Guest Post by David Vardy
Former CFO Derrick Sturge told the Muskrat Falls Inquiry the project and
its financing were “rock solid”. CEO Stan Marshall told us two years ago the
project would “finish strong”.
Premier Dwight Ball promised “Newfoundlanders and
Labradorians that they will not bear the burden of higher electricity rates or
taxes as a result of Muskrat Falls. We will deliver on that promise.”
Labradorians that they will not bear the burden of higher electricity rates or
taxes as a result of Muskrat Falls. We will deliver on that promise.”
On February 25, 2020 Nalcor CEO held a press conference and took
questions from the media confirming the delays which had already become well
known. He did not provide a cost update on the project, which appears likely to
exceed the official 2017 estimate of $12.7 billion. He repeated the statement
that Nalcor would “finish strong”.
Stan Marshall’s press conference followed on the heels of the
announcement on February 10, 2020 by Premier Dwight Ball and Natural Resources
Canada Minister Seamus O’Regan of a framework for refinancing Muskrat Falls in
order to make power rates affordable.
questions from the media confirming the delays which had already become well
known. He did not provide a cost update on the project, which appears likely to
exceed the official 2017 estimate of $12.7 billion. He repeated the statement
that Nalcor would “finish strong”.
Stan Marshall’s press conference followed on the heels of the
announcement on February 10, 2020 by Premier Dwight Ball and Natural Resources
Canada Minister Seamus O’Regan of a framework for refinancing Muskrat Falls in
order to make power rates affordable.
How realistic was that plan? Will it indeed keep power rates stable and
avoid massive increases? Do the two media events signal a “strong finish” as
promised by CEO Marshall? Do they confirm that that citizens will “not bear the
burden of higher electricity rates or taxes as a result of Muskrat Falls”?
avoid massive increases? Do the two media events signal a “strong finish” as
promised by CEO Marshall? Do they confirm that that citizens will “not bear the
burden of higher electricity rates or taxes as a result of Muskrat Falls”?
The elements of the refinancing plan are as follows:
1. Adoption of a target of 13.5 cents/KWh for the first year of “full” power,
perhaps 2021 or maybe later, along with the April 2019 Rate Mitigation Plan
perhaps 2021 or maybe later, along with the April 2019 Rate Mitigation Plan
The target rate of 13.5 cents/KWh is based on the need for new revenues
and cost savings in the amount of $726 million as shown in the framework document and summarized in
the table below:
and cost savings in the amount of $726 million as shown in the framework document and summarized in
the table below:
This shows a high reliance both on dividends ($200 million) and on help
from the federal government ($200 million), both adding to $400 million of the
$726 million in revenue requirements.
The following table from the PUB report at page 104 reports a smaller
amount, only $193 million, toward the $726 million in 2021 revenue
requirements, rather than the $529 million in the rate mitigation plan of April
2019. Clearly the PUB took a more conservative and realistic view of the
options. There is a big disconnect between the April 2019 rate mitigation plan
and the February 2020 report of the PUB.
amount, only $193 million, toward the $726 million in 2021 revenue
requirements, rather than the $529 million in the rate mitigation plan of April
2019. Clearly the PUB took a more conservative and realistic view of the
options. There is a big disconnect between the April 2019 rate mitigation plan
and the February 2020 report of the PUB.
As shown in the Technical Appendix
below, the $726 million is a low estimate of the 2021 costs, known as “revenue
requirements”. It is lower than the $808
million estimate used by Nalcor in 2017 and the official cost estimate of $12.7
billion has not changed. The $12.7 billion is an understatement of the capital
cost of the project, as explained in the technical appendix, and should be
closer to $13.8 billion. The costs imposed on both ratepayers and taxpayers to
supply the projected energy requirements of 2021 are more than $1 billion, much
higher than the 2021 revenue requirements used both by the PUB and by
government. This is explained in the Technical Appendix below.
below, the $726 million is a low estimate of the 2021 costs, known as “revenue
requirements”. It is lower than the $808
million estimate used by Nalcor in 2017 and the official cost estimate of $12.7
billion has not changed. The $12.7 billion is an understatement of the capital
cost of the project, as explained in the technical appendix, and should be
closer to $13.8 billion. The costs imposed on both ratepayers and taxpayers to
supply the projected energy requirements of 2021 are more than $1 billion, much
higher than the 2021 revenue requirements used both by the PUB and by
government. This is explained in the Technical Appendix below.
The PUB was able to identify only $193 million in mitigation measures
for 2021 and close to half of that amount is forgiveness of dividends, which
were fictitious from the start. By 2030, 72% of the mitigation potential is
forgiveness of non-existent dividends. It will be difficult to keep power rates
at 13.5 cents/KWh in 2021 and to hold them at that level in subsequent years.
for 2021 and close to half of that amount is forgiveness of dividends, which
were fictitious from the start. By 2030, 72% of the mitigation potential is
forgiveness of non-existent dividends. It will be difficult to keep power rates
at 13.5 cents/KWh in 2021 and to hold them at that level in subsequent years.
The main problem with the province’s rate mitigation plan is that it
diverts revenues from other purposes. The additional revenues from exports and
from electrification will be modest in the early years. The magnitude of the
shortfall is such that a major infusion will be required from the federal
government. The federal government may offer some relief on sinking funds and
on pre-payment of cost overruns but that simply shifts the problem into the
future. Similarly an increase in the federal loan guarantee might be used to
offer some relief to the province but ultimately the burden will fall on
ratepayers or taxpayers in the province.
diverts revenues from other purposes. The additional revenues from exports and
from electrification will be modest in the early years. The magnitude of the
shortfall is such that a major infusion will be required from the federal
government. The federal government may offer some relief on sinking funds and
on pre-payment of cost overruns but that simply shifts the problem into the
future. Similarly an increase in the federal loan guarantee might be used to
offer some relief to the province but ultimately the burden will fall on
ratepayers or taxpayers in the province.
 |
| David Vardy (Photo Credit : The Telegram) |
What can the federal government do to assist the province? They could inject new equity into the project
in order to bear more of the project’s risk and to recognize that the benefits
of the project, if any, will flow to other Canadians, particularly Nova
Scotians. Additionally, the federal government could enhance its equalization
program or other support programs. They could enhance fiscal stabilization
payments or increase payments under Canada
Health Transfers (CHT), and under Canada Social Transfers (CST). The burden of
Muskrat Falls is best addressed through the prism of fiscal policy in
recognition of the fact that the fiscal impact far outweighs any energy
benefits.
The PUB report on
rate mitigation focused on opportunities to raise revenue through the sale of additional
electric power and by making the provincial power system more efficient. The
opportunities to raise revenues through increased electrification will take
time to achieve and will be modest in scale. Without major restructuring of our
electric power industry the opportunities for cost savings are equally modest.
The province can divert revenues, such as offshore royalty revenues and
revenues from equity investment in oil and gas, but this will simply take money
away from other social priorities and from debt reduction.
rate mitigation focused on opportunities to raise revenue through the sale of additional
electric power and by making the provincial power system more efficient. The
opportunities to raise revenues through increased electrification will take
time to achieve and will be modest in scale. Without major restructuring of our
electric power industry the opportunities for cost savings are equally modest.
The province can divert revenues, such as offshore royalty revenues and
revenues from equity investment in oil and gas, but this will simply take money
away from other social priorities and from debt reduction.
2. Monetization of dividends from the transmission line.
The flow of
dividends from the Labrador Island Link is relatively modest. If these were
somehow capitalized they would generate little revenues. If they were monetized
at the front end it would simply shift the problem into the future. But what is
“monetization”? It is a euphemism for borrowing against future revenues, which
is no cure. It simply allows the problem to grow exponentially and to shift a
growing burden to future generations.
dividends from the Labrador Island Link is relatively modest. If these were
somehow capitalized they would generate little revenues. If they were monetized
at the front end it would simply shift the problem into the future. But what is
“monetization”? It is a euphemism for borrowing against future revenues, which
is no cure. It simply allows the problem to grow exponentially and to shift a
growing burden to future generations.
3. Deferral of sinking fund payments until the end of 2021 and a waiver of
pre-funding of cost overruns.
Deferral of
sinking fund requirements provides some immediate cash relief as does the
waiver of the need to pre-fund cost overruns. This tinkering does not reflect
the magnitude of the problem.
sinking fund requirements provides some immediate cash relief as does the
waiver of the need to pre-fund cost overruns. This tinkering does not reflect
the magnitude of the problem.
4. Major changes to the Power Purchase Agreement (PPA) with its take-or-pay
contract and which places 100% of the cost on ratepayers on the Island.
contract and which places 100% of the cost on ratepayers on the Island.
