THE HARD TRUTH ABOUT THE VALUE OF THE MUSKRAT FALLS PROJECT

Guest Post by PlanetNL

PlanetNL36: A Market Value Estimate of the Muskrat Falls Project

Simple Calculations Reveal Hard Truths

Have you wondered what the $13.1B Muskrat Falls project would be worth if it were treated as a business that had to fairly compete on the wholesale energy market?  Was it even worth the original cost estimate of $7.4B indicated by Nalcor at the time of sanction?

This post uses a simple economic analysis method useful for determining the fair market value of most any business or to determine if a project concept may be viable.  The accuracy of the method mainly relies on inputting honest numbers. 

This is the analysis Nalcor would not do and still refuses to acknowledge.  You will see why.

Government Accountable for $1B+ Giveaway to the Iron Ore Mining Sector (Update)

 PlanetNL34 Addendum: Additional Information On Labrador Industrial Rate Policy

On the same day as PlanetNL34 was posted on the Uncle Gnarley blog, some pertinent information was discovered while researching for future postings.  The query into Government inaction on the Labrador Industrial Rates Policy (LIRP) is no longer a mystery: It was indeed implemented. 

An evidentiary trail of breadcrumbs led to finally finding the LIRP revenue stream in an unexpected place.  This means some key errors were made in PlanetNL34 that will be corrected and clarified here.  At the same time, Government is by no means absolved as they substantially failed to capitalize on the opportunity, and they appear to have committed to the deed until 2041.

TIME FOR IRON ORE MINING SECTOR TO PAY FAIR MARKET ELECTRICITY RATES

Guest Post by PlanetNL

PlanetNL34: Labrador Industrial Rate Policy Overdue for Revision

(With Update - June 8, 2021)

The price paid for electricity by the Iron Ore Company of Canada (IOC) in Labrador City and Tacora Resources, the new operator of the Scully Mine in Wabush, is very low.  It is shockingly low.  

According to a footnote found in the 2017 General Rate Application submitted to the Public Utilities Board (PUB) by NL Hydro, the blended cost for the Labrador Industrial Rate that is specific to only the Labrador West iron ore mines was a miniscule 0.315 c/KWh.

The mining companies are getting record high iron ore prices these days and sending their profits not just out of province but out of country.  Providing them electricity at giveaway pricing is a practice that needs to end right away.  They can easily pay a fair price for electricity and would still make enormous profit.

The Provincial Government, despite their talk of desperate need for rate mitigation, is apparently happy to let the giveaways continue.  This post shows the opportunity cost of Government’s blatant negligence.

IS IT POSSIBLE TO ELIMINATE THE DEFICIT IN NL?

Guest Post by PlanetNL

PlanetNL33: Deficit Elimination? NL is Too Far Gone

A Pessimistic Interpretation of the Greene Report 

Moya Greene’s “Big Reset” Report, the final product of the Premier’s Economic Recovery Team, has done a dashing job of showing exactly where and how to eliminate this Province’s deficit plague.  Well done, let’s get started, right?  Not so fast.

Upon consideration of the underlying issues, the prescribed budget cuts and taxation increases will face insurmountable challenges.  It is clear upon second reading that Greene chose her numbers despite their improbability - she has developed a plan on paper that is impossible to deliver.  If this were a business plan submission, she has failed because there is no consideration of the many execution challenges.

The Report is not a failure, however, in the sense that it now makes our problem much clearer to see.  The financial state of the Province is well beyond any remedy that can be devised independently as a Province.  The Report does successfully show that insolvency is indeed at our door and there is no solution other than for the Federal Government to step in and help clean up the mess. 

COURTING DISASTER WITH HALF-MEASURED HYPOCRISY AGAINST COVID-19

Guest Post by PlanetNL
PlanetNL29: Courting Disaster With Half-Measured Hypocrisy Against COVID-19

This province has suffered plenty from political failure in the past decade plus.  We don’t need COVID-19 to turn out to be the next major disaster but the present administration seems, as usual, unable to calculate the risks.  The issue is that the necessity for physical distancing and the shelter-in-place concept needs a very high rate of participation to succeed but the government has left a mile-wide loophole for “essential” businesses to keep operating that is placing many communities and the entire province at great risk.
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MORE PRE-SANCTION FRAUD OR INCOMPETENCE?

Guest Post by PlanetNL

PlanetNL23: Backup Power Risks Reveal More Pre-Sanction Shenanigans

Two new reports on the Public Utilities Board (PUB) website shatter the illusion that the Muskrat Falls project will avoid the need for oil-fired generation in the province.  Upon decommissioning of the 490MW steam generation capacity at the Holyrood Thermal Generating Station, there is a critical reliability scenario arising in the all too likely event the Labrador Island Link (LIL) experiences an outage that will lead to a 500MW capacity deficit on the Avalon Peninsula.  Another report identifies that even when Muskrat runs optimally, there is insufficient capacity reserve without the addition of two new 58.5MW Combustion Turbines (CTs).

