THE POPE AND PAUL DAVIS

2014 could be rightly named the year of missed opportunity.  It didn’t begin with Paul Davis at the helm, but it ends that way. Already hindsight confirms that, in contrast to Pope Francis who will never have to face re-election, Davis’ failure was pre-ordained.

Almost at the start, Premier Dunderdale vacated her post amidst appalling insensitivity to widespread public endangerment and economic disruption.  Nalcor had visited upon the Island the vicissitudes of DARKNL. Her “not a crisis” comment was just the latest in a series of gaffes exhibiting an incapacity for empathy. A frustrated public had reached their breaking point.

Temporary first minister, Tom Marshall, took no opportunity to right what had become a ship-wrecked administration. While opinion polls awarded him barely higher marks than his predecessor, the local media did its best to award him an undeserved pedestal. The man of great girth warranted little stature.

THE 'ADVISORS', 'BOOSTERS', AND 'SHILLS'

Last week the Minister of Finance confirmed what everyone knew: lower oil prices are a wrecking ball for the 2014-15 provincial budget. While no one forecast $60 Brent crude, equally we should not be surprised. Events such as this have long been a feature of resource based economies.

When we say commodity demand and prices are ‘cyclical’ that doesn’t mean they go up and then go up further.  Prices fall, too, often hard and precipitously. Anyone who has invested in the stock market has felt the euphoria of conquest. But nothing always stays the same. When the market turns, the whiplash of price swings guarantees that those having danced with, and perhaps married risk, get stung. The markets do not discriminate between the well-intentioned, the prudent and the foolish.   

The word “prudent” made its way into the Finance Minister’s budget update. Said Ross Wiseman, “In the shorter term…we have to be prudent and adjust our oil price forecast for the remainder of this fiscal year.” The word has no meaning for this Minister; short or long term.

CETA: RETURN OF THE KEYSTONE COPS

The Keystone Cops were fictional incompetent policemen, featured in silent film comedies. In Confederation Building these days, it seems a comedy of errors is being played out by our very own version of the Keystone troupe; though no one is laughing.

Loss of federal funding in relation to the Canada/European Trade Agreement (CETA) has stirred up a new war with Ottawa.  Premier Davis might like you to pick up placards and show your outrage. My advice: save your energy.  The ineptitude is right here.

Even though the CETA issue is not about high sounding principles or constitutional rights, the controversy involves a lot of money. Whether the Province ought to have levered funding from a trade deal in which it was also a beneficiary is moot. Now we are left to ask: how could a deal deemed by Dunderdale to be “done” completely fall off the rails?

This story involves more than just a dispute over phraseology or even intent; it is about naivety and over bearing confidence. It calls into question the judgment of the former Premier (one more time) and the professionalism of the bureaucrats who headed the negotiating team.  

NALCOR: THE 'BULLSHIT' STILL THRIVES

There was a time when an appearance by public servants, in front of the media without the presence of their Minister, was a rare sight.  Any such briefing was limited, technical, and forthright.  If ‘spin’ were needed, it remained the Minister’s job to provide cover for the government. Public servants are not politicians.

Since the Williams’ Government hired Nalcor CEO Ed Martin, the Minister of Natural Resources is often nowhere to be seen. Martin has been handed the policy and conducts the implementation role; there is little evidence the Premier or the Minister are knowledgeable enough to be conversant in Nalcor’s entanglements.  Nalcor’s Board of Directors is composed largely of political hacks whose part-time oversight capacity is fundamentally meaningless.

The level of risk to the public purse and to programs and services of Martin’s investment schemes are increasingly evident, as oil prices fall precipitously and overruns on Muskrat are reported. Unfettered by political control, Martin runs a Crown Corporation using public money in the billions; the amounts have no precedent.  The practice seems publicly acceptable because they are thought to be ‘investments’. 

WHAT IS PREMIER DAVIS TO DO?

Following the P.C. Party’s defeat in last Tuesday’s two by-elections, one might have had some sympathy for Premier Davis if he had not been part of the Dunderdale and Marshall Governments.  Davis had an opportunity to deal with those years of misrule. He didn’t. 

  

Upon winning the Tory Leadership, Davis should have dashed for the job, attempted to strike a different tone and set a new agenda. Instead, he dallied on getting sworn-in, chose a politically inexperienced Chief of Staff, made a balls of his new Cabinet, signalled the wrong public policy priorities and proceeded to confirm he was happy with the Government’s record. 

Not having caused the current Session of the House of Assembly to prorogue, he lost a strategic opportunity to assert additional ideas for a ‘fresh’ image.   He overlooked the fact that the chief function of a Throne Speech is to signal innovation and renewal to an expectant public.

BEGGING THE AUDITOR GENERAL TO SHOW COURAGE (PART II)

There is little doubt the A-G is deeply concerned over the state of the Province’s finances. In his 2014 Report to the House of Assembly, gravitas is expressed over our dependency on petroleum revenues, the structural deficit, the growing debt, a declining GDP, and other issues.  