The PPA is an anomalous
agreement between Muskrat Falls Power Corporation (Nalcor) and NL Hydro. It
places the obligation to pay on Hydro. Hydro must in turn place 100% of the
cost on power consumers, on industrial customers and on the customers of
Newfoundland Power and NL Hydro. This 50 year contract locks ratepayers into a
death spiral, where high rates force ratepayers to cut back and Hydro responds
by raising rates even higher. Already the demand for power has ratcheted down
in anticipation of higher power rates.
agreement between Muskrat Falls Power Corporation (Nalcor) and NL Hydro. It
places the obligation to pay on Hydro. Hydro must in turn place 100% of the
cost on power consumers, on industrial customers and on the customers of
Newfoundland Power and NL Hydro. This 50 year contract locks ratepayers into a
death spiral, where high rates force ratepayers to cut back and Hydro responds
by raising rates even higher. Already the demand for power has ratcheted down
in anticipation of higher power rates.
The replacement
of the PPA is absolutely necessary. Ratepayers who will consume little if any
Muskrat Falls power cannot be expected to absorb 100% of the costs, any more
than customers in the Maritimes or New England can be expected to cover the
costs of Muskrat Falls. The PPA is at the heart of a flawed business plan,
which depended upon legislation to create Nalcor as an unregulated monopoly.
This locks our electric power industry, along with the rest of the provincial
economy, into a high cost electricity system and prevents the adoption of new,
low cost technology.
of the PPA is absolutely necessary. Ratepayers who will consume little if any
Muskrat Falls power cannot be expected to absorb 100% of the costs, any more
than customers in the Maritimes or New England can be expected to cover the
costs of Muskrat Falls. The PPA is at the heart of a flawed business plan,
which depended upon legislation to create Nalcor as an unregulated monopoly.
This locks our electric power industry, along with the rest of the provincial
economy, into a high cost electricity system and prevents the adoption of new,
low cost technology.
5. The Premier’s letter to Federal Finance Minister Bill Morneau states
that “At the core
of our agreement is the requirement to transition the Muskrat Falls/Labrador
Transmission Assets revenue model to a Cost of Service model, which will ensure
that equity returns are redirected from Nalcor to ratepayers.”
that “At the core
of our agreement is the requirement to transition the Muskrat Falls/Labrador
Transmission Assets revenue model to a Cost of Service model, which will ensure
that equity returns are redirected from Nalcor to ratepayers.”
The costs of Muskrat Falls, including the cost of building the project,
are recovered through power rates, using a combination of “cost of service”
(COS) and “escalating supply prices”
(ESP). COS ensures that rates cover all costs on an annual basis and this is
the traditional model used by the PUB in NL and by many other jurisdictions.
The ESP model tends to shift some of these costs into the future, particularly
the return on provincial equity. All costs are recovered over a 50 year “supply
period”. A description of these models is found in the Technical Appendix.
are recovered through power rates, using a combination of “cost of service”
(COS) and “escalating supply prices”
(ESP). COS ensures that rates cover all costs on an annual basis and this is
the traditional model used by the PUB in NL and by many other jurisdictions.
The ESP model tends to shift some of these costs into the future, particularly
the return on provincial equity. All costs are recovered over a 50 year “supply
period”. A description of these models is found in the Technical Appendix.
The Ball-O’Regan announcement, strangely, places the transition to a
full COS model and the rejection of the hybrid approach “at the core” of their refinancing
agreement. The hybrid approach leads to rising costs, or revenue requirements.
Using the latest numbers from Nalcor they rise from $726 million in 2021 to
$920 million in 2030 and to $2.5 billion in 2069. A COS model would lead to
higher revenue requirements at the beginning but they would taper off over
time. The Ball-O’Regan announcement writes off $30 billion in dividends (ROE)
on generation assets, a write-down from about $39 billion in dividends over the
50 year supply period. Whether the
federal government will inject new funds remains unknown but such an injection
is necessary. Without access to the spreadsheets underlying the public
announcement it is difficult to say.
full COS model and the rejection of the hybrid approach “at the core” of their refinancing
agreement. The hybrid approach leads to rising costs, or revenue requirements.
Using the latest numbers from Nalcor they rise from $726 million in 2021 to
$920 million in 2030 and to $2.5 billion in 2069. A COS model would lead to
higher revenue requirements at the beginning but they would taper off over
time. The Ball-O’Regan announcement writes off $30 billion in dividends (ROE)
on generation assets, a write-down from about $39 billion in dividends over the
50 year supply period. Whether the
federal government will inject new funds remains unknown but such an injection
is necessary. Without access to the spreadsheets underlying the public
announcement it is difficult to say.
What does seem clear is that the transition to a cost of service
approach alone will not bring power rates down to 13.5 cents/KWh. Nor will it
keep them there. What appears to be under discussion is a modified cost of
service approach plus a write-down of provincial equity. A write down of equity
can produce impairment on the province’s public accounts and an increase in our
net debt (see Technical Appendix).
approach alone will not bring power rates down to 13.5 cents/KWh. Nor will it
keep them there. What appears to be under discussion is a modified cost of
service approach plus a write-down of provincial equity. A write down of equity
can produce impairment on the province’s public accounts and an increase in our
net debt (see Technical Appendix).
If we have learned anything from the Muskrat Falls Inquiry it is the
need for more accountability and transparency as the province moves into
negotiations with the federal government. We need to understand that we are not
just shifting the burden down to future generations. The hybrid approach was
intended to avoid “rate shock” by just such shifting of financial burden. If we
as a generation are to act responsibly to our children and grandchildren we
need to avoid adding an increasing load of debt.
need for more accountability and transparency as the province moves into
negotiations with the federal government. We need to understand that we are not
just shifting the burden down to future generations. The hybrid approach was
intended to avoid “rate shock” by just such shifting of financial burden. If we
as a generation are to act responsibly to our children and grandchildren we
need to avoid adding an increasing load of debt.
The plan does not appear to inject the massive quantum of resources that
is needed to stabilize power rates and to create a sustainable electric power
system. Muskrat Falls was intended to be a solution to a perceived energy
problem. It has instead exacerbated a growing fiscal crisis and has to be
treated with the instruments of fiscal policy, bringing to bear federal support
programs designed to mitigate not only power rates but the other fiscal
pressures upon us. Realistically such support can only come as part of an
agreement which imposes fiscal discipline on the province, as would be the case
if we were a fiscally beleaguered nation seeking succor from the World Bank or
the International Monetary Fund. We cannot expect other Canadians to share the
burden unless we show we are ready to make sacrifices.
is needed to stabilize power rates and to create a sustainable electric power
system. Muskrat Falls was intended to be a solution to a perceived energy
problem. It has instead exacerbated a growing fiscal crisis and has to be
treated with the instruments of fiscal policy, bringing to bear federal support
programs designed to mitigate not only power rates but the other fiscal
pressures upon us. Realistically such support can only come as part of an
agreement which imposes fiscal discipline on the province, as would be the case
if we were a fiscally beleaguered nation seeking succor from the World Bank or
the International Monetary Fund. We cannot expect other Canadians to share the
burden unless we show we are ready to make sacrifices.
Our citizens know that the financing of this project is anything but
“rock solid” as described by the former Nalcor CFO. They know that a “strong
finish” is wishful thinking, rooted in delusion. Citizens are not gullible.
They cannot accept the promise they will be saved “from the burden of higher
electricity rates or taxes as a result of Muskrat Falls.” They are willing to
bear their share of the burden along with other Canadians.
“rock solid” as described by the former Nalcor CFO. They know that a “strong
finish” is wishful thinking, rooted in delusion. Citizens are not gullible.
They cannot accept the promise they will be saved “from the burden of higher
electricity rates or taxes as a result of Muskrat Falls.” They are willing to
bear their share of the burden along with other Canadians.
David Vardy
TECHNICAL APPENDIX
Cost of service (COS) Model vs. Escalating Supply prices (ESP)
The data used in this post are illustrative and not definitive. All of
the numbers are estimates for a project yet to be completed and whose schedule
and costs remain highly uncertain.
the numbers are estimates for a project yet to be completed and whose schedule
and costs remain highly uncertain.
