be rewarded for taking the risk. John Crosbie once quoted T. S. Eliot who said “Only those who would risk going too far can possibly find out how far you can go” to suggest that government should embrace the risk of Muskrat Falls. Perhaps Eliot, the Anglican prelate, poet and banker, was simply saying we should challenge ourselves in our daily lives and did not intend to endorse such worldly “boondoggles as Muskrat Falls”? 

In the world of business, profits are not guaranteed. You pay your money and you take your chances. In the world of public utilities it is a little different. Return on equity capital is treated more as a cost than as a residual. It is factored into the “revenue requirement” which is jargon for the annual cost of a service such as telephone or electricity provided by a public utility. Dividends become for utilities a cost factor although for their shareholders they are revenue. When customers and shareholders are one and the same the dividends are extracted from one pocket as a cost and placed in the other as revenue. If the customer is without means then dividends can neither be extracted nor returned!

In a regulated world, public utility commissions across North America set an allowed or “regulated” return on equity, as a stepping stone to setting the return on regulated rate base. The rate base is the value of all assets used and useful in providing service and is financed by a combination of equity and debt. The cost of debt is usually easily measured and is the interest cost of servicing the debt.  

Interest and principal repayment are usually secured by a mortgage on property and are considered to be well secured, as they are the next to be paid after payment of operating expenses. Interest on debt will be paid as a first claim on the assets of a company. The return on equity is not secured, other than by trust in the sagacity and foresight of the investor. 

Regulators set an allowed rate of return on equity which is included with the cost of debt servicing in calculating a regulated rate of return on rate base. Often regulators will create a range or small band of after tax profits which is deemed “acceptable”. If the return exceeds the top of the range they can demand that the utility make a refund. If the return falls short then the utility has to absorb the cost because it is unusual for regulators to impose retroactive rate increases. 

The point is that in the world of regulation, from which Nalcor and MFC are regrettably excluded, public utilities are not “guaranteed” a rate of return. Instead they are “allowed” to earn a return. The reason is that regulators and utilities can only estimate or guess what future demand for electricity will be. Usually regulators are dealing with a period of two to five years. Rarely do they make decisions based on 50 year projections.

The Consumer Still has Freedom of Choice
The PPA is based on a return of 8.4% on equity. To what extent is this rate of return guaranteed? The reality is that consumers are still able to make choices. They can leave the province. They can modify their behaviour by using alternatives to electricity, particularly for heating living and working spaces. Economists have measured elasticity of demand and found that if people expect that rate increases will continue they will shift to other forms of energy. If they consider rate changes to be temporary they will ignore them. In the case of Muskrat Falls it is highly likely that elasticity will be high and people will switch in response to rate increases, given that the project will not be completed for another two years and the costs of the project are well known. Expectations are that a succession of rate increases is virtually inevitable.

Conclusion 
Russell Wangersky concludes his Saturday October 27 piece by saying:

Eventually, the billions of debt will be paid, and the project might be able to start paying dividends to residents of the province. Throughout the sad saga of Muskrat Falls Russell, has by his probing insights, demonstrated excellence in investigative reporting. With the highest deference and respect to Russell and in response to his closing comments I say: Russell, do not bet your pension on “payment of billions in debt”! Yes the bondholders will be paid but most likely by the guarantor, the federal government.

“Paying dividends to residents of the province”?  Not likely! If dividends are going to be paid they will first be taken out of your pocket through higher rates and as a cost of service before they can be returned to your other pocket as a “profit”. The notion of dividends is a “delusion,” if not a deceit.  Our politicians will be selling our citizens short if they think people can be so easily deluded!



Will ratepayers challenge the PPA as being detrimental to the interests of consumers?  Should the Consumer Advocate, on behalf of electrical consumers, launch a class action to challenge the impropriety of this take-or-pay contract between a regulated utility and the company with which it has negotiated a power purchase agreement, both of which are owned by Nalcor? The contracting parties are clearly not at arm’s length. Does the contract interfere with the rights and freedoms of ratepayers by monetizing a contract on their behalf, effectively imposing a pre-payment obligation upon ratepayers, without their agreement? In Part 2 I will deal with the economics of Muskrat Falls and show why it is unlikely the project will cover its annual costs let alone dividends.

76 comments:

  1. As always a great review. Yes the PPA should be challenged, but in the end there is only one financial backstop, the NL taxpayer. Both NLH and MHC belong to NL government, the courts can negate the PPA, but those two buggers are still on the hook for the borrowed money. So the courts strike down the PPA, who will pay the piper? Twiddle Dumb, or Twiddle Dee, they are us.

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  2. I agree that the federal government bears some responsibility for the fiasco at Muskrat Falls. However, not sure I follow the argument that NL is facing a debt crisis that would force the federal government to assume the totality of MF debt. If we add, say, $15B in stranded debt from MF to total net debt of the Province, NL debt as a percentage of GDP would be somewhere around 75%, which is about the same level experienced in the late 90’s, a period during which NL was far less prosperous than it is today. However, the cost of servicing that debt as a percentage of GDP is less than half the level of the late 90’s because interest rates are so low. There is of course a risk of rising credit spreads in NL but so far, no sign of that.
    Also, how do you see this working? If the federal government were to assume some significant fraction of Nalcor's debt, does NL nevertheless remain owner of its substantial hydro-electric assets at Muskrat Falls and the Upper Churchill?

