Muskrat Falls - Cutting Through the Political Rhetoric

There’s been a lot of political rhetoric around development and distribution of power from Muskrat Falls since the project was announced late in 2010. No doubt that rhetoric, on all sides of the political aisle, will ratchet up as the October provincial election draws closer.

It’s unfortunate that the public, as voters, taxpayers and power consumers don’t yet have a clear picture of whether or not the project is the best approach for Newfoundland and Labrador.

The reason for that lack of clarity falls first and foremost on the shoulders of the communications personnel at NALCOR and within government, but there is plenty of blame for others to share as well.

The various political parties have been using this project as a wedge issue for their own political benefit rather than ensuring that it benefits the province’s people.

Meanwhile, the media has gleefully reported their rhetoric rather than doing the research needed to inform the people of the province, so much for investigative journalism.

It’s also unfortunate that most people are not engaged enough to dig into this on their own. By not doing some basic searches on the web, asking questions of NALCOR and Hydro management and demanding clear answers we also share in the blame for our own ignorance of the situation.

Of course most people simply don’t have the time or inclination to do that sort of leg work and in reality they shouldn’t have to do it. If communication was better at the source they wouldn’t have the need.

As a result we are left to sift through talking points from the most unreliable sources of information out there, politicians.

Like most of you I have a pretty full personal life and a job that keeps me quite busy. Time is precious but I’ve managed to do some limited digging regardless. After all it’s our future that’s at stake and the stakes are high.

A certain level of information is available publicly but it takes a bit of effort to find it and to separate the facts from the myths.

One source of data is the initial backgrounders and announcements issued when the Lower Churchill agreement was first announced. These are available on the provincial web site and at NALCOR online.

Other information is can be gleaned by reading through various regulatory and government submissions and documents, not necessarily related directly to the project, available on the NALCOR and Hydro web sites. Some of those documents predate the project announcement but provide a level of clarification for the reasons why Lower Churchill is on the agenda.

There is also some information on power rates, though understanding most of the numbers requires a Masters degree in accounting.

Regardless, I’ve determined a few things for myself that I’m more than willing to share.

First of all, based on official submissions by Hydro – pre Lower Churchill – it’s clear that the island portion of the province is approaching a wall when it comes to available power. By 2015 we will essentially reach our limit and by 2019 have a shortage of power to meet demand.

This is the reality that manifested itself in NALCOR examining various options for ensuring a stable energy supply, both to meet requirements in the near term and allow for future growth.

The two primary avenues examined in recent years were the interconnectivity of the Lower Churchill at Muskrat Falls and the ongoing use of Holyrood, in conjunction with development of a number of smaller island projects.

According to the documents, the latter alternative brings with it several concerns, which is likely why Muskrat Falls eventually became the preferred option.

On its own Holyrood will not have the capacity necessary to meet the needs of the island in a few short years and having been commissioned in the 1970’s it’s now nearing the end of its lifecycle.

If the Holyrood option were chosen NALCOR/Hydro would be required to install scrubbers to reduce toxic emissions, undertake major upgrades to the installation and to develop several smaller generation facilities (a combination of multiple hydro, thermal and wind stations) simply to meet user needs. Each of these requirements would take several years to complete.

Even with those steps taken the corporation would be leaving itself open to the whims of fluctuating fuel prices. The Holyrood plant currently burns approximately 18,000 barrels of oil per day during peak generation.

The corporation might also be subjected to additional costs if carbon emission limits are put in place by Ottawa.

Even thought the installation of new scrubbers would remove many toxins from the air they do not stop CO2 from being emitted. Holyrood emits more than 600,000 tons of CO2 each year, making it less than environmentally friendly.

If Ottawa were to setup a cap and trade system, as has been widely talked about (essentially putting a price on carbon emissions), the cost of purchasing carbon offsets for Holyrood would lead to additional expenses well beyond the refurbishment and the rising cost of oil. All of which would be a factor in future power rates for consumers.

These additional costs, which would be subject to the whims of the market are in addition to the cost of development for the other smaller projects necessary to meet island demand. With all of that taken into account, the documents I’ve read indicate that the “status quo” approach would only meet demand until about 2029, leave little room for growth and require even further development projects going forward.

These and other issues are likely a big part of the reason why the Muskrat Falls option was the direction decided upon.

The current government has publicly stated that the project will stabilize power rates and that it’s the lowest cost option available. Meanwhile the province’s opposition parties say it will more than double consumer rates and that other options should be examined, though they don’t specify what those other options might be.

As I’ve said before, it’s difficult to separate the facts from the fiction when it comes to this project.

