THE MUSKRAT FALLS HOUSE OF CARDS - POSTPONING THE DAY OF RECKONING

Guest Post by Ron Penney

I, and some of my fellow naysayers, have been trying to understand the latest scheme for rate mitigation, announced just before the calling of the federal election.

There was very little information given out when it was announced but we have gotten our hands on the technical briefing given to the press at the announcement and a senior official has kindly agreed to meet with some of us on two occasions to discuss the plan, to answer some of our questions and to take other questions under advisement. 

In addition, the agreement in principle on the financing components of the deal together with an exchange of letters on the Hibernia revenues between the Premier and the Deputy Prime Minister are on the website of Intergovernmental Affairs. 

RATE MITIGATION: FUREY'S DECEPTION

As much as Premier Furey proclaimed, alongside PM Trudeau, that Newfoundland and Labrador negotiated a successful “rate mitigation” plan, no deal was struck that even slightly got the “Muskrat off our back”.

The plan simply does not contain the elements required to protect the public from unaffordable energy costs – except for just a few years. Then the problem will have only grown bigger. 

It is disappointing that the media were taken in by the propaganda and hoopla generated by the PM’s visit, reminiscent as it was of the manner which they treated Danny Williams’ announcement of the Muskrat Falls project in the first place.

RATE MITIGATION: DR. FUREY'S FALSE DIAGNOSIS

Guest Post by PlanetNL

PlanetNL39: Dr. Furey’s False Diagnosis

Premier’s Rate Mitigation Plan is a Bust

In his old profession, Dr. Furey could never get away with giving a terminally ill patient a pain killer and proclaiming to them that they are cured.  In politics though, he is shamelessly practicing that game to the fullest.  If you believed his July 28 grandstand with his pal the Prime Minister was indeed a good and permanent rate mitigation solution for Muskrat Falls, then you have taken his bait, hook, line, and sinker. 

There is very little in the announced Agreement in Principle that permanently decreases the cost of Muskrat to be borne by ratepayers.  This post will explain the problems and risks of five of the six measures that were announced as the rate mitigation solution.  It will also identify additional risks to demonstrate how impossible the task it is to have ratepayers pay for Muskrat.  But that won’t stop the politicians from trying to do it anyway.

RATE MITIGATION: FOOL ME TWICE…

Throughout the Nation’s Capital and beyond, the loud drumbeat of an impending General Election is heard. The pundits forecast that the new GG will be asked to dissolve Parliament around the end of August. That may leave as little as six weeks for PM Trudeau to stop dithering over “rate mitigation” and address the Muskrat Falls debacle.

Newfoundlanders are doing themselves no favours ignoring the fact that such an agreement remains outstanding.

The public are witnesses to Premier Ball’s failed attempt but have learned little from the experience.

Ball’s good intentions are echoed by Premier Andrew Furey who seems content if a deal is done by November though he has no proof such an outcome is assured.

By then, Ottawa will have forgotten – again - that this place exists.

A Fair Price for MF Energy Is All Ratepayers Can Afford

Guest Post by PlanetNL 

PlanetNL32: A Fair Price for Muskrat Energy Is All Ratepayers Can Afford

It is an indisputable fact that Muskrat Falls was an enormous mistake filled with stupid errors and driven by fraudulent assumptions.  The biggest miscalculation of all was committed by the Province and the Government of Canada in legislating Island ratepayers to wholly pay for the project.  It is high time both levels of Governments face the facts, remove the severely misguided and harmful legislation, and get on with an extensive restructuring of project financing.  Island ratepayers can be billed for energy they use but only the same equitable terms as the project’s main customer, Emera, in Nova Scotia.

THIS MUSKRAT PLAN WON'T CAUSE MAXIMUM ECONOMIC DESTRUCTION

Guest Post by PlanetNL

PlanetNL31: Muskrat Must Be an Unregulated Government Business Enterprise

Rate Mitigation platforms presented by the Liberal and Conservative parties are way off base and pose great risk of rate escalation when difficult and contrived mitigation measures fail to work.  Worse is that the mitigation strategies completely fail to recognize that ratepayers should not be responsible for paying Muskrat project costs at all.  Muskrat must be made into an unregulated export-focused Government Business Enterprise with energy made available to any buyer, including NL Hydro, at competitive market rates.  There is a compelling case to do so, yet the political parties appear indelibly committed to the deceitful plans laid out by past governments, setting a course for maximum economic destruction.

UNDERSTANDING THE BALL-O’REGAN RESTRUCTURING PLAN

Guest Post by David Vardy
Former CFO Derrick Sturge told the Muskrat Falls Inquiry the project and its financing were “rock solid”. CEO Stan Marshall told us two years ago the project would “finish strong”.

Premier Dwight Ball promised “Newfoundlanders and Labradorians that they will not bear the burden of higher electricity rates or taxes as a result of Muskrat Falls. We will deliver on that promise.”

On February 25, 2020 Nalcor CEO held a press conference and took questions from the media confirming the delays which had already become well known. He did not provide a cost update on the project, which appears likely to exceed the official 2017 estimate of $12.7 billion. He repeated the statement that Nalcor would “finish strong”.