Premier Davis would have us believe recent Administrations have exhibited sound fiscal stewardship and there is no need for change. The truth is the Williams’ years, and since, have been marked by a level of financial recklessness that is not only repugnant; it will take years to repair.   

The purpose of this Blog is to not just chastise unwise and undisciplined politicians.  It seeks to illuminate serious public policy issues. The A-G's Report needs plenty of light.

The statements that follow are extracts from the 2014 Auditor General’s Report, specifically Chapter I entitled “Comments of the Auditor General” and Chapter 5, “The Financial Condition of the Province”.  I think those selections represent his most prescient “observations”. (Click on this Link and go to Chapter 5 for more details.)

In my concluding comments I beg, yes, beg the Auditor General to display the utmost courage and uncloak Nalcor CEO Ed Martin and the Muskrat Falls project. First, the Auditor General has the floor:

A-G's REPORT IMPORTANT BUT NOT COMPLETE (PART I)

The Report of the Auditor General for the year ending March 31, 2014 is important for the observations he offers regarding the state of the Province’s finances.  He delivers comment (but no conclusions) on the impact of oil on revenues, the pattern of government spending and how the lack of fiscal discipline is resolving into a serious structural deficit. It is a story told in charts and graphs more than as a written narrative.     

The Report comes as the world price of oil has experienced a 25-30% hair-cut.  Many wonder how the Government will curtail public spending without injuring the economy. Yet, everyone knows the time has passed for the easy method of fiscal restraint.  

The A-G’s Report deserves two very different comments.  

One relates to its incompleteness, though that is partly the fault of the Department of Finance, on which the work is based.  The second is why it is important; a matter which will be dealt with in a subsequent Post. 

THE TORIES: DEATH COMES SLOWLY

The Tories’ loss in the CBS by-election reflects what provincial polls have been telling us for a long time. The Party is unloved and that is being kind.  Premier Davis has done nothing to differentiate himself or his Administration’s approach to either communications or public policy from that of his recent predecessors.  

Does he not want to disassociate himself, at least, from the Dunderdale era?  Does he not understand voters are still distressed by that time?

For all the reasons that are well-known, this by-election was important to the Government and to the P.C. Party. Hoping that the bleeding was at an end and having called by-elections in Trinity-Bay de Verde and Humber East, the Premier might have wanted to proclaim: “Remember, Remember the 5^th of November”! Having lost, he has no rallying cry. The voters are not inspired.  Even the most ardent partisans make no claim that theirs is a Party of renewal. 

The problem is illuminated by CBC political “Point” man, David Cochrane, who chalked up the loss to the Tories being out-hustled by a resurgent Liberal Party organization; except Cochrane has merely identified a symptom, not the source. 

PREMIER DAVIS: TEAR DOWN THAT WALL

Last week a retired Swedish geoscientist, industry leader, consultant, Professor, and internationally recognized expert on “Quick Clay”, Dr. Stig Bernander, spent three days studying what he described as a “live” land mass on the lower Churchill River. He was able to personally view, on the ground and from the air, a great many landslides and see physical evidence of active movement over a large area including the "North Spur". 

He spent another four days editing his notes, selecting photographic evidence and lecturing at the LSPU Hall and at Memorial University on the dangers of Nalcor relying upon “outdated” geotechnical analysis of the problem.

Quick Clays are unique, sensitive glaciomarine clays.  The clay deposits, at the North Spur as elsewhere, occurred when sea water levels were much higher.  They are unstable clays. Their peculiar characteristics are known to cause landslides.  When Quick Clay is subjected to sufficient stress, the material may liquefy. (Locally, some call the clays "pug".)

When a person of the stature of Dr. Bernander, having no connection to this Province, is troubled enough to perform this public service, pro bono, you have a right to think there is cause for concern.

Rissa slide, Norway

When the Vice-President of Nalcor, Gilbert Bennett, shows up at Dr. Bernander’s lecture at Memorial University, not to welcome the man or to acknowledge his internationally accepted engineering models for assessing landslide risk, not even to ask him a question, but only to express umbrage against the Professor, you know the Corporation has gotten far too used to not being challenged by competent third parties.  

THE ‘ROCK’ STAR OF “QUICK CLAY”

The biography of Dr. Stig Bernander reads like that of a ‘Rock’ Star except in his case, he is better known for his work with clays rather than rocks, especially “Quick Clay”.  Some of this “sensitive” material is present at the North Spur, the projection of land creating the natural dam at Muskrat Falls.  It is one of the issues which threaten the viability of the project.

Dr. Bernander, you ask?  Who is he and why would you be interested? I will get to those questions in a moment. First, what are “Quick Clays”?

Quick Clays are unique, sensitive glaciomarine clays.  The clay deposits occurred when sea water levels were much higher.  They are unstable clays. Their peculiar characteristics are known to cause landslides.  When Quick Clay is subjected to sufficient stress, the material may liquefy. At Muskrat Falls, Quick Clay could undermine the structural integrity of the North Spur. Remediation is potentially a money pit.  It is a public safety issue, too.

