THE FINANCE MINISTER’S LUCKY RABBIT’S FOOT

Key public policy issues, especially the Muskrat Falls project
and the province’s fiscal condition, received the most attention on this Blog in
2017. They are receiving increasing notice from the mainstream media, too, even
if the gruel is often thin.

In a few corners there is increasing concern over the solvency
of the province. A weak government is asked to provide leadership, but can’t
get up the nerve. 
As if to magnify the weakness with which the electorate perceives
all the political parties, the Dwight Ball Liberals maintained a lead in the polls
as 2017 ran out: CRA reported that 44% of voters preferred the Liberals against
33%for the Tories and 19% for the NDP. Yet 63% of voters are dissatisfied with
the performance of the Liberals, begging the question: if the Premier provided
some leadership, would not the Liberal Party’s numbers be higher? 

Finance Minister Tom Osborne
In time the province will be forced to assess its debt burden,
but likely only when the ‘Demand Notes’ come due. NL is in an odd space where,
on the one hand, an unfinished MF project allows Nalcor to continue
capitalizing the interest on the sum borrowed (after commissioning, operating
and interest costs will have to be met from power sales and/or subsidy) while,
on the other, Bond Ratings Agencies ignore the fact that the debt is not within
the province’s capacity to repay. Those Agencies’ unwarranted assumption is that,
however high the debt may grow, it will be supported by the Government of
Canada.

The effects of over-indebtedness won’t be felt until the full
cost of “rate mitigation” is calculated and Nalcor realizes that a basic
economic consequence of higher costs — demand compression — is underway.  

The President of the Federation of Labour will then discover
that the half-billion dollars per year required for rate mitigation — just to
keep rates at 17 cents per kWh — won’t come out of thin air. Mary Shortall’s
name, not surprisingly, can be added to a long list of politicians (and others)
suffering classic denial syndrome.

As it stands, the time given to the charade of solvency and MF
viability will sap the province’s flexibility to respond to the crisis.

A dynamic (and courageous) government would have — months ago
— begun to define the province’s position on contractual agreements with Emera
and the Federal Government with respect to the Muskrat Falls project; they
having been complicit with Nalcor in the fabrication of agreements that made
neither commercial nor economic sense.

Aren’t aggressive measures to protect the public treasury the
first obligation of the government, the Tories having vacated this role?

As it stands, precious time is being squandered. Left uncontested
much longer, the MF debt — and the fallout it will cause — will be solely ours
to bear.

Additionally, the province’s huge debt cannot be passed off as
an irritant. Besides, the calculation of “net” debt  is not accurate given the government’s
admission of the need for “rate mitigation” or subsidy. In short, the “gross”
debt (which includes the debt of Crown Corporations including Nalcor) is closer
to the “real” debt figure.  

Finance Minister Cathy Bennett delivered the sixth deficit
Budget in a row in 2016. The “Current Account” deficit, which stands at $850
million following Tom Osborne’s Update, hangs precariously over an even deeper
abyss, balanced on some combination of oil prices and oil production. Borrowing
for “Capital Account” receives no notice at all, but the Bond Market piles it on
top of the monies borrowed for programs and operations, called the “Current
Account” — as it must.

 The Liberals, like the
Tories, have married the fiscal strategy advanced in the “Wiseman Plan” (as in former
Tory Finance Minister Ross Wiseman, whose Budgets offered up expectations as
one might from a lucky rabbit’s foot): “hope” and a spike in the price of oil. So
far, Finance Minister Tom Osborne has heartily embraced this fiscal approach.

The NL Auditor General has described the “net” debt as
“unsustainable”, as has the Federal Parliamentary Budget Officer. Imagine if
either had used “gross” debt numbers in their analysis!

