The Ghost of Shag-Ups Future
What's done cannot be undone
Once you read Dave Rheaume’s comments about Hydro-Quebec’s deal with Newfoundland and Labrador, you have to look again at the dog and pony show from the House of Assembly this week and wonder what exactly Andrew Furey and his crew thought they were doing.
Wild numbers. No detail of the pricing mechanism they could or would explain. Furey’s usual fluff and then the ridiculous point in the whole circus when Newfoundland and Labrador Hydro chief executive Jennifer Williams told us all how wonderful Muskrat Falls was. Well, leaving cost to one side, she said repeatedly.
That was second only to the moment when someone asked her about what impact this deal would have on domestic rates, due to rise endlessly on the island through to the end of this HQ deal because of those Muskrat Falls costs Williams didn’t want to talk about. Not my place to speak for *future* governments, Williams said or words to that effect. And from the *current* government benches a stony silence.
That’s because they know a lot of things they will not say, including about Rheaume’s statements. Given the marvels of modern media monitoring available to the government and the people who built Muskrat Falls, price included, they chose to keep quiet about what was already public elsewhere about this deal. And when it comes to the money from this deal, they know there is not enough in it - that $33.8 billion cap on Churchill Falls energy in the deal - would not produce enough cash to pay for the fiasco whose costs Jennifer dare not speak of. That is why - among other things - all the crowd working to sign this deal in Newfoundland and Labrador as soon as possible used another numbers - $180 billion - which are not only inflated by the practice of stretching the prices into future dollars using an assumed “discount” as it is called, but also by adding in other government income that isn’t covered by the deal.
There are more things in Heaven and Earth than are dreamt of in government news releases. Find them here.
The experts that Furey and Williams brought along to take a turn at the House of Assembly circus did not help the government’s cause, either. It has been some time since people in Newfoundland and Labrador were so talked-down-to by mainlanders. An energy consultant spent most of the day Wednesday taking and answering questions and the most important aspects - finances - got tossed off in a few hours Wednesday night. They added no discernable facts or evidence but they did have opinions that their clients had a very good deal, the very best around, and that we all ought to be grateful that Hydro-Quebec had come on its knees with such a generous offer.
So much of what the outside experts said on behalf of the people paying them to close *this* deal, experts bound by contract not to disclose anything but what will support their client, was the equivalent of what people tell children, the naive, the ignorant, and the stupid. Patronizing and condescending but done with a smile. Williams teased up and her advisor related the tale of unknown people in Calgary who know nothing of the deal, nothing of the province’s situation then or now, or of the Churchill Falls deal beyond the myths and fairy tales yet pronounced this one “amazing.” Mainlanders love it. You Newfs should, too.
Mention of apples to apples comparisons came with none to back them up and the comparisons made were all apples to kumquats, comparing this deal to wind generation for instance. Nonsense. The truth is that contracts comparable to this one - one generator exporting to another jurisdiction - are the ones Hydro-Quebec has with buyers in New England and few if any are 50 years long. Some in the past 20 years have been for 20 years or so and the prices are way higher than this one by a long shot.
But it really is a trick comparison since there is nothing like this situation anywhere. This one is different because the partners in the project since 1969 have basically split the power between them and paid as little as they could for as long as they could. They can then sell it to their own customers at whatever price they can get. Hydro-Quebec is bound by provincial law to sell electricity dirt cheap to locals. Newfoundland and Labrador Hydro can set whatever price they want for electricity sold locally and get away with in a jurisdiction that is fundamentally corrupted since 2012.
The chance of exports is limited, as one of the experts said and as Rheaume hopes, and that is true to a point. In 1998, NL Hydro recaptured electricity as they are entitled to do under the 1969 contract and then sold it to Hydro-Quebec for five cents a kilowatt hour because it is the cheapest and easiest way to sell it if there is no local need. NL Hydro could export more electricity to the United States or Ontario at some point way off in the future but there’d have to be transmission lines to do it and those things are so expensive that NL Hydro couldn’t do it before and is unlikely to afford to do it in the future.
That’s why we got Muskrat Falls: Gull Island and the transmission lines to make it work were too expensive for the market to bear. This new deal may give electricity from Churchill Falls to NL Hydro down the road but the cost of transmission will be the killer to export sales. That’s already factored in, it seems. If you listened to the folks from NL Hydro the past few days, they are expecting to have more of the electricity blocks allocated in future to NL Hydro to become more electricity for Hydro-Quebec. Jennifer Williams calls them off-ramps for some reason but that is some bizarre word she alone understands in this case. The experts noted that NL Hydro has the right - but not the obligation - to recapture output from the plant. True, and as Rheaume admits, they’ll take the electricity but not pay a premium for it. They will pay far less. What Andrew and Jennifer got from Hydro-Quebec and what they want us to think they got are not the same thing by a wide margin.
If you want to understand what happened in 1969, look around.
It just happened again.
As someone who has researched the province’s energy history, studied it, and talked to people who were there at the time, it’s striking how similar things are today as they were in the 1960s.
The bravado, the hype, the self-satisfaction. Particularly the hype. The wild exaggerations with numbers that are utterly ludicrous in themselves. Now as 15 years ago people in the legislature reading from notes made up from the wild exaggerations from the people closest to the deal who themselves may not understand what they are at, fully and completely because they haven’t considered the bigger picture. Has nothing to do with smart or capable. It is just about how big this is, how insanely tight the timelines are, that they do not have time to realise, and on top of that how firmly closed are the minds behind it that they are unwilling to listen, at all, to anyone else. They are, in their own way, typical of governments since 2003.
The starting point is 1969. The people behind this deal talk about it but they do not show any signs they understand. Regular readers of these scribbles know more and on Monday, we’ll dive further into this deal, summarizing all we’ve learned this past week. Most of it comes - once again - from Hydro-Quebec.
The crux of the 1969 myth is based on the belief since the 1970s that this is *our* plant and *our* resources and that Hydro-Quebec, while a partner in the plant, ought to pay market rates for the electricity. Andrew Furey and Jennifer Williams and their people are of a different mind. For them, this is about wholesaling electricity to themselves and try heir partner. How many in the House or in the province are aware these two different world views are in play? Well, beyond you lot now that you’ve read this a few times.
Now the politicians are jammed up, financially wrecked by two decades of legendary stupidity only part of which is Muskrat Falls. They are like BRINCO who started building Churchill Falls without financing secured, got in a jam, and had to let HQ bail them out and take both risk and reward. This time around we are so broke we cannot even find a mere $3.5 billion, not so long ago a single year's deficit and this year one and three quarters a Furey cash deficit. Rheaume was laughing, no doubt, as he said in so many words that the Newfs are so friggin’ broke Quebec had to buy them their own shares in their own company. The situation is as truly pathetic as it seems and indeed as sorry as the mainlanders seemed to think it is.
We should not forget in our unwarranted smugness that Michael Sabia, the guy heading the Quebec side, just finished up a stint as federal deputy finance minister. Sabia was there for a string of bailouts of Andrew Furey’s administration and knows our weaknesses better than Furey and his own ministers. Sabia took every advantage of them he could. Obviously. And they apparently obliged.
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Churchill Falls, Again, but Worse