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    1. Bernard as you might know I am a simple man not into the high flutter economics of running a province or big business, but I think I am a well grounded person. As you know I aways said we did not need the power and it was not the least cost option. And muskrat was never a revenue generator for the province in terms of sales far too expensive to get to market. And I still contend that without the Feds loan guarantee, we could never raise the 5$ billion in the money markets, and certainly not the second loan guarantee of 2.9$ billion. So my simple reasoning is since it is of no value to us, but it is to NS, then the Feds and NS own it lock stock and barrel, along with the 15$ billion, and we would just charge them for transmitting power over our lands. That's the simple starting negioations position. Who might actually own the power lines may then be settled etc. Cheers, average Joe.

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    2. A J - I agree, you have reasonable, down-to-earth opinions that UG readers like me appreciate. Not sure of the details but we both agree that guaranteeing a project involves some degree of responsibility on behalf of the feds.

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    3. Waldo you finally hit a nail on the head, you are a simpleton

      In case you weren't following the MF inquiry, early on Nalcor jokers and L'il Trump said they would have built it without FLG. So the Feds actually saved us a cool $1-billion, better watch out or they may come after that as well when we're finally forced to bear the consequences of our actions

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    4. Anon 22:41, too bad you can’t express an opinion without insulting others but whatever. The FLG was important because financing of the project was based on the credit of the Federal Government. Otherwise, Nalcor would have been forced to convince sceptical bond investors that their project was viable.

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    5. Guarantee of the Federal Govt, not credit. They have no skin in game except if we don't pay, they own us

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    6. Yeah, I spent 30 years in financial markets so I kinda understand how a Federal loan guarantee works. Let me try to repeat this another way - the price of federally guaranteed debt is based on the creditworthiness of the Federal government. Bond investors don’t care if the underlying project is viable or not because the federal government is guaranteeing the debt. Without the FLG, Nalcor would have been forced to convince investors that the project would be profitable. I can assure you that anyone who knows anything about energy markets was skeptical of this project from the outset - if you don’t believe me look up what Tom Adams, a leading energy analyst in Canada, had to say about the project at the time. Despite what Lil Trump might say, anyone with any experience in financing would tell you that it would have been very difficult for Nalcor to raise long-term debt equivalent to about 25% of NL’s GDP to finance such a dubious project. You are quite right to point out that the terms of the FLG mean the feds will own you in the event of default by Nalcor. However, in my view, some consideration should be made of the fact that the feds were irresponsible, guaranteeing such a ridiculous venture against the advice of their own environmental assessment and the PUB. Moreover, to add insult to injury, the entire MF project depends critically on NL wresting control of the Smallwood reservoir on the Upper Churchill in order to optimize water flow - this issue represents the next major bone of contention between NL and Quebec. And, I might add, hearings on this issue will get underway in Quebec courts in a few weeks. Clearly, Hydro-Quebec cannot exercise its right to the energy of the Upper Churchill if NL controls the water flow.

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    7. Hi Bernard,

      There is just one problem with what you wrote... Nalcor was not forced to prove the project as viable to any one and would not have been even without FLG.

      By offering UC as a guarantee, as it is in fact even with the FLG, the lenders does not need to worry about the project itself. UC is existing and its value is high enough to cover for MF, so risk is covered in all cases.

      As such, FLG or not, project viable or not, Nalcor was able to do it by itself and as exposed, would have do it.

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    8. Sorry Heracles31 but that is not the way that credit markets work. Your average bond investor is in no way competent to determine the value of liquidating an asset as illiquid as UC. Besides, the value of Nalcor, including UC, is already pledged implicitly to NL bond holders just as the value of HQ is an asset for Quebec bond issuers. You can’t simply start pledging assets without compromising the quality of existing NL debt. Financing $8B in debt for Nalcor is the equivalent to HQ financing $100 billion dollars in long-term debt. That has never been done - not even close.

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    9. Hi Bernard,

      Thanks again for your contribution in this blog, and great to hear from you ; it's been a while.

      Your explanation on the credit market process and the behevior of the average bond investor was very revealing.

      We know that Nalcor somehow had to pledge all of its assets (including UC) to obtain this FLG.

      With the Feds having now priority on all those Nalcor assets (really, as per the FLG contract), it must have compromised the quality of all other existing NL debts, isn't it?

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  3. One of my observations, while working in Northern Alberta on Petroleum Extraction projects, under the EPC methodology; Self Regulation was de rigueur, usually interpreted that Huston ran the show. I see similarity with Muskrat, wherein Government from time to time gave up to EPC driven expertise, with respect to the whole project cost management role. There was a pervasive intent that we have cash flow, ($3 B in the bank, and lots more where that came from), leff er go for the gullies byes. What could possibly go wrong? The windfall offshore profits, also run by the EPC contractor, (NALCOR), would backstop the expected change orders and contract claims. The Business would manage the process so to speak. Conflict of interest? Naw!
    Does anyone know who replaced Kean? We should get a before and after of the summary project cost management report from Stan's appointment. Have we received and recent updates of the pcmr?

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  4. Just watching Jason Sean's transformation when being "cross examined" by a friendly Mr. Simmonds.He has perked right up and can answer so loudly and clearly when his answers are coached as opposed to fumbling for the right answers when questioned by others.

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  5. "Will ratepayers challenge the PPA as being detrimental to the interests of consumers" I sure hope so!

    "Should the Consumer Advocate, on behalf of electrical consumers, launch a class action to challenge the impropriety of this take-or-pay contract between a regulated utility and the company with which it has negotiated a power purchase agreement, both of which are owned by Nalcor?"
    I hate to appear indelicate but the CA has shown little interest in advocating on behalf of ratepayers. He should but shows little inclination to litigate on behalf of consumers.


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    1. The Consumer Advocate is just another goddamned political crony... mere window-dressing... just another bit player in a farce of epic proportion...