This Technical Appendix below is intended to clarify some of the
concepts and measures that are used in the public dialogue on Muskrat Falls. My
hope is that it will unravel some of the complexity and also create some
understanding as to how high the stakes are in these negotiations. In the
appendix I show how both the capital costs of Muskrat Falls and the size of our
provincial equity investment are underestimated. The technical appendix also
explains how “economies of scale” impact on the project and how such a large
project, whose scale far exceeds the power needs of the province, makes it an
inappropriate fit for the province. I conclude with a discussion of net debt.
concepts and measures that are used in the public dialogue on Muskrat Falls. My
hope is that it will unravel some of the complexity and also create some
understanding as to how high the stakes are in these negotiations. In the
appendix I show how both the capital costs of Muskrat Falls and the size of our
provincial equity investment are underestimated. The technical appendix also
explains how “economies of scale” impact on the project and how such a large
project, whose scale far exceeds the power needs of the province, makes it an
inappropriate fit for the province. I conclude with a discussion of net debt.
“Cost of service” (COS) was adopted for recovering costs from the
transmission assets. COS requires that costs be recovered from ratepayers each
year. The capital costs are primarily the cost of interest on debt, the cost of
debt repayment, the cost of equity capital raised from shareholders and the
return of equity to shareholders. Depreciation is a surrogate for the repayment
of bond and equity investment. To this must be added the cost of operations and
maintenance, fuel costs, water power rentals and payments to the Innu Nation.
transmission assets. COS requires that costs be recovered from ratepayers each
year. The capital costs are primarily the cost of interest on debt, the cost of
debt repayment, the cost of equity capital raised from shareholders and the
return of equity to shareholders. Depreciation is a surrogate for the repayment
of bond and equity investment. To this must be added the cost of operations and
maintenance, fuel costs, water power rentals and payments to the Innu Nation.
The 2017 cost update for Muskrat Falls reported a capital cost of $10.1
billion in direct costs plus $2.6 billion in financing costs, for a total of
$12.7 billion. This official estimate has not yet been revised. The annual
revenue requirements on which power rates are based were estimated in 2017 at
$808 million for 2021, the first year of full power. In 2019 this estimate was
revised downward to $726 million and it is this estimate which has been used
both by the PUB and by government as the incremental cost of Muskrat Falls.
billion in direct costs plus $2.6 billion in financing costs, for a total of
$12.7 billion. This official estimate has not yet been revised. The annual
revenue requirements on which power rates are based were estimated in 2017 at
$808 million for 2021, the first year of full power. In 2019 this estimate was
revised downward to $726 million and it is this estimate which has been used
both by the PUB and by government as the incremental cost of Muskrat Falls.
This is the amount which must be found through other revenues or cost
savings if power rates are to be stabilized. It is difficult to accept the
notion that revenue requirements can realistically be expected to be lower than
those estimated in 2017 in light of known cost escalation which has
materialized since that time, including the problems with synchronous
condensers and the costs arising from GE’s inability to produce transmission
software on schedule. For this reason I am disinclined to accept an estimate
lower than the $808 million for 2021 revenue requirements.
savings if power rates are to be stabilized. It is difficult to accept the
notion that revenue requirements can realistically be expected to be lower than
those estimated in 2017 in light of known cost escalation which has
materialized since that time, including the problems with synchronous
condensers and the costs arising from GE’s inability to produce transmission
software on schedule. For this reason I am disinclined to accept an estimate
lower than the $808 million for 2021 revenue requirements.
The power rates which will recover costs are based on a hybrid of “cost
of service” and “escalating supply prices (ESP)” or “PPA rates” (based on a power
purchase agreement). The pattern of revenue requirements for the cost of
service model is generally one which declines over time while the ESP or PPA
model shifts certain costs into the future and leads to revenue requirements
which rise over time. Since generation costs for this project are higher than
transmission costs the ESP model applied to generation assets dominates the
revenue requirements and produces rising costs, growing from $808 million
(using 2017 estimates) to $2.5 billion in 2069. This is referred to as “back
end loading”. This is in contrast to the tendency under COS cost recovery for “front
end loading” of costs.
of service” and “escalating supply prices (ESP)” or “PPA rates” (based on a power
purchase agreement). The pattern of revenue requirements for the cost of
service model is generally one which declines over time while the ESP or PPA
model shifts certain costs into the future and leads to revenue requirements
which rise over time. Since generation costs for this project are higher than
transmission costs the ESP model applied to generation assets dominates the
revenue requirements and produces rising costs, growing from $808 million
(using 2017 estimates) to $2.5 billion in 2069. This is referred to as “back
end loading”. This is in contrast to the tendency under COS cost recovery for “front
end loading” of costs.
In the public utility business there are frequently pressures to reduce
costs today and to shift them into the future. Expenses are capitalized so they
are not expensed or recovered in the year in which the costs are incurred. Such
shifting mechanisms have led to controversy in British Columbia and Ontario in
particular. In the case of Muskrat Falls the shifting of costs was intended to
avoid rate shock through the adoption of an unorthodox ESP approach. This
hybrid model has been in place since the PUB reference of 2011, if not before.
costs today and to shift them into the future. Expenses are capitalized so they
are not expensed or recovered in the year in which the costs are incurred. Such
shifting mechanisms have led to controversy in British Columbia and Ontario in
particular. In the case of Muskrat Falls the shifting of costs was intended to
avoid rate shock through the adoption of an unorthodox ESP approach. This
hybrid model has been in place since the PUB reference of 2011, if not before.
The pivot for shifting costs into the future is the province’s
investment in generation assets, currently $4.2 billion. The return on equity
of 8.4% is built into the costs and recovered over a 50 year “supply period”
and is “back end loaded” with most equity returns in later years, 2041 and
beyond. The $726 million in 2021revenue requirements used by the province and
by the PUB provides $57 million in return on the province’s $645 million in
provincial equity but no return on equity for the province’s $4.2 billion in
generation assets.
investment in generation assets, currently $4.2 billion. The return on equity
of 8.4% is built into the costs and recovered over a 50 year “supply period”
and is “back end loaded” with most equity returns in later years, 2041 and
beyond. The $726 million in 2021revenue requirements used by the province and
by the PUB provides $57 million in return on the province’s $645 million in
provincial equity but no return on equity for the province’s $4.2 billion in
generation assets.
Effectively the province is borrowing the money and absorbing the cost
ostensibly on an interim basis until such time as rising demand and rising
nominal revenues allow repayment to be made to the shareholder. Using 8.4% as
the cost of equity capital and applying this to the $4.2 billion in equity invested
by the province results in an additional cost of $353 million, which needs to
be added to the $726 million in revenue requirements targeted in the province’s
rate mitigation plan of April 2019. If we instead use 3% as the cost of
borrowing this additional cost becomes $126 million. To this we add $210
million to repay borrowed funds over 50 years we get $336 million. It is
difficult to see how the cost to ratepayers and taxpayers in 2021 would be less
than $1 billion, much higher than the $726 million target.
ostensibly on an interim basis until such time as rising demand and rising
nominal revenues allow repayment to be made to the shareholder. Using 8.4% as
the cost of equity capital and applying this to the $4.2 billion in equity invested
by the province results in an additional cost of $353 million, which needs to
be added to the $726 million in revenue requirements targeted in the province’s
rate mitigation plan of April 2019. If we instead use 3% as the cost of
borrowing this additional cost becomes $126 million. To this we add $210
million to repay borrowed funds over 50 years we get $336 million. It is
difficult to see how the cost to ratepayers and taxpayers in 2021 would be less
than $1 billion, much higher than the $726 million target.
The PPA model assumes that the revenues will be generated to pay the
8.4% return and to return the original equity investment to the province. This
is hardly credible. At the outset it was highly questionable whether the dividends
would materialize. With more realistic demand projections, based on realistic
assumptions on population growth and demand elasticity, along with doubling of capital
costs, the prospect of dividends is remote.
8.4% return and to return the original equity investment to the province. This
is hardly credible. At the outset it was highly questionable whether the dividends
would materialize. With more realistic demand projections, based on realistic
assumptions on population growth and demand elasticity, along with doubling of capital
costs, the prospect of dividends is remote.
The rate mitigation plan of April 2019 and the refinancing announcement
of February 10, 2020 are an admission that the business plan for the project is
fatally flawed and that dividends are fictitious. The Ball-O’Regan Accord
recognizes that $30 billion in dividends over the 50 year supply period is not
realistic and must be written off.
of February 10, 2020 are an admission that the business plan for the project is
fatally flawed and that dividends are fictitious. The Ball-O’Regan Accord
recognizes that $30 billion in dividends over the 50 year supply period is not
realistic and must be written off.
Government has to be concerned with the full annual costs of the
project, both those paid by ratepayers and those transferred to taxpayers. For
this reason it is necessary to reflect the full financing arrangements and to
include the full cost of the project, including the cost of financing the funds
borrowed by the province to invest equity into the project.
project, both those paid by ratepayers and those transferred to taxpayers. For
this reason it is necessary to reflect the full financing arrangements and to
include the full cost of the project, including the cost of financing the funds
borrowed by the province to invest equity into the project.
