Monday, 1 May 2017

BE CAREFUL COMPARING MUSKRAT WITH TROUBLED HYDRO PROJECTS ELSEWHERE

Site C Hydro Project, B.C.
Hydro projects underway in British Columbia and Manitoba are making waves among observers, all drawing parallels with the Muskrat Falls project. While there are many similarities, the public should be careful in concluding that Muskrat is entirely their mirror image.

Each has origins inextricably tied to gung-ho engineers, compliant bureaucrats, and politicians unwilling to subject self-serving assumptions and overbearing risk to professional and objective review. This is bad enough, except Muskrat will be forever dogged by the deceit that underscored project sanction.

We’ll come back to that point, but others are also instructive.

A relatively populous (4.6 million), economically diversified, and wealthy province like BC is capable of absorbing the waste of a few billion dollars even if the very notion is offensive. British Columbians are no less insulated from excesses of populism, dogma, and unfettered hyperbole than any other place.

More financially-stretched Manitoba, with a population of just under 1.3 million, is waking up to the limitations of political rhetoric and a fast-changing American electricity market, too.

The Site C Dam, situated on BC’s Peace River is a 1,100 MW facility, forecast to cost $8.5 billion. Manitoba’s Keeyask Dam/Bipole III TL is a $5.5 billion/695 MW project. In contrast, the $11.7 billion/824 MW Muskrat Falls project dwarfs the other two just on the cost per MW. Even the arithmetic comparison is premature because the Muskrat powerhouse is only one-half complete and its efficiency remains under a cloud, Nalcor having lost the legal right to enforce a Water Management Agreement.

That all three projects are in trouble is indisputable. Researchers at the University of British Columbia (UBC) recently issued a report calling for the suspension of Site C, arguing that current export prices would see the project report cumulative losses of $2.7 billion by 2036.

UBC researchers state that Site C “isn’t the most cost-efficient option for producing power anymore”. BC’s predicted demand for electricity, they say, has "dropped significantly".
The parallel with Muskrat is that electricity demand in this province will not reach MF sanction level estimates until 2036.

At the center of Manitoba’s and BC’s problem is also the collapse of electricity prices in the United States. The UBC authors state that the energy will be “exported at prices currently far below cost".

“We got the use if you got the juice” is a phrase that still resounds; Premier Dunderdale unmindful that she had approved the giveaway to Nova Scotia while ignoring the low returns forecast from a fiercely competitive New England electricity market.

Keeyask Hydro Project, Manitoba
Like NL, where normally sensible people went gaga clinging to Williams’ coattails, Manitoba boasted their own flag wavers. Graham Lane, a former Manitoba PUB Chair, summed up the Manitoba condition: “Ignoring major market changes and falling head over heels for everything green and indigenous, the NDP pressured Hydro into unneeded costly new infrastructure and pushed it to spend $1 billion plus to buy northern First Nations agreements offering risk-less gold-plated partnerships.”

But far more than those arrangements (Nalcor has its own Innu deal which has feathered the nest of just a few Natives) Manitoba Hydro’s failure to examine the business case for their project has led to the conclusion that even changing the transmission line -  Bipole III’s “circuitous, lengthy and enormously costly route”  - will give the province little respite from fierce competition in all directions.

Lane notes: “American utilities expect more below-cost power.” He adds: “Hydro now takes $500 million a year more out of ratepayers' pockets than before the expansion began [and] if not courageously halted by the… government, ratepayers could end up paying a further $1.5 billion annually to keep [Manitoba] Hydro solvent.”

Are you getting the picture?

Underscoring NL’s Muskrat Falls, BC’s Site C and Manitoba’s Keeyask Dam/Bipole III TL, is the absence of a full regulatory review. 

The NL government dismissed the thumbs down given by the Lower Churchill Project Joint Panel, and permitted Nalcor to ignore the PUB’s implicit warning in favour of approval from its own selection of paid consultants.

In Manitoba, a panel not the PUB was given the job of reviewing various hydro projects. It was required to treat prebuild expenses on Keeyask and a second project, Conawapa, as sunk costs.

