MUSKRAT FALLS: A MODEST PROPOSAL (Part 3)

Editor’s Note:  Part 3 of Uncle Gnarley’s review of the
Muskrat Falls project became more expansive than first expected, as he explains
why it is a bad idea right now, and what alternatives the Provincial Government
ought to be considering.  Gnarley was not
prepared to compromise completeness for brevity; hence, part 4 will be posted
Monday, next).

Uncle
Gnarley seated himself comfortably in his ‘own’ chair and gave me a look of
expectation when his favourite ‘lubricant of the soul’ was not in
evidence.  Sensitive to his most
egregious habits, I proposed that we try a recent purchase, a 12 year old
Balvenie, a personal favourite, aged in portwood and full bodied; the spirits
boasted a taste and character that was delicious and smooth.  Producing the evidence, I received no comment
on what a friend had thought was a “shrewd” purchase, though the look of
surprise and satisfaction, which characterized his discerning smirk, afforded
me confidence, that, this evening at least, I would not be reminded of my
shortcomings on the water.

Uncle
Gnarley was now ready to get on with his review of the Muskrat Falls
project. 

“Indulge an
old man for another few minutes, Nav, and I will head back down to the Shore,
Gnarley began, simply. 

“Last time,
I put paid to the Nova Scotia link.  For
the reasons I explained, there is little or no power to export, so why give
away 20% of the project for free. Though, the point is rather academic, he
added.

“More
importantly, replacing Holyrood at all, with Muskrat Falls, and at a cost that
may well climb to $10 billion or more, is just such an incredibly terrible
idea”.

“What about
Alderon? I interjected.  The company says
it needs power. “Yes, Alderon”! He scratched his head, shaking it a little: “they
really should consult IOCC to see how they got their power”, replied Gnarly,
dismissively.

“40% of
Muskrat, 330 Megawatts (MWs), is thought necessary, by Nalcor, to replace
Holyrood; the cost of the whole project will be repaid by levying the
Newfoundland taxpayer a rate increase every year for 50 years. 

“That is the
basis of the ‘take or pay’ contract they have designed for us, he declared,
regardless of whether the power is needed, regardless of changes in technology
over that period; regardless if oil prices fall; and, regardless if natural gas
overtakes other forms of energy, as we are now seeing in the U.S. with shale
gas. 

“Let’s
suspend judgement a little further”, suggested the retired economics professor,
whose aging aspect belied a keen intellect. 
“In order to buy into the Muskrat Falls scheme, you have to ignore the
forecast decline in demand by residential users after 2020, which is related to
the drop off in mega projects, in this province, as well as an aging
population. 

“You have to
ignore the fundamental fact that Nalcor’s forecast energy deficit is associated
with space heating or, what is commonly referred to as, electric baseboard
heating.

“You need to
be blind to the fact that Nalcor has over-estimated electrical demand in this
Province for last 20 years.

“If people
want to stick with Nalcor, Nav, people have to be prepared to stay ignorant of
a lot of things!  I am not fond of such
wilful ignorance, stated Gnarley, matter of factly.

“I grew up
at a time when money was tight, public services were scarce and economic
decisions, even when inappropriate or plain wrong, were not of a size to cause
long term grief for the whole province. 
I fear such decisions are now being made, based upon an oil mentality;
in that business, rates of extraction are always expected to overtake increases
in capital cost.  NL is not an oil
company, Nav, though our leadership may suffer such delusions.

“As I see it, the taxpayer has to consider
essentially three issues.  Do we need the
power? What will Muskrat power cost? 
What is the alternative? These are familiar questions, Nav, but Nalcor’s
answers have been formulated to bolster a most uncertain plan.  Mine are far different than are theirs.

“To the
first question, even if we accept Nalcor’s highly suspect demand forecasts, the
actual energy deficit will not begin until after 2020, the year Holyrood is
scheduled to be discontinued. But the actual deficit is far from
determined.  Neither the PUB or MHI were
impressed with Nalcor’s approach to determining ‘demand’.  In addition, Nalcor’s estimate of domestic
demand takes us out to 2067 and not 2041, when Upper Churchill power is
available.  There is every reason to
believe that any energy gap can be filled on the island during the intervening
period with no risk to the treasury of the Province.

“Keep in
mind that Nalcor does not recognize the benefits of conservation, new
technology or even alternatives available with existing technologies.  Nalcor even assumes continuous increases in
the cost of fuel to 2067; don’t forget Nav, continuous increases in the cost of
oil, constitute Nalcor’s singular argument for Muskrat.  Yet, the Minister of Finance can’t forecast
the price for this fiscal year, let alone for 50 years out!  We have not yet been told what the new
deficit numbers are,

Let’s move
on to the issue of cost, I suggested to Uncle Gnarley.  Yes, that is an issue that deeply concerns me,
too, he stated.  “Based upon the
government’s original estimate of $5 billion (plus Emera’s share), it suggests
Muskrat power, at Soldier’s Pond, will cost 23.4  cents/KWh; Philip Raphals, a Consultant for
Grand River Keeper in Labrador, estimates the cost at 37.2 cents/KWh.  Either number constitutes expensive power,
Nav.  Our ratepayers should be prepared
for a lot of grief! But remember, too, these estimates were prepared before
construction costs edged up, the final number will likely be in the 40-50
cents/KWh range.  Oil for power
generation, at Holyrood, now costs 13.5 cents /KWh.  By further comparison, the current blended
power rate for the province, including Newfoundland Power’s distribution costs
is only 10.4 cents/KWh.    Do these
figures frighten you? Well, Nav, they frighten me! Nova Scotia is already complaining
that Muskrat power will cost them more than 10 cents/KWh and that government
plans to share none of the risks of Muskrat Falls.

