OF DECEIT, EMERA AND MUSKRAT MADNESS

GUEST POST WRITTEN BY CABOT MARTIN

Close observers of things Muskrat are by now getting used to troubling news regarding this benighted project.

However, the most recent Uncle Gnarley posts building on revelations first made by a former Muskrat Falls project engineer (aka the Unknown Engineer) on UncleGnarley on January 30, 2017 must have shocked even the most cynical.

Seriously - are we talking about someone playing fast and easy with the numbers?

If true, would be big time shit.

Then came last Wednesday’s stellar CBC St. John’s Morning Show interview by Anthony Germain featuring the disguised voice of the “Unknown Engineer” repeating on the public airwaves his astounding assertions ending with a call for a “Forensic Audit” of the manner in which the Muskrat project costs were prepared.

The next day Mr. Germain followed up with an extended interview on the mechanics of a Forensic Audit with financial wiz Larry Short – all of which served to turn up the heat on this issue in dramatic fashion. 

ARE YOU READY TO PAY TO POWER NOVA SCOTIA?

A Tale of Two Regulators

Guest Post by JM

The government of Clyde Wells introduced the Electrical Power Control Act in 1994. It was implemented to define electrical power policy in the province and to provide a means for the utilities to earn a return on their investment in the generation and delivery of the power.  Under the EPCA the Public Utilities Board (PUB) has broad powers to regulate and legislative responsibility for the planning of future power supply in the Province. 

It is worth reading the Act to truly understand the breath of powers which the PUB possesses in these areas. This did not occur by accident. On the contrary, the legislation received the very deliberate focus of the premier of the day.  When he introduced the Bill in the House of Assembly, Clyde Wells stated: 

Since June 2010, when the decision was made by Nalcor to develop the Muskrat Falls Project, the PUB should have had an integral role to ensure the project met the clear “Declaration of Power Policy” as outlined within Section 3 of the Electrical Power Control Act. 

The process of review ran counter to the intent of the 1994 legislative initiative.  Muskrat Falls was conceived in secrecy, and born under both delusion and deception. 

WHO WILL PAY NOVA SCOTIA FOR UNUSED MARITIME LINK?

The 2041 Group, which included several capable lawyers, spent many a night parsing the contracts which contained Nalcor’s commitment to Emera for the Nova Scotia Block (that’s the free electricity). Then there’s another set that commits one terawatt hour at a price set by auction at the New England bar.

The group watched — in horror — as Nalcor openly backed itself into a corner as it continued to spend tens of millions on the Muskrat Falls project knowing, as it did, that the Federal Government had given veto power to Nova Scotia over award of the Federal Loan Guarantee (FLG) — and thus project sanction.

By the time Bruce Huskilson, Emera’s CEO, had finished shaking down Ed Martin, the UARB — the equivalent of our PUB, acting on behalf of the Government of Nova Scotia — must have known Nalcor would agree to any demand to get sanction.

Nalcor’s behavior has always contradicted the rules of common business practice, and of common sense.

THE NEW DEAL WITH EMERA. WHAT WILL NALCOR THINK OF NEXT?

The latest "deal" called the "Maritime Link Compliance Filing" , between Nalcor and Emera, to satisfy The Nova Scotia Utility and Rates Board (UARB) did not get much coverage in the media.  Understandably, it is tough to compete with topics like the disintegration of the NDP.

Nor could we expect the Dunderdale Government or Nalcor might offer the public a “Coles Notes” version and their implications for this Province.  That would look too much like openness and transparency.  We could not possibly expect that, could we.

Next we need Cathy Bennett elected leader of the Liberal Party and our Bibles replaced with copies of Lewis’ Carroll’s Alice in Wonderland. To paraphrase the Author: ‘You would have to be half mad to dream this stuff up’.

WHY ONLY A 50/50 CHANCE FOR EMERA SANCTION?

Last time, I referred to BMO Capital Markets’ Report that the Maritime Link might have only a 50/50 chance of sanction.  You may well ask why only 50/50?  Given all the sweeteners Emera has been offered to become Nalcor’s partner, why are the odds so poor? Let’s take a look at Nalcor's deal with Emera:

a)      Emera’s investment, in the transmission line from Labrador, receives a “guaranteed” rate of return from Nalcor. 

b)     Emera receives 20% of the power from Muskrat at zero cost (but for the cost of the Maritime Link)

c)      Cost overruns on the Labrador/Island transmission line are paid for by Nalcor

d)      80% of Emera’s cost overruns on the Maritime Link are paid for by Nalcor

e)      Emera receives the benefits of the Federal Loan Guarantee; and

f)       Emera gets to broker any “surplus” power for which it will receive fees

Not a bad deal, by any measure, wouldn’t you think.    