I don’t have the answers but I hope what I’ve provided will at least spur others into digging a little deeper themselves, perhaps even finding information that supports or refutes what I’ve gathered myself.

If nothing else hopefully the information put forward, beyond the rhetoric, will convince the public not to place too much stock in the political positions being staked out by any of the parties heading to the polls in October.

In an effort to provide as much information as I can, below are some diagrams I’ve found on the NALCOR and Hydro sites identifying the current power rates in the province, projections for the cost to consumers under both the Muskrat and Holyrood options and a graph showing the rising cost of fuel at Holyrood over the past few years.

I hope it helps.

The first chart identifies the current island interconnected rate per kilowatt hour - 9.584 cents.

The second chart identifies NALCOR's comparative analysis of revenue requirements for Muskrat Falls vs. the Holyrood option. Note that this chart is depicted in Megawatts rather than Kilowatts but what it shows, according to NALCOR, is that in the 2016 - 2019 time frame both options will cost about the same but in the following years Muskrat Falls (the blue line) is a much less expensive option. Precisely what the rate per kilowatt hour will be to consumers is not identified but it's clear that this would also be affected going forward.

This final chart idenfies the cost per barrel of oil used at Holyrood over the past 10 years. This indicates a doubling in those costs over the period. No projections of oil costs going forward were available, nor were any assumptions about the cost of carbon emissions should regulations be put in place.

Canada considering international bases - Peter MacKay

According to recent comments from Defense Minister, Peter MacKay, Canada is reviewing possible sites for setting up bases around the world in an effort to better position the military to respond to international missions.

The Canadian Forces does "prudent planning," MacKay told reporters recently, taking into account its ability to participate in international missions.

"As we look out into the future what we obviously try to do is anticipate where and when we will be needed, but it's difficult with any certainty, to make those plans, without talking to other countries, without doing internal examinations," Mackay said.

I’m sure Mr. MacKay is correct when he says it’s difficult to say with certainty where the Canadian Forces will be needed but one place they are guaranteed to be needed going forward is right here at home. That’s not something that’s in question.

According to the Montreal newspaper Le Devoir the Canadian Forces is in the process of negotiating to set up bases under a program known as the Operational Support Hubs Network. They've reportedly already completed negotiations with Germany and Jamaica, and are in talks with Kuwait, Senegal, Kenya or Tanzania, Singapore and South Korea.

Meanwhile a fully capable and existing Canadian airbase in Labrador, 5-Wing Goose Bay, has been lying practically dormant for years. In spite of repeated promises over the past several election cycles to staff the base with a 650 person rapid response battalion and other services the airfield remains largely an unused appendage of DND.

Prior to the last election MacKay said that the Harper government is still behind its now 5 year old promise but with so much attention focused on Afghanistan he could not commit to when it would happen.

Mr. MacKay would have voters believe that with so much of government’s current focus directed at external military interventions in recent times little thought has been given to the need for the Defense Department to actually defend Canada itself, a position that rings hollow in Newfoundland & Labrador.

The refusal to provide military capacity at the base has left
a gaping hole in the nation’s defenses along the Eastern seaboard and at the Northern approaches.

As things now stand, any unidentified aircraft entering Canadian airspace from over the North Atlantic must be intercepted and investigated by aircraft scrambled from CFB Bagotville in Quebec. The additional flying time and distance required to perform that duty means Canadian jets must first touchdown at the idled Labrador base to refuel before they can complete their mission. An inefficient activity results in a loss of valuable response time to any potential threat.

Even with the less than stellar location of Bagotville, when it comes to coastal defense, in the summer of 2007, just over a year after Harper’s commitment to station 650 personnel at Goose Bay, then Minister of Defense, Gordon O’Connor announced 550 new personnel and spending of an additional $300 million dollars at the Bagotville base.

In his presentation O’Connor said, “Today’s announcement once again demonstrates this government’s commitment to further strengthening Canadian Forces units in Quebec, to make up for the previous government’s years of neglect.”

Nothing was announced for Goose Bay and it hasn’t been since then.

For years the people of Newfoundland & Labrador have been lobbying successive federal governments to make use of the valuable airbase with nothing to show for their efforts.

With the election of the Harper Conservatives in 2006 and in light of the PM’s public position on Arctic sovereignty it was hoped that the base would once again provide the sort of service its location allows. This has not been the case.

In successive elections the Conservative government has promised to ensure an integral role for Goose Bay only to back away from those promises once elected.
In the months preceding the most recent federal election one of Mr. Harper’s Ministers went so far as to tell the people of Newfoundland & Labrador that he was not aware of the province’s concerns for the status of the base. How that could even be possible he did not say although the question was asked.

