QUEBEC APPEALS COURT BREAKS HQ STRANGLEHOLD ON MUSKRAT

The Decision by the Quebec Court of Appeal to overturn the Quebec Superior Court and grant CFLco the right to sell power in excess of the “Annual Energy Base” (AEB) seems to have reduced the province’s stress level. The obligations of CFLco in relation to the AEB is integral to the issue of water management and the abilty to efficiently run the Muskrat Falls plant. 

The Annual Energy Base was established in the original Upper Churchill Contract and states an amount of energy used to calculate minimum monthly payments by HQ to CFLco (and “ensure(s) a certain degree of stable revenue for CFLCo.”. This figure is also in dispute (footnote 53 of the Decision) but the amount is thought to be 28.97 million MWh — the figure used in three successive Nalcor Annual Reports.

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.

PAUL DAVIS KEPT LID ON RELEASE OF COST OVERRUNS PRIOR TO 2015 GENERAL ELECTION

The Commission of Inquiry into the Muskrat Falls Project has heard plenty of evidence regarding how Nalcor CEO ED Martin failed to report to either the Board or the Government the truth about cost overruns and the delay in the project schedule.

Nalcor’s deceit is only one sub-text of a larger issue, to be sure. Another is that the Board and the Government — politicians and bureaucrats — supported and accommodated Nalcor’s secrecy, most effectively by suppressing bad news under the guise of “commercial sensitivity”.  

The Inquiry has now heard evidence that the September 2015 costs, which had grown to $7.65 billion (up from $6.99 billion announced in June 2014), were significantly understated. First power would be late by two years, too. Concerns that Nalcor had understated those issues made their way into a new EY Report in the early part of 2015. The Report’s existence created a big problem for the Paul Davis Government. The bureaucrats on the Oversight Committee understood foot-dragging well and Nalcor were never found without reasons why the truth hardly mattered.

FINANCE DEPARTMENT LEFT OUT OF MUSKRAT RISK ASSESSMENTS

Guest Post by David Vardy

Department of Finance Bypassed
Former Finance Minister Cathy Bennett told the Muskrat Falls Inquiry this week that upon her appointment to the Finance portfolio in 2015 she discovered the Department had been marginalized. Bennett said she was not going to allow it to continue. She invoked the Financial Administration Act (FAA) which provides broad powers to the Minister. She said that where there is conflict with Nalcor and its governing legislation, the Energy Corporation Act (ECA)  the FAA will trump the ECA.

Nalcor had been successful in bypassing not only the Department of Finance but also the Executive Council Office as well. Previous premiers had allowed the Nalcor CEO direct access to the Premier’s office and this allowed the Nalcor CEO to tell provincial officials that his actions had been approved by the Premier so they had better watch out. Most of these meetings went without formal record, unlike the Cabinet system where the Clerk issues official records of Cabinet decisions.

DOES CHES CROSBIE HAVE A FUTURE AS TORY LEADER?

The aftermath of the general election remains dominated by talk of recounts (especially in Labrador West), the NDP’s “balance of power” and, of course, P.C. Leader Ches Crosbie’s unscripted outburst on election night. In Minority Government Likely Short-Lived the Uncle Gnarley Blog allowed Premier Dwight Ball, at best, another year to get his affairs in order. A later Post entitled NDP Leader Alison Coffin Next Finance Minister? described the challenges that a mildly resurgent NDP will encounter as they navigate the terms for supporting Liberal dither.

Of course, the Tories didn’t exactly drop off the face of the Earth, having captured 43% of the popular vote in comparison with the Liberals’ 44%, and winning fifteen Seats. That is reason enough to consider what the election outcome says about the Tory Campaign and what it portends for Ches Crosbie.

HOW GOVERNMENT HAS GOUGED RATEPAYERS FOR 30 YEARS

Guest Post by PlanetNL
PlanetNL26: Exposing Hydro’s Rural Deficit Account - Part 1

Very few Newfoundland Power (NP) customers know they will overpay their true cost of electricity this year by 12%.  Labrador Interconnected System (LIS) customers will also overpay by 16%.  Government has legislated the utilities to over-collect from these two sets of customers to subsidize high-cost rural and isolated regions.  Hydro calls it the Rural Deficit account.