RATE MITIGATION AND OTHER DELUSIONS

Guest Post by Ron Penney
We are faced with two big problems, either one of which would be difficult, if not impossible, to resolve. 

The first is the fiscal situation. 

The Auditor General, in her most recent presentation, set out again our perilous financial situation. By almost any measure we have the worst fiscal metrics compared to the other provinces, despite having the highest per capital revenues in the country. 

 Expenses have gone up 33% over the last ten years. Over the same period revenues decreased by 9%. Over the past 7 years we have had a cumulative deficit of $6.4 billion.  

We have the highest per capita expenditures in the country by a large margin. 

FINDING AN ENDURING FIX FOR MUSKRAT FALLS

Guest Post by David Vardy
Two major events signal the rising tension among the people of this province, fearful of their future. Since 2016 we have had 11 quarters in which the population has declined continuously, from 530,000 to 522,000. This is a measure of the angst over our serious fiscal plight and the prospects of dramatically higher power rates.  

The two events were the release of the final PUB report on rate mitigation and the second was the press conference by the Premier and Natural Resources Canada Minister Seamus O’Regan on negotiations toward rate mitigation. Both events focused on the return on shareholder equity. The PUB recommended that the province forgive payment of dividends on provincial equity. The joint press conference latched onto that option as a cure for Muskrat Falls, namely the writing off of dividends and financial restructuring.

MUSKRAT: THE BIGGEST GAMBLE OF ALL

Guest Post by David Vardy

Recent disclosures at the Muskrat Falls Inquiry confirm that the project is on track to become a financial tsunami. Former Finance Minister Cathy Bennett told the Muskrat Falls Inquiry that the Department of Finance was marginalized in the decision-making process. This was confirmed by former Deputy Minister Donna Brewer when she was on the stand this week. Yet the provincial government played a pivotal role in the financing of Muskrat Falls. In fact this pivotal initiative was the biggest gamble ever taken by this province.

GILDING THE LILY ON 61 CENT POWER

Guest Post by David Vardy
At the recent Nalcor AGM CEO Stan Marshall repeated his mantra that Muskrat Falls will “finish strong”. He said that its costs are comparable to, if not lower than, the unit costs of other Canadian energy projects. The Chief Financial Officer bragged about the growing asset base and spent little time warning of the large liabilities.  When asked about dividends at the Muskrat Falls Inquiry the CFO said they were “rock solid”.

Nalcor’s annual report spoke in glowing terms about the project and about the profitability of Nalcor. The prospects of growing dividends were glowing. Suddenly the problems had vanished and we were living in a world of milk and honey. What had changed to spark this bright and cheerful outlook in the face of a financial disaster? Was Nalcor “gilding the lily” along with the politicians who are looking to sweep Muskrat Falls under the carpet in advance of imminent federal and provincial elections.

WILL THE PUB GO FAR ENOUGH ON RATE MITIGATION?

Guest Post by David Vardy

The PUB has been asked to make recommendations as to how increases in power rates arising from Muskrat Falls can be avoided, a daunting task indeed, but one for which they have been given a broad mandate.  They have just released an interim report on measures to increase revenues and reduce costs. Their work plan is quite ambitious and covers a wide range of options. The question is how far they will go and how receptive will government be to major changes?

Will they recommend the kind of surgery needed to right-size our electric power industry and to extirpate Nalcor as an unregulated monopoly? Will they go so far as to propose that Nalcor be removed from the power system after Muskrat Falls has been completed?

RATE MITIGATION - GRASPING AT STRAWS

Written by Des Sullivan and David Vardy
(with research and analysis contributed by PlanetNL)

The Ball Administration asked the PUB to examine alternatives to offer ratepayer relief from unaffordable Muskrat Falls power. Because the cost of rate mitigation is too large to be imposed on either ratepayers or taxpayers — not that they can be distinguished — the public should be wary that the PUB is possessed of a magic wand. The Government has essentially kicked the “mitigation” can down the road, too.

Having declined to suspend the project to examine the wisdom of continuation vs termination, the Premier was right to engage the PUB for the purpose. Unfortunately, the Provincial Government offered the PUB and its Consultants absolutely no guidance as to what interventions may be available from them or the Federal Government. Even a plethora of nips and tucks won’t suffice given the magnitude of the problem, yet they must know that MF threatens not just the public welfare but our collective solvency and, hence, the Province’s sovereignty, too. 

NEEDLES IN HAYSTACKS AN ON-GOING ACCOUNTABILITY PROBLEM

Guest Post by PlanetNL

PlanetNL16: Needles in Haystacks, Symptoms of An Ongoing Accountability Problem

Participants and followers of the Muskrat Inquiry and earlier Muskrat reviews suffer simultaneously from information overload and yet a dearth of the vital information they are often seeking.  Nalcor and Government may have provided reams of materials but much of it is window dressing that gives little insight into key decision-making issues.  Take for example the Commissioner’s direct message to former Premier Williams that there is no evidence of anyone inside Government performing a critical review of Muskrat information supplied by Nalcor.

