Liberals Breaking Faith

What, exactly, does the Liberal Party in Newfoundland and Labrador think it's doing. In all seriousness. When the people of the province went to the polls just a few short months ago, they were promised a change in all the ways and means the PC Party had been governing. A short two months later and it seems those lessons have all been lost, and "creative manipulation" is the phrase of the day, because "leadership" sure isn't.

Let's start with the election itself. Now anyone with a calculator and a copy of the budget estimates for 2015 would know that the province's current deficit would be about $2 billion. Yet, when the Liberals finally got their wish, and were elected, they trot out Dwight Ball and Cathy Bennett with the deer in the head lights look saying "oh, nobody could have known it was this bad". What a load of you know what. The truth is, unless the Liberals have the stupidest research staff on record, that they just outright misled the public to get their hands on the reins of power. Simple as that. Obvious as the nose on your face.

Then Ball and company come up with the beauty of cutting 30% from all government spending. They have to they claim, otherwise the province will be done for. Well, that may be true, but during the election they sold the people on not cutting government. They were just going to "manage better". Again, referring back to the calculator analogy, they just outright misled the public and for the same reason.

Oh, but they are conducting some kind of "review" of Muskrat Falls. The problem is that Muskrat Falls doesn't need a review - it needs to be stopped. While in Opposition Ball and his now Justice Minister decried the lack of legal grounds for the Water Management Agreement that made the project even feasible. Now? Now they continue to go forward with it despite the challenge to it's fundamentals in the Quebec Superior Court, and my own action here in our Supreme Court to have the matter examined for its constitutionality. The very same reasons why the Liberals questioned it in Opposition. Now I find myself fighting them in the Appeal Court, rather than having them jointly requesting the Appeal Court examine the agreement. Their disingenuous ways certainly aren't all that sunny for sure.

Finally, we have the case of a female fire fighter being sexually bullied by her peers. Brenda Seymour, volunteer fire fighter and councilor for Spaniard's Bay, has been subjected to porn during an otherwise all-male training session, as well as sexual commentary during the same session. She fought against it for which she was ridiculed and bullied by members of her community. Her fellow fire fighters resigned enmass to protest her protest.  In other words, they circled the wagons to protect their own behinds, but they also tried to persecute the victim so to say. A small-minded, offensive action that matched the small-minded offensive treatment she suffered while in training. The story has made national news headlines.

The moral of the national story on Brenda Seymour is that Newfoundlanders are old fashioned bullies, sexist, and crazed enough to have their own children carry signs defending the men who refused to stand up for a fellow fire fighter being subjected to porn. An ugly and disgraceful mess. No doubt a time for a male Premier to stand up and show leadership right? Wrong. Ball disappeared into the wood work like Casper the friendly ghost, and instead had his female Finance Minister issue a memo saying "now-now boys, no porn during training". I twist the gist of it a bit, but you get the idea. The point is when leadership is required the Leader leads. That's not happening.

I suppose in some ways we shouldn't be surprised. Dwight Ball didn't exactly set the Liberal Party on fire when he became leader. Their was, and remains, no charisma in his bones. He's not that kind of leader, but what kind of leader is he then? The Liberal Party itself didn't set the province on fire with its visionary plan for the province. The opposite in fact was true. They weren't elected, the Tories were unceremoniously ejected. The Party, as a government, has just vanished into the weeds of the bureaucracy. It's readily apparent they don't have a clue about how to lead, or in fact how to govern. The 18 month public consultation on how the provincial deficits/debt can be tackled is a prime example. It almost reminds me of the PC's hiring a consultant to study if the government is hiring too many consultants. It's that ridiculous. And, that's the way they're looking - ridiculous.

All in all it looks like the Liberals might as well enjoy the next four years, because they're going to be a one term government. A one term government doomed to be mired in misery and ridicule as they pay the price of deceiving the electorate to gain those lofty heights of power. The price they will pay for breaking faith with the people.

