Wednesday, 26 September 2012


Note: Uncle Gnarley wishes to acknowledge and thank "JM" for having written today's Post.  "JM" will also write part 3 of this Series.

JM took the bottle of Balvenie and placed it on the board room table.  He placed good catholic disbursements to each of us, as he seemed to collect the thoughts in his head. 

“Uncle Gnarley this issue is a complex one indeed.  It is difficult to argue the Premier’s position that it is prudent to invest our current oil wealth for future generations of Newfoundlanders.  It is a noble effort and I believe that the Premier is sincere when she speaks these words.  Yet, with rumor of recent cost increases, I am more troubled by this great project that they call Mush-rat Falls”.
With that JM took the first sip of the golden nectar.  Despite his preference for Rum his response confirmed that he was well accustomed to the peaty taste of the Scottish juice.  “Muskrat Falls represents one of the greatest public works projects in our province’s history, the type of project that engineers and tradespeople dream of working on.  Yet our economy is booming, labour is in short supply, and project costs are increasing due to the other resource based projects.  If you remove all the arguments about demand forecasts, and overall feasibility I just don’t know why the government is doing this project now.

“Roosevelt built the Hoover dam during the great depression.  It provided a livelihood and hope for a generation of Americans.  However, we are completing Muskrat Falls in a time which is so busy that Newfoundlanders will not be able to truly benefit from its construction, despite the fact that their tax dollars will fund it.  Why are we doing this now?”
It was clear that Uncle Gnarley was animated, and eager to long join a debate with someone near his own caliber.  But as I thought he was about to embark on one of his own lengthy discourses, he seemed to rethink.  Happy to hear more from JM he asked what, at first, seemed simple enough.  The question was not just loaded, it was lobbed, as if it was a test for JM:  “But don’t we need the power now?”

JM looked out the window as if to lament a forgotten past. “Gnarley, I have lived in all parts of this great island.  It is easy to be blinded by the prosperity in St. John’s.  But, you know the severe economic realities of the rest of the province. We have lost two paper mills in the past ten years.  The third one, in Corner Brook, is also on very shaky footing.   The load forecast provided by Nalcor can only be considered optimistic, at best.  It was derived from simple extrapolation techniques as opposed to end use modelling as recommended by Manitoba Hydro.   A recommendation by the way which Nalcor ignored”.

As an outsider to this debate, I thought that the man known only as JM had created a fatal error.  Sounding like Minister Kennedy, I blurted out, “Well what about Labrador Mining… the iron mines will use the power”.
With this both Uncle Gnarley and JM turned and provided me a look of common sympathy.  After a prolonged silence it was my wise old friend who piped, “Nav, you have just propagated one of the greatest misconceptions about Muskrat.  Selling power to Alderon may not lower the cost to you or I, in fact, it is likely to increase the rates!”

It was with that I simply set back confused about this very profound statement.  It was JM who was next to speak.
“This is the subject of Volume II of my discussion papers, Nav.  But the truth is that any power redirected to Labrador mining provides us a reason to rethink the entire Muskrat Falls Plan.  Since the beginning we have heard government’s rational for the project.  There is 20% for Nova Scotia, 40% to replace Holyrood, and 40% left for market activities such as mining.  Initially this is true but, over time, the 40% required for the island will grow.  It is this growth which will pay for the plant, and most importantly, for the transmission line”.  With this JM raised from his chair, and proceeded to the whiteboard and started to lay out some numbers.

Muskrat Online            +824 MW   2017

Holyrood Closing           -466 MW    2022

Emera Delivery            -167 MW    2017 for 35 yrs

Alderon                       -100 MW    2017

Other Mining               -50 MW       Estimate

Net to NL                      41 MW   

“Nav my friend, if Minister Kennedy says that without Muskrat we will need sweaters by 2019, then even with Muskrat we will still need those very same sweaters by 2025.”

Uncle Gnarley knew the consequence of this calculation, and the cogs and wheels were turning in his very own well-oiled engine.  JM himself was also building a great head of steam.
“Gentlemen, my original recommendation to build the transmission line to Newfoundland, but to delay the generating plant was not only an opportunity for the government to save some face in light of the massive expenditures it has made.  I honestly did believe it is the right thing to do.  Although the link may be more costly than natural gas, it is a good investment for future generations of Newfoundlanders.  When the Upper Churchill contract expires, in 2041, the link will provide access to very cheap energy, to help fuel industry we will desperately need when the oil runs out.  The new revenue from Upper Churchill exports, in 2041, will allow us to build the plants then at both Muskrat and Gull Island.  When energy prices will hopefully have rebounded.”  

With this JM took a long drink, looked up at the ceiling and sighed.  “But, Uncle Gnarley, one thing is clear.  If we sell any power to Labrador mining there will be little power available for export through the Maritimes.  We need the 167 MW to make sure we don’t have to take up knitting to keep warm.  I am not sure why the government is so keen to build this dam Maritime link”.
Uncle Gnarley then asked, “JM this is powerful information.  If the mines in Labrador want the power should they not build Muskrat themselves”

“Uncle Gnarley, the mines would never build Muskrat themselves… because it is cheaper to buy the power from Hydro Quebec.  At least for now.  Unlike Nalcor, they do not have a regulated return, and the population of the province to pay for it.  They are in the business of making money”.
The night’s debate, taking a toll on both these gladiators, Uncle Gnarley asked one last question.  “JM following all of your research do you still think we should build the link to Labrador”

“Uncle Gnarley you are a wet economist.  It is the numbers that excite you.  Your modest proposal of building the link to Labrador, using recall power and then small power purchases from Hydro Quebec is certainly cheaper than Muskrat Falls.  But it is also cheaper than the isolated option.  This cannot be forgotten.  It is an investment for our children, as it will limit what they have to pay.  The link will remove oil from the mix, it will allow some more wind to be built, and it will open up other small hydro projects in Labrador.  It will help us provide power in the winter when we need it.  As a run of the river plant, this is Muskrat’s greatest weakness….
“But my original caveats stay the same.  We need to have an independent review of the demand projections, which are built from the bottom up.  If the demand projections are high, which I think they are, our rates will increase.  If the demand is as Nalcor predicts, then we will need replacement energy in the winter.  It is a formidable task. 

“We also need to see what LNG imports cost, as well as gas imports from the Grand Banks.  You see Uncle Gnarley this was Nalcor’s greatest mistake.  They put on the blinders and proceeded with Muskrat without looking at all the options.  This was outside the process defined in their very own Gated project management procedures. Now there is $400 million spent on a development and we do not even know if it is the lowest cost alternative.
One final point must be made.   We are not “pot committed”* as we need the politicians to choose the option which provides the best solution to the province.  They need to remain open minded.  I only hope they are up for the challenge”

As the night drew to a close there was a look of common desperation between the two debaters.  They both doubted the truth in JM’s last statement.  It was going to be an uneasy night of sleep and both Uncle Gnarley and JM would separately consider their next course of action.  However, I, the third wheel in this evening’s proceedings, was a little more at ease.  It was obvious that there was a willing alliance in the making.  A formidable alliance indeed!        

*“pot committed” is the act of having "put in so many chips", or otherwise risk of consequence, that you might as well follow through with the plan.(Source: