Are We Being Used Here?

It is fairly obvious to the dedicated observer of Newfoundland and Labrador politics that all is not well behind the scenes with the Muskrat Falls project.

Since it's inception, the Muskrat Falls project has been an enigma. Born to bypass the "Quebec stranglehold" on this province's export of power, yet only able to transmit a measly 500 MW of power on the Maritime Link. Heralded for being a green power revolution in the province, yet causing the amount of thermal energy in the province to actually increase. Meant to supply the ever increasing consumption of electricity to the Island, but the demand has actually decreased to 1992 levels - and the population is aging faster than any other on the continent. Promised to provide cheap, stable rates for the next 100 years, but easily the most expensive power to be produced in North America.

My questions about Muskrat Falls began with the capacity of the sub sea cable to Nova Scotia - 500 MW. It became immediately obvious that such a small cable was not capable of exporting any serious power into other markets, particularly given that Emera was given about 170 MW of that capacity for no charge as partial compensation for financing the link. I am not alone on this thinking. The CEO of Emera, in conversation with the US Consulate, had this to say:

In a section subtitled, "Are we being used here?", the author wrote that Emera was worried about being manipulated by Williams.
"The unknown factor, as Spurr explained, is N-L Premier Danny Williams. Spurr explained that N-L had been the victim of bad resource deals in the past which have left Williams very cautious if not suspicious in his business negotiations," the cable says.
"Given that legacy, Spurr remarked that he and his senior colleagues are equally cautious in dealing with the premier, with knowledge it makes more financial sense for N-L to do a deal with Quebec than with them," the author wrote.
"In fact, Spurr indicated he wouldn't be surprised if William ended up doing just that, and leaving Spurr and colleagues to speculate that Williams might be using them to exert more pressure on Quebec to offer a better deal for N-L."

So here we are, nine months after the original dead line for the Emera/Nalcor term sheet to be signed, and no deal. The question is: why not? There is also no formal loan guarantee in place despite federal commitments to do so. There are no completed environmental assessments for either the Maritime Link or the Island link between Newfoundland and Labrador. There is no word what so ever on the status of the $375 million requested from the 3P Canada Fund to subsidize the cost of the Maritime Link. Nothing.

What we do have is shuttle meetings every now and then between the premiers of Nova Scotia and this province. We get assurances that everything is fine, not to panic, and the hope that the Emera/Nalcor deal with be inked by November, 2012 - "hopefully" in Dunderdale's words. So what is going on?

Well, going back to that conversation between the Emera CEO and the US Consulate - "Are we being used here?" Good question. In my opinion, the answer to that question is yes, but not for the reason the CEO believed. The key requirement for Muskrat Falls to proceed is a federal loan guarantee. Without it there is no Muskrat Falls dam. Former Premier Williams had pursued such a guarantee from Prime Minister Harper since 2006. Finally, during the last federal election, Harper agreed to it - conditionally. The primary, central piece to the guarantee is a deal between Emera and Nalcor. Unfortunately, that agreement makes no business sense, and can not possibly earn the provincial government anything but massive losses.

Danny Williams was and remains a businessman. It is hard to believe he would enter into an agreement to export power at such massive losses. He was also a tactician, and often belligerent opponent of the federal government. What ever it took to get his way - including taking down the Canadian flags on all provincial buildings. Given his business sense, and his mercurial relationship with the federal government, and given a loan guarantee is necessary to do the Muskrat Falls project, I am left with the belief that Mr Williams' strategy was to use the Maritime Link to get the loan guarantee and then kill the deal, but still retain the guarantee.

With Emera out of the equation, the Newfoundland and Labrador government would be able to cancel both the Maritime link and the Island Link (which Emera is also slated to be partner in). That would leave a Muskrat Falls dam to provide power solely in Labrador - where all those mines are being developed. Unfortunately, for the PC government, it appears that strategy is back firing.

The federal government is now insisting it will not give the guarantee without the project being officially sanctioned. In order for the project to be officially sanctioned the Emera/Nalcor deal must be signed. Either Dunderdale, or Nova Scotia Premier Dexter appears to be having cold feet. On the one hand Dexter, whose popularity right now at home is about 27%, must provide the cheapest alternative power to his province. Despite the fact Nova Scotia Power is a private company (Emera subsidiary) its rate increases have caused calls for it to be nationalized by many quarters in that province. He has to deliver the cheapest possible deal or face political oblivion and unrest. To underscore the point, it has been reported by Jim Morgan on the radio show, VOCM Backtalk, that Emera has been in negotiations with Hydro Quebec for the last three weeks. I had that report confirmed by an independent media source as well.

The fact is Hydro Quebec can dump all Nova Scotia's power needs for decades in one nice, cheap, multi decade contract - and it looks as though it's in the works. It may be that a political deal is no longer needed by Nova Scotia for power. That might suggest Nova Scotia's political minister Peter MacKay may no longer care to support the Muskrat Falls project. Without his support the Prime Minister may no longer have to supply a loan guarantee. After all, the loan guarantee was to Nalcor and Emera - not the respective provincial governments. That is an important difference. Suddenly, it looks as though Dunderdale is left in mid stream without a deal, and unable to use that deal to secure that necessary loan guarantee. What was her quote a month or so ago - "For me, at the moment, it’s a Minister MacKay problem.” That was on the face of it a rant against search and rescue, etc. However, attacking possibly the second most powerful person in the federal government seems to indicate the fracture is much deeper, and serious.

What we are left with is a game of chicken between the federal government and the province. On the one hand the feds are happy to sit back and watch Emera negotiate with Hydro Quebec. On the other hand Newfoundland and Labrador can't get a federal signature on that guarantee until Emera signs on with Nalcor. And somewhere in between, shuttling between the two provinces, Premier Dexter tries to avoid a political damned if you do, damned if you don't. Surely there are a few people right now asking themselves:

"Are we being used here?"