DERRICK DALLEY UNMASKS A SPENT GOVERNMENT

Since the 1970s when issues of oil and hydro power emerged at the top of the Government’s policy agenda, the public could always be assured that the leading natural resource Minister is a heavyweight; one of the Government’s best.

Exactly when that tradition ended is moot.  For certain the current Minister, Derrick Dalley, leaves no doubt he is not one of them.   

As the Province increasingly finds itself beyond the tipping point of the $7.7 billion Muskrat Falls project, it should not have to worry that the talent of the Government is so depleted that it was forced to promote one as light as he.  That is not to suggest either Marshall or Kennedy ever were in the ranks of the heavy hitters. But Dalley is not even in their league.

Telegram Reporter James McLeod's news articles confirm  ‘there is no one home’ in the Department of Natural Resources.

NALCOR NOT FEELING THE LOVE

There is not much about the Muskrat Falls Project that makes me laugh. But, the February 15^th Letter to The Telegram "Wangersky Wrong about Muskrat Falls Business Case" written by Nalcor V-P Finance Derrick Sturge and Wangersky’s reply, "What I Actually Said",  actually did. 

For a few minutes, I permitted myself to dismiss the gale force winds outside having noted the care the paper carrier took to ensure the Saturday tome did not blow away.   As the winds howled I did, too.

I won’t recount all the details that placed Russell Wangersky and Derrick Sturge at loggerheads.  In a nutshell, Mr. Sturge was upset Wangersky had given Nalcor no credit for the $5 billion Bond/Loan issue for Muskrat Falls.  Wangersky quoted a Managing Director at TD Bank who told a Financial Post Columnist:  “(t)he benefit of the (federal loan) guarantee was that no one had to look at the merits of the underlying project…”

Sturge was worse than annoyed.  He was irate, furious, possibly apoplectic.  He wanted Wangersky to believe Nalcor's business case but he was not prepared to show him why.   

Said he: “I write to provide comprehensive information and context…regarding the level of external due diligence undertaken by the government of Canada …that gave them the confidence and satisfaction…to back the $5 billion financing for the Muskrat Falls project. Contrary to Mr. Wangersky’s opinion, this does say a lot about the confidence and strength of the Muskrat Falls project.”

Sturge had missed Wangersky’s point.  His issue was not Nalcor’s role in sating the Fed’s ‘due diligence’ but the fact that the Banks are “…so well-insulated…they admit they didn’t even look at the project.”

Sturge had elicited a verbal smack in the kisser and Wangersky did not disappoint. 

What seemed hilariously funny wasn’t that Sturge misunderstood the distinction Wangersky had made; it was that his indignation seemed borne out of a belief that Nalcor does not receive the respect it is due. 

Suddenly, it seems, the howls of Mother Nature are embellished with less wind than that contained in Sturge’s missive.

The Nalcor V-P reminded Wangersky that “Nalcor Energy obtained indicative credit ratings that demonstrated to Canada’s satisfaction that the Muskrat Falls project was a credit-worthy, investment grade project even without the backing of a federal loan guarantee.” 

Mr. Sturge’s reference to “investment grade” suggests one of the big ratings agencies, like Standard & Poors, had classed the Muskrat debt at least BBB- which is the lowest standard within that grade. The Government of Canada receives AAA rating; Newfoundland and Labrador A+. 

There are ten categories inclusive of the lowest and the highest “investment grade” ratings each of which indicates a risk level and the likelihood the debtor will repay the debt obligation.   

Mr. Sturge is not even generous enough to afford Mr. Wangersky or the public the courtesy of stating which credit rating Standard & Poors gave the Muskrat Falls financing.

Faced with risking $5 billion of capital, any Bank will begin immediately to de-constructing the underlying security. If it involves a risky mega-project, as in the case of Muskrat Falls, a whole new process of due diligence begins, one that takes into account myriad factors, from the competence of management to the risk of overruns.  The Lender will also consider that the borrower is a Province whose current debt, structural deficit and multi-billion pension fund deficit, are tied to revenues that reply upon volatile oil prices.

It would also have relied up on the Power Purchase Agreement (PPA) which states the cost per KWh to be imposed upon local ratepayers.

Other considerations might have included the legal challenge to the Water Management Agreement and the geological problems at the North Spur. (We would sure love to see the Report of the Independent Engineer, Mr. Sturge).

All of these issues influence the interest rate spread given Muskrat versus that given the Government of Canada.

The TD Bank Managing Director might have received a rap on the knuckles for his forthrightness, but there is little not to understand about his words: “(t)he benefit of the (federal loan) guarantee was that no one had to look at the merits of the underlying project…”  The Banker does not leave much to interpretation, does he!

But we lack not just knowledge of the Project's Rating or PPA, we don't even know if the financing is a Loan or a Bond, or the security offered in relation to the Muskrat Falls asset.  We don't even know if the coupon (interest rate) boasted by Nalcor is net of fees, commissions and any other costs associated with raising the Loan.  Mr. Sturge won't tell us; as if the public can't be trusted to know.  

