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Milestone or Millstone?: Unpacking the Premier’s “Plan”

in Analysis/Editorial/Longread by

What are we going to do about the light bill when Muskrat Falls comes online?

Like many Newfoundlanders and Labradorians, this question has been on my mind for years. It was on my mind again after the Public Utilities Board released its final report on rate mitigation last Friday night. Then news broke on Sunday that premier Dwight Ball and federal natural resources minister Seamus O’Regan were going to deliver us from evil the following day. 

I had no idea what to expect. But I was glued to my radio when the press conference began.

First to speak was provincial natural resources minister Siobhan Coady. Against the muffled chanting of a Wet’suwet’en solidarity protest outside, Coady set up the partisan pomp. On the eve of last year’s provincial election, the Ball Liberals presented their own “rate mitigation plan.” This plan arbitrarily pegged electricity rate increases from Muskrat Falls to a hard limit of 13.5 cents per kilowatt hour (/kwh) on the basis of a to-be-decided financial aid agreement with the federal government. 

But now the Liberals could finally announce that they had kept their promise and delivered on this commitment—an honour reserved for the premier himself.

To paraphrase Ball’s speech: since 2015, the Liberals have struggled to handle Muskrat Falls. It is the greatest challenge since Confederation, rushed through and mismanaged by a series of incompetent Progressive Conservative governments whose hands are stained in blood unto the seventh generation. Ches Crosbie is bad. Without a new plan, your rates would eventually pass 70 cents/kwh, because the Tories hate you and your family. But the Liberals promised last year to keep electricity rates set at 13.5 cents/kwh and today we have achieved this goal. We have done this by reaching a significant milestone towards achieving this goal. We have a written promise from federal finance minister Bill Morneau that the Canadian government will look into restructuring the project’s financing to make sure it is sustainable for the province. I kept my promise to solve the problem so everything is fine now. Thanks everybody. Give it up for Seamus O’Regan!

I turned the radio off. What the hell was that?

No, Really—What Was That?

Buried in Monday’s announcement was something of genuine substance: the letter from Bill Morneau.

In it, the federal finance minister writes: “Canada supports negotiating a financial restructuring to reduce the cost of the capital structure of the [Lower Churchill] Projects, such that they are financially sustainable in the long term…. Canada is prepared to consider options to change the Muskrat Falls/Labrador Transmission Assets’ revenue model, such as to a cost-of-service model, and redirecting equity returns from Nalcor to ratepayers.… Canada is [also] prepared to consider options by which the province could monetize its assets such as expected income from the Labrador-Island Link.”

But what does this actually mean?

At the risk of oversimplifying: the biggest reduction in cost comes from changing how (and why) the provincial government pays for Muskrat Falls. 

The original financing structure required Nalcor to use Muskrat Falls and related assets to build equity. Nalcor could then “generate revenue” and return profitable “dividends” to their “shareholders” (the provincial government). But the only way those revenues can be generated is through exports or raising the price on consumers. Since there is no market for exports and a captive pool of ratepayers, it was essentially an escalating tax laundered through your light bill.

The newly proposed cost-of-service agreement, meanwhile, is roughly what it sounds like. It eliminates some $34 billion in costs by removing the requirement that Nalcor rob Peter to pay Paul. Muskrat Falls will cost more in the short term, but less overall. You can see it represented in this chart:

The black line shows what Nalcor (and ratepayers) would have to generate as revenue to pay back investors under the original financing model. Now that the provincial government is foregoing dividends and Nalcor only needs to pay back their loans, the revenue requirement is the green “cost-of-service” line. The red line is the province’s target revenue from ratepayers and—maybe?—other revenue streams. (That it runs parallel to the black line also suggests rates will rise over time roughly on pace with inflation.)

That gap between the red and green lines prior to 2041 (when the Upper Churchill contract expires) amounts to some $4.8 billion the province needs to find over the next two decades. This is where “monetizing [our] assets” comes in: the anticipated excess funds after 2041 will be sold (or ‘monetized’) now for cash up-front that fills the gap. (Details are still TBD.) And the federal government has also agreed to put aside money should the project incur any further cost overruns between now and the end of 2021 or Project commissioning—whichever comes first. 

But the real kernel in Morneau’s letter was planted near the end. He notes: “as this project proceeds, it is important to remember these are provincial Projects, in provincial jurisdiction, and the Province bears responsibility to ensure they are delivered economically.”

In other words: there will be no further bailout. The Province has to lie down in the bed it made.

It’s not clear yet what any of this means for either ratepayers or the provincial treasury. Notably, O’Regan’s speech on Monday did not reiterate Ball’s message that rates wouldn’t increase. The Province’s news release also spoke only about how “the Provincial Government expects consumers will be paying approximately 13.5 cents per kilowatt hour in 2021 if costs increased due to normal Newfoundland and Labrador Hydro operations and without any impact from Muskrat Falls.” There is no mention of any federal expectation.

Morneau’s letter represents a significant milestone towards addressing Muskrat Falls. We finally have a commitment on federal intervention, we know what options they are looking at, we know what options are off the table, and we know what details they are still negotiating. But it is not a finished plan. 