NL Budget 2015 - Practiced at the Art of Deception

There are two words that come to mind after reading budgetary estimates for 2015 in this province: election; and deception. Actually there is a third - tragic. For starters, the biggest bomb of all is that our actual budget deficit for 2015 is $2,092,867 billion. Not the $900 plus million that's being thrown about in the media. Here's how it breaks down:

Total revenue for 2015 is projected to be:                      $ 5,757,328 billion

Current Account Expenditures for 2015:                    -  $ 6,659,952 billion
Capital Account Expenditures for 2015:                     -  $ 1,143,743 billion

Need to borrow for 2015:                                               $ 2,092,867 billion

Now the politicians are saying that capital spending is not a part of the deficit, but the fact is that it is. The University of Calgary just issued its report stating they saw the deficit coming in at $1.8 billion, so they were actually a little light. The government here likes to deceive people by saying this or that isn't included. Like, for instance former premier and finance minister Marshall's statement that the money allocated to Natural Resources, and then reallocated to Nalcor each year for the last three years does not contribute to the deficit. Yet, his estimates each year clearly show the transfer from the General Revenue Fund to the Department of Natural Resources. That number factors into the expenditures of the department. That is how it's accounted for.

The truth, according to the government's own budget estimates is that fiscal 2014 saw a cash shortfall of  $ 1,051,798 billion. In other words, the total amount needed to borrow for last year, and this year is approximately $3.2 billion - which will go directly to our gross debt.

Speaking of gross debt, that is the total money we owe and are making debt payments on, 2015 will see it rise to $13, 889 billion. In 2003, before the oil money really started rolling in, that number was $8,932 billion. This year we will pay just over $770 million in interest charges/debt expenses. In 2003 that number was $520 million. Revenue this year is projected to be $5.7 billion. In 2003 it was $3.7 billion. The total budget expenses in 2015 is projected to be $8.2 billion. In 2003 it was 3.6 billion. So, in other words, after 12 years of oil, and over $20 billion of oil revenue brought in, we are spending over 200% more annually to run the affairs of the province,with revenue that has only increased 65%. That's shocking. That's catastrophic financially. It's called structural deficits with huge debt accumulations.

It's no wonder that Standard and Poors warned the provincial government last year to shed the weight of the public pension plans or face a credit downgrade. They knew the government was heading into massive deficit, therefore added debt, and in order to keep that rating we had to cut the pensions loose.  Still, you can expect a credit downgrade imminently at this rate.

Now to the politics. The utter sleazy politics of deceiving your own people to further your political hopes. The PCs have scheduled an HST increase of 2% effective January 1, 2016, or about two months after the next election. They've pledged not to replace 20% of the public service as it retires over the next 5 years... the next five years. They've committed to an all day kindergarten starting in 2016..2016. In other words, none of the big hits or programs start until AFTER the next election. That way, the PCs are serving a budget up they hope won't immediately affect the pocket books of voters - ie: re-election. The horrific truth is that no matter what government is elected in November, 2015, a financial disaster never seen in modern time Newfoundland and Labrador awaits. The Liberals have already said they will cancel the increase on election, but can they?

2016 will not be much better, and likely much worse for the province's finances and economy. We are on the cusp of a provincial recession as it is. Almost 30% of all employees in the province work for the provincial government. They likely compromise about 80% of the higher incomes here. Keep in mind that 30% of residents here are too poor to pay any income tax. The PC's have said the government will have to borrow $5 billion over the next 5 years. That's just an outright lie. Just for starters, the federal loan guarantee is only now starting to kick in for Muskrat Falls. That loan requirement is at least $5 billion, and many experts suggest it could reach $8 billion in additional borrowing beyond the $2.6 billion the province has invested in cash. In fact, the federal loan guarantee won't kick in until at least 35% of the total project cost is paid in cash by the province. That $5-* billion has to be paid within 2 years for the 2017 first power date to be met. Then there is the minimum $750 million investment in Hebron which must be paid upfront. And so it goes. Considering the government is spending $1 billion a year more than it brings in just to operate government - not including fancy projects like Muskrat Falls and Hebron -  the next government is looking at massive cuts. A 2% increase in the HST will only bring in about $300 million at the most - if the economy remains at the level it is.

Unfortunately, the economy won't be remaining where its at now. Construction and real estate are falling rapidly. Oil companies are scratching development projects as the international trade war with Eurasia begins to heat up. It's worth noting that Russia is the number one exporter of oil and natural gas in the world, not Saudi Arabia, and they can hit us hard. Expect that to happen as the BRIC countries solidify their oil for food and the like trade deals with Russia and China. None of this is being explained in any way to the people of the Province. The real truth is we had a window, a ten year window, to reap as much as we could from our oil. We didn't. We squandered it in a money-mad drunk fest. Now the party is over. Was Danny Williams the best premier this province has ever had? No. He was the worst premier this province ever had. His actions have caused irreparable harm to the place and the people. That is the truth. The numbers speak for themselves. Don't believe the deception spun by the entrails of the Williams government. Realize that as a people we have been deceived in an almost unimaginable way.