One of the best known and large Quick Clay landslides occurred at Rissa, Norway.  The slide was videoed as it progressed. The event is as exciting as it is horrifying. If you choose to follow the Link, just be patient for the first couple of minutes and the Rissa video will demonstrate why Quick Clay should be taken very seriously. It is the perfect primer in advance of Dr. Bernander’s Lecture. 

Bernander is neither politician nor bureaucrat. He is a scientist; one with long industry experience.

OIL REVENUES: DON'T WORRY. BE HAPPY!

Bobby McFerrin’s light-hearted lyric “Don’t Worry, Be Happy” seems perfectly suited to Dr. Wade Locke’s analysis, as he explained it to James McLeod of the Telegram last week, on the future of oil.  Dr. Locke is an Economist and Professor at Memorial University.

Indeed, why would we worry when the ass is coming out of the Provincial Budget!

The slide in the world price of Brent Crude, closing at US $86.16 per barrel on Friday October 17^th, is a significant event and not because people will save money at the gas pumps. 

Since oil’s decline began just a few weeks ago, a host of oil producing nations including Saudi Arabia, Iraq, Venezuela, and Russia among others, whose budgets rely on $100 plus oil, have expressed concern that they will feel the sting of lower revenues. While none could forecast the exact day or week that a major correction on the markets might occur, all knew it was coming.

The fact that the U.S. will become energy self-sufficient by 2030 or earlier is old news.  Unlike the Saudis, few oil producing nations have maintained a rainy day fund.

Newfoundland and Labrador is just as reliant, on a relative basis, as many of the countries mentioned.  Oil directly generates 33% of the Province’s budgetary revenues.  The figure does not reflect proceeds from corporate, personal taxes and HST associated with offshore related jobs, construction and services. In fact, oil’s impact on the Treasury may represent as much as 50% of revenue or more when the labour pool doing the round trip to Fort McMurray is assessed.

LEADERSHIP WOES OF THE CONSTABLE PREMIER

Premier Paul Davis knows the sting of political whiplash. Just four weeks ago he experienced the euphoria of victory.  Minutes after his investiture, he discovered no honeymoon awaited him with either the pundits or the public.

It is not Davis’ fault the Auditor-General chose to dump the HVP Report on him, rather than on Tom Marshall, who is as much deserving of blame as Nick McGrath. But Paul Davis is entirely responsible for not ordering a deeper investigation into its odious contents.

As to his other decisions, what does it say about him that he would elevate an uncouth backbencher, Keith Russell, and award him Ministerial status?

The public may not understand the importance of political convention vis a vis the unelected Ms. Manning, but the Premier should.  

Similarly, even a police constable should know that changing the Department of Justice to the Department of Public Safety is akin to replacing an ‘ideal’ with a ‘cop car’. 

THE LIBERALS: NO WAY TO TREAT A LADY

Last week, the public saw Premier Paul Davis appoint an unelected female Minister of Public Safety arguing, among others things, the Government suffers a gender deficiency.  

Meanwhile, an intelligent and successful woman, a fine communicator, the MHA for Fortune Bay-Cape La Hune, Tracey Perry is left out of the Davis Cabinet.  She failed to make the list of the Williams, Dunderdale and the Marshall Cabinets, too.  

But the Tories aren’t the only ‘lug heads’ in politics when it comes to promoting women and levelling the scales of gender equality.  The tricks played by the Liberals in the District of Humber East, to discourage Corner Brook businesswoman Donna Thistle from running, do little to give the Party a legitimate claim to enhancing female representation in the House of Assembly. 

It seems Thistle was a cause celeb when the Liberals thought her a sacrificial lamb.  But when Frank Coleman’s departure from the P.C Leadership also removed him from a planned by-election, the Liberals decided they didn't want a political neophyte to challenge the Tories in the District after all. 

A-G's REPORT INTO HVP UNDERMINES HIS OWN OFFICE

At the outset, let me state that anyone knowledgeable of how government operates will not be pleased with the Office of Auditor General let alone his Report into the Humber Valley Paving (HVP) affair.

I have read the Report.  I am quite certain this is the stuff of Judicial Inquiries. One should be called forthwith. 

How Premier Paul Davis responds to the findings will constitute the standard of integrity that will mark his Office. 

The A-G’s Report, despite its shortcomings, leaves little doubt that the public purse was of secondary importance alongside the Minister’s political imperatives in advance of Frank Coleman’s nomination for the P.C. Leadership.

I cannot remember a time when a Cabinet Minister presided over such evidence-based proof of an abuse of power.  Though the Premier denied having been informed in advance or that he was a party to the cancellation of the contract, it bears remembering that Premier Marshall stated, following the revelations, he believed Minister McGrath made the right decision. Perhaps, now the media will stop eulogizing his short tenure and acknowledge his terrible lack of judgement. We should all be grateful he is gone.

Still, questions remain which the quick resignation of Nick McGrath do not resolve.