In BC, while Site C was given an environmental assessment, the PUB was not allowed to review the business case.

It is clear that a government that wants support and approval for even risky, and foolhardy, public works projects will find a way.

In time, overtaxed consumers will tire of slogging their guts out for a short-term political purpose. Eventually they might see the value of oversight institutions, like public utilities boards. But they will learn that lesson the hard way. 

Of course, Muskrat has been grossly mismanaged from day one, too.

Other than this massive problem which Stan Marshall has failed to remedy the similarities between the Muskrat Falls project, Site C and Keeyask/Bipole III end. That is, of course, with one other major exception.

While the BC and Manitoba projects were ill-advised, it is noteworthy that, unlike in the case of Muskrat, no one has offered evidence that their sanction was a consequence of the falsification of project estimates. 

Muskrat Falls, alone, carries that stain.

Remember those words from Nalcor’s engineer who disclosed, in quite comprehensible and descriptive terms, the virus that had infected Muskrat. In a Piece entitled MUSKRAT: ALLEGATIONS OF PHONY COST ESTIMATES the engineer declared:

“I could not put up with falsifying information anymore. To begin with, the original cost of $6.2 billion on which the project was approved was a complete falsification. The estimate was deliberately kept low — below $7 billion, so as to appear favourable relative to the cost of thermal power generation.

"The likely costs were known about three years ago, but Nalcor Management kept it a secret, steadfastly denying that there were major schedule delays and cost overruns, until it was no longer possible to hide the true status with the election of a new Provincial Government.”

Now NL finds itself in a position where the project has already exceeded the “fake” estimate by $4.3 billion, including interest costs. 

Why the public is not in a state of rebellion is perplexing. It is a matter that will be debated in the province for the next one hundred years.

Whatever the reason for such deep-seated public passivity, the Muskrat Falls project will forever stand as a beacon testifying to the wilful complicity of bureaucrats and politicians, to secure the sanction that might otherwise be denied.

When you hear comparisons to Site C or Keeyask, I suggest that you not be too quick assess them as merely having “Muskrat proportions”.  

19 comments:

  1. Hello Government mismanagement certainly has a long history at least in Port Hope Simpson.
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  2. All three are testaments to the corruption of democratic process to fulfill a political agenda, not a need for power. All three required the financial case be exempted from review by the PUB equivalent in the respective jurisdiction. Two of them, Muskrat and Site C, were "lubricated" by SNC Lavalin using a formula honed in third world jurisdictions.

    I hope these plain facts that some of us have been pointing out for years are not still too much to the point to be stated plainly. When clear and incontrovertible evidence is suppressed we have collusion, either willful or the result of not being able to admit the awful truth because it shakes our assumptions about our "democracy".

    Any private utility that made horrendous financial decisions like these three projects would go bankrupt and the shareholders would take a bath (and the CEO would be fired). The three have become what Jane Jacobs called "monstrous hybrids" that are not designed to provide a service but to meet a political agenda. A short term political agenda that will cost the "chumps" the rate/taxpayer a fortune in the long term.

    The problem goes beyond a troubled project like Muskrat and runs deeper to the core of the political system and a lack of checks and balances.

    Rather than ignoring the reality and demonizing truth tellers is it not time to face the facts and the uncomfortable truths about the exalted politicians that engage in this kind of abuse of the helpless public that they keep in the dark? It is also time to stop ignoring the impacts the oligarchs in your midst are having on the culture and future of the province.

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    1. Des, it is also not clear to me that the other two projects were not subject to the same wilful understatement of the cost (and overstatement of the future demand) that Muskrat relied on to get sanctioned.

