Mines and deals

Russell
Russell Wangersky
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I made an interesting mistake in my column on mining and Muskrat Falls on the weekend. Something of a mistake of omission rather than commission — not like the extremely irritating new television advertisements for a saline solution that you can squirt up your nose to relieve congestion, which sport a host of people working on the ocean who claim that because of the maritime environment they live in, they have no idea what a stuffed-up nose even feels like.

But a mistake just the same.

I was writing about the question of what kind of special deal for

electrical power mining companies are looking for in Labrador. A recent study on mining potential in Labrador talked about the existing rates mining companies pay, because of their particular history. The companies get their power at $5 a megawatt hour — the suggestion seems to be that kind of rate is a reasonable benchmark for what miners could pay. I pointed out that the generation cost of Muskrat Falls power is $7.6 per megawatt hour.

In fact, it isn’t.

Muskrat Falls will produce power at 7.6 cents per kilowatt hour, or $76 per megawatt hour.

As with all decimal-point errors, it was a mistake of 10-fold accuracy: if Muskrat power were sold to new mining companies at anything close to the rates being charged to current users (the result, I pointed out, of those companies being a special case, because they have their rates as a result of trading off their own hydroelectric facilities), it wouldn’t just be a case of giving new mining companies a discount, it would be giving them a windfall.

Why? Because they’d get power for a fraction of what it cost to produce.

What kind of fraction? Well, if you make power for $76 a megawatt hour and sell it for $5 a megawatt hour, you’d be offering it up for around one-fifteenth of its cost of production. And, to put that in even more interesting context, under the first round of Muskrat costs, we were told Muskrat power would cost around $210 per megawatt hour or so delivered to regular old customers on the Avalon. That would mean mining firms would pay one-forty-second of what you or I would pay. (At least one firm is already telling its shareholders it can get power for $40 a megawatt hour from Churchill Falls, or close to one-half the cost of production at Muskrat.)

Leave all that aside for a moment, though.

Normally when I make a mistake on the Muskrat Falls issue, it takes about 3.5 seconds for the provincial government or Nalcor to call for a correction.

I still haven’t heard from them.

Who have I heard from?

Well, several well-recognized opponents to the project pointed out the error in my math mere minutes after my column was posted on The Telegram website. They weren’t angrily demanding a correction, they were merely pointing out that what looks like an impending jammy deal for mining firms was actually even more spectacularly jammy than I had pointed out.

And as for ordinary citizens? Well, the topic seems to be confusing enough that most people have checked out of the debate.

When Muskrat Falls was first announced, iron ore mining companies were not even on the radar.

It now appears that mining companies are an integral reason for the need for building this project.

It’s economic growth that Labrador, and the province, could certainly use. It’s employment and royalties and jobs that we could use — but it’s also an industry that will exist to profitably mine a resource we now own, and that will walk away as soon as the profits do.

If we’re all going to be asked to put our shoulders to the wheel to pay for this behemoth — a project which we need because of increased demand for power — anyone involved in creating that increased demand should have to pay at least their fair share of the costs involved.

Maybe you can sell a lot of saline by telling people that folks who live by the sea never get colds. But if you live by the sea, it doesn’t take much attention to realize you’re being sold a bill of goods.

Russell Wangersky is The Telegram’s

editorial page editor. He can be reached by email at rwanger@thetelegram.com.

Organizations: The Telegram

Geographic location: Muskrat Falls, Labrador

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Recent comments

  • Cyril Rogers
    November 06, 2012 - 16:01

    Actually, we are both ratepayers AND taxpayers in terms of this project. The government, via NALCOR, has syphoned off, or will by the time it is completed, around 3-4 BILLION dollars, which it will need to complete this project. And, it could be more!! THAT IS A LOSS TO THE PEOPLE and, therefore a TAX. On top of that, they will borrow anywhere from 3-5 BILLION MORE to build it and guess who pays for that. The RATEPAYERS!! Of course, they are effectively one and the same!

  • Winston Adams
    November 06, 2012 - 13:43

    John in Whitbourne , John Smith etc, Winstun Adums is not Winston Adams. And if you read "Bringing efficiency to the energy equation" part 1 Oct 9 it shows how the seniors can afford efficient heating.In the Usa , 4 percent added to the power bill funds 50 percent rebate to customers for retrofits. 8 percent would pay the full cost, but unnecessary generally. Anything stun aboout that? Something along that line and everyone would want in, once it is acknowledged the vast reductions possible.

  • Cold Future
    November 06, 2012 - 12:13

    No matter how the numbers are crunched, the premium to be paid by the Newfoundland taxpayer for the Muskrat project is about $ 4 billion. That number is about the difference between transmitting power through Quebec and around it by the anglosaxon route. No matter how the money is extracted from the taxpayer pockets., the subsidy to be paid by the taxpayer is $ 4 billion in present dollars for Muskrat power. That is the price we will pay for not being able to negotiate appropriately with the province of Quebec and deciding whether we need the power or not, whether we can provide that power more economically or not, that we need to do this now to right all the wrongs of the past and thinking by doing so we will finally be sticking it to Quebec. Unfortunately that good feeling passes very quickly when we consider how much more Quebec will benefit from Muskrat which we will subsidize and suffer hardship to finance and pay for than we will.

