This Dam is Your Dam, This Dam is My Dam Part 2: Financialization of the Rate Payer

On March 23, 2018, economist, former senior civil servant, and voice of courageous dissent (in the face of ad hoc attacks) since the Project’s inception, David Vardy told Ted Blades that by his estimation, over the next forty or so years, the total operating and interest costs of Muskrat Falls will combine to about $78-billion.

How to get at a true feeling of the burden of such a number? The effort falls apart under the weight of it, of how we could’ve possibly embarked on a fifty year saga of financial servitude to… whom exactly, by the way?

For many, the world of global finance is a faceless obscurity. Relative anonymity among the wealthy classes who make up its institutions and marketplaces and the deliberate complexity of their workings keep it in the shadows, as frankly, the wealth and power concentrated therein is unpalatable for the public.

Even so: through the loans, guarantees, and legislation enacted by our provincial and federal governments to facilitate the construction and operation of Muskrat Falls, the global bond market (among others) has become an intimate creditor to each one of us.

MUN sociologist Steve Crocker, at FANE’s Muskrat Symposium in Happy-Valley Goose Bay this past February, spoke to how the financial structuring of the Federal Loan Guarantees secured for Muskrat Falls represents “part of a more general reorganization of the state that is taking place in many parts of the world, subordinating the living conditions of citizens to the demands of speculative finance and loan conditions.”

Muskrat Falls, you’ll recall, was sold to the public and justified repeatedly as a legacy project for the long-term future of both our economic and energy security. What we’ve watched instead become the gravest threat to both, has been directly to the benefit (in long-term returns) of financial institutions and international investors.

As Crocker explains, the measures taken by government to get Muskrat built and operational embody “changes in our political economy that are making people more dependent on volatile market forces, at the same time it ensures that in this volatility it is business and investors who are first protected from the contingencies and risks that they themselves provoke and exploit.”

Backed by the Feds (initially by Harper for $5 billion, and later by Trudeau for another $2.9 billion) and thus no longer constrained by the downgraded credit rating of the NL government, Nalcor has financed billions in public debt issuing bonds co-underwritten and co-arranged by TD Securities and Goldman Sachs, along with a syndicate of other financial institutions.

We do well to remember these behemoth financial players are among those that have kept the taps running for Nalcor, without the likes of whom the Project could not have happened. But it stands to spell out further the arrangement to which we are legislatively and contractually bound for well into the middle of this dubious century.

First, the legislation: when sanctioning the project, the Dunderdale government introduced two crucial changes to the Electrical Power Act.

The first, Bill 60, consolidated a Nalcor monopoly over the supply, distribution, and sale of energy in NL. This ensures every dollar in the province spent on electricity goes to Nalcor, while also blocking by law the future development of any and all commercial renewable energy projects. Wind power, for which I don’t have to tell you NL is a prime candidate, with the highest potential and lowest development in the country, is “essentially against the law,” as reported by researcher Nick Mercer at the University of Waterloo.

The second, Bill 61, removed authority to review consumer electrical rates from the Public Utilities Board, effectively cutting off democratic oversight and enabling cabinet to set rates wherever they see fit to cover Nalcor’s colossal costs.

This legislation set the stage for the Federal Loan Guarantee, which imposes the condition that the entire cost of the financing and construction of Muskrat Falls be recovered solely by domestic supply.

What about sales to external markets, cited endlessly by Nalcor and government, to further legitimize the project, you ask? As Crocker describes, this condition was imposed because the external sale of excess energy was deemed by investors so unreliable a source of revenue that no public or private institution had enough confidence to justify basing any of the guarantees on external sales even happening at all.

The only reliable source of revenue on which to base a schedule of loan payments, it was decided, was the people of the province themselves, paying their power bills.

So then. Newfoundlanders and Labradorians, through the anti-democratic and impulsive decision making of successive provincial governments, and as enabled and encouraged by successive federal governments, are legislatively and contractually bound to their electricity bills paying back billions in debt, and billions more in interest, to global bondholders and institutions primed to make tidy returns on our megaproject misadventure for decades to come.

In this arrangement, the very foundational modern act of using and paying for electricity funnels money directly out of the province, and if we could trace exactly where that money ends up, we’d find that in some cases, it is for example into the offshore tax havens of the superrich.

Those still with faith in the murky functionings of international finance — a faith surely unbreakable if it survived the corruption and fraud of insider trading, market manipulation and predatory lending exposed by the global recession of 2007-08 and the lack of meaningful reform or criminal consequence in its wake — will no doubt be critical of what could be perceived as a tangent I’m taking here.

So be it: in 2020, when Muskrat Falls comes online and power bills suddenly double in price, it won’t only be owing to Nalcor’s inept management, or government’s opaque sanctioning process and circumvention of oversight, nor only for a vast host of other very valid reasons. You might say, by way of a pure but rather plausible hypothetical, that another of the reasons your power bill will have doubled, is to help buy another round of yachts for the likes of Goldman Sachs, who, incidentally, just reported a $2.8-billion profit for the first quarter of this year.

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1 Comment

  • I am an expatriate Newfoundlander who tries to keep in touch with events in the province. The conclusion I drew from Greg Hewlett’s article is almost but unfortunately not, unbelievable.
    Having been trapped by global circumstances in the unfortunate deal governing the development of Churchill Falls for the past fifty years, one would think that we collectively would have learned something from that experience.
    Instead, we have made a deal for Muskrat Falls that is demonstrably worse.
    All those years of pushing back against the “Newfie joke” and all it implied; the gods must be laughing now.

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