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    2. I wold take Des`s point being that Muskrat is in league of it`s own, despite some similarities with the other projects. Power from Muskrat that may be as little as 218 MW, so cost per MW off the charts, the size of our population to absorb the high cost, the question of reliability of transmission via the Alpine region of the GNP, and the most serious being the quick clay problem of the North Spur that could risk the entire investment of 6 billion for the dam and powerhouse.
      If the other projects meet the boondoggle level, Muskrat is beyond boondoggle. It suggest financial suicide. Indeed, why the province in not into rebellion as to where this is going is a mystery. It suggests blind faith in our politicians and media (who have too much played along).
      I believe Vardy compared it to the scandal of the sexual abuse by the clergy, whereby it went beyond belief that such people could be evil and commit crimes against children. The same may be at work here, that belief that our leaders, politicians, consulting firms, legal professions, and business leaders have combined their power and influence to let this happen. Ripleys`s believe it or not type of thing.
      And late last night Bernard Coffey resigned. Did he get a package for service rendered! Was he not the Oversight guy for all oversight on Muskrat. Are we run any better than Russia.
      So is Fehey now the Oversight point man.......he already says he has no mandate on the North Spur risks. Seems like no real oversight by anyone.......with Nalcor we have a moose lose, with the ability to bring down the province. Unstoppable until the money runs out.
      And what of the PUB investigation into power reliability from Muskrat that was to have been started before now.Not a word on their website. What will come first.......their assessment of reliability or the actual failure of the North Spur, or a wintertime 6 week outage by downed transmission lines on the Great Northern Peninsula.
      Wonder if Andy Wells is biding his time for his retirement pension. He has long ago lost his bark and seems more in line with those other birds of a feather.
      Wonder if Andy actually feels indebted to Williams for his appointment to the PUB, despite Williams once saying Wells needed a good shit knockin!
      Winston Adams

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    3. Winston, Undoubtedly the impact of Muskrat will be more devastating to NL with the small population and magnitude of the lies and deception of Nalcor and the politicians that needed a vanity project to slake their megalomania. Forget no water management agreement, markets for the surplus, need for the power in NL or the cost of alternatives like wind, solar and battery storage, plummeting the wholesale cost of power (now in the 4 to 5 cent KwH).

      My point is the same undemocratic processes to undermine regulatory review, overstate demand, overdesign for vain political purposes or worse and stick rate/taxpayers for the deception (57 years for Muskrat, 70! for Site C)is much the same in these projects.

      The corollary damage is the disgrace that inevitably befalls faux regulators like Coffee that accept a mission to obfuscate and legitimize the democratic perversions. Healing starts with admission of the brutal truth and accountability for the architects of the disgrace.

      On that there is still a stunning silence in NL.

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  3. I take your point, Des that care is needed with such project specific comparisons. Bruno is also correct that the commonality of political malfeasance with respect to the development of mega hydro projects is a reasoned conclusion. Note how the re-election of the NS Liberals take advantage of the Muskrat to promote renewables;
    http://www.cbc.ca/news/canada/nova-scotia/nova-scotia-power-renewable-energy-1.4092645

    Winston and others have good points regarding the continued waste of expensive hydro and renewables by pissing it away with poorly designed and constructed buildings, (MUN, Hospitals, Seniors Housing, Industrial, etc.)? Even in BC where carbon taxes are the theme, trickle down funding reigns with regard to re-engineering conservation measures to reduce energy waste. All provinces are low achievers when it comes to energy conservation.

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    1. Robert I have a bee in my bonnet today after our NS premier today touted meeting our carbon reduction goals as a result of imported MF Power.

      The reality is that we have demanded and received an exemption from the feds to keep our filthy unscrubbed plants operating til 2040 or longer. We have started mining our 7% sulfur coal to burn in the unscrubbed power plant at Lingan. Screw the acid rain and carbon emissions. Forget moving to the future of widely distributed clean generation when we can point to the Muskrat Falls boondoggle. Muskrat Falls hurts all involved,even those paying subsidized power rates(by NL ratepayers).

      Incidentally the outfit reopening the Lingan mine killed more than a dozen miners in one of their last ventures ignoring safety regulations. The robber barons are back in town. I wonder what can go wrong?

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    2. All the way back to Buchanan, NS has not been serious about the acid rain and GHG effects of coal burning. There was a rather sad but hopeful documentary on "Land and Sea" recently, noting efforts in lakes and waterways near Liverpool to increase the Loon nesting conditions. Imagine, this lovely bird is nearing extinction in some of our natural waterways. Mercury and acid rain from industrial activities, have destroyed wildlife habitat. The few jobs in coal extraction are not worth the consequences.

