Monday, 6 December 2021


Guest Post by PlanetNL

PlanetNL40: Nalcor Gone in Name Only

Misrepresentation of Fact Still A Problem

After the Commission of Inquiry into the Muskrat Falls Project, ratepayers and the public at large might have reasonably hoped and expected that the Utility would change its stripes and try straightforward honest truth for a change.  Apparently, it is a tough ask. 

The recent changes to restructure the Executive ranks and the elimination of the Nalcor side of the business brought a glimmer of hope for real change.  The signals are already there, however, that not much will change in how the utility interacts with the public regarding Muskrat Falls and anything connected to it.  Which just happens to be almost everything they do. 

After deeply exposing the readily apparent fraud of a project and the rot within the Executive ranks, the Liberal Government elected in 2015 should have demanded a total renewal of leadership.  The organization needed to do a 180-degree turn from spouting lies and propaganda to becoming one that would be sworn to absolute brutal honesty going forward. 

The Liberal Government should also have ordered Nalcor to pause or slow the project to re-evaluate the project’s economic merit knowing that the sunk costs would likely have been less than the cost of finishing it.

After those steps, they should have called the Commission of Inquiry.  The Liberal Government did none of that.

Instead, they passively allowed Ed Martin to quit as CEO, replaced him with Liberal-friend Stan Marshall and merely had him try to stabilize things, keeping virtually all of Martin’s team in place, and carrying on with the project without any proper reconsideration of alternatives.  

After waffling on for two full years, only after public criticism mounted against them. the Liberals called for the Inquiry.  That allowed roughly another two years to lapse in which they again did practically nothing but see the project other than allow the project to continue on.

Finally in July of this year, the Liberals presented their long awaited rate mitigation plan.  It will bury the ratepayer in additional debt and promises to raise rates for 50 years.  Now there was a winner of a plan worth waiting for.

Despite Muskrat being the largest policy bungle in the history of the Province (and likely all of Canada), the now 6-years old Liberal Government has let the project play itself out in disturbingly slow motion.  Despite the need for change at the Utility, they’ve changed fewer lead characters than Coronation Street.  The retirement of Stan Marshall earlier this year has finally allowed the cast to be tightened up somewhat although at least a couple of the flawed characters exposed in the Inquiry were allowed to remain.

The reduction of executives last month, from a bloated eighteen down to eleven, was certainly long overdue and more in line with other comparable utilities.  That two core players from the era of intense Muskrat deception, however, survived this executive restructuring is stunning and damning.   Is there honestly no one else of reasonable competency to promote from within the ranks or that might have been sought from outside the organization?

Jennifer Williams, NL Hydro CEO

That decision by the new CEO, promoted in June of this year, Jennifer Williams surely had to have been run past the Board of Directors and Government before being finalized.  Such deliberate compromise is the mark of subservience to political power.  Shame on them.

If that is how it happened, Williams is something less than an independent clear-minded CEO, than an actor on a short leash, limited to addressing talking points delivered by her political overlords.

Further problematic evidence of this was delivered by Williams and her team in a press conference last week.

In this CBC News story, the following information appears: 

During a technical briefing, representatives from N.L. Hydro said the province gets about 30 per cent of its power from the Holyrood power plant, and about $200 million is typically spent on fuel annually, depending on the price of oil. 

When running at its peak during winter, the plant burns about 18,000 barrels of oil daily.

The key figures cited here were for public information and therefore should be simple indisputable facts.  Instead, they are way actually off base are intended to mislead the public.  Williams is using the old Nalcor playbook to distort the facts as necessary to please Government.

Williams should have relied on clear facts from recent Nalcor Financial Statements and not been afraid to interpret the trends readily apparent in the data.

Let’s break them down.

Firstly, the assertion that the province gets 30% of its power from Holyrood is not correct.  Holyrood at full output represents about 19% of the total pre-Muskrat combined Labrador Interconnected System and the Island Interconnected System (IIS).  Remove Labrador and Holyrood is a maximum 24% part of the IIS capacity.  As 20MW or more is used at the plant itself, the net contribution to the grid reduces those figures by 1%.  Rounding up the Holyrood maximum capacity, to 30%, is reckless abuse of the facts.