But Emera is still holding out on sanctioning the Maritime Link. 

JUST DON’T TELL THE NEWFOUNDLANDERS

The decision of Nova Scotia's Utility and Rate Review Board (UARB),  on Muskrat Falls, was a good example to Newfoundlanders and Labradorians of how a full independent review can play a key role in giving protection to the public.

The UARB’s job was to ferret out whether there was a justification for the Maritime Link (ML) proposal, and whether the project made sense in terms of the cost per KWh, to NS ratepayers.

In every sense, the UARB’s narrative is inextricably linked to the entire Muskrat Falls Project.   Nalcor and the Provincial Government have had a hard time, from the very beginning, justifying the investment.  The independent UARB analysis has cut a trail to certain fundamental reasons (untruths) which made their job so difficult.       

Whether one agrees with the conclusions of the UARB or not, it has provided a far more independent glimpse of how essential facts have been altered to obtain Newfoundland’s approval than is likely to emerge from any other source.  

LABOUR SHOULD HAVE NEGOTIATED THE FEDERAL LOAN GUARANTEE

Undoubtedly, the public sector unions are worried as they prepare for labour negotiations with the Provincial Government.  Its not as if they are going to the bargaining table with the NHL Owners, though.  Given the absolutely terrible Federal Loan Guarantee (FLG) and the Emera Sanction Agreement, Dunderdale and Kennedy negotiated, I'm convinced the Government will sign anything as long as the Unions promise them they won't miss the party, afterwards.  An opportunity for the Premier to make a big speech should be worth an extra point or two.  I am being only a little facetious. But, had the leadership of NAPE and CUPE negotiated the FLG, they would have handled the Feds and Emera, too, much better.  

One lawyer wondered aloud why the Premier would attach her signature to a document that is so “full of holes”, you could “drive a Mack truck through it?   Another made the more academic comment that the FLG “is an unfinished agreement which, in law, makes it no agreement at all”.    

Not surprisingly, we might ask, why would the Premier sanction the Project now, given the weak position it places the Province, as it strengthens the hand of Emera and the Feds? It is quite legitimate that the Government of Canada, as Guarantor, would want certain protections, but the FLG, in its current form, requires that all final decision-making is passed over to an Independent Engineer (IE).  Emera, on the other hand, gets complete flexibility to “opt in” and to take no risk.

DUNDERDALE'S BIG SANCTION CHARADE

Given all the pomp and ceremony yesterday evening, you might have been left with the impression that Muskrat Falls was sanctioned. I have bad news.  Premier Dunderdale has less of a “sanction” agreement with Emera than she has a “Loan Guarantee” with the Federal Government.  In truth, she has neither!

What should have been a paragraph of unqualified consent, Emera’s Sanction Agreement runs 29 pages plus a Schedule.   

What did we get last evening? Essentially, a statement that Emera would play along with the NL Government if it wanted sanction now but only if NL was prepared to pay a big price AND only if they could still be permitted to walk away.  The sanction ceremony was a big charade.

A Cautionary Note to EMERA On Muskrat Falls

If Emera sanctions the Muskrat Falls (MF) Project, its ‘sweet heart’ $600 million deal on the Labrador Island Link (LIL) will not just be plain sailing from here.  Yes, Bruce Huskilson, Emera’s President and CEO, is likely mesmerized with phone calls from NL’s Minister of Natural Resources Minister, Jerome Kennedy, demanding an immediate decision.  That is what politicians do.  Projects, like MF, are but ‘playthings’ for governments. 

Huskilson should be unavailable, for the next year or so, at least, until the NS UARB has rendered a decision on the Maritime Link (ML).  Why? Emera’s sanction of the LIL does not guarantee sanction of the ML.  The advantages which Emera’s skilful negotiators won, against Nalcor’s bureaucrats, could be all for naught.

LOAN GUARANTEE SELLS US DOWN THE RIVER

The only thing you can do with a Project as nonsensical as Muskrat Falls: follow the money.  Bankers understand that.  The public should, too. The “Federal Loan Guarantee” is really all about the money trail, especially the Fed's money. I have no problem with that issue.  I only wish Nalcor had been held to account, from day one, as it will under the FLG. But other problems abound under this Agreement.

The MF Project, given its financial structure, rationale and risk to the Province, is now at a point where you have to begin to question the rationality of the political leadership and ask why it is determined to jeopardize the Treasury of the Province to get this deal done.

