“Nav, I am nearly finished ‘Why Nations Fail’ and
I suggest that you take it with you when you leave here this evening.  But do you fancy something a little stronger
than a coffee?” 

The old man’s grin clearly communicated that this was
a question of a rhetorical nature.  We
began the walk to Erin’s, one of Uncle Gnarley’s preferred watering holes. 

“What is peculiar about Nalcor, Uncle Gnarley continued, is that they
put ‘on airs’ about being an open and transparent company.  They produce an annual transparency report,
hold public meetings and they even have an annual general meeting for their

“Uncle Gnarley what is peculiar about that?”

“Nalcor have created the illusion of transparency,
but once you scratch the surface they spew an awful lot of baffelgab.  Combined with their subsidiary, known to most
as the Premier’s office, they have worked to undermine the pre-existing
democratic institutions such as the Public Tendering Act, the Public Utilities
Board, and also the fiscal governance responsibilities of the House of

The maturation of Nalcor is nothing more than the
development of state socialism.

 It has quietly happened under our noses,
because it is being presented to the public as a great capitalistic venture,
with Ed Martin branded as the captain of industry. ”   

It was clear that the summer weather had removed the
last drop of wetness from the old economist. 

“Ed Martin will talk about how the balance sheet,
the cash flow and the debt to equity ratios have improved.  To the casual observer this is all true, but
once you scratch the surface and review the annual reports, you realise that
the picture is not as rosy as we are lead to believe.”

 “Uncle Gnarley
you must explain this; you must remember I am not an economist”

“Nav, you can rest assured that my dissertation has
been built on this elementary assumption. 

“Ed Martin was appointed as the head of Nalcor in
2005.  Since that time the people of
Newfoundland and Labrador have given Nalcor over 1 billion dollars in the form
of equity investments or deferred earnings. 
  We are also about to give them a whole lot
more equity for the Muskrat Falls and Hebron investments.  All in, the Newfoundland taxpayer will have
invested some 3 billion dollars in Nalcor. 

“Therefore, when Ed
Martin promotes the improved debt to equity ratio for the company, it is because
of the largesse of the provincial taxpayer, and not the improved financial
performance of Nalcor. 

“The same can be said about the profitability.  Despite these great investments the annual
earnings are essentially unchanged.  When
you look at the earnings results for the past 10 years, adjusted for inflation,
they are not substantially better than what they were in 2004.  To make matters worse Nav, their return on
equity has degraded substantially over the past decade.”

With that Uncle Gnarley reached for his tablet, and
pulled up a graphic for me to view.  “Nav,
once you go over the past 10 years of annual reports you can get a long term
view on company performance.  That
performance is not as robust as what Ed Martin would want us to believe”.