You wouldn’t know that from this week’s big announcement, though. The premier is blustering very hard to convince you otherwise.

Open Mouth, Insert Foote

Dwight Ball has been desperate for a solid, home-run good news story since he was narrowly re-elected in May 2019.

The week before Monday’s announcement was dominated by yet more public discussion about the Ball Liberals’ patronage problem. It started when the airwaves lit up over Nalcor awarding a sole-source consulting contract to former deputy minister of natural resources (2016-2018) Gordon McIntosh. Normally there is a one year cooling-off period for top bureaucrats looking to take these kinds of contracts, but McIntosh received a conflict-of-interest waiver from cabinet to start the job in 2019. 

David Maher at the Telegram reports that the provincial government ordered Nalcor to hire McIntosh’s consulting firm. Rob Antle at CBC reports that McIntosh was awarded the contract without competition after a single meeting with Nalcor vice-president Jim Keating and the premier’s chief of staff, Greg Mercer. Highlights of the contract include a $336,000 annual salary and tens of thousands of dollars in reimbursed flights to and from Scotland, where McIntosh lives with his family—while receiving a $3000/month housing stipend in St. John’s.

By Thursday, all this was passé because Carla Foote abruptly resigned from The Rooms to take a new job as assistant deputy minister in the Public Engagement and Planning Division. Foote’s appointment to executive director of marketing in 2018 was the subject of a damning report from the Office of the Citizens’ Representative last fall. It found culture minister Chris Mitchelmore had “grossly mismanaged” his stewardship of the public purse by hiring her for the job without any competition (or even completed paperwork). Ball spent the better part of a week last November defending Mitchelmore to the House of Assembly before a snap vote compelled his otherwise unrepentant “loyal soldier” to apologize. Now the premier was admitting that public pressure had moved Foote to resign, but that reappointing her to the provincial government fixes the issues in the Mitchelmore Report.

Dwight Ball is pounding so many nails in his coffin it becomes an iron maiden.

By Friday, 7 February—about a week past the premier’s earlier pledges to deliver a rate mitigation plan by the end of January 2020—the PUB released their latest report. It is a familiar story: without some kind of federal intervention, electricity rates will spike when they flip the switch at Muskrat Falls. The premier assures us they will have this finished over the weekend. Dwight Ball has entered the torture coffin to hammer it shut from the inside.

The feds show up with Bill Morneau’s letter. (Bill Morneau himself heads to Calgary to make a similar announcement to agitated Albertans.) They find Dwight stuck inside a plywood box full of nails. His voice is muffled and they can’t get him out. No one knows what he is talking about but they roll him onstage anyway. Seamus, with a flourish, salvages a punchline: “the Aristocrats!”

Tumbling Over the Falls Together

Of course, Dwight Ball is right when he says this is a disaster of Tory design. A succession of PC administrations are responsible for recklessly sanctioning the project and enabling whatever nonsense Ed Martin had pinned to the vision board in his executive suite. It is also true that the party under Ches Crosbie has shown no recognition of its role or responsibility in how the project unfolded—and so can offer no constructive suggestions.

But also: nobody cares about that right now. This is like a doctor ranting at you about an ex while you wait for them to give you test results from a health scare. Even assuming the media spectacle wasn’t an elaborate bluff for a still-unfinished plan, opening the speech with heavy partisan broadsides poisoned the actual announcement Ball was there to make.

Then again: maybe we should treat the message seriously. Maybe the partisan sabre-rattling was its own “significant announcement.”

By replaying a campaign speech from last year, Ball was reiterating to the electorate—and his own increasingly dissatisfied caucus—that they shouldn’t rock the boat until these plans are finished. The premier is trying to establish that his presence at the negotiating table is as essential to its success as Seamus O’Regan bringing our concerns directly to the federal cabinet—or the small legion of bureaucrats who will actually produce the deal.

The reason it sounded so much like a stump speech is because it was one. The premier is campaigning to keep his job ahead of a Liberal leadership review in June.

For a razor-thin minority government, stability is a precious commodity. In that vein, Ball’s message is straightforward: better the devil you know than the devil you don’t. A leadership upset would trigger an election that risks turfing the Liberals from power, and the sweetheart deal necessary to avert catastrophe is only possible when Dwight Ball is on the (federal) government side. Plus, you know: the Tories did Muskrat Falls.

It’s compelling enough at face value. But given the stakes—and the unending bullshit flowing out of the premier’s office—the Liberals may finally be ready to risk some other devil. Meanwhile, the Tories are also giving Ches Crosbie his own leadership review in the spring. His future isn’t guaranteed either. Many Liberals know this, and work the galas and back rooms accordingly.

So perhaps the most sublime subtext of the premier’s Monday speech is the unintended one. By chaining his “plan” to a partisan attack on Crosbie, Ball may have inadvertently showed us a glimpse of what real progress will look like. The true way forward is two lame-duck leaders, locked in mortal combat, tumbling over the falls together so that the rest of us can finally move on.

With files from Tom Baird.

Photo by CHMR/The Independent.

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