    • WINSTUN ADUMS
      November 06, 2012 - 13:20

      How do you propose to negotiate with Quebec? BTW nobody said antyhing about taxpayers subsidising MF. Ratepayers yes but taxpayers are a different cross section of the residents of NL.

  • Maurice E. Adams
    November 06, 2012 - 12:06

    Muskrat Poll Results Todate ------- Option 1 [13%] ........ Option 2 [7.5%] ......... Option 3 [25.5% ........ Option 4 [54%] ------------ Details at www.vision2041.com

    • NoddyAndBigEars
      November 06, 2012 - 13:16

      Was that scientifically designed poll one that you did yourself on your innovative white letters on dark background web-site. (There are reasons that few professionals use that style for substantial amounts of text). As for your $261 bill for hydro, that will be less than $300 in 2041, you haven't told us HOW we are going to pay for the efficient heating and water heating for all of those seniors. Is it free because it sprang into existence the moment you thought it up? Somebody has to pay for your efficiency upgrades. Now why don't the seniors borrow the money for the upgrades from Newfoundland Power? The program all ready exists. BTW I don't know who John Smith is. Just because we both think you are wrong doesn't make us the same person. Sure I started to use a couple of signatures early this week, but I'm not John Smith (unless I'm nuttier than you are). MOE, MOE, MOE! Slow down, you are beginning to lose coherence. If we can't understand you, how can we know you are still wrong?

  • Winston Adams
    November 06, 2012 - 10:54

    John in Whitbourne aka John Smith. MF is great for senior citizens, yes, indeed. A 200.00 a month bill jumps to 261.00 , With some assistance to install efficient heating and hot water the bill would drop to 104.00 MF makes a lot of cents for someone, but not seniors.

  • Winston Adams
    November 06, 2012 - 09:49

    Nattering Nabob, aka John Smith. Yes , of course the Jevons Paradox. That if you save energy you will use more! You have a point there , but a small one, a little one, Little John. It is also called the rebound effect. And it works this way. If you install efficient heating that cuts your electricity use by 2/3, your heating bill is now much lesss expensive. So instead of having your thermostat at 70F, you turn it up to 73. Your basement that went unheated , you give it a little heat. So instead of saving 67 percent , you use 20 percent of that saving , for a reduction of about 47 percent , with improved comfort. The USA study , the Mckinley study noted that. Not a very good argument against efficency John. So you would argue we take all the insulation out of our houses? You complain about power bills going up, now you use this silly argument against what can bring them down . So the government is foolish to be using efficient heating in all their new buildings? And the home owner foolish to make efficiency improvements?

  • John in Whitbourne
    November 06, 2012 - 09:29

    The article misses one of the most important points about the Muskrat Falls development. The project will lock-in residential electricity costs for a generation. That is of particular benefit to seniors who benefit from fixed expenses. Without the Muskrat Falls project, electricity costs will rise and fall along with fossil fuel prices. The inital cost to consumers will be higher but over time the constant rates will benefit everyone. _____________________ Another point is the fact that Emira will receive a certain amount of power in return for their investment. They are to benefit in return for carrying part of the risk of the project. The links with Labrador and with Nova Scotia can lower infrastructure costs for in our own grid. We can depend on the link to provide power to the Island in the event of local equipment failures. In the isolated Island case, we need to mainatin that reserve capacity on the Island. _______________________ Nobody is discussing the extra capacity of the HVDC system. There will be three cables and only two of these will be committed to delivery of contracted power. There will be times when the reserve capacity can be used to deliver excess power to the spot market in New England and the Maritimes. That is a lot of revenue hidden in the back pocket of Nalcor.

  • BlogDiss
    November 06, 2012 - 09:27

    Russell............. I am shocked that an apponent of Muskrat is intelligent enough to be able to point out a error in a calculation concerning Muskrat. Dunderdale, kennedy and Martin have been saying that apponents of Muskrat don't have a clue and they are completely wrong about anything to do with Muskrat. Interesting!!!!! Obviously Dunderdale, Kennedy and Martin can be wrong too hey?

  • BlogDiss
    November 06, 2012 - 09:24

    Russell............. I am shocked that an apponent of Muskrat is intelligent enough to be able to point out a error in a calculation concerning Muskrat. Dunderdale, kennedy and Martin have been saying that apponents of Muskrat don't have a clue. Interesting!!!!! Obviously Dunderdale, Kennedy and Martin can be wrong too hey?

