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Guest Post by PlanetNL PlanetNL19: Muskrat Dividends Will be Negative While megaprojects have huge costs, their promoters love to talk about the benefits.   At the Decision Gate 3 (DG3) final sanction stage in 2012, Nalcor developed cost and benefit models that predicted not only that Muskrat was going to be billions cheaper for ratepayers than the Isolated alternative but that the Province would reap many billions in dividends.   Key Muskrat promoters heard from at the Inquiry so far still seem to cling to expectations of positive dividends from the project.   This post lays out how Nalcor and Government failed to assess rate affordability and revenue risk before sanction.   As a result of one of the key risks becoming realized, Government�s anticipated dividends will be greatly exceeded by subsidies and mounting debt servicing costs.   These two-way cash flows must only be considered together in finding the true dividend or net loss on the project.   Gove...

In March of this year the Finance Minister, Tom Osborne, delivered the seventh in a successive string of deficit budgets, their genesis originating in both Tory and Liberal Administrations. And like his Liberal predecessor, Osborne still offered the  assurance that fiscal balance will be achieved by 2022-23. On what basis should we believe him any more than we did Tory Finance Minister Ross Wiseman or Liberal Cathy Bennett? Isn't the process of digging the province out of the current debt spiral less a matter of prediction than of serious intent, discipline and leadership provided through diligent oversight?  Last year's Budget outcome offers a perfect example of why the promise of achieving a balance of revenue and expenditures in our fiscal affairs is just that - a promise. Nothing more. The Government released the public accounts for the fiscal year 2017-18 on November 6. It is essentially an official record of the accuracy of the Finance Minister predictions but even more...

Guest Post by David Vardy The Economics of Muskrat Falls (Part II) This post builds on Part I entitled Will Muskrat Falls Pay Dividends? (Part I) which was published on Thursday, November 8, 2018.  That post is recommended reading for this Part II. I have attempted below to examine the likelihood that Muskrat Falls will cover all of its costs. To make this assessment I have used the �revenue requirement� projections supplied by Nalcor in response to my ATIPPA request for each component of the project, along with the return on equity assumptions used by Nalcor. The return on equity (ROE) for generating assets is 8.4% and is built into the PPA for 50 years.  For transmission assets the ROE is linked with the return allowed by the Public Utilities Board (PUB ) for Newfoundland Power (NP) which is currently 8.5%, even though the Labrador Island Link (LIL) is not regulated by the PUB. My analysis is summarized in Chart 1 below. Chart 1 The chart tells the story. Operating and main...

Guest Post by David Vardy Part 1: Is the PPA another Churchill Falls Contract? Russell Wangersky was right when he said in the Telegram on October 27, 2018 that Muskrat Falls is �a win for investors but the risk�s on us�, the ratepayers.   �The fundamental assumption in the financing of the project is that the revenues charged to island ratepayers for the generation and transmission of Muskrat Falls power will flow unfettered to the lenders to satisfy debt payments.�   In this post I examine the underpinnings of this �fundamental assumption�, beginning with the take-or-pay power purchase agreement (PPA), the role of equity and the concept of freedom of choice. Does the PPA lock us in to an abusive relationship, not for 65 years but for 50? Is it another Churchill Falls Agreement which strips us of our rights? In my next post I will ask if the PPA makes Muskrat Falls self-supporting and whether revenues from rates will cover all costs and generate dividends for the government...

�Show me a good loser and I�ll show you a loser.�                                        � Vince Lombardi The message from the hall-of-fame coach to his Green Bay Packers was unmistakable: equanimity should never be perceived as resignation or acceptance even when a loss is beyond your control. Lombardi might have added, for certainty as much as a warning: there�ll be a next time. Dwight Ball is no Vince Lombardi. The weakling Premier, oblivious to the greatest financial crisis since the 1930s, has confirmed � again � that he does not have the stuff of leadership. What did he say when the Supreme Court of Canada gave its 7-1 decision last Friday on reopening the Upper Churchill Contract? �The past is the past for us. The decision is the decision,� Ball told the media in a tone of resignation. He added: �I...

Guest Post by PlanetNL PlanetNL18: Big Windfalls to Come from Churchill Falls? For decades, Newfoundland and Labrador (NL) Governments have recited the lost earnings potential of the Upper Churchill and bemoaned the billions earned by Hydro-Quebec (HQ).   They long for the day of August 31, 2041 when HQ�s locked-in low-price contract for 90% of CFLCo�s energy shall expire and most of the profit will flow into NL. It�s the kind of linear-thinking politicians thrive on: if electricity prices remain constant, demand remains constant, and production costs remain constant, then the dream seems real.   A na�ve Premier today may even be thinking of borrowing billions to mitigate Muskrat losses until 2041 because the mighty Upper Churchill will quickly pay it all back and more. That would be a terrible gamble to take as already there are a number of economic threats to the viability of Churchill Falls power. Nalcor Energy Marketing Not Earning Huge Profit Margins Today NL Hydro has an...