Understatement of Capital Cost
The latest quarterly Oversight Committee Report Annex A dated December 23, 2019 shows that direct
capital costs are estimated at $10.1 billion dollars, with $3.7 billion for the
Labrador Island Link (LIL), $5.5 billion for the generation site (MF) and $0.9
billion for the transmission line between Churchill Falls and Muskrat Falls,
known as Labrador Transmission Assets (LTA). The generation site (MF) and
Labrador Transmission Assets (LTA) are referred to as “generation assets” and
their direct capital cost together are estimated at $6.4 billion, representing
63.3%, vs 36.7% for the Labrador Island
Link (LIL).
capital costs are estimated at $10.1 billion dollars, with $3.7 billion for the
Labrador Island Link (LIL), $5.5 billion for the generation site (MF) and $0.9
billion for the transmission line between Churchill Falls and Muskrat Falls,
known as Labrador Transmission Assets (LTA). The generation site (MF) and
Labrador Transmission Assets (LTA) are referred to as “generation assets” and
their direct capital cost together are estimated at $6.4 billion, representing
63.3%, vs 36.7% for the Labrador Island
Link (LIL).
The financing costs of $2.6 billion must be added to this, resulting in
the official cost estimate of $12.7 billion. These financing costs are the
subject of sections 2.3-2.6 of the Oversight Committee report for the period
ending September 2017 and dated November 3, 2017. Section 2.6 reports that for
the LIL the allowance for funds used during construction (AFUDC) is estimated
at $440 million, which is included in the financing costs. No such estimate is
included for AFUDC on the generation assets, which means that the estimate
assumes zero opportunity cost for $6.4 billion in direct capital costs. To
estimate how much should be added to correct this omission I have taken the LIL
AFUDC of $440 million as a proxy and made two adjustments. The first reflects the fact that generation
assets are 72% higher in direct capital costs ($6,404million/$3,714 million) than the costs of
the LIL. The second reflects the fact that the minimum equity in generation
costs, as required in the 2012 federal loan guarantee, is 35%, vs 25% in the
LIL or 40% higher (35%/25%). Accordingly I have taken the $440 million in LIL AFUDC and multiplied
it by 2.41 (1.72 x 1.4), providing my estimate of AFUDC on generation assets of
$1,060 million. Adding this AFUDC for generation assets to the official cost
estimate of $12.7 billion produces an adjusted cost estimate of $13.8 billion.
the official cost estimate of $12.7 billion. These financing costs are the
subject of sections 2.3-2.6 of the Oversight Committee report for the period
ending September 2017 and dated November 3, 2017. Section 2.6 reports that for
the LIL the allowance for funds used during construction (AFUDC) is estimated
at $440 million, which is included in the financing costs. No such estimate is
included for AFUDC on the generation assets, which means that the estimate
assumes zero opportunity cost for $6.4 billion in direct capital costs. To
estimate how much should be added to correct this omission I have taken the LIL
AFUDC of $440 million as a proxy and made two adjustments. The first reflects the fact that generation
assets are 72% higher in direct capital costs ($6,404million/$3,714 million) than the costs of
the LIL. The second reflects the fact that the minimum equity in generation
costs, as required in the 2012 federal loan guarantee, is 35%, vs 25% in the
LIL or 40% higher (35%/25%). Accordingly I have taken the $440 million in LIL AFUDC and multiplied
it by 2.41 (1.72 x 1.4), providing my estimate of AFUDC on generation assets of
$1,060 million. Adding this AFUDC for generation assets to the official cost
estimate of $12.7 billion produces an adjusted cost estimate of $13.8 billion.
Estimating Provincial Equity
The province’s equity investment in
generation equity, disclosed in PB-519-2019 Table 4, is $3.1 billion. To this
must be added the AFUDC of $1.1 billion ($1,060 million rounded) to produce an
estimate of provincial equity investment, at the time of project commissioning,
of $4.2 billion. To this must be added the $645 million in LIL equity invested
by the province to produce an estimate of total provincial equity investment of
$4.8 billion.
generation equity, disclosed in PB-519-2019 Table 4, is $3.1 billion. To this
must be added the AFUDC of $1.1 billion ($1,060 million rounded) to produce an
estimate of provincial equity investment, at the time of project commissioning,
of $4.2 billion. To this must be added the $645 million in LIL equity invested
by the province to produce an estimate of total provincial equity investment of
$4.8 billion.
Escalating Supply Prices
Escalating supply prices (ESP) as a
model for cost recovery of the capital costs of Muskrat Falls is based on the
concept that the real unit cost per kilowatt hour will remain constant over the
50 year supply period. Costs are
levelized over the 50 year period and then increased by 2% annually to reflect
inflation. This inflation rate is
applied to the Levelized Unit Energy Cost (LUEC). Cost recovery depends upon
escalating demand for power at a rate which is held constant in real terms. If
demand does not escalate then the revenues produced will fail to cover costs,
let alone generate dividends on provincial equity.
model for cost recovery of the capital costs of Muskrat Falls is based on the
concept that the real unit cost per kilowatt hour will remain constant over the
50 year supply period. Costs are
levelized over the 50 year period and then increased by 2% annually to reflect
inflation. This inflation rate is
applied to the Levelized Unit Energy Cost (LUEC). Cost recovery depends upon
escalating demand for power at a rate which is held constant in real terms. If
demand does not escalate then the revenues produced will fail to cover costs,
let alone generate dividends on provincial equity.
Risk Bearing Equity
The federally guaranteed debt is
secured by mortgages held by the federal government on the assets financed. The
power purchase agreement also forms part of the collateral. Provincial equity
on the other hand, is not secured. It is fully at risk. Dividends can only be
paid if there is a return on equity left after all other costs have been
covered. Dividends are not guaranteed. Building an allowed rate of return of
8.4% into the model does not provide an assurance that the shareholder, GNL,
will be compensated for the cost of the borrowed funds used to finance the
equity, let alone dividends on top of that. Shareholders take the risk that dividends may
fall short of expectations and may turn into losses.
secured by mortgages held by the federal government on the assets financed. The
power purchase agreement also forms part of the collateral. Provincial equity
on the other hand, is not secured. It is fully at risk. Dividends can only be
paid if there is a return on equity left after all other costs have been
covered. Dividends are not guaranteed. Building an allowed rate of return of
8.4% into the model does not provide an assurance that the shareholder, GNL,
will be compensated for the cost of the borrowed funds used to finance the
equity, let alone dividends on top of that. Shareholders take the risk that dividends may
fall short of expectations and may turn into losses.
Economies of Scale
The project depends upon economies
of scale and can achieve its full potential at lowest cost when demand rises
sufficiently to absorb the full 4.641 TWh of net energy produced after line
losses are deducted from the plant’s rated output of 4.9 TWh. Stan Marshall’s
presentation of February 15, 2018 at Memorial University, entitled
“Understanding Muskrat,” showed us a unit cost of 17.42 cents/KWh, assuming the
full output could be sold at cost-compensatory rates. The presentation shows only
1,324 GWh out of 4641 GWh projected to
be used on the Island in 2021, costing 61 cents/KWh, based on 2021 revenue
requirements of $808 million. If we add back the return on equity of $353
million and revise the revenue requirement up to $1,163 million then the cost
per KWh becomes 88 cents/KWh. Unit costs are high when demand is low.
of scale and can achieve its full potential at lowest cost when demand rises
sufficiently to absorb the full 4.641 TWh of net energy produced after line
losses are deducted from the plant’s rated output of 4.9 TWh. Stan Marshall’s
presentation of February 15, 2018 at Memorial University, entitled
“Understanding Muskrat,” showed us a unit cost of 17.42 cents/KWh, assuming the
full output could be sold at cost-compensatory rates. The presentation shows only
1,324 GWh out of 4641 GWh projected to
be used on the Island in 2021, costing 61 cents/KWh, based on 2021 revenue
requirements of $808 million. If we add back the return on equity of $353
million and revise the revenue requirement up to $1,163 million then the cost
per KWh becomes 88 cents/KWh. Unit costs are high when demand is low.