This Post should be entirely about the Minister and the other parties who played supporting roles in an affair that stinks.  Instead, my comments are directed towards the Auditor General, the necessity for which, I find disconcerting.  I am sure I will get back to the subject of Nick McGrath later.

DELEGATED CONVENTIONS: REPLACING EXILARATION WITH BOREDOM?

Two weeks ago, delegates to the P.C. Convention and those listening in, via radio and television, got to experience their first delegated leadership convention in 20 years. Some had previously participated in one or more. They likely took for granted Steve Kent’s move to Paul Davis following the first ballot results. Not so the newbies who seemed quite surprised by the drama that unfolded. For them, it seemed, shifting loyalties produced a range of emotions.

Welcome to the delegated convention!

Imagine there were five or six contenders or more; think the surprise, the sense of excitement, disappointment, as hopes are dashed and promises once assured are replaced with those to higher placed and more likely successful contenders. Think of the sense of fear when the votes of a candidate who is dropped are up for grabs.  Will candidate X ‘release’ his delegates? Will he deliver his (sic) delegates to another contender, as did Steve Kent asked his supporters? How many will follow? (In case you were wondering, Kent’s arrival on the platform to thank his delegates and encourage their support of Davis constituted a breakdown in the protocol of Convention management.)

ICECAPS SUBSIDY: NO BRAINER OR JUST PLAIN DUMB?

When news broke of City Council’s decision to award the IceCaps a subsidy of $700,000 over two years, in a private meeting no less, I waited for the key words which might help explain what gave rise to the decision. 

Councillor Galgay supported the measure, spoke at length, but said little. Next day, as social media went viral, in a local context, Councillor Art Puddester acknowledged he was the one who leaked the information and that he had voted in favour.  He explained why he had broken the protocol of ‘private’ Council Meetings but did not address the merits of Danny Williams’ demand. 

Finally, Deputy Mayor Ron Ellsworth, noting the need to respond to widespread public rebuke, acknowledged he had voted against the subsidy and stated:

I just felt we never had enough financial information from the IceCaps, with regards to looking at their financial statements…looking at what the impact of the million and half dollars would have on them and their bottom line. Those are the things I would like to have at the table to make a decision.

Ron Ellsworth confirmed what I had suspected.  The IceCaps did not open its books to Council in order to justify an award of $700,000!

DELUSION AND DECEPTION (PART III)

Written By "JM"

The New York Times recently published an article "Large Dams are Just Not Worth the Cost".  The opening line foreshadowed the main message of the article:

THAYER SCUDDER, the world’s leading authority on the impact of dams on poor people, has changed his mind about dams

Now in his 80’s, and after a lifetime of promoting large dams, Mr. Scudder has had a Gus Etchegary type of enlightenment.  He is now preaching caution against an industry that he spent his life promoting.  He was compelled to go public with his revised assessment after reading the Oxford University study released in March of this year.

The Oxford Paper, written by economists Ansar, Flyvjberg, Budzier and Lunn, is well worth the $10 purchase price for any person who is interested in public policy based upon mega-hydroelectric development.  It is especially relevant for those who want to assess the record of the Muskrat Falls project in a global context.  

The paper reviews the record of large dam construction on the basis of cost overruns, schedule variance, and overall benefit to the economy of the host countries. It is rich in historical references, and global context.  Had the research been available during the Muskrat Falls debate it would have provided an evidence based comparison with the performance of similar projects and provided a much needed challenge of Nalcor ’s billing of the project.   

WHAT WE CAN EXPECT FROM PAUL DAVIS

Inside the P.C. Convention Hall, on Saturday, Progressive Conservatives did their very best to display the intense excitement for which delegated leadership conventions enjoy a special distinction.  As the meeting headed into the second ballot Tories must have felt that, finally, the acrimony of the Dunderdale leadership and the Frank Coleman fiasco had passed into history.

But when the second ballot was counted and a one vote lead by Paul Davis still did not afford him victory, Tories must surely have felt under a curse.  Luckily, the third ballot confirmed what the second intended.  An incorrect and untimely interpretation of a ‘majority’ came close to splitting a Party already demoralized. 

Mr. Davis deserves our congratulations; his two competitors, John Ottenheimer and Steve Kent, can be proud of their participation in an important endeavor; after all, political parties are the foundation of our democratic system. Even when the process delivers a leader of questionable choice, but functions without self-interested interference, we are at least left with the confidence the system is still viable.

Whether Paul Davis is also Danny’s man will eventually become clear.

VISION BUILT ON DELUSION (PART II)

Written By: "JM"

When the Muskrat Falls story is fully written, the date July 22, 2013 may be given prominence as one of those pivotal moments when Nalcor management ought to have counselled the political leadership to change course on its strategy for Muskrat Falls. 

On the morning of that day, the Utility and Rates Board of Nova Scotia (UARB) rejected Emera’s application for approval of the Maritime Link (ML) stating the deal had to be sweetened by $700 million to $1.4 billion (Net Present Value); otherwise the construction of the Link would fail as the lowest cost option for that Province.  