  • Winston Adams
    November 06, 2012 - 09:13

    Consider this, for MF power to the island , the power will cost somewhere between $10,000.00 to $40,000.00 for every 1000 watts of electricity, depending on if there is a sale for all or a little of this energy. At best it is 10,000.00. Now a guy just down the street is completely a house with in-floor heating and installing a 18 kw electric .00 for this one house as a portion of the capital cost of MF. For a 25,000 differeheater. This new demand, contributing to MF, is costing a minimum of 180,000ntial he could have slashed his energy needs by 2/3. So one house could cut MF capital expence by 120,000.00. Apply this to all new housing, and you will see that it is not only the mining companies that are reaping the benefits. Anyone want to do the math on Danny's 5000 housing units? Efficient heating should by code be mandatory for all new residential construction. If not, theyy are being subsidized like the mining companies. And many of these houses are being flipped in a few years, so there is no incentive for builders on their own to go with efficient heating. More demand on the island may be desireable, but not necessary.

    • Winston Adams
      November 06, 2012 - 12:07

      Should have read-- installing a 18 kw electric heat boiler is adding $180,000.00 for this one house as a portion of the capital cost of MF

  • NatteringNabob
    November 06, 2012 - 09:05

    @Maurice Moe baby, you go on and on about conservation and not needing the power but you never manage to articulate actual arguments. ____ The Jevons Paradox suggests that Nalcor should be encouraging conservation in order to increase the demand for electricity. Perhaps they will do that when the additional power is available in three or four years. It will certainly will help them when the time comes to justify spending another four or five billion dollars at Gull Island.

  • Too Funny
    November 06, 2012 - 08:27

    This is beginning to sound like some kind of daisy chain. Ratepayers will pay Nalcor to provide dirt cheap power to the mining companies who will provide some tax revenues and royalties to the province. No, not a daisy chain, just an indirect tax. Everyone is better off, except the ratepayer.

    • Fred Harris
      November 06, 2012 - 11:51

      You've articulated that very well "TOO FUNNY"... Con O'Brien makes solid points which support your conclusion. Instead of Nalcor shareholders and execs getting bonuses and dividends, how about every dollar above break even going BACK to the ALREADY over charged rate-payers to reduce their bills and then the "have-province" won't just be the greed brokers in executive or MHA positions who help their buddies so that they can get cushy jobs when no one will vote for them anymore...? We the people need to be a part of the "have-province" benefits too! (It sure isn't going into the safety of the roads...)

  • madan rana
    November 06, 2012 - 07:22

    You have pointed out correctly that the Mining companies were not in the picture, when initially Muskrat Falls was proposed, and hence a Deal with EMARA was done, where they will build the Transmission Line and get 20% of the Energy at NO Cost. Now if the demand and justification for this Project is changed, then in my opinion, there is no need to give Free Energy to anyone for a long period of 35 years, Thanks Madan Rana

  • Maurice E. Adams
    November 06, 2012 - 07:10

    "a project which we need because of increased demand for power" ---- Even in Labrador, that's a big "IF". It was just a few months ago that Nalcor gave evidence to the PUB that there were no firm requests for power in Labrador........ Now given the billions of dollars worth of economic development now being touted by the mining companies, the former premier, Nalcor and Wade Locke, and given that these multi-million dollar companies look and plan years ahead, how is it that none of this was evident just a few short months ago?......... Most all of these projections for power needs are (at this stage).. speculative. Perhaps with the exception of Danny's Alderon, I have not heard of one "FIRM" request to Nalcor for more power...... Furthermore, Canada's largest diversified miner (Tech Resources Ltd.) recently said that "it was deferring $1.5 billion in capital spending plans as a precaution against the global slowdown" (Globe and Mail)......And island ratepayers should proceed, based on speculative mining development, with doubling our debt and building an otherwise unneeded mega-dam, so that Labrador mining companies can have power that they may not need for another few decades at 1/42nd of what it will cost us to produce ? .... Wake up government.

    • Con O'Brien
      November 06, 2012 - 09:24

      NL rate payers are being asked to pay for the building of Muskrat Falls, by committing to buy 40% of the power on a take or pay basis. The remaining 60% + what we don't use of our PAID FOR 40%, will be sold or given away to wealthy mining companies and Emera at a loss for 50 years! In 2041, 29 years from now, we get back the Upper Churchill, so we don't need to jump over the dam without a regulated review to make sure we are not making a big mistake The MHA's who promote Muskrat Falls without the PUB are placing the province in a dangerous position! 550,00 people is too small a population to consider a mega project of this magnitude on their own! We need to slow down and hold onto the BILLIONS in oil profits we have set aside for the equity in this project, and make sure our PC MHA's and all the experts they hired to come up with this plan, are indeed as correct about it's merits as they all claim. Democracy needs to be upheld, restore the PUB, and do your duty to the people! Put your money where your mouth is PC MHA's! Prove to us it's what you say it is. Don't just tell us to believe! NL rate payers, the people you are forcing to pay for the building of Muskrat Falls, deserve nothing less