My late brother, Brendan Sullivan, was one of
the first opponents of Muskrat Falls and wrote a pre-sanction article employing the term “voodoo economics”. It described a scheme contrived by Nalcor to lower power rates early in the
project by back-loading the equity repayment onto future generations. His post
of November 29, 2012 stands the test of time. He was efficient in his words of
caution, too. Brendan could see the project for what it was:
economic smoke and mirrors.
This is part of his article:
Now, almost 7 years after it was first used to
describe the Muskrat Falls project, it is time to re-introduce the phrase that
perfectly describes something far worse than a “boondoggle”.
ill-advised, especially a policy of maintaining or increasing levels of public
bear down on us with ever greater certainty, it is becoming very clear just how
ill-advised this project really was. Nalcor was forced, long ago, to
acknowledge that its demand forecasts were hogwash. Even the demand at sanction
is not expected to be met again until 2032!
of the bonds are actually fairly short-term and have the protection of the
Federal Loan Guarantee. If the Province can still borrow when the first series
of bonds comes due, the FLG will likely not be available and interest rates may
have risen even further than they have already. Any “roll-over” — borrowing to
pay off those having matured — will only compound our fiscal crisis.
General Rate Application to the PUB.
June 2017 prediction by Nalcor that electricity rates would be in the range of
23 cents an hour in the event that there is no rate mitigation. However, Hydro
have advised to not worry — the media having reported that government will hold
the rates at 18 cents/kWh.
the following statement: “Therefore, rate mitigation to limit residential
customer rates to 18¢ per kWh will require funding in the range of $280 million
to $350 million per year.”
million in profits to the government. Now Hydro has acknowledged that, in order
to keep rates within a level that will not cripple the local economy, the
Provincial Government will have to interject $350 million a year into the crown
province continues to pay interest on the ‘equity’ given to Nalcor over the
last 5 years. Most, if not all, of that $4 billion has been borrowed, and the
taxpayers are already paying several hundred million a year in additional debt
(based on Nalcor’s current commissioning schedule), the province will spend
over $500 million a year on rate mitigation and to service the debt on the
borrowed equity. This will be coming from the taxpayers. Dr. Jim Feehan’s Submission
to the PUB regarding the effect on electricity demand from higher rates —
including at 18 cents per kWh — only confirms this long-held assertion.
crisis. The PUB Hearings need to acknowledge this crisis. Realistically, where
will the province find this $500 million in cash on an annual basis to service
in electricity rates, and how do NL Hydro engineers claim that electricity
demand will hold constant under this burden?
million a year, and the majority of households in NL cannot endure an 80%
increase in rates. Therefore overall consumption will decrease. To make things
worse, come 2025 we will still have reliability issues. Despite 3 years of
discussions at the PUB, it is still not clear where the province will get extra
generation in 2025 to meet reliability standards, and what that will mean to rates.
economics” some 6 years ago.
and 2011 — on the crazy idea.
delusion as time evaporates, important policy decisions are avoided and Federal
complicity — which puts them on the hook for some of the responsibility for
this debacle — is given no attention.
may try, he will not be able to skate through the election of 2019 with those
issues unresolved or even barely discussed.
into this mess, more of the same won’t help us get out of it.
media as for anyone else — don’t let the politicians bamboozle you with
promises of lower rates unless they can also define exactly where the money for
rate mitigation is coming from.
we have not yet heard the last of “voodoo economics”.