Too big to fail?

Russell Wangersky
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It makes a profit off every kilowatt hour of electricity you use: when electricity prices go up, as they must to fund the construction of Muskrat Falls, it will make even more profit, its returns rising in lockstep with every rate increase.

It is taking millions of dollars of taxpayers’ money that’s simply handed over in giant chunks by the provincial government, and its footprint in the economy in terms of investments, contracts and employment grows every single year.

You might know it as Nalcor Energy.

You might not have any idea how, in just six years, the company has become a financial monster.

First off, I understand that the people directing Nalcor feel they are building a company integral to the future of the province.

I also understand that the provincial Tories launched Nalcor to become the province’s “energy warehouse” with an energy plan that the Tories argue the electorate voted in favour of way back in the 2008 election.

And none of this information is truly secret: you can track it all down in Nalcor’s annual reports (all handily online), in the province’s budget documents and in the legislation that created the company.

What’s obvious is that it sucks in money like a giant sponge, and nothing, not a dime, comes out.

The documentation shows that Nalcor held retained earnings of $963 million as of the end of 2012, and that, in the five years between 2008 and 2012, it has invested $1.5 billion through a variety of investment activities, both inside and outside the oil business.

It has hauled in $439 million in profits (primarily from electricity sales to ratepayers in this province) and, if it takes up this year’s government investment, it also will have picked up $1.2 billion in direct government aid as well. (It could have taken even more — in the last six years, the province’s budgets had planned to offer up $2.4 billion to Nalcor; only $660 million of the budgeted money was taken, with another $531 million on the line this year.)

It’s not clear where the province’s investment shows up on Nalcor’s balance sheet: it appears to lodge in shareholders’ equity, but that’s not completely clear to a non-accountant like me.

Another interesting fact? In 2012, the vast majority of the company’s revenues still comes from the sale of electricity — the same sales that would have come from the company if it had stayed as Newfoundland and Labrador Hydro, instead of becoming the much-more-expensive and expansive Nalcor Energy. In 2012, despite the six years of massive investment, $643 million in revenue came from electricity; just $68.7 million from oil sales.

The numbers will get bigger — much bigger. Nalcor’s on the hook for the massive  construction costs at Muskrat Falls and the lion’s share of the cross-island transmission line, along with its share of huge construction costs for oilfield projects where it’s a minority partner.

And the kicker?

This financial monster, this behemoth of energy, has had five successive years where it has not paid one red cent in shareholders’ dividends to the provincial government. It’s made massive profits; it’s also kept all of them.

Perhaps there’s nothing wrong with that structure: certainly, I’m not suggesting that it’s a nefarious evil empire of any kind.

It’s just that there’s been a fundamental government decision to hive off billions of dollars of taxpayers’ money into a giant operation that’s neither true business nor truly government either.

It’s a massive commitment of resources, especially this year, when the province says its financial straits required the layoff of scores of public servants.

Nalcor doesn’t report to voters; it doesn’t have to use public tenders; its CEO has special, essentially unappealable powers to block the release of information under the Access to Information Act. It picks its own auditors, like private business.

The province’s auditor general has some powers with relation to the corporation, but for five years hasn’t produced any real report on the company. (How different is Nalcor? While it is a corporation, it’s been exempted from the vast majority of the province’s Corporations Act, including that act’s requirements to keep records of corporate and directors’ meetings. Its special powers were put in place, ostensibly, to let it act like a business. But it is no ordinary business: it’s a strange hybrid, assuming the best parts of both worlds.)

It’s a strange arm’s-length existence: in the last major agreement the company signed, with Emera of Nova Scotia, the document contained a clause saying, “Nalcor is entering into this agreement, and Emera and Nova Scotia Power acknowledge that Nalcor is entering into this agreement, solely in its own right and not on behalf of or as an agent of the Newfoundland and Labrador Crown.”

Yep, it’s got deep enough pockets to do exactly that.

The government may have built it in the first place, but, at the age of six, Nalcor’s all growed up now.

Fish or fowl?

Energy warehouse or cash warehouse?

You decide.

Russell Wangersky is The Telegram’s

editorial page editor. He can be reached by email at

Organizations: Newfoundland and Labrador Hydro, Nova Scotia Power, Newfoundland and Labrador Crown

Geographic location: Nova Scotia

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Recent comments

  • Brian
    November 23, 2013 - 13:52

    Russell you are obviously not an accountant but as an reporter you should ask the opinion of a accountant before you write your article and maybe learn more about the business of Nalcor...a lot of their profits is from the energy marketing group which is deceived from selling excess energy on the market...not from rate payers of this the cooperation looks to be doing a good job on making money and more than 50% of it is from exporting energy and oil, as you indicated this information is available online on their website.

  • Brian
    November 23, 2013 - 13:44

    The province is spending more money then ever, the economy is doing great the public debt is declining. There is no need for the province to withdraw money from Nalcor, epically when they will be investing into their oil assets. The public pension costs are rising dramatically and if the price of oil declines we will face massive deficits and a lot more layoffs...hopefully at that time we can withdraw money from Nalcor to help offset the loss of's a great idea and more people should remember what it's like to havings a savings account rather than expect to govt to live at the max and always over spending.

    • W McLean
      November 23, 2013 - 14:46

      The public debt is increasing, as it has for all but three of the years the PCs have been in power. In the last fiscal year, total liabilities were about $1.5-billion HIGHER than they were when the PCs took office. Time to retire that talking point, guys - it's not true.

  • Just Sayin
    November 23, 2013 - 13:16

    Russel, would you buy into Nalcor's assets? You spend say 100 million drilling some wells hoping to hit oil or gas, but it results in no commercial benefit, and you show the cost of this drilling as an asset worth 100 million. it looks good on the books but in reality resulted in a big loss. Same with muskrat falls, a 10 billion or more cost, listed as an asset of the same value, but which can produce little income, so the asset value will be a fraction of the cost. rather than a energy warehouse, it is a cash sinkhole for the taxpayer, and a profit whorehouse for the business friends of the politicians.

    • Glow worm
      November 23, 2013 - 22:25

      Profit whorehouse..... I've never heard a better description in my life. As pointed out by Brian Jones, even a truck can be considered an asset, but if it's financed you don't really own it while you're paying on it and by the time it's paid off it's only worth a small fraction of what you paid for it. For the government to say the MF project doesn't contribute to the provincial deficit because it's an asset is the most outrageous/ridiculous lie/claim I have ever heard out of the mouth of the Premier - to the claim that we are strengthening our own processing industry through the CETA deal.

  • Cyril Rogers
    November 23, 2013 - 09:24

    Well, Mr. Wangersky, it may not be an "evil empire" but it is certainly not acting in the best interests of the people of the province. The shroud of secrecy surrounding its activities, despite supposedly open annual meetings, does nothing to assure me that their aims are beneficial to the long term health of the people of the province. It is, in my opinion, a money-sucking cesspool of PC largesse, and whatever its initial intent, something has gone drastically awry. When the time comes that we will need a Commission of Inquiry to ferret out the truth, then, perhaps, we may come to describe it as the "evil empire".

  • Maurice E. Adams
    November 23, 2013 - 08:08

    And a 'cash warehouse' built on the backs of NL ratepayers --- and we ain't seen nothin yet. Wait until the so-called asset value of the $10-15 billion Muskrat Falls dam, transmission lines, etc. get factored into the "rate base" --- which is what is used to set electricity prices for ratepayers ... and wait until we have to build substantially more generation capacity to meet our 24 year legal commitment to Nova Scotia.