Nalcor Lies of Omission

What's a lie of omission? A lie of omission is defined as leaving out an important fact when putting forward a story. This is what Ed Martin, President of Nalcor did this weekend on CBC's show On Point. Frankly, I was shocked. Then I was angry - and I remain angry. Here is what was said during the interview:

President Ed Martin:

"If I can just take a brief moment to explain, as briefly as I can, what's really happening there. This is really about the Power Contract with the Upper Churchill, and the Power Contract is really the original contact for 40 years and the extension. In the original contract Hydro Quebec had negotiated the ability to really get the power when they wanted it, you know, at their say.In the renewed contract, in the second part of the contract, it is very clear and different. They get a fixed amount every month, and we've said to them you have to take that, that is what the contract says. They said we would like to have it the first way. We said, well folks, a contract is a contract in this particular case, and you are going to take it that way.

Putting that aside, that's what they are trying to argue. But from our perspective, even if we treated it like the original contract, it has no impact on Muskrat Falls flow, so either way we are fine. So we obviously expect we will win that, that court action, but assuming we didn't, either way we've run the numbers and it's not going to have an impact that's going to hurt Muskrat Falls."

Cochrane:

" So you're 100% certain that nothing Hydro-Quebec is doing in the courts right now will impact your ability to operate Muskrat Falls as intended in your business plan?"

Martin:

" That's correct. They've been operating that plant for fourty years in a certain way, and if they continue to operate that plant in that fashion for fourty years, no impact on the project."

Here is the link if you want to listen to it:
http://www.cbc.ca/news/canada/newfoundland-labrador/what-s-next-for-muskrat-falls-1.2464965

Point one is this, Quebec's lawsuit for a declaration of their rights under the Power Contract is not just solely affecting the Power Contract. Hydro-Quebec is suing, because apparently Nalcor/CFLCo have taken more MW of power from the Upper Churchill, since last June, than they are permitted to under the Power Contract. They are also suing over their right to operate the dam in accordance with their needs, which is what the Power Contract allows them to do. Now ask yourself this: If this Hydro-Quebec lawsuit has nothing to with Muskrat Falls, and especially the Water Management Agreement, then why is Hydro-Quebec suing over their right to operate the dam for only their needs (minus recall)?

It is apparent that Nalcor via CFLCo has been taking more MW than they are allowed to, so they must be doing so based on the Water management Agreement, because prior to that they had no grounds to take extra power. We have yet to be told by our government how much power was taken, and under what authority. However, it is clear that Nalcor is "being too cute" by applying the Water Management Agreement to take power, but not disclosing it to the public they are doing so, or what legal quandary that leaves us in - or expense. In other words, they are fighting a territory fight where the Supreme Court of Canada has already said they don't have territory, and we will pay for it, but they don't seem to care about that.

Martin also states that Quebec has to buy a minimum bloc of power under the renewal contract, and that is true. They have to buy what the average consumption they used over 40 years as a minimum monthly purchase. That's about 3500 MW. What he doesn't say is they take more than that now, and are by law entitled to. Essentially, Martin is not telling the truth here. Hydro-Quebec is not arguing about their minimum buy required. It's clear, spelled out, and they use more anyway. It's a completely false argument presented by Martin. There are only two points they are arguing: 1. Does Hydro-Quebec have the right to all the power created except the recall power? The Supreme Court decided that in 1984, and Nalcor has no right to take anything beyond recall. 2. Does Hydro-Quebec have the right to require the dam be operated to meet their needs, and their needs alone, other than recall power. The Power Contract says they do. In any case, Hydro-Quebec's case has nothing to do at all with how much power hydro-Quebec has to buy. This is just a blatantly false statement from Martin, and it really doesn't fit the criteria for a lie of omission - it's just straight out false.