While the concerns about the debt have been submerged under
the weight of rhetoric, the new “we are not in a crisis” Minister of Finance — taking
his cue from NL Federation of Labour President Mary Shortall — seems to have
been given a mandate to secure labour peace, at any price. An election looms
and the government has a sale on collective agreements. Yet, the Minister is prepared to acknowledge that “drastic measures” were need in January 2016 else the Government would not have been able to  meet its payroll. 

The public sector unions exhibit none of the concerns of the AG
or the PBO. Nor are they preoccupied with the vast unfunded pension liability —
as if the Government’s IOU will count for something when the Bond Market
awakens. Strangely, government’s ability to pay has never attracted notice from
the Public Service Pensioners’ Association either.

The government has not made the case for the sufficiency of
the terms of reference for the Muskrat Falls Inquiry. It has not given Judge
LeBlanc specific direction to search for wrongdoing. There is an unfortunate consistency
here. While the Ball Administration states that the Liberals did not support
the MF project, the truth is that they only feigned opposition at the fringes;
the same goes for the NDP. The record is in Hansard, the verbatim record of the
utterances of Members of the House of Assembly. In constructing the Terms of
Reference as it has, the Liberals continue to exhibit conflict with their
obligation to the body politic, giving cover to the perpetrators.

In 2018, the selection of issues on which this Blog focuses
will likely broaden. Health care, the fishery, rural NL and others will be
explored. Muskrat is guaranteed to proceed for as long as it takes, and
certainly while there is a government able to borrow one more dollar on Nalcor’s
behalf.

Our seven Federal MPs are chiefly noticed by their photo-ops.
Otherwise, as some say, they are as remote as Ottawa.

One housekeeping matter: I want to better manage the comments
section of the Blog. The Posts are enhanced by your comments and contributions.
However, far too often, commentaries tend to stray just a little too far. This
year I will apply Blogspot’s “Review” option which, while causing some small delay
in posting, affords me the ability to screen out those “comments” that are
repetitive or off-topic.

Finally, it is hoped that this Blog brings reasoned and
unbiased perspective to the issues that threaten not just our solvency and
standard of living but also rural NL (again) and our constitutional status too.
Not everyone is interested in politics or political analysis but, like it or
not, none can escape its importance to their daily lives.

Your feedback will help everyone who writes for this Blog to
better tailor their topics of interest to yours. Readership grew significantly again
this year. Your “Shares” on Facebook and Twitter were critical to putting our
stories in front of more eyes.  
We all
have a role to play and, most importantly, the right to express it in whatever
way we choose… which, I suppose, also affords us the right to deny certain grim
realities and to rely on the Finance Minister’s lucky rabbit’s foot. Taking
that approach is not without risk however. NL could wind up no luckier than the
rabbit!

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.

REMEMBERING BILL MARSHALL

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.

END OF THE UPPER CHURCHILL POWER CONTRACT: IMPROVING OUR BARGAINING POWER

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?

35 COMMENTS

  1. If oil prices rise to between $60 and $80 per barrel then we may have some short term reprieve from the disastrous boondoggle called Muskrat Falls but only for a short time. It is now predicted (and this is from manufacturing data coming out of China) that sales of electric cars, (Internal combustion engine equipped cars are the biggest consumer of fossil fuels) could well over take the sales of internal combustion engine cars within 10 years. The biggest drawback of electric cars isn't performance (they over take gasoline and diesel on all points) or reliability (an all electric car has 20 moving parts versus 20 000 on a diesel or gasoline-virtually NO costly maintenance.) but it is in the price of the vehicle and with China and its cheap and disciplined workforce it may well be able to produce EV’s at about half the price of North American manufacturers thus leveling out the price differential. The consumption AND storage of energy on other fronts such as homes and industrial is also being revolutionized. This will drive the price of oil down to below $20 per barrel since renewable energy such as wind and solar may permit a person to live off the grid, supply their homes and cars with all energy requirements energy and reduce the need for a large centralized power system of which Muskrat Falls is part of. In short we must take advantage of this short period to pay as much as possible on our depth and also look at selling of some assets such as NL Hydro and Churchill Falls for a good price to further reduce our debt. There isn’t any point in keeping these entities with the massive debts we now have since we are relinquishing control of our finances to Bay Street and Wall Street who will dictate the terms of repayment. It is time for a discussion around just where we want this province to be in ten years.