The “Term Sheet”, for all its legalese, could not fail to hide the weak underpinnings of what Nalcor and the Province have proposed.

Not only is the Government of Canada not going to let a small cabal of engineers, at Nalcor, place billions of Federal dollars at risk, it has, compliments of Federal Minister Peter McKay, made sure that, on the front end for sanction and in the middle, as Muskrat comes off the rails, Nova Scotia and EMERA will always be in the driver’s seat. 

And when EMERA does not need to get involved, the Federal Government is there with an Overseer called the “Independent Engineer” (IE).  The IE is a “CZAR” for the Government of Canada, mandated to take control of the Muskrat Falls Project….but only when the “Guarantee kicks in”.

The PM to Dunderdale: Take It or Leave It

Just as I was beginning to think that, during my 27 year absence from politics, the Feds had become tabby cats, lovingly lavishing a $6 billion guarantee upon a Newfoundland and Labrador sponsored project, I was jolted back into reality.  Absolutely nothing about Ottawa has changed!

The hoopla, over the PM's visit to Goose Bay, won't last until Monday's Question Period.

I waited until the wheels of the PM’s plane had left the tarmac and Tweeted a few words over Muskrat, to an old Tory and skilful Ottawa man, Tim Powers; then, I settled in to examine the entrails of what Harper had dropped on Dunderdale.  Soon, I started to laugh; I laughed some more, then I felt sad!  I was sad for Dunderdale, for getting herself into such a fix, but sad, mostly for this Province.

The Deal was exactly what I was warned to expect.

Media types, CBC’s Cochrane and NTV’s Mike Connors had been Tweeting all over themselves, Thursday night, trying to confirm the rumour.  Was the Press Conference going ahead or not? Dunderdale didn’t know, her staff didn’t know; but, strangely, Ottawa knew. 

The Balvenie Affair – Part III

I want to acknowledge “JM” who again authored today's post.  While respecting his desire for anonymity, he is, nevertheless, owed a debt of gratitude for his contribution to the PUB’s review of the Muskrat Falls project as well as for the research and analysis he continues to perform.   -   Des Sullivan, Uncle Gnarley Blog.
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Following our eventful meet with ‘JM’, Uncle Gnarley requested a couple days ‘Close to the Ground’, as he was known to say.  I assumed that this meant he had departed for his annual moose hunting gallivant, where he would partake in a week of reflection, introspection, and self- infliction.  This would all then be followed by a great massacre on some remote barren in Central Newfoundland.

But after a number of days with no contact, I decided to take a drive down the shore and pay a visit to my cantankerous old friend.  As I neared his door I could hear what sounded like rapid fire.  A familiar sound from my youth, but one I could not readily place.  Concerned, I cautioned ahead, and peered into the window.  Well, it was like seeing a great moose in the headlights.  There before me was the old economist himself, wearing only his wistered underwear.  His old frame was whiter than the fresh snow.    

The clanking which alarmed me was coming from his old manual typewriter.  Although I have never seen it in use, I know that the great man often referred to it as his ‘arsenal of democracy’ in homage to one of his personal heros.  It was clear that Uncle Gnarley had a bee in his bonnet, and I naturally assumed that it was related to our recent encounter with ‘JM’.

To not startle the old man I knocked on the door. 

Muskrat Falls: NO POWER TO EXPORT (Part 1)

The distinctively loud and rapid sound of the gargoyle, which serves as a knocker on my front entrance, confirmed that a visit from Uncle Gnarley was imminent. I opened the door quickly and the grey bearded eminence himself entered in a flourish.  A day old newspaper covered his favourite ‘river warrior’, but could not hide its delicious aroma.  Uncle Gnarley had caught a salmon. 

Gnarley did have a sense of timing. He had been absent for several weeks and I had begun to miss the irascible old man.  Luckily, the day held no impediments and a dangerous shortage of our favourite elixir had just been remedied.

“Nav”, Uncle Gnarley barked, as he pushed the parcel towards me, “I thought I might invite myself to dinner.  I suggest you put a lid on this one, he was a real fighter”.

As Gnarley headed for the only chair that fit his broad frame, he allowed that we had some business to discuss and quickly held out a whiskey glass for an ample serving of 15 year old Macallan’s; a perfectly suitable reward for his victory on the Gander River.

“I have had a lot of time to think”, Gnarley bellowed, now anxious to share what was clearly bothering him. “I have never felt more unsettled”, he continued”.