That same afternoon, the Nalcor CEO was advised that Hydro Quebec (HQ) had filed a declaratory judgment in the Quebec Superior Court requesting clarification on the interpretation of the 1969 Power Contract. The contract clauses requiring interpretation by the courts initially appeared routine, perhaps even innocuous in nature.  However, this challenge threatens the very foundation of the Muskrat Falls business case. 

CONSUMER ADVOCATE SHOULD BE TAKEN TO WOOD SHED

The Consumer Advocate to the Public Utilities Board (PUB) is not on your side.

What other conclusion can be drawn from the actions of an Office that gives so much energy to providing cover for Nalcor's devotion to secrecy?  Newfoundland Power, another paragon of conflicted loyalty, is also unsure of the constituency to whom it owes the greatest duty.  It, too, needs a comeuppance.

What is going on?

The PUB has convened a “Paper Hearing” to deal with a request from Newfoundland Hydro (NLH) to quash the requirement that Nalcor answer a list of questions submitted by the Grand River Keepers (GRK) of Labrador and Danny Dumaresque.  Both GRK and Dumaresque are interveners in the PUB’s investigation into DARKNL.  The PUB is compiling information for Phase II of its Report dealing with the “adequacy and reliability of the Island Interconnected system over the short, medium and long-term…after the commissioning of Muskrat Falls”.

Nalcor does not want to answer GRK’s and Dumaresque’s questions.  It is telling the PUB that they are not relevant to the issue it is investigating.

What is wrong with those questions? Let’s take a look.

THE SNOW JOB (PART 1)

Written by "JM"

Edited by Des Sullivan 

The DARK-NL investigation being undertaken by the Public Utilities Board is playing an important role and not just by getting to the root cause of the Province-wide power outages last January. 

Robbed of the protection a narrow reference afforded Nalcor, during the 2011 PUB review of Muskrat Falls, the Crown owned corporation must now answer new questions posed both by the PUB, interveners, and others relating to security of supply after Muskrat is commissioned.  

The new information illuminates the deficiencies in Nalcor’s filings with the PUB, in 2011, and exposes key aspects of a plan which ought to have been released at that time.

The Public may now finally understand Nalcor’s true intent for the Province’s electrical system when the interconnections with both Labrador and Nova Scotia are completed. 

Let’s begin by asking: what has been identified as substantially different from the plan first proposed by Nalcor, in 2010, and what are the implications?   

PRESERVE MEMORIAL UNIVERSITY'S INDEPENDENCE

Memorial University represents not just a place of learning or of creativity meeting the academic needs of civil society.  Its very name is a commemoration of our young people who fought two World wars in order to protect democracy.

For that reason alone, Memorial must never flinch from its obligation to be a source of vibrancy and transparency for our democratic institutions. It should never become a convenient vehicle to promote government policy. It should rebuke government when it uses it fiscal muscle to diminish the University’s independence from political influence.

There is growing concern that such influence is growing inexorably. 

There is no better example than the attempt, a few years ago, by former Premier Danny Williams and his Minister, responsible for Post-Secondary Education, to subvert the process of appointing a University President.

THE TORY LEADERSHIP RACE: IT WON'T BE LONG NOW

For most political parties a leadership contest represents opportunity and renewal.  It is a time not just to listen to voters but to re-connect with them in a way that helps to refurbish frayed nerves and replenish lost hope. 

For some, such competitions are only about policy; a candidate must be perceived an agent of change. Sometimes, it will suffice that the message is believable; the candidate is straightforward and his intentions are simple and clear.

For others, leadership contests are about giving men and women, who have already completed modest missions, a larger stage and to see which of them will shine.

Because each of us has different expectations and recognizes different qualities in the same person, such democratic competition assumes a respectful, even hopeful, multi-dimensional character. 

At the end of it all, each of us want to see contenders who have invested everything in their personal pursuit of high public office; to exhibit the wear and tear of a warrior, the exhaustion of one who has laid bare not just their body but also their intellect and their very soul. 

Even if they are not loved, the hope is they have, at least, engendered respect; a foundation of goodwill on which to build.

When such contests are characterized with such vigor and intelligence, we have reason to believe our democracy is mature, resilient, and progressive even if we chose to vote for the other Party.

Then, there is the reality.

PPA: ABSOLUTE, UNCONDITIONAL AND IRREVOCABLE

The Power Purchase Agreement (PPA) is not a sexy subject though it is important; far more than suggested by the negligible attention it received two months ago.

The PPA defines the terms, conditions and amounts ratepayers are obligated to pay Muskrat Falls Incorporated, the Nalcor subsidiary holding the generating assets of Muskrat Falls.  A separate Agency was established for the purpose of holding and financing the Labrador Island (LIL).  It is not clear if the 51 years of “Base Block Payments”, rising from $148.5 million in year 2 to $933.3 million in year 50, include the transmission costs, too,  or whether we ought to expect a second PPA.

This PPA details, in 196 pages of legalese, a host of obligations on ratepayers via Newfoundland Hydro (NLH).  In typical Nalcor fashion, no details accompanied its release.