    • You make a compelling argument to not operate Muskrat, at a significant annual loss. Mothball is in play. But where will the blue sky Labour optimism about jobs for the high wage earners come from? Ball has promised more jobs. Crosbie is about make work programs. Trickle down economics is alive and well in NL. Follow the Trump mantra, lower taxes, and Tory economics takes off! Where have I heard this before?

    • This is a great guide to citizen activism.

      The conclusion is noteworthy. "The British novelist Julian Barnes once observed, “The greatest patriotism is to tell your country when it is behaving dishonourably, foolishly, viciously.”

  2. Here's a thought about leadership and the financial mess we are in. First there isn't any argument that we are head over heels in debt and that the civil service is costing us an over the top amount in salaries and benefits. Change the provincial labour laws to suit the following. Start with politicians and senior civil servants and slash both their salaries and benefits by about 20% including defined pensions (and this would include retired senior civil servants pensions also-20% reduced). If they want to quit then they can go right ahead because like the politicians, civil servants are replaceable plus if they do terminate their own employment then they aren't eligible for a severance package. After enacting this then go to the unionized employees and offer them retention of employment with zero increases for five years, cut out all severance packages, reduce sick days and vacation days and then all up and coming new employees would hired for a 20% less salary than those now employed, no benefits, no pensions, no sick days, no vacation days or severance packages and with dismissal after two weeks if not needed. Apply this rule to crown corporations and other agencies since reduction of their salaries and benefits will eventually reduce the amount of money we need to borrow. If after five years the deficit isn’t back to zero then start looking at selling off provincially owned assets such as NL Liquor, Nalcor, NL Hydro and also Churchill Falls, Marble Mountain, The Rooms, the old Colonial Building (would make a fine hotel and restaurant), all closed schools to be sold, close parts of MUN, privatize the provincial ferries, hand over snow clearing and maintenance to private operators and integrate many of the now provincial medical and secondary school services with the other three Atlantic provinces. This is the kind of leadership that is needed and not a premier listening to someone from MUN telling us that the price of oil is going to be $150 per barrel next week to justify spending $12 Billion on a legacy project.

    • Retire after 46 yrs Worker reply to Anonymous:
      If I didnt know different, I would think that you were writing on behalf of the Fish Merchants of years ago. They had your same philosophy…instead of being paid a fair wage, we will give you a few groceries to try and last through the winter.
      YOU, like many others who cannot cone up with a viable option, want to put it all on the backs of public service employees.

  3. Here's a thought about leadership and the financial mess we are in. First there isn't any argument that we are head over heels in debt and that the civil service is costing us an over the top amount in salaries and benefits. Change the provincial labour laws to suit the following. Start with politicians and senior civil servants and slash both their salaries and benefits by about 20% including defined pensions (and this would include retired senior civil servants pensions also-20% reduced). If they want to quit then they can go right ahead because like the politicians, civil servants are replaceable plus if they do terminate their own employment then they aren't eligible for a severance package. After enacting this then go to the unionized employees and offer them retention of employment with zero increases for five years, cut out all severance packages, reduce sick days and vacation days and then all up and coming new employees would hired for a 20% less salary than those now employed, no benefits, no pensions, no sick days, no vacation days or severance packages and with dismissal after two weeks if not needed. Apply this rule to crown corporations and other agencies since reduction of their salaries and benefits will eventually reduce the amount of money we need to borrow. If after five years the deficit isn’t back to zero then start looking at selling off provincially owned assets such as NL Liquor, Nalcor, NL Hydro and also Churchill Falls, Marble Mountain, The Rooms, the old Colonial Building (would make a fine hotel and restaurant), all closed schools to be sold, close parts of MUN, privatize the provincial ferries, hand over snow clearing and maintenance to private operators and integrate many of the now provincial medical and secondary school services with the other three Atlantic provinces. This is the kind of leadership that is needed and not a premier listening to someone from MUN telling us that the price of oil is going to be $150 per barrel next week to justify spending $12 Billion on a legacy project.