In his report to the Muskrat Falls Inquiry, Pelino Colaiacovo of Morrison Park (MFI Exhibit
P-04445.) showed
the economies of scale from Muskrat Falls in his following chart 7:
P-04445.) showed
the economies of scale from Muskrat Falls in his following chart 7:
Chart
7
7
The blue line represents the unit costs of the isolated Island option
which dip for a period and then rise, exceeding the unit costs of the
interconnected Island option shown in red up to the crossover point, beyond
which they rise and then remain stable in real terms. The unit costs of the
Interconnected Island system decline and then stabilize for the rest of the
period. This is consistent with the information from Stan Marshall’s
presentation. It depends upon the growth in demand which had been projected by
Nalcor. If demand does not materialize unit costs will remain high and
dividends will be elusive.
which dip for a period and then rise, exceeding the unit costs of the
interconnected Island option shown in red up to the crossover point, beyond
which they rise and then remain stable in real terms. The unit costs of the
Interconnected Island system decline and then stabilize for the rest of the
period. This is consistent with the information from Stan Marshall’s
presentation. It depends upon the growth in demand which had been projected by
Nalcor. If demand does not materialize unit costs will remain high and
dividends will be elusive.
Higher rates than predicted will threaten the prospects for growth in
future demand. As we have shown previously the cost overruns pose a threat to
dividends early in the planning period and will also impact on future
dividends. Despite the long 50 year planning horizon or “supply period”, going
well beyond the end of the Churchill Falls contract in 2041, there is a very
high risk that the shareholder will experience negative returns. This in turn
will create pressure for a write-down of the equity investment in the project.
future demand. As we have shown previously the cost overruns pose a threat to
dividends early in the planning period and will also impact on future
dividends. Despite the long 50 year planning horizon or “supply period”, going
well beyond the end of the Churchill Falls contract in 2041, there is a very
high risk that the shareholder will experience negative returns. This in turn
will create pressure for a write-down of the equity investment in the project.
Net Debt
In her report for the year ended March 31, 2019 (page 11) the Auditor
General defined net debt as follows. “Net Debt represents all the liabilities of the Province less
its financial assets and indicates whether there are enough financial assets to
cover the liabilities for future generations. Net Debt is a commonly used
indicator to measure the financial health of the Province.”
General defined net debt as follows. “Net Debt represents all the liabilities of the Province less
its financial assets and indicates whether there are enough financial assets to
cover the liabilities for future generations. Net Debt is a commonly used
indicator to measure the financial health of the Province.”
She
defines financial assets as “amounts that the Province has available to pay its
liabilities or finance future operations. Financial assets consist of cash and
temporary investments, amounts receivable from third parties, investments,
inventories held for resale and equity in Government Business Enterprises
(GBEs)…” Nalcor Energy is such a GBE and the government’s equity in Muskrat
Falls appears as a financial asset, valued at cost.
defines financial assets as “amounts that the Province has available to pay its
liabilities or finance future operations. Financial assets consist of cash and
temporary investments, amounts receivable from third parties, investments,
inventories held for resale and equity in Government Business Enterprises
(GBEs)…” Nalcor Energy is such a GBE and the government’s equity in Muskrat
Falls appears as a financial asset, valued at cost.
Each
year the value of the financial assets must be assessed to determine whether a
write down is required. Currently the equity investment in Muskrat Falls is
used to offset the debt incurred by government to make the equity investment.
If the financial assets are written off completely then this could potentially
add $5 billion or more to the net debt of the province. Such an increase in our
net debt could have a detrimental impact on our fiscal ratings and may impact
on our borrowing cost and on our access to financial markets to finance our
operating deficits, our capital account spending and our refinancing of
existing debt.
year the value of the financial assets must be assessed to determine whether a
write down is required. Currently the equity investment in Muskrat Falls is
used to offset the debt incurred by government to make the equity investment.
If the financial assets are written off completely then this could potentially
add $5 billion or more to the net debt of the province. Such an increase in our
net debt could have a detrimental impact on our fiscal ratings and may impact
on our borrowing cost and on our access to financial markets to finance our
operating deficits, our capital account spending and our refinancing of
existing debt.
It must be getting harder to hide and obfuscate. David my limited understanding of true economics leaves me near speechless. Thank you again.
You speak for me too Robert.
I propose (part tongue in cheek) a "gala awards event" be started to honor those who gave yeoman service to "counter the secrecy, and misinformation by all the scallywags on all things Muskrat", and in support of the common man and woman, ( AJs), and for love of province, good governance, etc.
I nominate Dave Vardy as the deserving of such an honour. Perhaps "Sir David" would need Royal permission, which even British Princes are now losing benefits of that word. Perhaps our Joe Blow can propose some worthy title?
Vardy ….."Past his best before date"? Laughable. What say you PENG2, and you too Brutus, I mean Bruno?
Winston Adams
Not sure Winston, about Sir David. We have had a lot of Sirs or knighthood in our history, some good, some not so good, and some real scroudles. Just to mention a few, and I will not try to catogarize them. Sir Robert Bond, sir Patrick Morris, Sir William Coker, sir Richard Squire, Sir John Crosbie, just to mention a few, and of course the first prime minister of Canada, Sir John A Mcddonald. Then there are Princes, mainly in the UK, and the last just gave up his title to become a commoner, Prince Harry. Then the Saudies have Crown Princes, but don't think we want to go there. Then there are kings, but not popular those days. We did have King Cod, but has gone the way of the disaniors, almost. So could come back to Princes. Maybe, since there are few of truth, even before the Leblanc Inquiry, we could see if he would accept, The Prince of Hydro Truth. Or simply, The Prince of Truth. Joe blow.
Good overview of the complexity and weaknesses of the government's and PUB analyses to date.
Mr. Vardy's overview also helps show the need for, on a priority basis, an intergovernmental, multi-dimensional (expert/citizen/regional) project team/structure that has a clear mandate (and the resources necessary) to comprehensively identify the problem(s) and to develop a coherent, province-wide, bottom-up/evidence-based, long term solution.
We have had more than enough political (and Nalcor driven) incompetence and obfuscation.
We (along with Ottawa as the enabler) created this mess, and we (along with Ottawa) must solve it.
Maurice, this all validates that "concerned citizens", are legitimate and somewhat above "Bottom Feeders". We all float somewhat above the demise of the MV William Carson. Remember the admission by CN Marine at the time that said in Ray Guy's words that; "she floats somewhat lower than normal".
Who would think a little virus would cause such panic? There are concerns that we may see an economic decline equal to that of 2008, with stock markets already dropping, a worry to Trumpie, surely.
The up side…….a slowing of world GDP would be a God send for our climate change problem. On one hand we see a little organism, one of God's little creatures, that creates oil and natural gas on our planet, with many benefits, but much damage when over used by mankind, and now a little virus, that can help restrain GDP and a chance to go GREEN. God works in mysterious, if not mischievous ways, hey b'ye.
In Italy they are calling for no placing the wafer on the tongue during mass. No holy water in the container. No shaking hands after the service. All of 12 have died in Italy. San Fransisco has called a state of emergency. Not one case of anyone there with the virus.
Many companies are projecting low profits this year. 40 % of Chinese banks could go under if their GDP drops below 4 % rise, and it is predicted to drop to 3 %.
Foolish me……I wanted to lighten up on investments since 6 months agos, but didn't,ignoring warnings, so may have to go along for the rough ride. What will PENG2 do? He worried about pandemics more than global warming, if I am not misquoting him? Yet pandemics may be a friend to mitigate global warming. Complex is it not, even more so that Muskrat.
This is Lent? Do you UG readers take it serious, Lent I mean.
Winston Adams
PENG2 says(last UG piece)says he may already be familiar with the greatest engineering boondoggle in Canadian history. The paper I mentioned was published in Montreal 20 years after that boondoggle, by The Engineering Institute of Canada, originally as The Canadian Society of Civil Engineers. That project had serious issues relating to site and silt, and too PENG2 expressed concerns for silting in the Churchill River downstream of MFs. So he may very well be knowledgeable about the greatest engineering boondoggle.
So may MA know something about that boondoggle?
The project is called "The Development of the Hudson Bay Project" It was a government scheme to help increase competition in the grain movement out of the praries, but seems also intended to circumvent exports via Quebec ports.
Robert Holmes seems to have been aware of some aspects of this project, but referenced just a small part.
Info says there was animosity towards the incumbent railroads against their monolopy in the movement of grain out of the prairies, and so significant political pressure to provide an alternate route, and 60% shorter distance to ship via Hudson Bay to England. Once the concept was rationalized, the issue was where to place the port facilities. From the beginning there were differences of opinion between engineers as to the best location of a port. Hence, the mother of all boondoggles got started.
Are you familiar PENg2, or MA?
Winston Adams
WA @ 13:30:
I am familiar with a couple bridge collapses (Uno, Dugold etc) and the Nelson river crossing – infact weren't there 1 or 2 inquiries as to the HBR and bridge collapses? But the boondoogle you are referring to eludes me.