Not only is Nalcor’s financial performance only
marginally better than what it was 10 years ago, there is no indication as to
when they will ever pay back, to the people of
the Province, this 3 billion dollar investment”.  
“Nav, this takes me back to our book ‘Why Nations
Fail’, it is clear that Government and Nalcor are working to a plan.  And that plan may have some merit.  However, they are not communicating the
required detail for what should be demanded in a democracy, especially when public funds
are being employed.  The level of public
governance is simply not there.  We must
have a blind faith in government and Nalcor. 
And blind faith is not where I want to be, when it comes to a 7 billion dollar
“I agree Uncle Gnarley.  You may call Nalcor state socialism, others
may call it an epic example of a make work project.  But to be clear, any business availing on tax
payer funds through ACOA, or other government agency, would have to present a long
term business plan.  Well, why is Nalcor
any different?  To use a political phrase,
where is the due diligence?”
“Nav, Ed Martin did qualitatively discuss this long
term business plan during the 2013 AGM. 
He discussed 5 phases of development for Nalcor, with plans stretching
out to 2030.  It really was a memorable
speech, for which unfortunately there is no written record.  He presented his vision of using the revenue
from Muskrat Falls, and other regulated activities, to fund the growth of
Nalcor in areas such as Gull Island, and other oil and gas opportunities”.
“Uncle Gnarley, that is quite at odds from the
messaging of Nalcor and the provincial government leading up to the sanctioning
of Muskrat Falls, last Fall.  At that
time they were talking about the annual $400 million dollar return to the
provincial government”.
“Well Nav, it seems as if Ed Martin is now planning to
spend that money.  It is exactly the
point I am trying to make.  Where is the
public debate on this evolving strategy.  
Most importantly, where are the numbers?  What will it cost, who will pay, and what are
the real returns?  These are all valid
questions for a crown corporation, whose growth plans to date have been entirely
subsidized by the taxpayer!”
Uncle Gnarley had built up a great head of steam.   It was clear that although the project was
sanctioned, Uncle Gnarley was not ready to forget about Nalcor. 
“Uncle Gnarley, I would expect that the Annual General
Meeting is an opportunity to review the results, and provides the stakeholders
an opportunity to challenge the leadership on these types of questions.”
Nav, remember that the provincial government withheld
the annual report until a mere 6 days before the AGM.  This was hardly enough time for any concerned
shareholder to review the results and to grade the performance of the
“But, Uncle Gnarley, I watched the video of the
AGM.  There were many of the known
critics at the event, who really challenged Ed Martin.”
“Yes Nav, there were many questions asked of Mr.
Martin, but there was not always answers. 
This was correctly identified by the High Chieftain of the Known Critics himself.
 “But Nav, non-answers are one thing; incorrect answers
are even more troubling.”
 Uncle Gnarley reached for his drink, clearly disturbed
by the words he was about to utter.
“Well, Nav, I was at the Nalcor AGM several weeks
back.  An old fishing buddy of mine, Jim
Morgan, was on a real interrogation of Ed Martin.  Believe you me, Jim Morgan is no
pushover.  His first lot of questioning
was on that Quebec Company, SNC Lavalin, which seems to be making a good lot of
money from this project.  
“Then he asked 
a very straight forward question. 
He asked if Emera were looking for more than 167 MW of power, as was
being suggested from the UARB hearings in Nova Scotia”? (Footnote 1)
“Uncle Gnarley, that is indeed a very straight forward
question.  It is well known to anyone who
was watching the UARB hearings that the consumer advocate John Merrick
has been pretty keen at trying to get
confirmation that all this cheap surplus power, that Emera are promoting, will
be available.
“Emera has been stating that the availability of very
cheap surplus power is what will bring the blended cost of Muskrat power, to
where it is the lowest cost option.  But
as the consumer advocate has correctly identified there are no assurances, from
Nalcor, that this power will be available”.
“Yes Nav, to anyone following the UARB hearings in
Nova Scotia, the issue of surplus power has been the lightning rod of the
proceedings.  Emera are selling the loose
juice, which Nalcor will not commit as to being available.  Emera were very clear during the UARB
hearings that they had engaged Nalcor about the possibility of a firm contract
for more power from Muskrat Falls, beyond the 20% currently under the Nova
Scotia block.
 “This is what is most troubling, because when Jim
Morgan asked whether Emera have approached Nalcor about getting more than 167
MW, Ed Martin responded:
 “I have not been approached by Emera with respect to that.  With respect to more power.  I believe that we have a great product, and I
am sure they would like to have more power. 
No need to consider it as I have not been asked1
Now, Nav, the most surprising thing was that a mere 21
days earlier Mr. Martin sent a letter to Emera on the very same subject.  A letter regarding the availability of
surplus power, which was tabled in the UARB hearings”.
“Now Nav, Mr. Martin’s messaging in this letter, and
the transcripts from the UARB hearings, do not appear to correlate with what
was told to the shareholders as part of the 2013 AGM.  Maybe it was nothing more than a simple
mistake.  Maybe it was tailoring the
messaging to suite the audience.  But one
thing is clear, it is not a consistent message when it comes to surplus power.”