In discussing “typical” usage, when the remainder of the grid is working properly, Holyrood seldom runs all 3 generating units at full power.  Normally 1 or 2 units can handle the daily winter load fluctuations and the third unit is either not on at all or is simply on at a reduced level just as reserve.  In recent years, even that has become scarce with only a limited number of high-load winter days (and just hours within those days) when Holyrood is called upon to deliver more than 15% of the total IIS load.  That condition exists for just the period of December to March and it appears set to continue to shrink.

Likewise, Holyrood’s share of energy production for the IIS is as equally important as looking at its share of power capacity.  In 2020, Holyrood produced just 14% of total IIS energy consumption.  It was only 1-2% higher in 2019 and 2018.  In the first half of 2021 there is an even sharper downward trend with Holyrood output down to ¾ of the same period in 2020.  While that is partially due to the refinery being warm-idled and some general Covid-19 loss of demand, we can be confident that even if those issues did not exist, Holyrood would still be delivering less than 14% of IIS energy.

Just in case CBC misunderstood power and energy (as many do) in preparing their article, any inference that Holyrood represents 30% of either is tremendously misleading.

The matter of fuel typically costing $200M is also way off base.  The 2020 Annual Report shows last year’s No.6 fuel cost was $143M.  It was $151M in 2018 and $196M in 2019.  It exceeded $200M only in a few prior years but this was when other system constraints existed that forced Holyrood to work harder.  Hydro spent hundreds of millions to fix those transmission constraints and a key benefit is less reliance on Holyrood.  With those constraints removed and demand having clearly fallen in 2020 and 2021, making reference to typical costs of $200M is purely a matter of deliberately misrepresenting present-day reality. 

In the first half of 2021, not only is fuel consumption down by 25% but the average price of fuel decreased by 16%, yielding a $38M reduction in cost year-over-year.  If fuel costs in the second half of 2021 were to rebound to the same as 2020, the total 2021 fuel cost projection would be about $105M.  Since when does an expected cost of about $105M justify telling the public it would be $200M?

Finally, the bit about Holyrood burning 18,000 barrels of fuel per day is a very atypical number to quote.  If the plant had to run all three generating units at full power for 24 hours, then that indeed would be the expected fuel consumption but it happens so infrequently it just isn’t a material fact.  It’s a condition that becomes material only if there is a lengthy and a major IIS generation or transmission outage forces Holyrood into flat out 100% operation for days on end.  That is a rare and unexpected contingency event. 

Only true “typical” numbers based on real data should be presented such as how the plant consumed 1.7 million barrels of fuel in 2020.  Dividing by 365 days, that’s an average of just under 4700 barrels per day or 26% of the peak rate Hydro chose to quote in their press conference.   As the plant is running only about half the year, the average through the operating season is in the ballpark of 9000 barrels per day, 50% of peak rate.  Keep in mind that in the first half of 2021, consumption was well down from that level.  Many of us will spend much more time watching a single Netflix series in January than the plant will run at full power.

Why is Hydro presenting their alternative atypical facts and trying to pass them off as typical? 

Because the enormously expensive Muskrat Falls is the elephant in the room.  It took a lot of distortions and lies to create Muskrat and it will take a bunch more to pass off Muskrat as a viable part of the utility system going forward.  Fundamentally, all Hydro can do is attempt to play up the one good thing Muskrat might do which is reduce Holyrood fuel costs. 

Presenting badly skewed numbers is a tactic we had hoped was a thing of the past.  Clearly the new Hydro is turning out to be not that different from the old Nalcor.

Instead of hyping irrelevant numbers to the public, Williams could have simply said that based on the cost trends in recent years and their plan to use Holyrood at lower capacity levels and for a shorter season than ever before, and if a steady supply of Muskrat energy is maintained, fuel consumption at Holyrood may drop by up to 60%, or one million barrels, for cost savings in the vicinity of $70M.  The number for the long term will be the same as either Holyrood must continue operations to maintain reliability on the Avalon Peninsula or a new set of gas turbines must replace it.

It certainly looks like it will be a long wait before Hydro will make such a clear statement.  The Hydro Executive mandate remains to shamelessly exaggerate Muskrat benefits and play down its impossible costs.

These latest abuses of fact show prove that it’s déjà vu all over again.