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    2. Maybe use Rachel Maddow's "Corrupt Purposes" would be one way to prepare the class action;

      https://www.msnbc.com/rachel-maddow/watch/trump-hand-picked-acting-ag-raises-new-obstruction-questions-1365830723784?v=railb&

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  6. Anyone Notice that PENG2 has disappeared from the blog since the Inquiry started. Guess he sees nothing wrong with the Nalcor connivers.

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    1. No, just haven't posted in 2-3 wks.

      What surprises me is that save for 1 or 2 comments by WA, MA, Robert or a few others, most haven't seemed to pick up on the nuances of questioning/replies. Several times here I have said look at the org charts released in 2015 and the backgrounds of those involved.

      I haven't seen anything I didn't know, how LeBlanc deals with it in his deliverable will be the key.

      Bottom line - MF was politically driven, inadequately engineered and the wrong people were put there to execute it.

      PENG2

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    2. PENG2 has nailed it.

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    3. Yes, agree mainly with PEnG2, but after the creation of nalcor, it was nalcor driven. No doubt about that, and the politicians including the premier's that came after Danny served as the main cheerleaders. But nalcor called the shots, including telling the politicans how to behave and what to say in the house assembly and how to fool the people, and not give them the facts. Yep...even a hit squad, that was the work of nalcor and not the politicans. The politicans were mere babies in the arms of nalcor as indicated by one of the premier's on the stand. He was impressed by nalcor and called them world class. Now, peng2 did you know that and do agree with it, ask average Joe.

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    4. Anyone notice how Nalcor's lawyer Dan Simmons jumped to his feet yesterday as to the topic of GE and he claimed commercial sensitivity issue, and Leblanc stopped or limited questioning on it. Anyone with insight or speculation to this?
      Winston Adams

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    5. Peng2 says that MFs was inadequately engineered and the wrong people put in place to execute it.
      Peng2 also said that the project was economic nor likely reliable power, so a stupid project to undertake, and rather than least cost, ended up the most cost by far.
      Such a project cannot be properly engineered nor properly executed to make it least cost. The logic is missing. What Peng2 properly meant to imply is that it might have been just 60% instead of 100% over budget if better engineered and executed. Unless we get better understanding of what was reasonably the least cost, how can Leblanc gauge the depth of the problem to compare how much of a train wreck was caused? These jokers all suggest nothing was done wrong, all was by the book. MFs::The Art of the Deal. Must be that book.
      PF

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    6. PENG2,
      "Bottom line - MF was politically driven, inadequately engineered and the wrong people were put there to execute it." Thank you Captain Obvious!

      A cadre of us have been pointing this out since at least 2012. That you have come belatedly to this conclusion is shocking. What took you?

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    7. Bruno @ 21:07:

      My opinion on MF has not changed since day 1. I have been a dissenter of MF long before you - for proof, maybe go and try to find some of my comments that used to be at cbc.ca. My history with MF goes back to the 1990s.

      Get your facts straight.

      PENG2

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    8. Yes your proof is comments posted anonymously on a CBC site that is shut down! Now that is airtight evidence!

      Stop hiding and show your face and stand by your statements.

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  7. Muskrat falls project is not a mistake. It is a betrayal.
    Winston Adams

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    1. Hey Winston that is the absolute truth. You can tell by the shrugging off and denial these people have displayed that this was no mistake. No accountability, no ethics and no regard for fellow NLers. None of them appear to be appalled with how this project has turned out except perhaps the blindly led MHI crowd... maybe (jury's still out on that). Half of the projects cost is labour... and a lot of people cashed in. Make no mistake about that.
      dm

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    2. A piece I read last night on the issue of deaths in the USA from drug overdoses. It tells the story from the 1990s when even Harvard doctors promoted opoid drugs pushed by drug companies, saying it wasn't addictive. There was no evidence to support that, but evidence against it, and in 1908 a similar big problem in the USA. Billions in profits made since the 1990s. As of 2017, 72,000 people per year now dying in the USA from drug overdoses, much from the actions of doctors, and pushed by drug mfgs. It is a crisis for ordinary people.
      The concluding words of that piece was " This was no mistake. It was a betrayal".
      I got the same feeling from watching the testimony of these witnesses who enabled this fiasco here. All passing the buck and did nothing wrong, most would do the same thing over. If a bank robber stole 10,000.00 the police would be all over it, sirens going. With this,billions wasted and now millions more being spent to protect their reputation! All lawyered up as they say, at the public expense. To call this, a "mistake" based on the best information at the time would be scandalous for justice.
      This should be a turning point in our history, how our province has been misgoverned. But maybe like in the past, it gets swept under the rug, with key evidence undisclosed.
      Winston

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    3. Also both the Maritime Link and the Labrador Link is finished essentially, months ago. If you look at the daily supply of power, almost no power flows over either. For Nov, about 5 of 8 days sees a very small amount in daytime hours only, suggesting we import a little dirty coal power from NS when they have it to spare.If it was continuous, I would assume it might be CFs power over the DC line, and maybe it is. Seems to be only about 50 MW, so if from Labrador it is only about 5 % of the line capacity of 900 MW.
      We also see a lot of occasional loss of Holyrood thermal or gas turbines down or even some hydro units, this being late in the season. Liberty warns of power shortages this winter due to thermal units lack of reliability. What is connection to the mainland grid to do for us? We listen to Tom Marshall and others still falsely promoting that as a big benefit. Man, and I planned a propane backup 3kw wall unit , but never did it. I go to Texas next week, maybe I'll stay til June.
      Winston

