Voting for another Upper Churchill

Brian
Brian Jones
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If you like the infamous Upper Churchill deal — which hands Quebec 95 cents of every dollar earned and Newfoundland (and Labrador), a mere nickel — then by all means express your support for the Muskrat Falls deal by voting Oct. 11 for the Progressive Conservatives.

This has become a one-issue election. Education and health care can be addressed — and spending adjusted — from year to year, but if Kathy Dunderdale and her PCs have their way, billions of taxpayers’ dollars will be blown on a hydroelectric megaproject that will prove to be financial folly.

On the bright side, your children and grandchildren will be able to curse the “Upper Churchill” and “Lower Churchill” in one breath.

During Wednesday’s televised leaders’ debate, Dunderdale made clear she intends to spend public money to develop Muskrat Falls.

Strangely, and erroneously, Dunderdale referred to it as a government expenditure on “infrastructure.” It is no such thing. Roads and bridges are infrastructure. Water and sewer pipes are infrastructure. Schools and hospitals are infrastructure — although many politicians twist proper vocabulary and pander to their audience by referring to them as “investments.”

Muskrat Falls, properly defined, is an investment. Money will be spent with the expectation that more money will return as profit.

The long-lingering question about the Upper Churchill deal is how Newfoundland’s negotiators could have been so foolish and shortsighted to overlook the effects of inflation.

The common explanation is that, in 1967, inflation was not a primary concern. The inflationary 1970s had not yet arrived.

Theirs was a basic failure: they didn’t ask, “What if …?” What if prices rise? What if the value of hydroelectricity increases?

There is a similar basic failure regarding the Muskrat Falls deal.

Most of the discussion has revolved around the assumptions and statistics of the Muskrat Falls deal. The numbers invariably differ, depending on who is presenting the argument: Newfoundlanders’ (and Labradorians’) power bills will increase, or they won’t, or they won’t increase as much as they would without the Muskrat Falls project; oil prices will continue their unabated rise, or they won’t; demand for power in Newfoundland will continue to increase, or it won’t.

Objective facts — rather than subjective stats — are needed before the government spends $4.4 billion on the project (the other $1.8 billion will be spent by Nova Scotia energy company Emera).

Just as the proverbial alarm bells should have been ringing in 1967 over the possibility of inflation, they should be sounding now — loudly — over the source of that $4.4 billion. It will be public money, via loans — i.e., debt.

It will not be private money, either from firms or individuals.

This leads to the fundamental question that must be asked: why weren’t private investors willing to get involved in financing the Muskrat Falls hydroelectric project?

After all, when profits are likely, capitalists will be there as fast as blue on Tories.

Recall former premier Danny Williams’ showdown with the Hebron consortium. The oil companies initially packed up in a huff, but they eventually came back. Why? There was money to be made.

But Williams couldn’t find private investors willing to put money into Muskrat Falls. People should demand to know why not, and they should ask now rather than in 30 years, with three decades’ worth of lamentation in between.

We know Fortis was invited to invest, and declined. Last spring, Fortis president and CEO Stan Marshall explained the company “will not get involved in minority situations with governments.”

Perhaps there was an unstated corollary: “unless the profit margins justify it.”

Does Muskrat Falls have a profit margin? Private investors didn’t seem to think so. It will apparently take $4.4 billion of taxpayers’ money to find out.

 

