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Thursday 29 November 2018


Guest Post by PlanetNL

PlanetNL20: Island Load Forecast Still Wrong
To sanction the Muskrat Falls project, Nalcor relied on their development of a steadily growing electricity load forecast on the Island.  The assumptions used have proven so weak that in 2016 Nalcor decreased the total Island energy load forecast out to 2040 by 25%.  That’s a major error for any self-respecting utility to make.  By putting forward the 2016 revision, Nalcor has quietly admitted their prime reason for Muskrat sanction, needing a lot of power soon, was untrue.

This posting will challenge why the latest Nalcor load forecast still includes 10% net load growth leading up to 2040 instead of declining.  Does Nalcor believe this province has insatiable electricity demand at any price?  Do they remain shockingly ignorant of global trends and energy alternatives?   It appears their revised forecast was a significant step toward reality but not all the way there.  The analysis also begs the question, shouldn’t a proper pre-sanction load forecast have also pointed to declining power needs instead of increasing?

Monday 26 November 2018


Mr. Paul Humphries, the VP of System Operations and Planning at Newfoundland Hydro until his retirement two years ago, recently appeared as a Witness at the Muskrat Falls Inquiry. Humphries was one of the primary architects of the project, as he stated during the 2012 PUB hearings with this declaration: 

“… I'm Paul Humphries, manager of system planning and ultimately the decision on the requirement to move forward and the alternative for the best alternative, and the determination of the cumulative present worth of those alternatives is the responsibility of my department.”

The Cumulative Present Worth (CPW), to which Mr. Humphries refers, is a methodology used to discount to present value, for comparison purposes, the Isolated Island and the Muskrat Falls options. Of course, the calculation is meaningless if the inputs used aren’t prepared rigorously. In such a case, the boosters of the preferred option always win. 

Monday 19 November 2018


Guest Post by PlanetNL
PlanetNL19: Muskrat Dividends Will be Negative
While megaprojects have huge costs, their promoters love to talk about the benefits.  At the Decision Gate 3 (DG3) final sanction stage in 2012, Nalcor developed cost and benefit models that predicted not only that Muskrat was going to be billions cheaper for ratepayers than the Isolated alternative but that the Province would reap many billions in dividends.  Key Muskrat promoters heard from at the Inquiry so far still seem to cling to expectations of positive dividends from the project. 

This post lays out how Nalcor and Government failed to assess rate affordability and revenue risk before sanction.  As a result of one of the key risks becoming realized, Government’s anticipated dividends will be greatly exceeded by subsidies and mounting debt servicing costs.  These two-way cash flows must only be considered together in finding the true dividend or net loss on the project.  Government and taxpayers will struggle to subsidize high Muskrat costs in every year of the 50-year project payback term leading to massive new debt growth far larger than the original capital cost of the project.

Thursday 15 November 2018


In March of this year the Finance Minister, Tom Osborne, delivered the seventh in a successive string of deficit budgets, their genesis originating in both Tory and Liberal Administrations. And like his Liberal predecessor, Osborne still offered the  assurance that fiscal balance will be achieved by 2022-23.

On what basis should we believe him any more than we did Tory Finance Minister Ross Wiseman or Liberal Cathy Bennett? Isn't the process of digging the province out of the current debt spiral less a matter of prediction than of serious intent, discipline and leadership provided through diligent oversight? 

Last year's Budget outcome offers a perfect example of why the promise of achieving a balance of revenue and expenditures in our fiscal affairs is just that - a promise. Nothing more.

Monday 12 November 2018


Guest Post by David Vardy

The Economics of Muskrat Falls (Part II)

This post builds on Part I entitled Will Muskrat Falls Pay Dividends? (Part I) which was published on Thursday, November 8, 2018.  That post is recommended reading for this Part II.

I have attempted below to examine the likelihood that Muskrat Falls will cover all of its costs. To make this assessment I have used the “revenue requirement” projections supplied by Nalcor in response to my ATIPPA request for each component of the project, along with the return on equity assumptions used by Nalcor. The return on equity (ROE) for generating assets is 8.4% and is built into the PPA for 50 years. 

Thursday 8 November 2018


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).  

Monday 5 November 2018


“Show me a good loser and I’ll show you a loser.”

                                      – Vince Lombardi

The message from the hall-of-fame coach to his Green Bay Packers was unmistakable: equanimity should never be perceived as resignation or acceptance even when a loss is beyond your control. Lombardi might have added, for certainty as much as a warning: there’ll be a next time.
Dwight Ball is no Vince Lombardi. The weakling Premier, oblivious to the greatest financial crisis since the 1930s, has confirmed — again — that he does not have the stuff of leadership.
What did he say when the Supreme Court of Canada gave its 7-1 decision last Friday on reopening the Upper Churchill Contract? “The past is the past for us. The decision is the decision,” Ball told the media in a tone of resignation. He added: “It will not interfere with the working relationship we have with Quebec.”

When a kick in the balls for the first player giving the opposing team a compliment would have constituted Vince Lombardi’s sole command, for our leader the ink isn’t dry on the SCOC decision before he is playing supplicant to Quebec. 

Thursday 1 November 2018


Guest Post by PlanetNL

PlanetNL18: Big Windfalls to Come from Churchill Falls?
For decades, Newfoundland and Labrador (NL) Governments have recited the lost earnings potential of the Upper Churchill and bemoaned the billions earned by Hydro-Quebec (HQ).  They long for the day of August 31, 2041 when HQ’s locked-in low-price contract for 90% of CFLCo’s energy shall expire and most of the profit will flow into NL.

It’s the kind of linear-thinking politicians thrive on: if electricity prices remain constant, demand remains constant, and production costs remain constant, then the dream seems real.  A naïve Premier today may even be thinking of borrowing billions to mitigate Muskrat losses until 2041 because the mighty Upper Churchill will quickly pay it all back and more.
That would be a terrible gamble to take as already there are a number of economic threats to the viability of Churchill Falls power.