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    4. We fret about the possibility of 15 or 23 cent power rates, what if rates were to hit 4 dollars per kwh, even if occasional?
      Texas has one of the average lowest rates in the USA, about 8 cents and about 11 for residential. But this summer hit 4 dollars per kwh during a heat wave. They run the grid lean and mean, shut a lot of coal down and has 20% wind.
      At a peak demand of 73,000 MW, this is 42 times more than Nfld. And yet they prefer to operate as an isolated grid,do not depend on connections with neighbours, so why do we think interconnection is better? Were we misled?
      We have high winter peak loads,due to baseboard heat, about 37 % of our peak. They are worse for summer loads, with cooling with AC at 53% of peak. So, on a hot day, they jack up the price. 4 dollars is 40 times higher than here, and they use that method as least cost for AVERAGEE year cost. And 4 dollars is the wholesale price.
      They will not pay for plants to operate that don't produce energy for the grid.So for Holyrood that each unit needing to operate @ 70MW minimum and very inefficient would not last long in Texas. Now did Nalcor consider the Texas style of operation to counter Holyrood as to least cost? Guess so, as all options were considered, right?
      Winston

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    5. Winston, its all about bad energy policy since the 80's. NL always saw, and still does see large hydro on the island and Labrador as the way to go. This mindset has now over built hydro based infrastructure costed to serve a load centre of several millions with heavy industrial to boot. Parcival Copes in the 70's was laughed at when he concluded that NL could only sustain a population of under 500,000. Guess what?

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    6. Our similarity with Texas is greater than I indicated, saying Nfld heat is @37 % peak and Texas 53% for AC. For Nfld 37% for heat is just for residential, and when we add commercial and institutional,it would likely exceed 53 % of winter peak.
      And we get extreme cold snaps at about the same rates as Texas would get extreme heat. Texas uses wind for 20% of power, sometimes reaching 40%. Here Nalcor and MHI "Proved" we can only use 2 or 3 %, or maybe 10% after 20 years delay(while our wind resource is much better). It takes some clever manipulation to prove our wind is no good, but they did it to satisfy most, and seems to have satisfied Commissioner Leblanc. Not much on the record so far to show they were wrong. But then they haven't much looked, have they? The Inquiry lightly inquires into most of the false assumptions.
      Winston Adams

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  8. Thank you, David Vardy, for your detailed analysis and experience on this matter. It is totally nice to read such an article on this blog addressing the exercise at hand as opposed to so many tangents that we all, at times, venture into. FLW

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  9. I write again, after another week of hearings at the inquiry has concluded, and we can now look forward to the final conclusions of phase 1 of the inquiry in another month or so. As you all know, in expressing my opinion of the proceedings I usually write in jest and dry humor as if one were to be always serious then hary Kari (what's the right Japanese word or expressing.) would be the only solution. Jason was on the stand, and "boy what news he told", I thought for a while we might be seeing a return of John Dean from water gate appearing in the dam gatekeeper, but it was not to be. A good guy, diligent, hardworking but misled by the entire "shamazual". Tom appeared, who I always had great respect for, thought he was the only one capable one of being premier after Danny, but my respect for him was lowered by a few notches after being on the stand. He is a honerable man, but has faults like us all, he was too trusting of nalcor, his downfall. He should have taken Regans advice about the Russians more seriously, "trust... but varify". He forgot the most important word. He accepted nalcor as world class, as he admitted on the stand, and drank the cool aid. Then the two Tommies had a heart to heart brief chat on the stand, much similar I would think of the kind of conversations that would occur in the premier's office between govt. and nalcor. Joined at the hip and shoulder. We also saw further confirmation of the fact of the creation of the dual monster Dracular-Frankenstein. Yes, when turned loose they roamed, night and day, from goose bay to the 10 th. Floor at their leisure and own will. They even became political, becoming the hit man squad for the premier and how to deal with the opposition in the house of assembly, writing their notes for them and what words to utter, not only to us, but also to our brethren in QC. Yes there was much evidance given of their control of the elected officials and the people, like the train has left the station, and the tail wagging the dog, full steam ahead, and others too numerous to mention. We were just left dum founded, like the creation of the necular bomb, "what has God wroth" in our own tiny world. Jason even said, but it began to loose some of its vim and vigor by 2017 and integrated teamwork, so he couldn't take it anymore so he left. How many others will be, or are now on the run, " to get away from it all" a wild night mare ask Joe blow.

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  10. I will give Jason Kean credit for having balls!

    His figures were only off by $5.5 Billion Dollars, but his calculations were acceptable!

    Not to mention he worked at the project as an Independent Contractor for about 7 years at the rate of $1200 per day!

    (By his own testimony he routinely billed 5 - 6 days a week at the rate of $1200 to $1300 per day!)

    He also stated under oath that he had ZERO experience in major hydroelectric projects!

    His background in engineering is in the oil and gas industry!

    There is little doubt that his “one man firm” made millions of dollars off of this project!

    So exactly what did we pay him all of that money for?

    I also think that this guy has much more to offer but Justice LeBlanc wouldn’t let him go there due to the scope of Phase 1 of the Inquiry.

    Hopefully he will give further testimony later in the Inquiry process?

    Crazy stuff!

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    1. When running smaller projects one sometimes recalls the Management by Objectives idiom; "If you don't know where you are going, any path will get you there". Once an EPC run project gets under way ,the "process" drives the tasks, at greater and greater cost, producing more and more waste. Remember, that if you are engaged by Houston to get "first oil", cost is not a factor because there is an endless supply of money to pay high priced help, doing dubious clerical functions.

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    2. All the top executives at Nalcor came from the oil and gas industry and it seems they brought their junior lackeys with them to blindly do their bidding.

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    3. no no, try 10 years, he was there for 10 years. And he hired his wife in a high pay position also. millions x2 .... it goes on and on and on .... stay tuned.

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    4. What do you mean ZERO experience - did he not say he worked as a student in 1997 at Nfld Power ?