Brian Jones is a desk editor at

The Telegram. He can be reached by email at bjones@thetelegram.com

Organizations: Progressive Conservatives.This, Emera, The Telegram

Geographic location: Muskrat Falls, Newfoundland, Nova Scotia Hebron

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Recent comments

  • Maurice E. Adams
    October 01, 2011 - 14:51

    Rick, the Muskrat Falls project can only handle 500 MW through Nova Scotia. The Upper Churchill is more than 5,400 MW. ++++++++ You are correct that Quebec will want to do a deal 5 to 10 years before 2041 ---- but by then (with Muskrat) we will be many, many BILLIONS in debt (don't forget Dr. Locke says we will be running $1-2 BILLION yearly deficits within the next 10 years due to declining oil revenue and unsustainable spending, add that to the $8.5 billion debt we already have). +++++++ So the key is that we need to be in a strong financial position 5-10 years BEFORE 2041 so that we can (if need be ) then build our own 5-10 MW line across the Strait of Belle Isle to handle the ZERO COST Upper Churchill (and then potentially both the Gull and Muskrat). ++++++++ That is how we will be in a strong position to say either yea or nay to Quebec. +++++++ By going this uneconomic Muskrat Falls route (prematurely), it does nothing to strengthen our position with Quebec and financially weakens this province when the time rolls around to deal with Quebec. +++++++ We need to pay down our debt now, and be financially strong pre 2041.

    • Richard Bungay
      October 02, 2011 - 09:30

      Maurice, your comments make sense. Perhaps it would be better to adopt a wait and see approach to the new hydro project. I think the key to all this is be in a financial position that we wouldn't have to cut a deal with a private company to get this done and be able to reap the windfall for ourselves. I just hope that down the road we do not do another deal with Quebec and repeat the sins of our fathers.

  • Rick Bungay
    October 01, 2011 - 11:59

    Remember in 2041 the deal that we are being screwed on will end and so will the cash cow for Quebec(how do you think they pay for their social programs). Around 5 years before the contract expires they will try and renegotiate to of course give us a "fair" deal. If the new project goes ahead, we can turn off the taps to Quebec and redirect the power to our own grid. When the bigger gull island project is built, then that power goes their as well. We will never have to deal with Quebec AGAIN. Remember that this is all because Quebec wouldn't be fair to us, they will NEVER allow us to move power across their land unless they get the lions share.

  • Maurice E. Adams
    September 30, 2011 - 15:04

    As they say, Ken ---- "When you not able to speak to the message, attack the messenger". +++++++++ Why is there no escalator clause on Emera (just like the Upper Churchill), but there a 2% annual escalator clause on NL ratepayers? Yet Nalcor tells everyone that Muskrat Falls will mean "stable" rates!! +++++++++ Nalcor changed the way ratepayers are charged so that the true cost per KWh would be spread over 50 years ---- on the backs of our children and grandchildren. ++++++++ And Muskrat Falls is cost compared with the isolated island scenario over a 50 year period (ignoring the fact that zero cost power will be coming back to us in half that time) ---- That's the only way they could make this project look good. We keep doing it to ourselves.

  • Cyril Rogers
    September 30, 2011 - 13:51

    So...UNDECIDED...the people like me are not credible. I will grant you that I have no experience in this field but I have done a lot of research as have some of the regular contributors to this forum, people such as Mr. Adams and Mr. McLean. As for "John Smith" and other anonymous posters, I have no idea who he purports to represent but he could be a PC staffer for all we know. We may lack credibility in your eyes but what of the Environmental Assessment Panel? They were appointed by the government to do their assessment and found it to be lacking in the detailed analyses required to determine the actual cost of the project or whether or options were viable. The least the government could have done was to pause and give their concerns serious consideration. They did not and instead discredited the panel by sluffing it off. Why the haste?

    • undecided
      September 30, 2011 - 18:30

      Doing ' a lot of research' does not make you credible. It takes years to develop the skills necessary to understand a project of this magnitude, otherwise we can close down all the universities and let people do internet searches. I would rather hear from some of the business, economics or engineering profs at MUN.

  • undecided
    September 30, 2011 - 13:31

    Still waiting for someone credible.

  • John Smith
    September 30, 2011 - 10:49

    But this project has nothing to do with profits. This project was an answer to the fact that we will be in an energy deficit in a few years. So those who know were asked what is the best way for us to get some much needed power to the island and Labrador...and the answer is Muskrat falls. The fact that we can sell the excess from the project, and trade the excess from the project, to garner bilions is just gravy. The fact is that we can continue to belch smoke into the air from Holyrood, and be tied to the price of oil, and the billion it will take to replace holyrood, or we can connect to the grid, which will allow us to explore wind and solar and tide in the future. This is all about a way to generate power for us, everything else is secondary. It is a great viable project. let's get on with it.