Then Martin says he is 100% certain that Quebec's court action won't affect the flow for the Muskrat Falls dam. That is another stinker. Consider Nalcor's pre filed evidence to the PUB submitted in 2009:

"Uncoordinated production among the Churchill River facilities could result in either
15  excessive or insufficient water at the lower Churchill facilities. Excessive water will result in
16  spill.  Insufficient water to meet delivery schedules will result in excessive drawdown.
17  Either case represents inefficient use of the available water.  Flow regulation is therefore an
18  important factor in fulfilling the efficiency policy contained in subparagraph 3(b)(i) of the
19  EPCA...

22  The control of the rate at which water is delivered to a hydraulic generating facility
23  increases the plant’s ability to produce power on demand.  The ability to regulate the flow
24  of water is a result of having adequate storage.  The degree of flow regulation determines a
25  plant’s firm power and energy capability...

15  Irregular production at Churchill Falls will have different effects on the lower Churchill
16  facilities depending upon the uncontrolled natural inflows at various times of the year.  In
17  many months, the lower Churchill facilities would have insufficient water for production
18  requirements during periods of reduced production at Churchill Falls. However, during the
19  spring runoff, there would be excess water, resulting in spillage, during periods of increased
20  production at Churchill Falls.  These problems would be compounded if full CF(L)Co delivery
21  of Continuous Energy was scheduled early in one month followed by full production late in
22  the following month.  

4  In the absence of a water management agreement, Nalcor would not even have advance
5  knowledge of expected flows from the Churchill Falls facility to enable it to take steps to
6  mitigate spillage through advance drawdown of the lower Churchill reservoirs.

11  In the absence of a water management agreement, Nalcor would be required to utilize the 

12  water as it became available.  Given the limited storage capacity in the Gull Island reservoir 

13  (approximately three to four days of maximum flow from the upper Churchill facilities), 

14  Nalcor would have to turbine the water and produce energy at the time that it was 

15  available; it would be required to “chase the flows” from the upper Churchill.  Spills would 

16  be likely during the period of the spring runoff, resulting in wasted energy.

Water Management Agreement Application ‐ Pre‐filed Evidence

 

 Page 14

Nalcor Energy    

Table 1: Irregular CF(L)Co Production Profile 

Continuous Energy – First 20 days of month  4,765 MW 

Recall and Twinco  495 MW 

Total – First 20 days of month  5,260 MW 

Continuous Energy – Last 11 days of month  900 MW 

Recall and Twinco  495 MW 

Total – Last 11 days of month  1,395 MW 

 

1  The resulting releases into the lower Churchill reservoirs would be as follows for the above 

2  production values: 

Table 2: Irregular CF(L)Co Production Water Release 

Daily Churchill Falls Water Release – First 20 days of month  160 million m3

Daily Churchill Falls Water Release – Last 11 days of month  42 million m3

 

3  During the March timeframe, uncontrolled inflows into the Gull Island reservoir will be 

4  minimal and under average and dry year conditions are as follows: 

Table 3: Gull Island Uncontrolled Inflows March 

Daily Uncontrolled Natural Inflows – Average Year  6 million m3

Daily Uncontrolled Natural Inflows – Dry Year  0.7 million m3

 

5  Under average conditions, the resulting production at Gull Island would be 1,519 MW for 

6  the first 20 days and 443 MW during the last 11 days of March.  During a dry period, this 

7  scenario would require production levels of 1,471 MW during the first 20 days of March, 

8  and 395 MW during the last 11 days. Consequently, without a water management 

9  agreement, Nalcor would be limited to approximately 400 MW of continuous delivery in a 

10  long‐term power purchase agreement for Gull Island.   Such an arbitrary constraint on lower 

11  Churchill delivery schedules is unnecessary and is incompatible with the concept of the 

12  efficient use of the resource.

Bottom line, by Nalcor's own filed evidence, with an affidavit sworn by Nalcor's VP Gilber Bennett, the Water Management Agreement is necessary to operate Muskrat Falls at more than 20% capacity. So, when Ed Martin says that should Quebec win in court, and those two principles are ruled void, the entire Water Management Agreement is invalid, and we are screwed. Which, of course is why I have been in Court with them. Ask yourself this: Has Nalcor made Hydro-Quebec's claim or their own Statement of Defence available to the public or media?; Have they made their legal opinions available?; and if no why not? The clear answer is that Nalcor is simply not telling the truth. In some cases they are telling part truths without telling all the truths. In other cases they are simply not telling the truth. Either way, we are being deceived, to our peril, by a government and crown corporation that is meant to defend our interests, and not cripple them.