  4. NOT operating Muskrat Falls will mean spending upwards of a Billion Dollars a year for absolutely nothing and we will still need the electricity. It is a bit to late for that and it may satisfy the anti MF'ers but it will only now make things a lot worse.

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  6. On an unrelated but personally irksome note, UG writs in the last sentence of the 3rd paragraph:

    "Yet 63% of voters are dissatisfied with the performance of the Liberals, begging the question: if the Premier provided some leadership, would not the Liberal Party’s numbers be higher?"

    The phrase "begging the question" is often invoked in this context, and is entirely incorrect.

    In philosophy, to beg the question is to assume the truth of the conclusion of an argument in the premises in order for the conclusion to follow. It is a type of circular reasoning and an informal fallacy, in which an arguer makes an argument that requires the desired conclusion to be true. This often occurs in an indirect way such that the fallacy's presence is hidden or at least not easily apparent.

    https://en.wikipedia.org/wiki/Begging_the_question

    Therefore, to invoke the phrase "begging the question" in any other context is incorrect, and indicates that the author is unaware of its correct philosophical meaning and usage.

    The correct phrase to invoke in the context of the last sentence of the 3rd paragraph would be as follows:

    "Yet 63% of voters are dissatisfied with the performance of the Liberals, RAISING the question: if the Premier provided some leadership, would not the Liberal Party’s numbers be higher?"

    I thank all readers in advance for NEVER EVER incorrectly invoking the phrase "begging the question"… ever again.

    • As the Wikipedia article to which you link makes perfectly clear: "In modern vernacular usage, "to beg the question" frequently appears to mean "to raise the question" (as in, "This begs the question, whether…") or "to dodge a question". In contexts that demand strict adherence to a technical definition of the term, many consider these usages incorrect."

      Since the Uncle Gnarley blog is not a forum for academic philosophy but rather is in fact written in "modern vernacular" (at least, as filtered through the author's sometimes idiosyncratic stylings), it's entirely appropriate for the phrase to be used in the given manner.

  7. We now see, from a VOCM story, the Finance Minister promoting attrition as the best way to reduce labour costs. This has some element of truth as it does work on a limited scale . As well it is relatively painless from both the perspective of the government and the employee who would otherwise be laid off in a targeted staffing reduction approach. However on larger scale attrition fails. The government likes it as it avoids making the "hard decisions" of program cuts which is what they really should be doing. Rather , by using attrition, the government reverts to the age old approach of slowly starving programs and having them suffer "death by a thousand cuts" rather than making the truly hard decisions that they like to say they are making but almost never do. To expect attrition opportunities to occur exactly in those areas where staffing reductions could best be tolerated and should occur is a bit like expecting to win the lottery;indeed the Finance Minister does need a lucky rabbit's foot if that is his expectation.

    • Spot on anon @ 09:31.
      The bloated public service and high saleries and benefits will never be addressed if this is the approach Govt is taking. They're only kicking the can down the road.
      Although I think Unions are necessary and our standard of living would not be where it is today without them, I also think the Unions are allowed too much say in how Government operates with my taxes having to pay for it.
      There is a commercial on TV by CUPE which has recently started airing which makes my stomach churn "—why can't the Gopvernment pay a decent working wage??" That commercial cuts directly to why we are in the situation we are in today. CUPE doesn't go far enough in ALSO saying "raise taxes to pay for it".

    • It doesn't matter which way you twist it reducing the deficit is going to mean layoffs.