      WOW ! I guess the students at Hydro in the early 90's could have been VP of the project .......

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    5. Your know his 5.5b was spot on ! Perfect ! Not a ting wrong wit it bye!

      If you need it to beat the island option and git that MF project going !!!

      And lets just say maybe git 10yrs work fer yerself :)

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    6. Anon 12:07

      I just about cracked up laughing when the Inquiry lawyer asked him to describe his experience with NL Power that he had quoted on his CV!

      As good as a he was spreading his BS in the rest of his evidence he couldn’t come up with enough descriptors to try and make his “student placement” sound like something significant!

      Hilarious!

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    7. Hilarious! I'd say........if it was not so dam serious !

      World Class ! I'd say.... would you let a world class oil and gas guy do your heart by-pass? would you let a world class accountant work on your cancer treatment ?

      No world class oil and gas guy should lead the estimate on a hydro project........ and ten years experience !! NOT world class, just cutting his teeth I'd say

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  11. Off topic; So how many litres of fossil fuel do you and your friends need to park in the new Avalon Mall parkade? The "Non carbon tax" is no incentive to reduce your dependence on fracked fossil fuel;

    https://www.newnrgeconomy.ca/our-stories-1/2018/11/7/you-can-go-far-with-goelectric

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  12. How about the Bombardier meltdown with bonuses for incompetent executives from billions in federal and provincial tax dollars. Lots of selloff and belt tightening required there yet with lots of job losses to come. Financial fiasco or boondoggle?? aided by the taxpayer.

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  13. Don't look now but oil is starting to tank. If oil goes below $50/barrel and interest rates continue to climb, this place is DONE. Tommy O might actually have to do something. That should be interesting.

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    1. Norway showed how not to balance the budget while relying on corrupt fluctuation in oil. Alberta still has not learned how. Early on after the Hibernia strike, intelligent people like Cabot Martin, gave wise counsel regarding the Shetland fishers and smarter "wegians" approach to containing Big Oil. DW, flush with $3B cash, bet the house, all in, on Muskrat. He lost big time, and ratepayers must pay the debt!

      Delete
    2. maybe go back to selling shoes or cars or whatever it was he has experience in ?

      Delete
  14. Yes, I fully agree and support that there should be a class action against this PPA. I am not a Lawyer but I wonder if the requirement by the federal govt for the loan guaranty which NL used as justification for PPA would pass the constitutional test.Under a Democratic society we are forced to buy from a single source.
    The question is how a class action could be initiated?

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    Replies
    1. Speak with Ray Wagner in Halifax about a class action suit.

      Delete
  15. Kean, much more than any other witness, often used the word philosophy in his answers to questions.
    I read that philosophy can lead to wisdom and to critical thinking. I also read that philosophy is subjective, unlike science.
    Kean is also a mechanical engineer, a graduate of MUN and also with an MBA. Engineering is based on science, evidence and math, etc, and not very subjective. Mechanical or electrical and civil engineering follow rigid criteria and laws and formulas, that are highly reliable.
    So how did Kean with both training in engineering and business and fond of philosophy go so wrong, with projects costs about double. He says he understood bias, and avoided it.
    He quit he says in 2017 with disagreements how things were now being run. We know production improved under Stan Marshall, who likely has a philosophy different from Kean's. Marshall also called MFs a boondoggle.
    Did Kean preaches one philosophy but practised another? If it is difficult for Marshall to put MFs back on tract, where would it be if Kean was king at Nalcor.
    Winston Adams

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  16. Issues:

    1. Anonymous comments. Having learned how to reply and post, I feel conflicted with those liberties. It’s easy to be an arm-chair critic but there has to be a practicable limit to freedom of speech and making opinions, informed or otherwise. This blog has very few people who identify themselves. You all know who you are and are not. Perhaps, it is time to change this blog format to identify yourself when you comment.
    2. Comments on this blog are becoming more personally focused and derogatory; as well as being focused on specific interest objectives. Perhaps, it is time to initiate another blog specifically focused on the Inquiry objectives and TOR.
    3. Inquiry to date has been exemplary in its project management, scheduling, professional conduct, decorum and focus. There has been screening; with expert witnesses, along with the evidence based witnesses.
    4. Bloggers are quick to jump on any witness who serve their bias. This week, we heard from, among others, Marshall and Kean. Counsels and the Commissioner are doing what they are paid to do. Read the TOR and its phases and, in the end, by Dec. 31, 2019, the Commissioner will report. Kean, for example, was tasked with duties and functions and carried them out. Personally, I see him as a professional engineer; well credentialed; and providing evidence and facts that the hearing will rule on. As a fellow engineer, I say there is no couth to kicking him about his cv, etc. Facts are determined by the Commission. MUN graduated many fine engineers from its co-operative engineering program. It’s a very bright light on the history of MUN. Earlier, this week, we heard from Dr. Bruneau re natural gas options. He did that as a professional duty in his position and background. Kudos to him.
    5. Let’s look at the CCC. Well informed threesome. At least, one in attendance at each public hearings. If CCC has a website, I am not aware of it. CCC membership to gain standing status at hearing is probably around 250 members. That’s around less less than 0.1% of the voters in NL. There’s a school of learning from the CCC leaders but will it make any real difference?
    6. The Commission will likely report after the next election. Will Ball or Crosbie be the shining light to lead NL forward with Muskrat on stream? Perhaps, the stewards of opposing MFP, and followers, should organize and prepare an alternative provincial party for the next election in 11 months. Otherwise, tune in to “days of our lives” or “the young and restless”.

    God guard thee NL. Fred Wilcox

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    1. Well then, if you don't like the way this blog is set up for commentary, then why don't you go ahead and set up you own blog?