This hefty involuntary subsidy grows annually as Government-imposed rate-setting policies for the rural and isolated regions widen the cost gaps.  NP customers especially, imminently threatened by severe rate increases arising from Muskrat Falls, are being counted upon by Government to pay a hefty price for Government policy goals.  Government needs to be brought to task to overhaul the mechanics of the Rural Deficit and the rate-setting policies in rural and isolated areas before a penny of Muskrat costs is levied upon ratepayers.

TIME TO END RATEPAYER SUBSIDY OF POWER TO ISOLATED TOWNS?

Guest Post by PlanetNL
PlanetNL27: End Ratepayer Funding of Hydro’s Rural Deficit Account

Part 1 of this 2-part post exposed NL Hydro’s Rural Deficit account and the trail of regressive Government policy that created it.  It was shown that the two lowest cost of service ratepayer groups in the province are heavily subsidizing rural and isolated customers.  This included a subsidy so deep on the coast of Labrador that it delivers power at 70% less than the rate paid by the Newfoundland Power ratepayers who backstop the vast majority of the subsidy funding!  

Part 2 explores what other jurisdictions with high-cost service areas are doing and attempts to identify best practices that need to be considered here.  The PUB hearing into Rate Mitigation Options and Impacts needs to be looking at all of these potential actions and Government needs to relent in legislating out the regressive subsidies and instead promote fair policies based on economic efficiency. 

NDP LEADER ALISON COFFIN NEXT FINANCE MINISTER?

DECISIONS FACING A RESURGENT NDP

Labrador West MHA-elect Jordan Brown told VOCM Open Line lastMonday that “he has some concerns about last month’s budget” and that his cooperation requires that “things have to change in addressing the fiscal reality facing the province.” Though Mr. Brown raised other issues too, this comment is interesting if only because it goes straight to the question of how the NDP will position themselves on budgetary issues in the new minority legislature.

Bear in mind that dissolution is the result if a Budget Bill or a Confidence Motion fails, unless the Tories can demonstrate to the Lieutenant Governor that they have the confidence of the House — which current math does not favour.

My guess is that, at this point, Jordan Brown’s comment is premature and that, as well-intentioned as it may be, Alison Coffin and Jim Dinn will introduce him to a lexicon that includes critical words of equivocation — including with respect to last month’s Liberal budget.

MINORITY GOVERNMENT LIKELY SHORT-LIVED

Last Thursday night’s result constitutes the worst possible election outcome.

In other jurisdictions, minority governments are notable by their brevity as much as for their instability and lack of progress on normally intractable problems. We have some of those. Locally, the 1971 election is our singular post-Confederation encounter with minority government. It was marked chiefly by chicanery — inducements to Members to switch Parties — and it was short-lived. We would never have to worry about something like that ever happening again, would we?

Many will see the election outcome as a judgement on Dwight Ball's leadership: his indecision and his lack of forthrightness. Indeed, his poor approval ratings were earned early and got worse. Why he was the centrepiece of the Liberal Campaign ads, I’ll never understand.

TIME TO TAKE REALISM TO THE POLLS

“An election is no time to discuss serious issues,” suggested Prime Minister Kim Campbell in the 1993 federal election — a comment for which she was mercilessly pilloried. In the current NL election, the Liberals, Tories and NDP have ignored the 'elephant in the room' - our impossibly large debt. One need only look at the thin veil that separates “Direct” from the “Total” debt to wonder why something as basic as fiscal solvency can completely escape mention.

Every accountant in the province knows that, as soon as the Government attempts to “mitigate” the power rates caused by the Muskrat debacle, the bondholders - followed by the Government - will be forced to move most of the so-called "self-financing utility Debt" into the “Direct Debt" column. That's the kind whose repayment depends on taxes and like revenues 

Unless, of course, people are prepared to pay 23 cents per kWh for their power or, failing that, the arrival of the tooth fairy.