And, this fellow is looking for respect?

A second item of interest in Mr. Sturge’s renderings is contained in the last paragraph: “Nalcor has a standing invitation to Mr. Wangersky and others to contact us at any time to obtain information so we can help inform a constructive dialogue on the Muskrat Falls project.”

Having corrected Sturge, Wangersky must have resisted the temptation to chastise him, too. He must be a fellow of infinite reserve.

Nalcor is an outfit that coached Kathy Dunderdale through the process of keeping the PUB out of public review of the Muskrat Falls Project.  Nalcor enjoys the protection of the Energy Corporation Act promulgated by the Williams’ Government and given more ‘blinds’ by the Dunderdale regime.  It never allowed the Project, as it is currently defined, or the DG-3 cost estimates to undergo the scrutiny of full disclosure or cross examination. 

If anyone asks a probing question of Nalcor it is refused under the guise of “commercial sensitivity”. David Vardy and Ron Penney detailed these matters in their excellent piece in the Saturday Telegram, as did “JM” in a recent Uncle Gnarley Blog Post entitled The Right Side of History.

Yet, Mr. Sturge says to Wangersky “…call us anytime”…let’s create a “constructive dialogue”.  

Who is he kidding?

Sturge wants Wangersky and the public to feign ignorance of the events of the past two years; with not as much as an update of Muskrat Falls’ expenditures and overruns in fifteen months, he has the audacity to seek respect as he continues to disrespect the same public that will pay back the $5 billion plus overruns.

He wants us to ignore the reality that the Federal Loan Guarantee is far less associated with any initiative of Nalcor than the intercession of a political strong-man and Federal Minister, decidedly in Nova Scotia’s camp, named Peter McKay. 

Sturge wants us to believe that Muskrat Falls and the engagement of the Feds is based upon sound economics. Any fool can see that is not so.  If it were a viable project, Nalcor would be proud to expose the numbers for all to scrutinize, including the PUB. 

It would have released, a long time ago, the Power Purchase Agreement (PPA) allowing Island ratepayers to know how much they will pay for Muskrat power. 

Sturge suffers from the same malady characteristic of those who function inside this Tory Government.  Life, for the senior people at Nalcor, too, is lived inside a ‘bowl’.  All are oblivious to simple democratic traditions, transparency and a not so old-fashioned idea that respect is mutual.

Outside, insistent winds sound a commanding howl as if to remind us who is boss.  Inside, a more patient public howls, too.  We howl with laughter, at Nalcor.

DANNY WILLIAMS: PITH AND CIRCUMSTANCE

“No Brainer” says Danny Williams, as he urged the new temporary Marshall Government to build a third transmission line to Labrador West, substantially at public expense.

I’m not sure when the public will grow tired of Mr. Williams.  I wish they would ask him to stop trading on the goodwill with which he was rewarded while in Office.  

Danny lets no one forget his popularity.  Even his Notice of appointment as a Director to the Alderon Board is careful to point out: “Mr. Williams served as Premier of Newfoundland and Labrador from October 2003 until November 2010, retiring from the position at a time when his government had an approval rating of over 80%.” 

The Chinese Government, through Hebei Iron Ore, the largest shareholder in Alderon must be very impressed.

There is nothing wrong with a retired politician, even a former Premier, continuing to contribute to public life.   But there is a great difference between a public policy role and engagement for the purpose of corporate self-interest.

THE RIGHT SIDE OF HISTORY by "JM"

During my two years of review of Muskrat Falls, I have often asked myself what future generations will think of the project.  What will be public perception of the engineering, the economics and most importantly the political debate which surrounded it? 

In an era when blogs, newspaper articles, and VOCM call-in programs are all recorded for posterity, how will future generations of Newfoundlanders and Labradorians view the leaders of today?  In particular, what will they say about the execution of their responsibility to safeguard the interests of the tax payers? 

Will the critics including Vardy, Penney, Martin, Sullivan, and Hollett be viewed as fear mongers, visionaries or simply as democrats?  On what side of history will they lie? 
Despite all assurances from the experts, time will produce a final arbiter of the economic merit of the project.  The final construction costs, combined with the future world price of energy, and the power demands of the Province will constitute the most quantitative parts of that evaluation. 

Even though future success will silence the legacy of the present day critics, I am certain that future political scientists will study how our democratic institutions were tempered, in order for the project to proceed. 

In the 21st century, when other Western democracies strived to increase transparency, public engagement and political accountability, Newfoundland and Labrador went against the grain.  Under any unbiased examination, the democratic legacy of Muskrat Falls will certainly fall upon the wrong side of history.

It would not be fair to place the blame solely on the current Progressive Conservative government.  When the previous Liberal administration excluded the Lower Churchill Project from the purview of the Public Utilities Board, in 2000,  a slippery slope began to take shape.  It was the beginning of a process of excluding the project from normal democratic controls.  That process was key to ensuring transparency and accountability in the expenditure of public funds. 

