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?
Russell Wangersky is The Telegram’s
editorial page editor. He can be reached by email at email@example.com.