While the people of Newfoundland & Labrador have pushed hard on the issue for longer than most care to remember it’s not clear where most Canadians stand on the status of the Labrador military base. After years of inaction at the site most probably don’t even know the asset exists, but they should.

If Prime Minister Harper is truly as concerned with Arctic sovereignty as he is telling Canadians then the public should be asking why he would continue to leave a perfectly serviceable airbase, at the gateway to the Eastern Arctic, mothballed for so long.

Most Canadians fully support our Armed forces and many can even get behind the actions the Canadian government has taken in foreign lands recently but perhaps it’s time for the government of Canada to realize that our armed forces are managed by the Department of Defense, not the Department of Offense.

Has Harper sold Dunderdale down the Churchill River?

Did Kathy Dunderdale and the PC caucus of Newfoundland & Labrador shoot themselves in the collective foot during the last federal election campaign, or will Stephen Harper repay the favour given him by the Premier, if not the NL voters, and honour his committment to back the Lower Churchill project?

If the Dunderdale government plans to ride a federal loan guarantee for the Lower Churchill into the next election they’ll need to have it signed, sealed and delivered before voters go to the polls. That might prove difficult, if not impossible, to accomplish before the October ballot with news out of Ottawa today that the guarantee will not be included in next week’s federal budget.

During the federal campaign Kathy Dunderdale threw the entire weight of her caucus behind Conservative candidates, even going so far as to appear at a Harper rally in St. John’s where the PM announced his backing for a “loan guarantee or equivalent financing”. Now, with the federal budget slated to be delivered next week it’s been revealed that the guarantee won’t be included.

A source inside government has told the media that the PM is still behind the deal and will make an announcement once negotiations are completed, but is that good enough for voters? Will that statement alone carry Dunderdale through the next election or is the public in Newfoundland and Labrador far too suspect of Stephen Harper to accept his assurances?

If the recent federal election returns were any indication it would appear that the latter is true. That could be very bad news for the Dunderdale government.

With no loan guarantee in place she had better hope the legacy of the William’s government provides her with enough momentum to overcome what could prove to be a gaping hole in her election platform.

According to a government source, "It (the guarantee) will be provisioned for and accounted for going forward but (while it won't be in the budget) it doesn't have to wait until the next budget to go into effect."

Perhaps this is true and Harper simply wants to avoid the huge fuss with Quebec that would surely come from highlighting the agreement in the federal budget. If that’s true however, and the guarantee doesn't require parliamentary approval, why is it that during the election campaign he told voters that in order to ensure the loan guarantee (or equivalent financing) a majority Conservative government would have to be elected. Otherwise, he said, the opposition parties might side with Quebec and vote against it.

Liberal MP, Gerry Byrne, (no doubt as much to score political points as get at the facts) has raised the issue in recent days as well. According to Byrne, “They were the ones that said it needed parliamentary approval. Now they're suggesting it's an order in council done by cabinet that can approve the Lower Churchill loan guarantee. So they're either lying now or they lied during the election campaign. The bottom line is we were misled."

Hard to argue with that logic regardless of the source.

Whether political rhetoric or not, Byrne also said he believes the government has no standing authority to offer such a loan guarantee without parliamentary approval.

"I've got a formal question presented today to the parliamentary budget officer to confirm or refute that understanding." he went on.

I'm sure many newfoundlanders & Labradorians will be interested in the response provided to Mr. Byrne's question.

Although the provincial government has said in the past that a loan guarantee (or equivalent funding) is not essential to development of the Lower Churchill project, such a guarantee would save provincial taxpayers hundreds of millions in interest expenditures.

With initial work on the project now underway money is already flowing out the door. The provincial legislature is now on summer break until the October election and the Canadian Parliament, once the budget is passed, will also be taking its summer break. Under those circumstances the odds of finalizing any sort of agreement before the next provincial election is low at best.

It’s a difficult situation the Dunderdale government must surely be considering after hearing this news today.

As Gerry Byrne pointed out today, the absence of Muskrat Falls in the budget should raise alarms, especially as the federal government has signalled it will include other campaign spending promises in the budget

One of those expenditures is the more than $2 Billion dollars in compensation to Quebec for implementing the HST many years ago. A promise widely seen during the campaign as Harper's way of placating Quebec over his Lower Churchill promise, making it even more concerning that the promise to Newfoundland & Labrador will be excluded from the budget while the one to Quebec is there front and center.