      It's a free country, yah?

      Delete
    2. Hi Fred
      1. Really enjoyed your lengthy post on your family history, to the Napoleon war era, then your family fishing rooms on the Labrador and work experience here, and finished up suggesting we should be on better terms with Quebec. A pleasant detour, and for me interested in Nfld history. It was personal, but informative and added to this blog, and our shared interests with PQ. If this blog followed your item 2, that comment of yours would be deleted, and some history gone.
      2. The Inquiry so far has exposed much, but I think conceals much, and would agree more with AJ's view below, and hope it is not another boondoggle. But still, so far better than I expected, but I think the TOR are too tight to expose many of the false assumptions.
      3.As to Kean, I did not see but less than half of his testimony, but for me it was disturbing. One item: the important sheet that he had and says MHI had seen , but MHI says no, if I am correct.
      To me this whole MFs boondoggle is an engineering mess, a shameful affair, and a stain on the profession. An exception, is Bruneau. Just yesterday I was told of engineers (but not their names) who quit Nalcor because they refused to do things they thought wrong. Will the Inquiry hear from any of them? Have they sought them out for evidence? It seems too much so that engineer must stick together, like the police crossing that thin blue line. If all, or most acted professionally, this boondoggle would not have occurred , is my opinion. I do not say this is fact, but an opinion.
      3. Agree that the CCC has too few members. Was not Bruneau unfairly attacked by Tom Williams for being a member of the CCC, on 2 occasions.
      4. That MFs will be on stream in 2019, or 2020 is an assumption, I suggest. Perhaps those opposing MF should propose an alternate least cost option going forward for our power needs on the island. If MFs is not on stream and reliable, we are in a real pickle. Should there be a Plan B?
      5. As to God guarding Nfld, it is said that God helps those that helps themselves. We have long had the fox, not God, guarding the hen house for Nfld governance. The public disengaged and incompetence and cronyism rules. Little is questioned, and now the big Inquiry, and many questions.

      Most all at the Inquiry wear the poppy this past week. This historic year event now 100 years ending WW1. Little did we question our involvement , the cost , the sacrifice, and the aftermath to this province, as we jumped right in. Then the creation of Memorial University. We should reflect on that as to the outcome of this Inquiry: what gets questioned and what gets exposed. Thread lightly on reducing our freedoms such as they are. Most are anonymous here, being afraid of consequences.

      Keep posting Fred, perhaps other engineers will join us. Best wishes.
      Winston

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    3. Fred Wilcox @ 00:57.
      There is a very good reason why I (and I suspect the majority of others) wish to remain anonymous. I have grandchildren who will be entering the workforce within 2 years. With the vindictiveness of DW and others of like mind, it would make employment prospects in this province, sketchy to say the least.
      Even though you are a former NLer, you are living in another province making you and your family immune from the wrath of these people. They got where they are and the deplorable situation we find ourselves in, by crawling over honest people to suit their own agenda. Anonimity is crucial.

      Delete
    4. Anonymity is, unfortunately, a must. If I used my real name I would be fired.

      If you are a unionised government employee, you will be blocked from promotions and harassed. If you are in government management, you will be fired. If you are a contractor and your employer depends on government contracts, you will be fired.

      Professor at MUN without tenure yet? Speak up and that tenure will never happen.

      Whistle blower protections in this province are a farce.

      This blog has had many articles and great comments that would never have existed if real names had to be posted. For example the articles on schools (missing structural steel, collapsing walls) had the name of a NLESD employee on it, he/she would have been fired. Same for MF articles had the author been SNC or Nalcor.

      This is a very small province with about half a million people. It is run by cronies and rife with nepotism. If you upset the status quo you had better be wealthy, retired or willing to relocate.

      Delete
    5. Anonymous10 November 2018 at 20:52 does our brain function improve when the jackboots are lifted from your throat? Your self imposed fear and your loathing of any self respect is what keeps the feudalism perpetuating.

      You have nothing to fear but your own embrace of the nepotism and crony capitalism that keeps those boots firmly planted on your throat! If a handful stand up to the bully he will shrivel before your eyes like Alice's Wizard and whine away in Gall Way.

      Delete
    6. Just want to add my two cents worth here. Two points. 1) everyone should write similarity as 20:52, just to spread the facts as stated by 20:52 and bring such comments squarely into the media, nalcor, govt. unions every work place in the province so that it becomes the talk of the town, open line shows etc. Bring the beast in plain view so those in positions of authority, hiring etc get smoked out, villianized, walked on and they feel the boot pressure on their throats, and can't breath. The tables need to be turned. So everyone write their comments, anonymous or otherwise, not only here but everywhere. Point 2: I have always said and still maintain, that it is also everyone's democratic right to write anonymous, as as it is to vote in a secret ballet. It is the basis of democracy. And of course people should not live in fear, with or without their name attached. As for secret votes I think we are still much better of than in some places, like Florida , etc. With the shamozles going on there. So if ,my name is Joe Murphy, or Joe Smith, there are dozens of that name in the phone book, and lots not in the phone book, so if I choose to be Joe blow, that is my democratic right, even if Bruno, lol don't agree.