      To completely eliminate it in one year would mean a layoff of upwards of 11 500 civil servants. Simple math-deficit equals $700,000,000/$60,000 (a close approximation to the average annual salary of government employees plus benefits) = 11,666.7 jobs lost.

      Even if you factor in cutbacks in other expenditures there would still be a loss of about 8,000 jobs. This will pretty much send the province into a tailspin with the economy of St. John's finished for good. It would reduce car sales, house prices would collapse, more layoffs in the private sector and a general 1930's style depression with Commision of Government as the outcome.

      I think you best come up with another solution-like wage rollbacks first-layoffs second and the private sector will have to bite its tongue for 10 years.

    • Anon @ 16:49–Your analysis is pretty well spot on. The Unions know that wage rollbacks are inevitable if there is to be no mass layoff. To see them advocating for more staff (nurses) and salary increases because Govt is not paying a living wage (CUPE–come on for Chr–t sake! where in the name of God do you expect the money to come from? The Public Service is way,way,way overstaffed and paid well beyond the means of taxpayers in a province on the brink of bankruptcy. Wage rollbacks and benefit reductions must happenm or else we will never recover.The Unions must get on board and stop the gimmee,gimmee,gimmee more mentality.
      The money pit is empty.

    • Ha Ha Ha , what a joke! Finance Minister saying attrition is the solution, wow talk about government talking from both sides of the face !

      They just forced many of their employees to now work to age 58 instead of 55 (which was the pension plan they signed up for and payed into)

      This means 3 more years on the government payroll and 3 more years before the big "attrition" solution .

  8. Would somebody within the Hydro empire provide us with background on the recently announced 2018 Budget adjustment, ($210m reduced to $180m or so). Specifically related to Holyrood generating plant. Are we to assume that the plant will be operated beyond the Muskrat startup? What plans for modernization, refurbish, integration of renewables; solar collectors, wind, geothermal, etc? Give us a weather effects statement. Did the towers and conductors in place survive the salt/ice loads, etc.? Is the dam at Muskrat, ice flow in the river status quo?

  9. To the idiot nitpicker who questioned the phrase "begging the question" , don't be such an idiot. What about how many angels can dance on the head of a pin? How many Nalcor engineers to it take to change a lightbulb?
    And more important, have we yet actually imported some power from NS on the Maritime link, even if only during commissioning , to say it can actually do that.
    PF

  10. Robert,it will probably fall under Bill 29 as most everything else did until UG came upon the scene, We should not hold our breath as the info will only come out when they are forced to concede due to blogs like this. Trying to get a straight answer on anything from Nalcor/Hydro/Government is like "pissin'to the wind"

  11. The CBC reports that the winter storm knocked out all power on the great Northern Peninsula, for about 6 hours.
    Nfld avg power outages is about 2.8 hours per year, I believe, which is fairly good..that with power coming from our island hydro and Holyrood backup.
    The GNP has historically been perhaps 10 times worse for reliability, hence my repeated warning( I used to be a control and protection engineer for Nfld Hydro) of lack of reliability via MF. Liberty has warned likewise.
    Would the DC line have survived this today without failure, or put St John's and the whole Avalon in the dark, and likely to repeat several times each year during storms there?
    Perhaps PENG3,or others can comment?
    Winston Adams

    • WA:

      I haven't heard of any big issues yet with the HVdc/ac lines or the MF plant from recent weather, granted I have not yet returned from holidays and getting to some of the areas traversed for an inspection takes some time also.

      My concern isn't a tower(or a series of towers) coming down(the existing 230v lines lose guys on occasion and we don't lose spans); but accessing the area with equipment to make the repairs for much of the HVdc/ac line will be a time consuming challenge when the call comes in—remember in some of these areas it takes days to reopen the highways, let alone moving gear in to open a bush access.

      To Robert above:
      There wont be any UC power on the island for a while yet (likewise with import power from NS as it depends on the Bottom Brook convertor being operational)—both convertor plants need to be operational and there just isn't surplus UC power to transmit. I cant see a viable plan of Holyrood not operating, but I am not actively involved in this aspect of supply.

