Thursday, 16 August 2018


My late brother, Brendan Sullivan, was one of the first opponents of Muskrat Falls and wrote a pre-sanction article employing the term “voodoo economics”.  It described a scheme contrived by Nalcor to lower power rates early in the project by back-loading the equity repayment onto future generations. His post of November 29, 2012 stands the test of time. He was efficient in his words of caution, too. Brendan could see the project for what it was: economic smoke and mirrors. 

This is part of his article:

Now, almost 7 years after it was first used to describe the Muskrat Falls project, it is time to re-introduce the phrase that perfectly describes something far worse than a “boondoggle”.
voo·doo ec·o·nom·ics
An economic policy perceived as being unrealistic and ill-advised, especially a policy of maintaining or increasing levels of public spending
As the project nears completion, and the bills bear down on us with ever greater certainty, it is becoming very clear just how ill-advised this project really was. Nalcor was forced, long ago, to acknowledge that its demand forecasts were hogwash. Even the demand at sanction is not expected to be met again until 2032!

As to Brendan's reference to long-term bonds, some of the bonds are actually fairly short-term and have the protection of the Federal Loan Guarantee. If the Province can still borrow when the first series of bonds comes due, the FLG will likely not be available and interest rates may have risen even further than they have already. Any “roll-over” — borrowing to pay off those having matured — will only compound our fiscal crisis.

On July 20th, NL Hydro filed their General Rate Application to the PUB
In this document, NL Hydro made reference to the June 2017 prediction by Nalcor that electricity rates would be in the range of 23 cents an hour in the event that there is no rate mitigation. However, Hydro have advised to not worry — the media having reported that government will hold the rates at 18 cents/kWh. 

Within the formal submission to the PUB there is the following statement: “Therefore, rate mitigation to limit residential customer rates to 18¢ per kWh will require funding in the range of $280 million to $350 million per year.”

Back in 2013, Muskrat was expected to generate $200 million in profits to the government. Now Hydro has acknowledged that, in order to keep rates within a level that will not cripple the local economy, the Provincial Government will have to interject $350 million a year into the crown corporation!

But this is not where it ends. 

Staying true to the term “voodoo economics”, the province continues to pay interest on the ‘equity’ given to Nalcor over the last 5 years. Most, if not all, of that $4 billion has been borrowed, and the taxpayers are already paying several hundred million a year in additional debt servicing. 

Once Muskrat Falls is fully commissioned in 2020 (based on Nalcor's current commissioning schedule), the province will spend over $500 million a year on rate mitigation and to service the debt on the borrowed equity. This will be coming from the taxpayers. Dr. Jim Feehan's Submission to the PUB regarding the effect on electricity demand from higher rates — including at 18 cents per kWh — only confirms this long-held assertion.

Newfoundland is on the verge of a socioeconomic crisis. The PUB Hearings need to acknowledge this crisis. Realistically, where will the province find this $500 million in cash on an annual basis to service Muskrat Falls? 

How will our society survive an 80% increase (optimistically) in electricity rates, and how do NL Hydro engineers claim that electricity demand will hold constant under this burden? 
The reality is the province doesn’t have $500 million a year, and the majority of households in NL cannot endure an 80% increase in rates. Therefore overall consumption will decrease. To make things worse, come 2025 we will still have reliability issues. Despite 3 years of discussions at the PUB, it is still not clear where the province will get extra generation in 2025 to meet reliability standards, and what that will mean to rates.   

Brendan was right in calling Muskrat Falls “voodoo economics” some 6 years ago. 
The Tories skated through two elections — in 2007 and 2011 — on the crazy idea.
The current Premier's prescription is to create more delusion as time evaporates, important policy decisions are avoided and Federal complicity — which puts them on the hook for some of the responsibility for this debacle — is given no attention.

I suggest that, no matter how hard Premier Ball may try, he will not be able to skate through the election of 2019 with those issues unresolved or even barely discussed.

While “voodoo economics” was employed to get us into this mess, more of the same won't help us get out of it.

Finally — and this is as much a warning for the media as for anyone else — don't let the politicians bamboozle you with promises of lower rates unless they can also define exactly where the money for rate mitigation is coming from.

So far they have no answers, which suggests that we have not yet heard the last of “voodoo economics”.