ALL HAIL PREMIER FRANK COLEMAN

A new name has emerged in the race for the Tory Leadership.   Frank Coleman, scion of the well-known Newfoundland business family, has confirmed to the media that he is interested in the job.  A decision is imminent.

People who know Frank Coleman personally (I do not) describe him as bright, analytical and thoughtful.  The same people describe him as possessing a charisma that is “quiet and reserved”.  In all likelihood they are fans.

Even if this picture is only partly correct, Coleman would not be making this decision on a whim; he would have the overwhelming support of the P.C. Caucus.  More likely, their support is unanimous.

Coleman’s expression of interest in the role of Premier is significant and not just because he wasn’t on the media’s list. 

Frank Coleman is being courted. 

POWER BLACK-OUTS AN EPIPHANY FOR FORTIS

The buzz at last week’s Pre-Conference Hearing was the sudden change of attitude exhibited by the Fortis Inc. subsidiary, Newfoundland Power (NP). 

The Company filed an Intervener Submission to the PUB which is investigating Black-Out 2014.   Its fifth question was loaded.  It was brief; but it was a bomb-shell.  It asked: 

                 5. What measures are required to ensure reliability and security of power supply to

         customers on the Island Interconnected System, including Newfoundland Power

                     and its customers, after the Labrador in-feed and Maritime link become

                     operational? (Emphasis added)

 What had Newfoundland Power implied?  It lacked faith in Nalcor’s power generation strategy. It doubted its ability “to ensure reliability and security of power…” after Muskrat Falls is completed.

The Company had broken ranks with Nalcor.  It was a watershed moment. What may have been imperceptible to many represented a seismic shift in the Newfoundland centered universe, at least as far as Muskrat Falls is concerned.  

Ian Kelly, Newfoundland Power’s Legal Counsel, summed up the Company’s position this way:

“We want to make it clear Newfoundland Power is not questioning the decisions to develop Muskrat Falls or to build the Maritime Link ... those decisions have been made.

“What the board should examine is how reliability and security of supply will be assured after the commissioning of Muskrat Falls and after the decommissioning of Holyrood.”

Am I reading Ian Kelly’s words accurately?  What did he say, again?  ”…those decisions have been made”.  In other words, we at Newfoundland Power did not necessarily agree with them but you, Nalcor, have sealed your own fate; those were your decisions!

THE "7 MINUTE" BACK-UP PLAN FOR MUSKRAT FALLS

Occasionally, I receive comments from readers who don't put them on this Blog.  Their best value is when they are shared.


Recently a reader stated his views regarding my Submission to the PUB's Pre-Conference Hearing on Wednesday past.  In it I described suggested that the PUB consider the need for a 'back-up' system for Muskrat Falls among other issues.  


In reply, the reader offered his thoughts and proposed a gas turbine replacement for Holyrood.  

People such as Cabot Martin, former Adviser to several Premiers, and Dr. Stephen Bruneau of Memorial University proposed the idea two years ago. They argued that the natural gas option represented a less expensive and less risky option to the $7.7 billion Muskrat Falls Project. 

Ironically, natural gas-fired turbines may be the best 'back-up' system, too. 

Martin and Bruneau saw the advantage of maintaining power generation close to where the electricity is used. They hoped it would constitute a springboard to encourage development of Newfoundland and Labrador's offshore natural gas resources.   

PUB TOLD HOLYROOD POWER MAY BE NEEDED FOR DECADES

This Blogger joined with Cabot Martin, David Vardy and Ron Penney, among others, to ask that the Public Utilities Board expand the scope of its investigation into 'Black-Out' 2014.   The PUB held a Pre-Hearing Conference, on Wednesday, February 5, 2014 to allow the Board to hear from the public.  

I want to discuss what other Presenters said to the PUB in a forthcoming Blog Post.  

Today, I am posting the text of my remarks to the Hearing.  Hopefully, they will give you some insight into some of the key issues that, I believe, will affect our power security and supply in the future.  Anyone who believes 'outages' will be resolved with Muskrat Falls should think again.

If you agree, you can have your say, too.  It will take only a minute to send a short message to PUB Chairman Andy Wells at   ito@pub.nl.ca  Tell him the PUB's investigation needs to include those issues, too.

CONSUMER ADVOCATE: THE LAP CAT HAS NO CLAWS

The Office of the Consumer Advocate (CA) plays a useful role protecting the public from unsupported or excessive charges by our regulated utilities, Newfoundland Power and Newfoundland Hydro.

But, is an advocate’s sole role one that is directed towards keeping our power bills lower by a fractional percentage? 

I prefer to think of an advocate as an ‘activist’, a persistent ‘promoter’ of his mission, an ardent ‘defender’ of consumer interests; one who sees the big picture of change in the power industry, who is fearlessly determined not to let Government secrecy or bullying thwart him in the execution of his public duty.

This is not the image or the record of the current Consumer Advocate, Tom Johnson.