Considering that the HBR continues to operate as the only access to many areas there certainly have been some gains – though I don't think it ever transferred grain as intended.
You gotta give me more of a hint.
PENG2
FWIW, when the Canadian Wheat Board had a marketing monopoly and was also overseing the whole transport logistics, they could profitably use the port of Churchill for a portion of their wheat/barley shipment.
Since the CWB privatisation, that decision process (of transport logistics) is now all fragmented. It then made it too complicated for the smaller players to efficiently use the port of Churchill (and its rail line).
Maybe that "other Economist at MUN", should peer review David's thesis, and give us the courtesy of his current view on things mitigated. Is he still the go to person, when Tom and the boys on the hill need some economic smart words?
This is a sobering analysis of how unlikely keeping the cost to ratepayers at 13.7 a kWh.
You point out how unlikely the cost will be kept at 12.7 billion.
Please do a realistic analysis with a 16 billion (and counting) cost to get some idea of a realistic cost per kWh.
I think many posts here have already indicated that a rate death spiral occurs with only a portion of the 12.7 billion factored into rates. Realistic cost is what the ratepayer can bear. Theoretical cost is what Nalcor does and every attempt by them has been amazingly unrealistic. If you are asking for theoretical cost, the answer is death spiral.
Gerry Byrne, like another commentator said, the Crown Prince of BS is right… that mealy-mouthed blowhard is enough to give even a fish the heaves.
https://www.saltwire.com/news/provincial/byrne-ready-to-go-on-natural-areas-protection-plan-416865/
Go away Gerry, you're making everyone nauseous.
Gerry Byrne, like another commentator said, the Crown Prince of BS is right… that mealy-mouthed blowhard is enough to give even a fish the dry heaves.
https://www.saltwire.com/news/provincial/byrne-ready-to-go-on-natural-areas-protection-plan-416865/
Go away Gerry, you're making everyone nauseous.
Alberta "Recovery" Budget, betting heavily on $58/BBL oil revenues. What price has Tom bet the farm on?
Robert @ 10:09:
That's an interesting post. I posted this 16-Dec-2019 (is the blog 'A FINANCE MINISTER WHO BELIEVES IN SANTA CLAUS'), but not a single response or comment:
[start]
…
If using some academia, my prediction is the government for 2020 should use a price of $55/barrel(or less) and $0.70-0.72(or less) for the exchange rate. This will place them closer to the mode of current predictions, or for those who like p-values somewhere in the range of p-70 to p-80 (ie the distribution isn't normal and is skewed).
…
[end]
But to answer your question, I think for 2019 budget the estimated price was $65/bbl – not sure what 2020 budget will reflect.
PENG2
Yes, not only depends on exchange rate and ppb, but also down time. In addition to normal secheduled maintained, there are shutdowns for what one might consider trivial. A few shut downs for two liter spill, and 2 seabirds oiled for months on end by CNLOPB. Or a person injury occurs, like maybe slip in a stairway, or bumps a knee while getting in bed. Agree these injuries need to be attended to and proper medicinal attention, and prevention, but to shut down oil production for weeks and months on end is ludicrous. Get a grip. Now during that storm a few years ago, with a valve malfunction, that is a different quintile of fish. Shutdown has to occur until the malfunction is fixed and not to happen again. We all remember a few years ago off the coast of Florida, in very deep water, a valve malfunction resulted in a continuous release of oil at something like 1,000 liters a minute for six months. Now that's what you call a never to tolerate spill, and in comparison should be shut down for years or maybe not to operate again. Everything in moderation, and the penalty (that's what it appears to be) to fit the crime. Joe blow.
Crude just hit $45. And some dirt diggers still want the Frontier pit to proceed!
Don't forget that western canada select oil normally sells at a 16 dollar discount to west Texas intermediate. I'm curious what Teck needed for a break even price: probably needed WTI greater than 70? It seemed to be a hugely risky project.
Anon 15:13; I think Teck needed $90-$100 oil, for economic return. If the current glut in world supply keeps up, (China Slowdown), production cutbacks in AB?SK will raise a stink. Should that NJ Refinery which imports NL offshore crude say 'buff', then it will be up to that great "Bermuda" Irving plant, to bail out NL. That would be a good thing for Canada's oil self sufficiency equation. No Energy East Pipe for sure.
Gambling on oil prices;
https://www.cbc.ca/news/canada/calgary/opinion-gambling-on-oil-prices-alberta-s-budget-is-not-prudent-responsible-or-new-1.5479650
PENG2, to build a port, docking for large ships, a wharf 1/2 mile long, an artificial island mid-river, tides 20 ft high, exposed to river ice, 2 kw long , 1 km wide, a half mile long steel bridge consisting of 17 steel span each on large wooden cribs in the river protected with stone against river ice,that to get the train to the artificial island where ocean going ships will dock, major dredging with the largest dredger in the world, a town for this and for 1000 workers, and all the permanent building and infrastructure, and all materials via Hudson Strait into Hudson Bay, and 400 mile of rail line over muskeg and permafrost………..I think comparable to MFs as a civil works job?
After 4 years and over half complete , all shut down and abandoned…..silt and sping river ice major problems, 50 years in the making, politics the root cause for the scheme, and then poor engineering, so the greatest engineering failure in Canadian history, (civil engineering, as to site selection) .
I see many parallels with MFs.
And that in Manitoba……..where the PUB and Nalcor went for MHI! They overlooking many Nalcor engneering issues with legal loopholes.
Interested in a closer look at my research on that ? Your field…CIVIL.
That boondoggle partly resolved after 20 years from the start.
Will MFs power be similar? Stan dangling hope of reliability and Holyrood decommissioning that may never happen?
Winston
Co-incidently,now watching a documentary on the construction of the massive sea wall presently ongoing around Venice.Maybe they could use some of the expertise of former managers of Nalcor.
The capacity of battery farms is increasing exponentially, the cost is coming down and this one has a three year payback!
https://cleantechnica.com/2020/02/27/humongous-tesla-battery-plant-approved-in-california-is-10x-bigger-than-worlds-biggest-battery-plant/
"In 2018, it was reported that the battery at Hornsdale made back a third of its cost in a year. Just last year, the Tesla battery at Hornsdale earned its largest monthly revenue from wholesale markets — $3.4 million. Currently, the largest lithium-ion battery in the world is still this one at the Hornsdale Power Reserve. However, as noted at the top, this Moss Landing project will be approximately 10 times larger."
Seems arithmetic says 10 times Zero is Zero, and while batteries are not of zero significance, they still have short energy storage………hardly a solution if MFs drops 800 MW to the Avalon for a few days.
Do the arithmetic please.
Winston
Seems the Digger is on the war path? He says the hereditary chiefs are breaking the law, Canadian law, but maybe Canada is breaking international law? No one should break injunctions he says. We saw many at MFs charged with breaking the injunctions law, and jailed etc and Nalcor got their way, aided by the law. But later the court says they broke no law and charges dismissed.
So the law is used by the elites, the Mounties being the enforcers for the powerful. The Rule of law is: might is right. I trust Peckford would not advocate for the Mounties to bring in the Gattling guns, like at Cut Knife in 1885?
We learn that the train blockage was being by passed, CP assisting CNR and trucking picking up the slack. so no serious good stoppage, as was suggested. Provocation by the Digger, and the far right?
Winston Adams
Well, I try to keep myself up to date on the world and American news. So, as I understand, trump has issued an Execurive Order, that everyone should turn off their TVs, and dig their heads in the sand, while he performs a miracle, as only he can do, and rid the world of the coronavirius. This has also been confirmed by trump Jr. via a tweet. He, also says he has also put VP Pence in charge of the CDC, that's the medical branch, because he has nothing else to do? And his main reason for taking this action is because the Dow has taken a nose dive in the last few days, and may interfere with his re-lection in November. So, I conclude the universe is unfolding as it should, and we have no worries. Putin says he also agrees and is pleased that trumpie is taking his advice. Average Joe, only knows what he hears.
Has anyone read that the "Deep State" engineered the whole China Virus, to collapse the $US, Markets, Oil, Gold, etc. to deny Trump his 2020 walk of fame? Reminiscent of the Towers, which fell.
This whole MF fiasco was a combination of total stupidity and wilful deceit by Danny Williams and Kathy Dunderdale with subsequent premiers staying the course. How in the name of God could anyone do this to people who had placed their trust in them to look out for our collective interests. These two scoundrels should and must be held accountable.
The silence from these two a–holes is deafening.
https://vocm.com/2020/02/28/heat-pump-being-recalled/
Info for all you heat pumpers out there.