“What are we to believe Uncle Gnarley?  This is certainly not the first example of
this type of inconsistency coming from Nalcor and/or the provincial government
on the Muskrat Falls Project.  Whether it
was the availability of gas from the Grand Banks2,  the availability of Upper Churchill power in
20413, the amount of power available to Labrador mining4,
or the final cost of power to the residents of Newfoundland5, there
has been many inconsistent messages”.
“Uncle Gnarley, it is no wonder that people are so
confused about this project.  But are we
expected to support the project based upon blind faith only?  Should we be content with living in state
sponsored ignorance?” 
“One day, Nav, we shall find the head waters of truth
when it comes to Muskrat Falls.  Lake Michikamau
or bust6
“Uncle Gnarley I suspect that the UARB decision coming
this week may be the first crack in the dam.”
Editor’s Note: This Post was written by “JM”, the anonymous researcher, writer and
presenter, to the PUB and in local Blogs, on the Muskrat Falls Project. JM has written a
number of Uncle Gnarley pieces, most recently, Why Projects Fail. He has also written  Gnarley’s Theory of Political Devolution,
 Annus Orndatra and The Quest for McLeod’s Deep Throat, as well as others. His latest Paper is entitled: Muskrat Falls Revenue Stream: Fact or Fiction. 
1)      Go
to 1 hr. 23 minutes into the Q and A session of Nalcor’s 2013 AGM.  Jim Morgan asks the question about Emera and surplus power.

    2)     During
an interview with Dave Vardy in preparation for his Action Canada paper, Ed
             Martin indicated that all the natural gas presently produced on the Grand Banks
is used for either reservoir maintenance or power on the facilities.  The use of natural gas for power generation
was said to be taking away from the economics of oil production.  See page 13 of Vardy’s Paper.  
  This is
not correct as the White Rose field, for which Nalcor are a partner, are
presently re-injecting
 gas for storage only, and has no impact on production. 
3)      Minister
Kennedy has on several occasions indicated that there are no assurances that
Upper Churchill power would be available for use in Newfoundland in 2041.  Yet in the UARB hearings Emera were very
clear that the Upper Churchill power could be used for Nova Scotia’s (Page 34
of the Emera application ) post 2041.
The final rate to the Newfoundland consumer has always
been a difficult question to answer. 
When Nalcor did provide a rate calculator for the DG3 decision (Power in
Our Hands website) there was no backup to the numbers.  However within the PUB hearings, Nalcor did not provide guidance on the blended rate within PUB-Nalcor 5
and on a stand alone basis within
  For both of these the rates appear to be based on the
increased demand all being residential. 
But in fact about 40% of the immediate requirements for Muskrat Falls
(about 700 GWhr) is required for the Vale facility, and not for residential
use.  Power will be sold to Vale at
industrial, and not residential rates. 
It therefore appears as if the final rate to the consumer will be ~2
cents/kwhr more than previously advised by Nalcor.  It is impossible for the public to verify
this, as insufficient data has been released. 
It should be confirmed with Nalcor. 
Reference to “Lure of Labrador Wild” which was the
rallying call for Hubbard, Wallace and Elson in the search for Lake Michikamau.  This great lake was latter absorbed into the Smallwood
Reservoir as part of the Upper Churchill development.   
Des Sullivan
Des Sullivan
St. John's, Newfoundland and Labrador, Canada Uncle Gnarley is hosted by Des Sullivan, of St. John's. He is a businessman engaged over three decades in real estate management and development companies and in retail. He is currently a Director of Dorset Investments Limited and Donovan Holdings Limited. During his early career he served as Executive Assistant to Premier's Frank D. Moores (1975-1979) and Brian Peckford (1979-1985). He also served as a Part-Time Board Member on the Canada-Newfoundland Labrador Offshore Petroleum Board (C-NLOPB). Uncle Gnarley appears on the masthead representing serious and unambiguous positions on NL politics and public policy. Uncle Gnarley is a fiscal conservative possessing distinctly liberal values and a non-partisan persusasion. Those values and opinions underlie this writer's views on NL's politics, economy and society. Uncle Gnarley publishes Monday mornings and more often when events warrant.


Bill left public life shortly after the signing of the Atlantic Accord and became a member of the Court of Appeal until his retirement in 2003. During his time on the court he was involved in a number of successful appeals which overturned wrongful convictions, for which he was recognized by Innocence Canada. Bill had a special place in his heart for the underdog.

Churchill Falls Explainer (Coles Notes version)

If CFLCo is required to maximize its profit, then CFLCo should sell its electricity to the highest bidder(s) on the most advantageous terms available.


This is the most important set of negotiations we have engaged in since the Atlantic Accord and Hibernia. Despite being a small jurisdiction we proved to be smart and nimble enough to negotiate good deals on both. They have stood the test of time and have resulted in billions of dollars in royalties and created an industry which represents over a quarter of our economy. Will we prove to be smart and nimble enough to do the same with the Upper Churchill?