Too often it appears that the more important the issue, the less there is to be found.  In today’s post we revisit the issue of post-Muskrat rates being based on a two-tier declining rate scheme as a tiny but significant new nugget of information has been found about it.  Such a rate scheme would be a huge change in policy and one deserving of considerable study, yet it was buried in a mundane technical report with no basis of justification or analysis to defend it.

…. 

WHEN NL NEEDS A HEAVYWEIGHT THERE’S ONLY SEAMUS O’REGAN

Politics is not so comfortable an arena that politicians need only do soft-sell through photo ops and nice-sounding press releases.

Sometimes public policy issues are complicated, require intervention at a high political level and demand considerable analysis. Solutions to the big problems require political shrewdness, dexterity and good relationships at the Cabinet level.

If the politician, even having been appointed to Cabinet, doesn’t grow in the job and fails to learn how to get things done in that highly competitive business, likely he/she will have little to report at the next Poll. While many politicians prefer the soft-serve of social media platforms, the savvy ones — and survivors — will spend a good deal of time making political alliances and setting the stage for when they will need support on a make-or-break issue.

I get no sense that the Minister of State for Veterans’ Affairs, Seamus O’Regan, either understands those rules or has the heft to position himself for the long game.

BUSTING THE PREMIER'S NUMBERS AGAIN

Guest Post by PlanetNL

PlanetNL13: Busting the Premier’s Numbers Again

In PlanetNL12, an analysis of Government’s secretive two-tier declining rate scheme calculated the impact on three types of electricity customers.  The unfairness of such a rate scheme was made clear: the less electricity you use, the more steeply your Government wants you to pay for Muskrat.  This approach will tend to hit the many poor and working-class who struggle to pay their bills especially hard.  Meanwhile at the other end of the spectrum, the few who tend to have large high-energy homes will be pleased with little difference they’ll find on their power bill.

How did Government and Nalcor keep this unexpected twist of rate design?  Well, they simply didn’t want to tell us and for about two years they carefully misled us.

PREMIER SHOULD SEIZE ON BETTER SOLUTION FOR POWER RATES

Guest Post by David Vardy
Premier Dwight Ball said this week that power rates will not be allowed to double. This statement is an important step toward a better solution. It recognizes that the take-or-pay power purchase agreement (PPA) is not a workable solution to the question as to who will pay for Muskrat Falls. The PPA places the burden on ratepayers which is unfair because ratepayers did not ask for Muskrat Falls. It was imposed by an overbearing government, supported by a relatively small group of people who stood to benefit.

The government proposes that ratepayers bear roughly half the cost and that taxpayers pay the rest, citing 2021 rates in the Maritimes at 18 cents per kWh, compared with 12 cents on the Island. Such high power rates, even when reduced from 23 cents to 18 cents per kWh, would still be unaffordable for low income people. They represent an increase of 50%.

MUSKRAT: A FAIR RATE IDEA THAT WON'T SHOCK YOU

Guest Post by PlanetNL
PlanetNL11: A Fair Rate Concept for Post-Muskrat

Premier Dwight Ball has been justifying a massive rate increase to 18 c/KWh as fair because he suggests it is comparable to rates paid in our neighbouring Atlantic Canadian provinces.  Such logic might succeed if only it were true: in the last PlanetNL post, it was clearly demonstrated that the expected rate in those provinces would be 12 c/KWh. 

The Premier’s admission of error has not been heard, therefore it appears Ball is sticking to his plan to punish ratepayers despite the widespread harm it will cause.

In this post, a case is developed for a post-Muskrat rate that would be fair to ratepayers. But it’s sure to be a solution the politicians will fear.  The outcome may shock many. The future proposed rate is coincidentally - and surely to Premier Ball’s chagrin - 12 c/KWh.  

…..  

THE DECEPTION OF PARITY: PREMIER'S CLAIM BUSTED

Guest Post by PlanetNL

PlanetNL10 – Atlantic Canada Energy Rates – the Deception of Parity

Where Muskrat Falls is concerned, the Government, regardless of party, has a clear track record of getting the facts wrong. The trend continues as we transition toward the operations and cost recovery phase of project.  The latest misguided gem – being relied upon by NL Hydro at the General Rate Application hearings last week – is Premier Dwight Ball’s stated rate target of 18 c/KWh for residential rates.  The Premier defends this as being comparable to expected rates in the other Atlantic Canadian provinces.  It doesn’t take much research and insight to demonstrate that the Premier couldn’t be more wrong on this issue.
…..

IS RATE MITIGATION EVEN POSSIBLE AFTER MUSKRAT?

Guest Post by David Vardy

This is the sequel to my post of March 19, 2018 on the financing of Muskrat Falls called The Impossible Dream Part I: Financing The Labrador Transmission Link. In this post I measure the increased costs associated with Muskrat Falls and discuss the impact on rates and the potential for rate mitigation.

Rate Mitigation

A recent Telegram article (“Power Rate Options Still Unclear”, Telegram, May 5, 2018) . refers to “$60 million to $70 million required to decrease customer rates by one cent per kilowatt hour”. This suggests that, if rates were increased from 12 cents to 17 cents, revenues would rise by $300 million to $420 million. This is highly unrealistic.