      More on point with UG posting, I previously opined my thoughts on our premiers to date, and my comments stand in that we have traditionally elected weak leaders save for 3-4 persons over the past 70yrs; nothing I've seen in the media since mid 90s refutes my statements.

      PENG2

    • PENG2,
      Granted , big issues would be structural, but serious issue more common is flashovers, outages from salt contamination, a result of high winds carrying sea salt unto the insulators. salt can carry inland some 25 miles. DC lines, being constant voltage is more prone to trip from this effect than AC lines, where voltages cycles from high to low. Time will tell how effective the route and creep of insulators will withstand this in this harsh environment. Wash down of salt seems impractical, is it not?
      Winston Adams

    • Freezing rain and sleet, known as ice, can be a structural problem. Ice typically is not a conductor of electricity, you will see insulators, transformers, wires coated with ice but functions ok. Wind from the ocean, when loaded with salt particles, makes water a conductor of electricity and permits flashovers, that can be a short term problem or last for many hours, as a power outage.
      With an outage, the problem is known usually right away from the protection schemes operations, and recorded as events sequence.
      We can speculate, but the engineers with Nfld Hydro and Nfld Power know, and would do a service if they reported to this blog,unless they wish to hide the risk of the GNP area as to MF reliability impact,(a risk known before MF sanction) Or…….we can wait for the results of the DC line operation later when operating, and perhaps some will not be surprised if poor reliability results…….perhaps another second inquiry will be needed for that, as the PUB seems to have cancelled that investigation?
      Winston Adams

  12. Well The Telegram and NALCOR were quick to pounce on any ideas of line failure. The recent storm had no deleterious effect. Ok. Just wait. A storm will bring down the line eventually, sooner rather than later.

  13. WA:

    I guess since line is not active we wont really have a real qworld understanding of the probability of flashovers/salting etc for a while yet. But I would agree that washdowns are unlikely for the same reason I said fixing the big issues will be a time consuming challenge—ie the route and limited access.

    Anoy @5:18:
    Snow, wind, freezing rain and sleet all cause their own issues—different issues but potential issues just the same.

    PENG2

  14. http://www.pembina.org/blog/baseload-myths-and-why-we-need-to-change-how-we-look-at-our-grid

    I would ask those of you more technically qualified, what enhanced Holyrood upgrades are contemplated, and desired, to apply integrated grid options, based on renewables, such as suggested by the Pembina findings? Seasonal demands, presumed to be space heating, coincides with the windy season and solar hot water, stored underground thermal would appear to be real practical measures to meet peak loads.

  15. My experience while working on 230kv salt contaminated insulators is that when the salt spray is accumulating on insulators and equipment, flash overs occur but very little damage or outages.After the windstorm is over the salt formed on insulators will dry to a powder and when high humidity or wet snow starts to fall on the equipment changing the dry salt to a liquid, major damage and outages will occur.

    • Your analysis seems correct, as when the dry salt changes to a liquid, electrical conductivity increases …….and seems consistent with conditions in Jan 2013 at Holyrood and adjacent lines in and out of there, and in the terminal station there. And so some 6 hours before mother nature allowed restoration of power.
      Which "begs the question" how could Nalcor documents say the DC line through the GNP would exclude SALT as a contaminant?
      How did this get pass Nfld Hydro engineers or Nfld Power engineers? Were they told to shut up and stay quiet on this risk to reliability? Can some engineer answer this on this blog, before Judge Leblanc forces some one to answer?
      Winston Adams

    • WA and Anoy @ 19:34:

      There were some studies done in that area dating back to the 80s; data from these installs was collected as recently as approx. 2010; not sure if locations are still active or not. I know the prime focus was structural info but I seem to remember a series of papers outlining other enviro effects on the spans.

      I will see if I can dig some of the older info up.

      PENG2