This new information gives further evidence of how Nalcor distorted the comparison of the Isolated vs Interconnected pre-sanction scenarios to favour Muskrat.  As reality sets in, Nalcor finds itself left with only one viable solution: the installation of several new diesel CTs, likely on the very same Holyrood site.  The irony of building the colossal Muskrat Falls megaproject for the purpose of closing Holyrood, only to find that a direct replacement must be constructed, is an astonishingly shameful exposure of Nalcor’s deceit.

FORENSIC AUDIT ONLY SCRATCHES SURFACE OF SANCTION COSTING ERRORS

Guest Post by PlanetNL

Planet NL15: Forensic Audit Only Scratches Surface of Sanction Costing Errors

The release of the Grant Thornton report on Friday raised serious doubts about Nalcor’s pre-sanction justification for the Muskrat Falls project.  The report indicated enough areas where weakly constructed assumptions would add up to show that the Muskrat Interconnected option would not be the least cost alternative compared to the remaining Isolated Island option.

Despite these very persuasive snapshots, the Inquiry may only have gotten just what it asked in terms of the forensic audit’s time and budget limitations from a team with little experience in electricity utilities.  The story is not yet complete enough and the Commission should pursue reconstruction of Nalcor’s cost models using an extensive revised set of assumptions developed by an experienced utility consultant.  It’s a significant undertaking but one that appears essential to allow the Commissioner to concisely explain the project’s economic fallacy.
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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%.

HYDRO SPINNING A TALE FROM BOTH SIDES OF ITS MOUTH

Written with copious notes from PlanetNL

Few members of the public seem concerned that Hydro is pursuing two rate hikes, the equivalent of 18.6%, to be applied over the next two years. In addition, Hydro wants the PUB to charge for Upper Churchill Recall power on the same basis as if it were generated by oil at Holyrood. Hydro wants a “deferral account” for “rate mitigation” which, for reasons described by PlanetNL, may turn out to be small dollars anyway.

Public quiet over the Hydro rate application suggests they may have already become numbed to it all. Having been deceived by their own government(s) since 2010, and having perhaps learned that fake news is not just an American concept, it is possible that, rather than get mad, they plan to get even. Installers of heat pumps have a bright future in this Province.

CHERNOBYL-LITE: THE PRICE OF DENYING MUSKRAT ECONOMICS

Guest Post by PlanetNL

PlanetNL.4 - Mothball Muskrat Now

Previous PlanetNL instalments have detailed how the uneconomic Muskrat project threatens to destroy NL Hydro and ratepayers or, if the subsidy route is chosen, Government and taxpayers.  The painful third alternative is to choose to stop the project and have the Premier call on Ottawa to act fully and promptly on the murky Federal Loan Guarantees of $7.9B.

Even with the federally guaranteed debt removed, serious issues remain.  Ratepayers still face large rate increases and the Provincial Government must record a total loss of equity. Emera would suffer contractual losses and demand compensation.  Ottawa would be divided on whether to act as many other provinces will not support the bailout.  A substantial and raucous debate is sure to erupt whenever Ottawa publicly considers this request.

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MUSKRAT SUBSIDIES WILL CAUSE A GOV'T DEBT SPIRAL

Guest Post by PlanetNL

PlanetNL3: New Nalcor PPA Information Confirms Massive Revenue Problems

In PlanetNL2, Nalcor’s 50-year Dividends forecast was assessed along with the assumed costs of the 50-year Muskrat Power Purchase Agreement (PPA).  At the time, a revised Nalcor PPA cost forecast was not available, therefore some general guesstimates were made in the absence of specific numbers.  The preliminary analysis predicted huge subsidy requirements from Government to mitigate Nalcor losses and bankruptcy.

On October 3, 2017 Nalcor responded to a citizen’s Request For Information to issue the up-to-date forecast of PPA costs.  A full analysis is presented here using Nalcor’s own exact PPA and Dividend numbers, in combination with the Premier’s expressed 17 c/KWh rate cap, and the PlanetNL prediction that energy sales will fall by 30%.  The results are indeed as frightful as feared: Government debt is going to rapidly mount and crush program spending.

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MUSKRAT WILL DESTROY UTILITY SYSTEM IN 2020

Guest Post by PlanetNL

PlanetNL1: Like a Hurricane - Muskrat To Destroy Utility System in 2020

This guest blog series is offered to demonstrate the true value of Muskrat Falls (aka Lower Churchill Project) and to expose the risks and burdens imposed by it on Newfoundland ratepayers and taxpayers.  The view will be predominantly forward looking, relying on best available project and market information to deliver plain economic analysis that can be appreciated by a wide range of people.  There will be little ranting as the dire economic concerns will speak for themselves. 

First up is a deeper exploration of consumer billing rates than Nalcor and Government have been providing.  The Nalcor rate projection has consistently gone up as the Muskrat project has advanced with cost overruns, yet it seems they have not given all the facts.  They already have a prediction of more than doubling rates after the project is commissioned in 2020 but PlanetNL projects that rates will actually shoot much higher.