Budget Fixing

I was taken back, like everyone else this week, when our local PC gang announced the projected deficit for 2013-14 had dropped from $1.6 billion to around $500 million. Just how was that possible in two months? Sure, they terminated 100's of civil servants, actually about 1200 in elimination of positions and layoffs of actual workers, but that would represent a mere drop in a large bucket when it came to a $1.6 billion deficit. So I had a good look.

And when I looked I was astonished. Going back to 2010, and moving forward each year til the present 2013 budget, I discovered fixing - budget fixing. I have attached copies of my analysis below so you can see year-by-year budget-to-actual comparisons. You can see where the government came in high on projections and where they came in low (the low has a negative sign in red). Going through this process a definite pattern evolved. A cynical pattern. One the government has not admitted to publicly, but would rather take a heap of abuse for. Another pattern for these folks. The more abuse they are willing to take publicly over something they could easily explain the more you should be concerned - such is the case here.

Below are the Budget vs Actual spread sheets for you to see, 2010 - 2013. Pay attention to the patterns you see, then move to my analysis below them.

So there you have it. The obvious, deliberate tool used is overstating ministerial budget, and then not using them fully. A good example is the $645 million that was scheduled to be transferred to the Department of Natural Resources, but ended up being $404 million dollars light. You will notice that revenue is almost never overestimated, while government budgets are almost always overestimated - especially in 2011, 2012, and looks to be the same for 2013.

As you can see, "austerity" started early as in 2012 $790 million that was budgeted to be spent by departments was not.In the same year total revenue was only $148 million over. Add the two together and expenditures were actually under budget by about $650 million. In that year every single government entity other than Executive Council came in under budget.

Then there was 2011. That was the year when we got the big oil return we weren't expecting - $531 million to be exact. However, the untold story is that every government entity also came in under budget except Government Services and Human Resources, Labour, and Employment. See the trend. The obvious trend is overstate transfers from the consolidated fund (the government's bank account) to government department's and agencies; understate revenues from all sources; and combine the two to keep "miracle" surpluses happening - which brings me to another point. A strategy such as this, keeping in mind how the government is not advertising the fact it is not spending the money it has allocated to programs like roads etc, is being used by the government to achieve several goals. The first and most important is it allows them to skim from departmental budgets to add increasing dollars to their cash and investment portfolio - more on this in a minute. The second is it allows them to seem like economic miracle makers, and fine "stewards" of the economy and public purse. And of course, it keeps the public away from demanding money for those programs that always seem to get big announcements, but few things change. The obvious reason for that being of course the full budgeted money is not spent on the programs, so relatively few things do change. As many people, especially outside the overpass say, "where has all the money gone?"

Well, here is what the government is doing with it. They are building a war chest of sorts. It's called CASH ON HAND/TEMPORARY INVESTMENTS. It means money they have put away by clawing it from programs it was originally budgeted to meet the needs of. Here is how that fund has grown:
2002 - $ 509,520,000
2003 - $ 185,404,000
2004 - $ 688,960,000
2005 - $ 833,802,000
2006 - $ 600,264,000
2007 - $ 1,316,660,000
2008 - $ 2,267,497,000
2009 - $ 1,921,837,000
2010 - $ 2,212,774,000
2011 - $ 2,442,963,000
2012 - estimated $2.6 - 2.7 billion.

So, the government has a huge bank account that they've been skimming money from department/program budgets for. They've invested it in mostly very low interest bearing accounts, but it's there. The infuriating part of this, beyond the lies and manipulation of this government to their own people is the damage we are now seeing inflicted for absolutely no reason on the civil service of the province. The people who make up 25% of the entire work force of the province. You can argue that it's overdue. You can argue that government is too big, etc. That is all ideological whether it be from a pure economic or political point of view. The reality is 1200 people, representing 1200 families will now lose that security that allowed them to buy that over priced home, buy that new car, etc. It is a double betrayal - one of the facts, and two of the duty to be responsible not just with money, but also with people's lives. It is the ugliest of politics. It is very much like the poll fixing fiasco - government orchestrated manipulation of opinion to suit their own ends. This one involves budgets and people's lives. This one is budget fixing.