      Delete
  17. Doom da doom doom
    Doom da doom doom
    Doom da doom doom da

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  18. Will the inquiry provide the answer to the two fundemtal questions; 1) did we need the power. 2) was it the least cost option? Will judge Leblanc really answer those two questions, unequivocal? The entire inquiry so far has been about the integrated island option. About DG 2 and 3 numbers, and what were the contengecies. Nothing about the island isolated option. Dr. Bruneau talked about natural gas. TM Heard of the urgency that we would run out of power by 2018 or around there. He didn't really elebrate who told him that. But guess it was NL hydro or nalcor. But no facts, papers presented this as a reality. So are we going, the inquiry, simply graze over that question similarity as KD, like that's a no brainer we need the power. Is that a GIVEN??? I think it's hogwash. The real question is how much power was need and when??? If the inquiry doesn't come to terms with that question, they it will proceed on false, unfounded basis, similar to Nalcor's boondoggle and then you could also call the inquiry a boondoggle too...or maybe a little boondoggle. But a boondoggle is a boondoggle....they just vary in size and we still all pay for the boondoggles. Some will say we have proof positive that we needed the power because of DARK NL. I say that was sabatoge!!! Sabatoge by nalcor to convince the people we needed the power. They cancelled the 3rd line from BDS to the eastern Avalon. They denied holyrood funds to be keep in a proper ready maintaince condition. The Liberty report told us that. What else did they do to cause sabatoge and DARK NL??? I bet there are no reports floating around on that subject like the report of nalcor preparing briefing notes for the HOUSE and the HIT SQUAD. Ho no they were long destroyed if they ever excited. Suspect they were just verbal, a wink and a nod..says Joe blow.

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  19. Just a side commentary on the lamentably sordid carnival currently playing out in the HOA under Ringmaster Dwight Ball... the level of loutishness and sheer idiocy afflicting many, many MHAs throughout the ages... has truly reached stratospheric heights with the ridiculous, childish, and shameful antics of Eddy Joyce and Dale Kirby.

    That the likes of these two tormented wretches were actually elected to public office is a very, very poor reflection on the judiciousness of those who were foolish enough to vote for them, as well as Ringmaster Ball who ensconced these two ill-suited clowns in cabinet portfolios.

    Most unfortunate... most unfortunate indeed.

    https://www.thetelegram.com/opinion/columnists/pam-frampton-sorry-seems-to-be-the-hardest-word-257985/

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  20. Everyone take a look at nalcor and mfnalcor websites, are they outdated and out of sync?

    Still oil references, didn’t they take oil away from nalcor?
    Interesting how link to lower Churchill project is under oil and gas header on nalcor site.
    The link goes to an old page with a link http://muskratfalls.nalcorenergy.com/
    On that page find

    Our team recently completed the energization of the new switchyard in Churchill Falls – making the transmission system another step closer to delivering first power. Achieving this milestone was the combined effort over the past five years from General Electric and a number of local companies including Johnson’s Construction, Olympic Construction, Cahill, Grey Rock, K&D Pratt and JSM Electrical.

    Somewhere else I read the GE component is new systems never before tried in the field, this may or may not be true, as, for example was the rumour about the turbine design, which is proven technology.

    UG should get someone to parse nalcor’s public face and look for anomalies and any cyber obfuscations as might exist.



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    Replies
    1. I suspect that most followers of this blog will recall that MHI said that the industry deviation standard for forecast accuracy is + or - 1% per year.

      So, e.g., a forecast at year 10 of a 10 year forecast should have a deviation of no more or no less than 10% of the actual load for year 10).

      So, assuming that the same standard applies to the 57 CPW forecast period, do anyone have an explanation as to why Nalcor's 57 year forecast happens to be almost exactly 57% above the first year actual, year 2010 (not year 57) load, of the 57 year CPW period?

      What are the odds of that?

      If Nalcor 57 year forecast is 'ecometric', what is the likelihood of year 57's forecast load being almost precisely 57 % of year 2010's actual load?

      Seems odd --- more than odd, to me.

      Did they just multiply year 2010's actual by 1.57 and then work backwards (to have it look like the forecast was within the + or - 1% per year standard, and in that way have the forecast APPEAR to be within the 'reasonable' industry standard?

      Wouldn't the odds be much more likely that the load at year 57 would be well off, not even close to + or - 57% of year's 57 actual load?

      In other words, did Nalcor even use 'econometrics' by starting at year 2010 and forecasting 57 years out, or did they simply multiply year 2010's actual load by 1.57 and then work backwards to fill in the blanks?

      Delete
  21. I think 2nd last para, should read

    "Wouldn't the odds be much more likely that the forecast load at year 57 would be well off 57% more or less than year 2010's actual load? It should not likely be at or very close to 57% more or less than year 2010's actual load".

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    1. MA @ 15:05:

      I would say the 57% in 2010 is a coincidence, not really sure how it couldn't be otherwise. It is evidence of very poor modeling as are the costs escalating 100% are of poor estimating.

      But to your point, the 1% needs to be compounded (ie 57yr variance is actually ~76%). To keep these type of very long range forecasts honest there is usually a re-baselining period - say 5-10yrs. In the case of 10yrs the variance should only be 10.5%, so ongoing corrections can be made. Unfortunately, considering the capital investment into MF, re-basling after it was started was pretty useless anyway.

      The long period, uncertainty, small quantity of demand wrt MF supply are exactly the reasons 57yrs shouldn't have been used. For example if MF was only 20% of NL supply the problem would be modeled differently, considering it is promoted at ~50% of island supply (I do know it will never produce 824MW - but just as an example)

      PENG2

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    2. If 57% in 2010 is a coincidence then I would love to have the person with that ability by my side in Los Vegas.

      It could be otherwise by just multiplying 7606 GWh (2010 load) by 1.57.

      Wouldn't that be about 100 times more likely than such "a coincidence"?

      Delete
    3. MA @ 18:08:

      Well, its either coincidence or they dont know math as you surmise. If you are correct, the escalation should actually be 0.795% compounded, not just 1% simple.

      In any event, we agree its wrong. I dont know - I give my best explanation above, or at least how it should be done.