    • W McLean
      September 30, 2011 - 13:13

      The only billions that the project would make, would be the billions it makes internally from customers in Newfoundland, who will pay artificially higher rates than anywhere else in North America. Where, and from whom, do you figure any other "billions" will be made, given that the market rate for power outside Labrador and Newfoundland is below the cost of production for Muskrat power?

  • Craig
    Craig
    September 30, 2011 - 10:43

    I think comapring this particular project with the Upper Chirchill deal is a bit of a stretch. There were backroom deals and a lot of unethical behaviour during the negotiations. Newfoundland was also negotiating from a position of desperation when they were running out of money. Any way regardless of that it is a bit misleading for you to dismiss the fact that this is infact infrastructure spending. The power lines, the generating plant, all of that is infrastructure that will remain in place for generations. Also everyone complains about the money the Government will be spending...how about the jobs that will be created from this project and the revenues that will be pumped into the economy by those companies and workers? For me and a lot of people just the ability to be able to get rid of fossil fuel generated electricity is worth a certain amount of investment alone. Yes there are things I would like to see added to this deal or looked into in the future like bringing power to parts of Labrador where it is needed. Also I would like to see the revenues from sale of excess power go into a fund that would be used to reduce the electricity bills of provincial rate payers. This is not a perfect deal but it is certainly a very good option, as far as I am concerned.

    • Willi Makit
      September 30, 2011 - 13:57

      You think that there were no backroom deals? What about Williams admitting trying to negotiate a deal with Quebec for five years - after the fact. How about the shroud of secrecy granted to NALCOR's financial workings thanks to legislation ensuring that by the same government that wants the project to proceed at any cost? How about the lack of transparency that NALCOR has exhibited by failing to show the source data for the many assumptions they are using to justify this project? The revenues from power sales will not even be enough to cover the cost of producing the power in the first place. This project will be funded by the ratepayers of the province. It will result in an unjustified tax on us until payoff, and that tax will have to be paid, there is no other choice. That will leave less money for discretionary spending, groceries, and taxes that will be necessary to replace declining oil revenues. Think it through. The project has all the potential in the world to be the most massive temporary make work project in the province's history. You're right, this deal is not like Churchill Falls. At least Churchill Falls produces profit from outside our provincial boundaries. Muskrat Falls will be paid off the backs of our own.

  • Ken
    September 30, 2011 - 09:50

    Maurice E. Adams, you have no credentials. You have no experience in this area. You've told us. You are not a financial expert. Brian - This article is very one-sided. A journalist should present both sides of a story. You and Russell are not experienced in this area. You are both journalists. Give us both sides of the story.

  • undecided
    September 30, 2011 - 07:50

    I haven't seen enough to convince me if this is a good idea or not. The Upper Churchill fiasco should only be a reminder of what can go wrong if we don't do a proper analysis of the project. Too many who have no education or experience on the subject have been commenting in support or opposed to the project. I still await for someone credible to give me their opinion, at the same time I won't let fears of another Upper Churchill decide for me.

  • Maurice E. Adams
    September 30, 2011 - 06:48

    Muskrat Falls is being paid for by NL ratepayers --- period. The only thing that makes this a so-called good business case is that, 1. NL ratepayers must pay the bills, and 2. Nalcor has purposely spread their costing, they have averaged down their costing over a 50 year period ------ spreading the cost over to our children and grand children (that is the only way they can say that costs per KWh when Muskrat comes on stream is up ONLY about 50%). ++++++++ The other thing that they have incorrectly done is that by spreading their cost comparisons out over 50 years they have totally ignored the fact that come 2041 we have 5,400 MW of NEAR ZERO COST power coming back from the Upper Churchill ---- so why are we paying (post 2041) for a Muskrat Falls power that we then won't need? +++++++++ Costing should have been spread over 30 years (up to 2041) not to 2067 (which makes Muskrat Falls costs look less expensive). Its a shell game, that we and our children and grand children will pay dearly for.