Yes, heard about Lennox long ago. And they are going to give a new replacement.
Maybe WA can comment – according to Health Canada, only 377 of these units (across 3 different models) were sold in Canada in almost 4yrs. And a total of 1650 sold in the US in the same time – so, not a very popular unit???
Here is the Health Canada link:
https://healthycanadians.gc.ca/recall-alert-rappel-avis/hc-sc/2020/72035r-eng.php
PENG2
Easy fix. Tell me what the Turbine fix at MF will cost. PENG2, any word?
I saw one site says there was class action against Lennox, for other problems likely. Another says their mfg in Mexico caused quality problems. One review showed them as 1 star out of 5.
Most minisplits are rebranded, as most USA mfgs don't make them, so components may have poor integration of controls (like GE software bugs for MFs). Reputable mfgs avoid that, so buy a unit that actually manufactures it own units and most of its own components and has good quality. There is a lot of junk on the market which should be avoided.
When checking for reviews , go for at least 4 out of 5, and read up on the types of problems. Some reviews are questionable, so know the reputation of your installer, and check for others that have many years of success with that brand.
I have had a programable thermostat almost cause a fire on a regular heater, the Marr connector melted, that would not have happened if the wire was soldered or even twisted with pliers instead of just trusting to the Marr connector for good contact.
Radiant blowers heaters are big fire hazards…..ask the fire dept.I have some and never leave then on when away, nor when in bed asleep.
I would guess 75 % of products (minisplits) are low quality ,customers thinking they are getting a bargain by saving a couple hundred dollars. Buyer beware, especially for minisplits. I want 18 year of life to say it's really good, and 15 is not too bad, over 18 is great, so far now going into year 11. Zero problems. But there is no perfect unit,and most problems are with installers, but with a recall, obvious a defective model.
Winston Adams
There are options that actually provide money from what you have and not just begging for money. Fix your own house with what you have.
1) the RBB plan that suggests revenues from future CF sales. tangible assets with value.
2) sell the gull island assets that you cannot build, make a deal for ownership stake and revenue sharing after HQ makes back their return on investment. an actual business deal
3) earmark percentage of oil revenues in a formula that actually lowers debt to fair and manageable level prior to 2041
4) ensure revenue sharing deals for CFLco post 2041 and, post 35 year NS deal, are in line with cutting debt levels from MF, in line with (1) and moving progressively into the next century.
put that shit on paper. frameworks can be done.
These options are real and not double speak political dog and pony show. I dont care what party brings us closer to bankrupcy. i care about someone willing to destory their political future and their party in an effort to save my grandchildrens future. but in an actual modern reality. not whatever twilight zone fantasy land we currently operate in where waiting around for santa claus is not an option.
its not a hockey team. there is no reset button or draft lottery. they will take your houses. they will take your trucks. they will stop giving you cheap prime loans. the devil will come for his dues. this needs real solutions based on real tangible business transactions. not dreams and handouts. we’ve had three changes of governing models in a century. at some point it needs to work with grown ups and leaders. what do we try next, philosopher kings???
There is a problem in your logic here Anon 21:26…
You can not have point No1 and point No4 together. You will have either one or the other.
If you do a deal with HQ for them to pay now for what they will receive after 2041, Ok. But then, you can not ask CFLCo to double sell that power to HQ or anyone else : that power has been sold and paid for.
If you wish to sell yourself CFLCo's power after 2041 and cash the money then, you can not pre-sell it now to HQ and ask them anything about it.
About 13.8 billions due now for capital + interest for MF
Add extra interest on top of this for 20 years because HQ will not receive any benefit before 2041 (CFLCo's power and the benefit on it is already HQ')
At 7.2% of interest, a debt doubles every 10 years, so 4 times over 20 years, 13.8 * 4 = 55.2 Billions
Even the actual 1969 power contrat, over its 65 years, did not paid that much to HQ. So for HQ to collect back that 55+ billions and get some kind of benefit, UC will have to remain under their complete control and benefit for a solid 40 years if not even more.
So no benefits from UC before at least 2080.
If we were to get any extra revenue, regardless of where it's from, you can bet your bottom dollar these revenues will be splurged by whatever government is in power–just to stay in power. Our crippling debt means zilch when it comes to "do I spend and ensure I get a pension (or in Byrne's case, 2 pensions") or do I tackle the debt and be voted out?". The unions will say " not on our backs will the debt be tackled" knowing full well there is a massively bloated public service. Stay away from us or we'll see you don't get re-elected. Personal self interest by most everyone in government, past and present, and the world class elite at Nalcor is the main reason we are at the brink of insolvency. The only way we are going to survive the mess we're in is for the feds to control our finances. I see a very bleak future for my grandchildren if they decide to stay in NL unless someone has the balls to act accordingly.
A business on the verge of bankruptcy would not be giving employees raises,increased benefits and bonuses. Why the hell should our Government be any different?
Maybe another try at a discussion on the upcoming leadership campaign.
Apparently PL has a pretty short memory, and does no data review – he routinely claims he voted on best info available at the time for MF (well, the naysayers had the same info) and he obviously didn't bother to reviewed the 2018 PC leadership campaign rules (or statements I previously questioned if they had been released), but the people still elect him.
See his telegram letter:
https://www.thetelegram.com/opinion/local-perspectives/letter-liberal-leadership-rules-symbolic-of-everything-wrong-with-newfoundland-and-labradors-political-system-417206/
For reference, the 2018 PC leadership financials are here:
https://www.pcnl.ca/node/466
To be fair, JA has declared for the Liberal leadership – maybe a review of the Cameron Inquiry (including the GT severance I have posted about several times before without comment) and the goings on at NLHC under his watch might be a worthwhile review for most.
I stand by my statement that neither the PCs or the Liberals are different in anything except colour – only the electorate can enact the changes needed.
PENG2
Seems obvious PENG2 always prefers to discuss politics than engineering, do others here notice that?
1. he didn't respond to my comment on UG last piece on lack of a deep dive by Leblanc on Isolated Options, minimum was okay he said. Never said whether or not Leblanc was restricted on the N Spur stability, or calling the Justice Minister on the mercury soil issues etc
On the greatest engineering boondoggle in Canadian history, a CIVIL engineering as to silt, an area he has expertise in, he seems to ignore, and deflects from my request to him to compare to MFs;write apiece for UG.
On many of the challenges of reliability of MFs power and impact on Holyrood use, upgrades or replacement, he is mostly silent.
The solution to 400 Mw of restraint of island power getting to the Avalon, he is silent.
So much on engineering yet he seems obsessed with Paul Lane.
Even the Quebec engineer who recently posted on UG, and submitted to the PUB an excellent piece, was ignored by PENG2
On Fortis's 4-5 million charitable contributions average per year in Nfld, he didn't confirm the numbers he used. I thought is was 1 million per year, but could be wrong. Being a Fortis shareholder, it is good not to be biased to suggest they are world class in generosity, if they are not, so the ball is in his court on that.
On issues of the Health Care Dept, yes funny so many in health care want to be Premier……worth discussion.
Winston Adams
WA @ 10:59:
And it seems as if you can’t quote correctly.
The Inquiry is to determine what went wrong, not reconsider any number of options that could have resulted in a different outcome. The discussion reconsidering what could have been done differently will be left to the PUB – but LeBlanc will certainly make recommendations suggesting Government policy changes and consideration promoting this.
My views on the broadness of the ToR are well known – and to date no one has shown the exact language stating LeBlanc could call for a Forensic Audit, nor the language where he was specifically limited by the ToR language; and I have asked many times for that.
Likewise, my views on LIL reliability and O/M are well known – and I do remember saying a long time ago completing and sourcing power from HQ as a possibility could be a likely outcome.
You question on Fortis donations was answered repeatedly, go back and do a review – but you conveniently never commented when I provided you links on donations of several million $’s to groups like the Salvation Army, Gros Morne theatre, The Rooms etc.
PENG2
At least you and MA agree on one thing. Blue and Red all the same.
Not aware if anyone here ever commented on software for the Maritime DC link ever having problems?
That system I hear was by ABB. Those people made the 230 kv air blast breakers when I was with Hydro in the 70s,and we had many of those, and since into many fields including DC systems.And we hear of no software problem on the ML.
Whether true or not, I hear GE has been paid 95 % of all contract money, so why should they worry as to delays causing us hundreds of millions year interest costs for schedule slippage?
Winston Adams
Further to my 27 Feb 11:28 comment (above), UG readers should also read Edsel Bonnell's letter to today's Telegram (Please, no hype, no false ‘hope’; just facts instead of fancy).