      PENG2

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    4. When u say that escalation should be 0.795% compounded, are u referring to what Nalcor says is a compound average growth rate of 0.08 % annually?

      Delete
    5. Yes, of course, an average 0.795 compounded (and I think my last should have read 0.8% annually).

      But what I am suggesting is that all they seemed to have done is arrived at the 57 % simple math calculation for year 57 and then plugged in the numbers necessary to give them that average 0.8% growth rate (with some variation over some of the years to achieve the average of 0.8% annually --- working backwards to show the result they wanted.

      Delete
    6. MA @ 19:00:

      Yes - 0.795% compounded for 57 yrs is ~57%. Likewise 1% compounded for 57yrs is ~76%.

      either way, numbers like this should be re-baselined every 5-10yrs. So ineffect you are never dealing with a 57yr guesstimate.

      PENG2

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    7. MA @ 19:27:

      OK, now we are on the same page. I just think the 57% and 57yrs is a coincidence - as opposed to say 45% or 68%.

      I do agree that for some reason 57% was needed and the ~0.8% was derived backwards. Why 57% - I dont know, I would say there is some combination of 'realistic growth/decay', decommissioning Holyrood, Cat Arm issues etc that made +/-57% less a factor of safety the desired number.

      PENG2

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    8. No one seemed to question my figures of least cost posted Sept 26. I just found my figures on Vision 2041 from 2012, as published in the Telegram, for comparison.

      From 2012: 78 MW of island small hydro and wind I estimated 1 billion cost, 1/5 of MFs (5 billion less ML?) CDM is self financing by energy savings.
      Sept 26: I increase island hydro to 15OMW for 750M, and 150 MW wind for 400M, new gas turbines for 500M , total of 1.75 Billion. Almost 1/8 of present MF. CDM is self financing
      CDM max potential is about 600MW reduction, but would need much less, and over 300 reduction can be had just from domestic space heat.

      So if the Inquiry is just trying to show that the Isolated option could be just marginally below the MFs estimate, that is rather deceptive if the Isolated option is actually many billions lower.
      Without such an analysis for comparison, the Inquiry is, I suggest, playing the same trick with the public as Nalcor was.
      And End Use forecasting was ignored,(critical for CDM) which was more important than the econometric approach. Both should have been uses.
      Winston Adams

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    9. My reading of Hatch since Sept, suggest 300-400 MW of wind would be better amount, and ramped up quicker, and also I think wind providers would pay the capital cost ( instead of Nfld Hydro,) and agree to sell wind just when needed, so no water spilling occurs. Hatch seems to have been manipulated with constraints, and also many "rewrites" after consultation with Nalcor), a bit similar to MHI it seems: give us the report desired. S, on one hand Hatch suggested a very small amount of wind over 20 year span, and this of little value, then MHI did a off the wall cost of over 1300 MW of wind with battery storage for about 17 billion cost. Nalcor certainly never asked the consultants to apply the Goldilocks rule, to find least cost.
      WA

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    10. Agree, if the inquiry is going to be worth its salt, at all, it must tell us precisely the cost of the isolated island option, and in comparison to the integrated island option. That should also be compared at phase 1 of the inquiry, as well as in phase 11 of the inquiry, just to show what fools those nalcor people were in terms of giving us a true comparison and the lesser cost option, and fooling the public and getting us in this mess. Also of course in the island isolated think they included 13$ billion over so many years to get it up to the integrated option, using of course erroneous predections of future oil prices. Haven't checked the terms of reference lately of the inquiry to see how specific it mentions the comparisons and the need to get to the very bottom of that decision as well as how much power we needed and when. At every opportunity that should be front and center before the inquiry to ensure that the judge deals with it to the greatest extent possible. Those nalcor people should be made to eat their words and reports, all as a part of the public flogging, as I doubt any will be charged in a criminal court says Joe blow.

      Delete
    11. Consider the foolishness of spending 600M or more on polution control for Holyrood as part of the isolated option, that was not required, and if done, still an old plant that was obsolete, and could have had all new gas turbines there for less than the polution controls, and now still needing Holyrood and it is not reliable , not even this winter: so worst of all happens: still no power form Labrador, and no reliable Holyrood , just an obsolete plant. How much foresight was required to see this? Was this in Kean's risk analysis?
      WA

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    12. Agree with Joe Blow that a reconstruction of load forecast and isolated island scenario are needed to give the Inquiry a true baseline. PUB needs this too.

      Totally agree with WA that Holyrood upgrade was wrong solution. The steam turbines are the wrong tech for our type of need but firstly we have to reduce that need to the smallest possible by CDM.

      Small quibble for MA and WA: why turbines? If CDM is fully exploited first as it should be, and wind additions providing some boost to capacity, are diesel turbines the right solution? Will there be any constant baseload left to serve - if so then a CCCT plant might make sense. If the load is less predictable but still likely then more agile CT makes sense. If the need is mainly backup to intermittent wind, then big piston engines have excellent efficiency, rapid startup, and none of the cumulative start/stop cycle issues as do turbines. Maybe piston engines have more upfront capital cost but if the power demand isn't too huge they need to be considered. Companies like Caterpillar and Wartsila are selling complete lease/PPA diesel/wind/solar/battery packages in the 200MW+ range that look like they'd be an excellent supplement to our existing on-island hydro and might be more feasible than developing new on-island hydro. Not sure whether industry had this base covered in 2010 but certainly heading into 2020 there is are good looking turnkey packages available.

      Delete
  22. Question! Are those who are asking the questions getting consultation from those in the know. It is quite obvious that people like Tom Williams are being coached by those trying to protect their reputations?
    It looks like the all "right" questions are not being asked or delved into properly.

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