“Dunderdale
is fond of throwing up her arms and saying, there are no alternatives, we’re
going to be left in the dark after 2016, that Muskrat is the ‘lowest cost
alternative’.  I don’t believe, for one
second, that the Premier understands her brief’, he stated bluntly. She has
already failed the Office of the Premier!

“’Lowest
cost alternative’ is a nice turn of phrase, but Muskrat Falls is actually very,
very expensive power and the ‘inherent risks’ of the project have been
positively ignored.  I deeply resent
that, Nav.  I really do.  

“Prior to
2041, when the Upper Churchill contract expires, I suggest we cannot afford to
build both a power plant and the Labrador/island link.  Not at today’s cost!  To be economic, either the power generation
or the transmission link, at least one of them, has to be virtually free,
Gnarley declared, with emphasis. 
Otherwise, we should not build Muskrat Falls.

“I have
concluded, Nav, that we should kill the power generation plant at Muskrat completely. 

“Let’s build
only the transmission line now; then Gnarley paused. He was insistent that I
understand that, even this proposal, contained a significant qualifier.  The qualifier is this, stated Gnarley: Nalcor
must purchase access to 250-350 MWs from Hydro Quebec.  Together with the balance of ‘recall’ power
from the Upper Churchill, of about 80MWs, the cost of which is small, might,
and I emphasize might, justify such an expensive transmission link to
the island.

That idea
would certainly reduce the risk of the project and provide power more cheaply
than from Muskrat Falls generation, I allowed. 
“Exactly”, responded, Uncle Gnarley. “We have to decide whether the goal
is to build an edifice or serve the public with lowest cost power”.

“There is a
larger dimension to this part of my modest proposal, Nav.  I’m not quite finished.  Perhaps we can have a short re-fill and I promise
I will quickly complete this dissertation”.

OPINION POLL OVER-RATES INEFFECTIVE TORY OPPOSITION

Having survived in spite of themselves, in Opposition the Tories have been lazy and uninspiring.  The fact that it is summer, and the House of Assembly is closed, admittedly makes their job tougher, except that the Party’s manifest weakness is not a seasonal problem.

REMEMBERING CABOT MARTIN (1944-2022)

He was an exceptional person. A gifted intellect for sure; irascible and argumentative, too. What endeared him to many was not just that he was analytical and insightful, but that he was honest and forthright. He was a public policy wonk; resource policy interested him most. He loved to travel and read; people, with something to say, were always important.

GNL RUSHING INTO ANOTHER “SCHEME”: CABOT MARTIN

I must say that after the Muskrat Falls fiasco, I thought our government had finally learnt its lesson and would not to rush into another such scheme where calling it “green” was enough to suspend all critical analysis.

4 COMMENTS

  1. Uncle Gnarley

    It is good to see that after your April rebuke of my phased approach to the Labrador Hydro Development, you seem to be warming to the idea.

    Although it may be like Balvenie to the Tea-Tottler, we must consider the option of power purchases from Quebec. The combination of cost growth on Muskrat Falls, with the continued downward trend in United States Electrical rates makes the option of a HQ purchase that much more palatable.

    In 2008 energy rates were 90$ MWhr in New England. Now they are in the 30$ MWhr range. Meanwhile the 6.2 billion dollar estimate is rising for the MF project. A perfect storm as they say.

    My back of the envelop calculations show that the mix of RECALL power and Hydro Quebec power (20 years) at market rates is a very attractive alternative. Assuming HQ energy is available at 54$ MWhr (escalating 2% a yr)and Recall is available at 2$ MWhr then the Cumulative Present Worth is in the range of 1 Billion less than the Muskrat Falls solution. This is an alternative which should at least be offered to the people of the province.

    As part of the phased approach the option to develop MF stands. It can be done when the domestic demand requires it, and/or the rates in the US are high enough to take the exports at a rate which is not subsidized by the Salmon fisherman on the Gander River.

    It is such a sound decision to make.

  2. Why doesn't The Telegram carry your words od wisdom? And on energy efficient technology for heating and hot water, we are presently wasting about 600 MW of our present generation. It's so efficient at reasonable cost that equivalent cost of heating and hot water becomes about 4 cents instead of 10.4 cents. I think a proper assessment of this would even make the transmission line from Labradoe unnecessary for a long time. But I think you suspect this may be the case- You say the transmission "might " be justified. Winston adams

  3. Nalcor spent about 160 million on 2 dry holes at Parson's pond. They carried this on their books in 2010 as a asset. I assume it's still there for 2011? If written off there financial statements would not be so rosy. And they were given 40 million intended for Labrador New Dawn Agreement which they collect interest on. Can Uncle Gnarley review their financial statements and enlighten us? WA