"We can't allow things that are inaccurate to stand." — The Word of Our Dan, February 19, 2008.

Friday, April 15, 2011

The Year of Magical Economic Thinking

During Question Period on March 29th, the opposition grilled the nominal Premier about the projected costs of building the proposed Danny Williams Memorial Transmission Line

The blustery response to a straightforward question is worthy of reproduction in extenso:

MS JONES: Mr. Speaker, in 1998, when Nalcor looked at building a transmission line across the Island, they budgeted the cost at $2.2 billion. Fast-forward now thirteen years later and the Premier says she will build the same line for $2.1 billion. We know that over that time period steel cost has risen by more than 200 per cent, that is not to mention the increase in the cost of labour and other supplies that go into building the line.

I ask the Premier today: Will you tell us how it is possible to build a steel transmission line across the Province today for less money than it would have cost thirteen years ago?

PREMIER DUNDERDALE: Mr. Speaker, there has been extensive work done on the development of the Lower Churchill over a number of years, particularly in the last eight years under this government, under the leadership of Nalcor. Mr. Speaker, we used a gaited [sic] process that took in a very detailed analysis, we received the best expertise that was available to us in the Province, in the country, and worldwide when necessary, Mr. Speaker. More than that, Mr. Speaker, we have had two independent audits of the methodology used by Nalcor to ensure that the process is as good and the information as good as can be had at this point in time.

MS JONES: If they have had all that work done, there is no reason why the Premier cannot stand on her feet today and explain to us why there is such a difference in pricing. We know that steel prices have increased by 200 per cent in thirteen years; we know that the line you are proposing to build is only twenty-six kilometres longer, Mr. Speaker, than the line that was proposed back in 1998.

Now that you have all the research Premier, stand up and tell us why your line is going to be cheaper than it would have been thirteen years ago?

PREMIER DUNDERDALE: Mr. Speaker, the Leader of the Opposition is all over the place. Everything is going to go up. Labour prices are going to go up, commodity prices are going to go up. The only thing that is not going to go up, Mr. Speaker, is electricity. The price of electricity is not going to go up. The demand of electricity is not going to go up. Mr. Speaker, the least we could ask from her is consistency.

MS JONES: No answers from the Premier; she is out there trying to sell a big deal, Mr. Speaker, in the Province and she gets up and gets on with such gibberish in the House of Assembly. Very clear, very simple questions, Mr. Speaker; why is it that the cost that you are projecting to build this transmission line is cheaper than it would have been thirteen years ago, Mr. Speaker, given the fact that everything else has increased in cost including the price of steel? I ask the Premier to have a little decency and to stand up and explain that to the people of the Province.

PREMIER DUNDERDALE: Mr. Speaker, if you were to listen to the Leader of the Opposition, you would think that the Government of Newfoundland and Labrador is going to develop Muskrat Falls for a lark, for an absolute lark, for something to do. Mr. Speaker, we are developing Muskrat Falls because it is the best and cheapest energy solution for Newfoundland and Labrador. We are building it for the people of Newfoundland and Labrador, Mr. Speaker.

SOME HON. MEMBERS: Hear, hear!

PREMIER DUNDERDALE: That is why we are building Muskrat Falls.

Mr. Speaker, we have developed a methodology that allows us to do this in the most cost-effective way. Mr. Speaker, we have had those costs and that methodology audited by independent agencies of worldwide reputation. Mr. Speaker, they have given us high marks on the information that we have used and the outcomes that have resulted as a consequence of it, Mr. Speaker.

MS JONES: I am not sure what lark [?] is doing but I know what their government is doing and that Premier is doing and that is they are jacking up the price of electricity going into every single household in this Province, Mr. Speaker. The Premier, Mr. Speaker, claims they have had all of these audits done; we are asking a very simple question, Mr. Speaker, give us the information. So if you have had it done and you have the information that you can provide to the people of the Province that shows how you, Premier, can build a transmission line today cheaper than you could thirteen years ago, we would love to see it. So I ask you: Are you prepared to table the information?

PREMIER DUNDERDALE: Mr. Speaker, we have provided information upon information, upon information. We have asked Nalcor to provide information and they have done that in briefing after briefing after briefing. We will continue to do that, Mr. Speaker. The problem is they do not know how to interpret or deal with the information when they get it, but that will not stop us from trying to inform them about this project, Mr. Speaker.

Now, it would have been easier for Premier Blunderdale to just own up to the premise of the question and answer it fulsomely. It’s not as if inflation, or the changing costs of material and labour, are unknown quantities or anything.

Just ask Nalcor.

In its closing presentation to the environmental panel examining the Lower Churchill project, Nalcor again pours cold water on the idea of transmitting Labrador hydro power within Labrador, to eliminate isolated small-diesel generation on which many communities depend. At para. 332, Nalcor says:

The reality for many isolated communities in Labrador is that the cost of constructing additional transmission to connect them to the interconnected system is greater than the continued cost of diesel. In fact, in 2001 the Province estimated that the cost of constructing transmission lines to these communities would be in the range of $300 million. With inflation and increased costs for materials and labour, that number would be even higher today.
Now, perhaps it is the case that economics works in different, and mysterious ways, depending on which side of the Strait of Belle Isle you are on. Indeed, perhaps the cost of running a diesel plant will, by some economic wizardry, remain unaffected by the same price pressures on fossil fuels that are said to be the justification for building Muskrat Falls and its transmission line to Soldier’s Pond in the first place.

This would, after all, almost be the implication of Nalcor’s observation about the increased cost of transmission within Labrador, but without making any comparable balancing observation about any change in the cost of the alternative. In Labrador, the ledger only has one column.

Still, it would almost seem self-evident that in 2011, transmission line cost estimates prepared in 2001 would be ten years’ worth of inflation out of date.

It would thus seem to be even self-evidenter than in 2011, cost estimates prepared in 1998 would be thirteen years’ worth of inflation out of date.

But that may be the old-fashioned math that was done away with by Danny Williams and his modern calculus of Super-Duper-Mega-Projects. And the magical math that applies to the Labrador-Newfoundland transmission line does not apply to the mortal world of internal Labrador transmission calculations.

But if there is no new math, and if there is no differential application of basic economic principles, then the straightforward question from Yvonne Jones, dodged so artlessly by Premier Blunderdale, deserves a straightforward answer.

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At 11:03 AM, April 17, 2011 , Blogger Charlie said...

It's a pretty basic and important question to ask. The reluctance to give a clear and realistic answer will continue to build doubt on the whole development idea.


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