Your attention is drawn to Section 4.2(C) (d) (pp. 37-38) regarding “Base Block Payments” which the PPA calls an “Irrevocable Obligation”.  It states:

“Notwithstanding any other provision of this Agreement, including Section 15.1, until the date on which the Initial Power Purchase Agreement Page 33 of 76 Financing is Paid in Full, NLH’s obligations to make the Base Block Payments shall be absolute, unconditional and irrevocable, and shall not be subject to any reductions under any circumstances whatsoever.” (Emphasis added).

Fundamentally, that means Nalcor can lose the Water Management case now before the Quebec Superior Court, the turbines coming from China can seize up, the water can dry up but your obligation to pay is “absolute, unconditional and irrevocable…”

Just possibly, the Consumer Advocate might awaken from his blissful slumber and report to ratepayers, on the implications for them, of this and many other parts of the Agreement.

ED MARTIN’S UNFETTERED SPIN MAKES NALCOR ONE BAD SOE

When Governments run State Owned Enterprises (SEOS) the public have a right to be confident they will be operated professionally.  There are many ways to measure credibility, including Nalcor's.

One might be to count the number of residential style generators installed since DARKNL. Just recently, I saw one group of workmen lift a monster version onto a concrete platform for a private dwelling.  It was attached to a 146 gal. fuel tank!  Is this the low point of confidence in Nalcor? I pondered the question doubtfully.

Another benchmark might require the evaluation of how Nalcor’s senior management treats the public. Are they respectful? Do they treat the public like the the shareholders they truly are? 

Off the top, I suggest SEOS should be more than non-partisan; any politics ought to be minimal. In the same way you never hear of the CEO of the Newfoundland Liquor Corporation bolster any but the policies of that Agency, so, too, has that been the case for CEOs of Newfoundland Hydro; until now. 

THE OVERSIGHT COMMITTEE: STILL NO OVERSIGHT!

If the hot summer sun is making you testy, you’ll get no shade from the Government’s Oversight Committee on Muskrat Falls. 

The Committee released its first Report last Thursday, July 31^st.    

Partisans will say Muskrat critics can find nothing right in this project; I suggest the latter profess the hope they are wrong.  But, hope has a spiritual undertone; a large construction project is a purely commercial undertaking, one to which hope is supplanted with solid planning, analysis and oversight, too. 

On March 26, 2014, following Tom Marshall’s establishment of the bureaucratic oversight committee, I wrote a post entitled: WHY MUSKRAT OVERSIGHT COMMITTEE IS A FARCE. It noted: “… the Premier eschewed demands for project reviews when he was both Minister of Finance and Natural Resources. He supported Premier Dunderdale’s position on ‘oversight’ even as he watched his colleague, Jerome Kennedy, bolt the Cabinet over the issue.” 


Given Marshall's long held refusal to acknowledge the importance of oversight, it was difficult to see how a Committee, one not independent of government, could effectively function.

WHEN LEGACY TRUMPS COMMON SENSE (SOES PART II)

It is fine to suggest the Province ought to have a ‘Crown Jewel’ like Hydro Quebec or Statoil. But, when the motivation for a monolithic State Owned Enterprise (SOE) comes from a Premier, whose business experience is chiefly in the ‘regulated’ economy and whose motivation is legacy, you can imagine other questions abound.

It seems easy enough. Find a need, like electricity; design a hydro project, develop a set of estimates, engage the markets and the public purse to finance it, execute a power purchase agreement requiring the public to pay it all back and then some.  What could be simpler!

Of course, it isn’t simple at all.   

What if the hot economy isn’t conducive to controlling costs, the management team is limited by a lack of basic construction experience, the captive market needs only 40% of the power, possibly less, and you need to achieve 100% cost recovery from just that market?  What if you are forced to give away 20% of the project’s power potential to achieve export access?

What if you agree to incur 50% of the cost overruns on that transmission link and commit all your remaining ‘surplus’ power to keep your export partner happy; what if you are given a not so gentle reminder all the risk is yours and that the benefits of the Federal Loan Guarantee belong to Nova Scotia! 

What if you are told by the Nova Scotia regulator: take it or leave it. 

BUREAUCRATS MASQUERADING AS ENTREPRENEURS (PART I)

We live in part of the world which has a highly developed free enterprise economy, access to capital and to markets; yet, state capitalism still thrives.  

This is not just a Newfoundland and Labrador or a Canadian phenomenon; state owned enterprises (SOES) are a feature of governments almost everywhere.

Norway is one of the most successful of countries engaged in SOES; Statoil is its flagship along with a ‘Heritage Fund’ that is approaching the trillion dollar mark.

Arguably, state capitalism boasts a high level of popular support even in countries where private enterprise is by far the predominant generator of GDP.

In the ’80 and 90s many state governments, including Canada’s, pared SOES after subsidies and poor governance became far too burdensome on the public purse.  Selling them rid the state of their operating losses and helped reduce debt.