Mr. Bonnell states, in part:-
"Politicians cannot be objective when it comes to findings which may adversely affect the districts they represent.
Their priority, and rightly so, is to be elected and reelected. That’s democracy.
So the experts who would take on this thankless but critical study (hopefully mostly volunteered or seconded from existing roles in public service, university, etc.) should do so in the best interests of saving and restructuring our province, without influence from interest groups or parochial concerns. They should be charged with telling it the way it is; no hype, no false “hope,” just facts instead of fancy. I believe our people deserve and respect the truth.
The politicians could, and would, have their say in deciding on whether or not to accept the findings of the study."
https://saltwire.pressreader.com/the-telegram-st-johns
Us Goofies don't respect the truth, we can't handle the truth. Besides, it's all Ottawa and Quebec's fault anyway.
Agree Maurice, all democracy, and democracy has elasticity. And some stretch it so far that it is unrecognizable. You remember Smallwood in his hey day. He would preach they the first job, the main job, the primary job, the most important job etc. of any politician was to get elected, and then get reflected. And the main way to get elected, and re-elected was through pork barreling, roads, public services, etc. to those who elected you. That was politics at its best, or worst. Of course trumpie has taken it several steps further, including get help from Russia and any means possible, including physical violence. So that's a long stretch, and you put the fear of the devil and God in the people to get your vote. Then you become a diticator. But there is also room for statesmen or women in a democracy, who will always do the right thing for the people in general and the province or country. They are in politics for the right reasons, not to get re-elected, but to do what is right. They don't worry about getting re elected, if you don't like what I stand for then you will elect someone else. Remember John F. Kennedy's slogans, "don't ask what my country can do for me, but what I can do for my country". We seldom hear that now. And if one were to hear that today, you would be put in the nut house rather than the people's house. Does any sane politician have the guts to utter those words today, if so elect them, says Joe blow.
Ah Joe,the elusive statesman. Someone once said a statesman is one who can lie more cleverly. Maybe Danny, Dwight etc were all statesmen, to fool so many for so long, maybe statesman with a small s.
Don't forget old Joe Kennedy with motives to get his son as President, and cosying up to crime bosses. And JFK worse than Bill Clinton with womanizing. But in my youth I thought JFK ranked very high, he used the right words, for sure , and good speeches.
I finally understand that democracy is largely a farce and why, a good study and report i read on the USA system and Nlfd similar. The AJ has generally no sway on decisions, but it is the elites and organizations : they have the power. By luck occasionally the wishes of the AJs aligns with those power brokers , and it seems all win, but most often they don't align.
The USA "For the people, by the people etc is a farce even in the 1700s, their constitution. It was constructed to favor the wealthy and elites, and so it is today.
It was a good study, PENG2,should read it, and understand why so many voted for MFs.
So democracy is broken. Maybe we need Socrates to enlighten us? But then too, his truth was not not welcome, and he had to drink the hemlock.
Who will tell Nlfders the truth? And how many want to hear the truth?
Churchill said that in war, truth is so valuable it must be surrounded by an army of lies, or words to that effect.
And we are at war: fake news everywhere. you have to dig deep for truth. Leblanc exposed rot to the core here. And lies and misrepresentation galore.
I tire of seeing Antle's face on TV with the gala "Turn The Tide". He wanted to be Premier, now he don't, too busy turning the tide, and to evade environmental assessments.
Our economy and democracy: turning the tide on that is not easy. The tide is falling now for 5 years, and exposing a lot of silt, and scum that needs exposure to sunlight as a disinfectant. Who wants to head up that job? We need statesman with a capital S. I see none in politicians here.
Winston Adams
Yes Winston, have read about old Joe Kennedy, and his shady involvements with the crime bosses, and his ambition to be a politician, but settled for his sons to become senators and presidents. Also about JFKs womanizing etc. But still not totally cynical and believes, there are still some good people in high places. People, like democracy, has elasticity, as well as the price of electricity. So, none are all good, the good book tells us that, all have sinned and come short of the glory of God. We were created that way. Just some are better than others.
But, on the JFK, as well as Bobby, and MLK Of the sixties. The USA was at another turning point, Civil Rights for blacks and others. MLK led the marches for the blacks, and the Kennedys as whites, and people in authority also championed civil rights for all. Was it ever shown conclusively who assinated all 3 of them??? Nope, but all kinds if conspiracy theories, put out there by those responsible and aligned with them. But we all know really who did the assignations. Well maybe not by name, or even if they were paid. White supremacist, and those who opposed civil rights for all. Lots of them in Europe too, Far Right Natiinalists. When trumpie was elected, people said to me, he won't last long someone will shoot him. I said no way, all those with the guns are on his side. Now here is a guy, that democrats don't even want, Bernie Sanders. I think he as good as they come, not a lot of evil in him, his policies, or his bones and he is also a Jew. Now for a lot of whites, especially far right, that is enough to condemn him, being a Jew. But most Americans use the word, socialism to condem him. But was Christ not a Jew, King of the Jews, they said. Crusify him, and millions of whites, especially Christians, have proclaimed him their supreme commander and live by his holy name. Go figure, says average Joe.
Just add one more note. Remember being in the States in the sixties, when the civil rights marches were occurring in the streets. And one well to do lady from Ontario, in a discussion, proclaimed to her American friends. The solution is easy. Put them all on reservations like we do in Canada. Of course referring to aboriginals. Joe blow. But maybe she has also changed her opinion.
Yes Joe, Jesus was a Jew, but a Jew with a lot of differences. The Jews had 10 commandments plus 613 more laws, many not so good. Jesus boiled it all down to about 2 laws.
Bernie too is Jewish, but not likely following the 613 old laws.So they try to mark him as a communist, for wanting to help the poor and AJs.
So the good book has 2 gods, one of the Old testament and one of new. Bernie and MLK was are of the new. Trumps wants to be of the old, and favors revenge and war and lies and hypocracy, and racism. Trump is the chosen one, he said himself, and many has chosen him.
Winston .
CLIMATE CHANGE:
This past week:
1. Tech tat sands 20 billion job abandoned by owner.
2. 20 billion expansion to the London England airport stopped by the courts, as not compatible with the Paris Accord. The expansion would have added 700 flight PER DAY!
3 World class Mark Carney, a Canadian warns companies to get in line with climate change issues or die on the vine.
4 Even Mobil distancing themselves from the worst of far right climate change deniers.
Bruno should be keeping track and informing UG readers on these happening. He thinks it's a slam dunk to go Green, but questionable if we have time or tipping points overtake us? we need more than Bruno batteries.
5 High profile local environmentalists resigned here this week from lack of govn action.
Winston Adams
Many deaths are caused by air pollution it is well known and increases in cancer rates.
Now Nasa satelite reports dramatic declines in China of NO2 caused by cars, trucks , power plants and industrial facilities……why?
Mostly from efforts to contain the coronavirus outbreak.
Over eastern and central China the reduction is 10-30 5 , but in sime areas 80 5 reduction according to the charts.
Reductions were seen wrldwide in th eeconomic decline in 2008, but not near a s dramatic as this .
Likely more lives will be saved that loss from this coronovirus, due to reduction in fossil fuel burned. If so, then God does work in mysterious and mischievous ways.
Surely this data will aid the Green movement for cleaner renewable energy.
Winston Adams
should read 10-30%, and 80 %
WA
The Digger is in a tangle, upset that Justin'd people is talking with the Chief, opposing the pipe line.
Meanwhile, with oil prices down to 50 bucks, Saudi Arabia is planning to reduce production, and Russia too likely, to keep prices from collapsing . Less production, reduced supply, price must go up unless some produce more.
All should produce less, reduce GHGs and drive up oil prices and this an incentive for green energy.
So, the Chief is right : STOP that pipeline, for the good of the human race. And only the unelected Senate is holding up the international law which says Canada must comply with the Chief, and our Parliament agreed. Is Canada to be like in the Amazon, with Brazil leader like Trump? Does the far right think we are still in the 19 the century? Would the Digger still want to keep the Beothic skulls in Scotland, if he was Premier here?
Wnston Adams
Winston Adams
Where are we with the Spring Budget? Consultation? Public Debate? Certainly, with recent Global and National economic events, a "cold eyes" discussion on underlaying economic/social assumptions, affecting the Budget preparation, is in order? Only the elites in the room, so to speak?
LOL, dont take much brain power to come up with a budget for this basket case. 1-800-Wall-Street. Tom has it on speed-dial.
No mention of the Engineer who certified this fail;
https://www.cbc.ca/news/canada/saskatoon/oil-train-transport-canada-saskatchewan-1.5481572