In this Province, the Newfoundland Liquor Corporation (NLC) continues to operate as a Crown Agency.  But no SOE, not even NLC, causes intoxication as does the word ‘hydro’.

RETURN OF THE 'JOEY MAN'

“He’s just a Joey Man” my mother once said to me as if to offer protection from verbal assault by one much older.

The lecture to which I was subjected was a vigorous oration delivered by a particular ‘worthy’ in defense of the Only Living Father, as J.R. Smallwood liked to be called. Evidently, I had the temerity to speak ill of the great helmsman. 

A “Joey Man” I enquired of her? What’s that? “Oh”, she replied, “you’ll see lots of them. Their minds are taken over by Smallwood; a single criticism and they’ll tear you apart as if you were a traitor.  My”, she declared, “they get so emotional, if you say anything against their man. Don’t expect them to use any reason”, she added gently; “facts are not their strength...any criticism is disloyal; best to ignore them until they go away” was her final word on the subject.” 

In later years, I discovered that such people come from all strata and are not limited by education, social or financial advantage.   Even some members of the media have earned such a reputation.

T.E. BURSEY WRONG ABOUT MUSKRAT SAYS DAVID VARDY

I am writing to take issue with points raised by T.E. Bursey in his article to The Telegram of July 15 (Muskrat Falls is the Right Project for N.L.). Mr. Bursey seems to believe that Muskrat Falls will be the solution to the reliability problems experienced during the past winter.

Nalcor has posited that emergency power will be available from Nova Scotia in the event of a disruption of Muskrat Falls power. We believe that a thermal plant at Holyrood will continue to be needed and that emergency power from Nova Scotia is unlikely to be available when we need it.

The PUB inquiry, particularly phase II, will weigh the evidence on this point but we question the premise that Muskrat power will be more reliable without continued thermal backup on the Avalon.

Mr. Bursey lists experts who provided "supportive reports and comments." Only one of the listed reports was prepared by an independent group, namely the joint federal provincial panel, which was anything but supportive.

THE CONTINUED BECLOUDING OF ELECTRICITY PRICES by JM

On July 12, 2014 the CEO of Nalcor wrote a Letter to the Editor which was entitled “Muskrat Falls Remains the Best Option”.   Its intent was clearly to counter some of the recent discussion about the final costs of electricity within the province.  Unfortunately, it did little to remedy my concerns about where electricity rates in the province are heading. 

We should begin with a simple clarification.  Nalcor CEO, Ed Martin quoted that:

“In 2018, electricity rates for households on the island are projected to be 16.4 cents per kilowatt hour (kWh), which is about $249 for an average monthly bill, approximately half a cent higher than the rate estimated at sanction of the Muskrat Falls project (15.9 cents/kWh)”. 

Unfortunately,  Mr. Martin is not correct.  

ELECTRICITY RATES: AN INDUSTRIAL-SIZED MESS

It is rare that anyone expresses concern over how electricity cost increases affect industrial concerns, like Vale, Corner Brook Pulp and Paper or the Come By Chance Refinery. 

They possess the financial, technical, legal, and political heft to lobby Governments, seek recourse before agencies like the Public Utilities Board and, if necessary, the Courts.  The public rarely takes notice except when a company’s pending demise becomes front page news.

These days the Province is pretty cocky about its over-hyped economy. The Unions will only sulk when the jobs are gone.

Enlightened public policy will not disassociate the interests of industry from the public interest.

While this Province has long offered subsidies to the sector, this scribe is not fond of schemes that download operating costs to taxpayers and shift high capital costs and risk to their sponsor, the Government. That issue may be worth debating another day.

Still, such incentives are a feature of developed and developing economies alike; they are not likely to disappear.

OTTENHEIMER, DAVIS AND KENT: THREE PRINCES OF SERENDIP

Serendipity is a condition understood to be a "fortunate happenstance"; a "pleasant surprise".  In the context of the Tory Leadership Race that means the likelihood the Province will get a suitable Premier, from one of the three contenders, depends essentially on dumb luck. 

Horace Walpole, an English politician and man of Letters who coined the word ‘serendipity’, in 1754, used it to explain an unexpected discovery by referencing a Persian fairy tale ‘The Three Princes of Serendip’. The Princes, he noted, were “always making discoveries, by accidents and sagacity, of things which they were not in quest of”. 

The requirement of a second leadership process is serendipitous by any measure.  Given the weak line-up of new contenders, sensible decisions from the winner might be an unwarranted expectation.

There was a time when one thought serious candidates for high office possessed ‘extraordinary’ talents rather just those of the ’ordinary’ kind.  Serendipitous hope seems an odd substitute for a more certain skill set.

"MUSKRAT MADNESS" Book Review by David A. Vardy

Muskrat Madness

by Cabot Martin

(Available at Afterwords Bookstore, 245 Duckworth Street, St. John's

and Online at:  http://www.muskratmadness.ca/)

Cabot Martin has once again rendered a major public service to the people of Newfoundland and Labrador by writing his new book Muskrat Madness. It is required reading for those interested in sound public policy.

This is the same Cabot Martin who advised Premiers Frank Moores and Brian Peckford in the early days of offshore development and who helped develop policies to ensure maximum benefits to the people of the province from oil and gas development.

Cabot has now prepared a memoir on Muskrat Falls, an invaluable document that does not claim to cover everything that happened, but which covers many of the key issues including project costs and how they fit into the energy economics of 2014. 

His memoir includes some of his letters to the Telegram. In one of these he concluded that “Muskrat is a dog-unless, of course, you are Nalcor.” In June 2012 Cabot opined that future oil prices are key to the viability of Muskrat. He said “the combination of, say, a 25% increase in cost and a fall to $100 per barrel…would result in  a similar eradication of Muskrat’s economic advantage even as constructed by Nalcor-and that’s actually where we find ourselves in the summer of 2012.” 

Res Ipsa Loquitur (THE THING SPEAKS FOR ITSELF)

In common law, the doctrine of “res ipsa loquitur” (Latin for "the thing itself speaks") states that a conclusion can be inferred without direct evidence.  The photograph (below), recently obtained by this Blog, is an excellent example of such a proof.

The image offers visual certainty, to arguments advanced by Muskrat Falls’ critics, that there is still time to cut our losses on the project; we should shut it down.

Nalcor CEO Ed Martin, stated recently in announcing an additional $800 million cost overrun, that he is now “comfortable with the cost envelope”.

Martin's comment accompanied no documentation, no independent verification, and no evidence of the kind of contracts to which Nalcor is committed.

A recent Post, on this Blog, COST OVERRUNS: YOU CAN'T HANDLE THE TRUTH included this comment: “with no work begun on the North Spur, the power house or the transmission line, as well as on other major components of the Project, no experienced builder would give the kind of assurances Martin is attempting.”

The photo was taken from a public area of the North Spur, looking south.  

MUSKRAT MADNESS: NEW BOOK A WAKE UP CALL TO GOVERNMENT

Cabot Martin, lawyer, the former senior advisor to several Premiers, and Muskrat Falls critic, has just published a new book entitled “Muskrat Madness”.   

The book is self-published and available at Afterwords Bookstore, 245 Duckworth Street, St. John’s for $16.95.

Martin is a prominent spokesperson on the perils of the “Quick Clay” instability problem at the ‘North Spur’; a point of land that extends into the Churchill River forming a natural damn structure on which the Muskrat Falls hydro project relies. 

He has researched the issue extensively compiling a variety of technical studies conducted since the 1960s, offering an analysis of the problem, its threat to the geological integrity of the Muskrat Falls project and the dangers to residents downstream in Goose Bay and Mud Lake. 

While the issue of “Quick Clay” is a major preoccupation, “Muskrat Madness” engages in a much larger overview of the Muskrat Falls project providing keen perspective on the history of the project and an intelligent analysis of the many technical, market and financial risks Nalcor ignored in order to obtain project sanction. 

MUSKRAT’S CHANGING NARRATIVE

The reaction, last week, to Nalcor CEO Ed Martin’s announcement that another $800 million had been lathered on to the Muskrat Falls project attracted some interesting reactions from provincial politicians; in another case there was no response at all. 

Newfoundlanders and Labradorians seemed to take the news with typical equanimity. 

There were no street protests, no calls for Martin’s resignation (though there ought to have been), no demands for the Government to resign.  

Public quiescence was maintained possibly because Nalcor still has cash flow; Newfoundland Power will send the bills later.

Still, an additional $800 million is a staggering sum.  The new total is $8.33 billion when interest during construction on the new overage is included; that is slightly higher than the $8.19 billion I had reported in my last missive (having been corrected by a ‘qualified’ economist).

Speaking of which…we haven’t hear from Dr. Wade Locke. Locke is the MUN Economist, who proclaimed to a capacity crowd filling the Inco Centre, he approved of the Project. 

But, it was the warning he left with an audience in Norman’s Cove, a few days later, that some remember.  Locke is reported to have stated, if the Muskrat Falls Project exceeds $8 billion it will cease to be the lowest cost option. 

COST OVERRUNS: YOU CAN'T HANDLE THE TRUTH

Nalcor CEO Ed Martin, last week, delivered an update on Muskrat Falls.  It was a bit like listening to the corrupted Col. Jessop in the movie, starring Jack Nicholson, “A Few Good Men”. Questioned by Daniel Faffee, the Defense Attorney, who suspects him the real culprit, the Col. says: You want answers? To which Kaffee replies: I want the truth!   Col. Jessep responds: You can’t handle the truth! 

The public’s right to know is constantly filtered by both the Provincial Government and its energy Agency.  The truth is what Nalcor defines.  Ed Martin's justification for the new slate of cost overruns are those of one fearful the public might know too much, too soon.  

Martin says he is “comfortable with the cost envelope”. He thinks we, too, should be happy with his accounting.  He offers no documentation, no independent verification, and no evidence of the kind of contracts to which Nalcor is committed.  We only have his word.

When did Ed Martin earn our trust?