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    3. NS keeps asking for exemptions on mercury, carbon etc. because we are a "special case". The feds keep acquiescing even for the international mercury agreements with the US New England states. We apparently have the right to be environmental dinosaurs and pretend our poop doesn't stink.

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  4. Des, how can one reconcile accusations of incompetence and even falsification of cost estimates with the rather enthusiastic review of the Muskrat Falls project and the Engineering skill of Nalcor by Manitoba ?Hydro International?

    https://muskratfalls.nalcorenergy.com/wp-content/uploads/2013/03/Power-is-in-our-hands-fact-sheet.pdf

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    1. Rather easy to reconcile Bernard. Nalcor paid Manitoba hydro for their work.

      If you read the reports they hedge their support and warn of many of the risks. Not a ringing endorsement from one of your own consultants if you read the reports.

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    3. Thx Bruno, I only read Nalcor's resume - but is it fair to say that Nalcor's message was that MHI agreed that MF was the lowest cost alternative for NL and that Nalcor's skill was above reproach. Is it also true that MHI never made any effort to contradict that impression? FInally, isn't that part of the reason why people in NL were initially in favour of the project. I mean, how can one be against the lowest cost option?

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    4. Many were doubting the least cost option claim from the outset. It was framed to deceive from the outset...and was disputed by the informed.

      You should review the history.

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    5. The NL Govt refused to allow Solar,Wind and Gas to be included in the list of options, or am I wrong? I thought MF and OIL were the only two options allowed to be reviewed.

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    6. Wayne, that is also what I thought too, certainly I think those were the only two scenarios the PUB were asked to evaluate (that is my recollection at least). However, the folloowing link (https://muskratfalls.nalcorenergy.com/wp-content/uploads/2013/03/Power-is-in-our-hands-fact-sheet.pdf) resumes Nalcor's take on the MHI study and they seem to have evaluated a number of options. The expected cost of each is presented in a table and MHI seems to conclde that MF is the lowest cost option.

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    7. I believe DMS( Demand Side Mangement) which includes Conservation and Customer Efficiency was never assessed for Nfld, yet is very big and effective in Nova Scotia....to the tune of 40 million a year there to assist customers.
      Winston

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  5. Great piece as always and finally the real question has arisen. "Why the public is not in a state of rebellion is perplexing."? Is it really though?
    The answer to a question of this magnitude may be very very simple....tell us Des in the next post, “who specifically is making all the money on this project directly or indirectly”? Whose name is on the company's legal status and major contracts? Where is the money flowing?
    The fact may also simply be, the huge wages being paid and the money being made over a very short period with seemingly no future accountably affords many people (the chosen) the opportunity to get really rich quick, set themselves up for life and retire somewhere else, where cost of living will be less.
    It would seem in many sectors we, Newfoundlanders and Labradorean’s, have shifted from, "we can all row together to make this place better" to a state of mind, “where the arse is clearly out of her” and the level of non-accountability and perhaps corruption throughout the system is just so out of whack, the good people are now also saying, “shag it, get what you can”.
    It could also be as simple as, if someone offered you a bucket of money with $1 million dollars in it to do something that made no sense, would you take it or complain as to why you being offered it. What would most people do, shut up and take it!! Also knowing the person next to you is going to get asked the same question if you say no.

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  6. Shawn, might I suggest one reason why there is no rebellion is that as of yet there has been no electricity price increases, though MF was sanctioned in 2012, almost 5 years ago, and interest charges are accumulating with delay s on completion.
    Nova Scotia went to near rebellion with 6 successive increases that added to 30 percent over a few years. We recently had a roll back, because Holyrood used less oil and less expensive oil.
    Here we will be faced with SHOCK rake increases soon, and a levy that is really a early MF levy , as proposed by economist Feehan.
    The shit hits the fan when the bills arrive, and that is not for another couple of years. Those who see the writing on the wall, like UG readers are alarmed, but others, the uninformed, will get educated real quick when the bills arrive. Meanwhile they are supposedly working on Mitigation of rates..........it helps sooth the pain of what is coming, but will do little, being hits by both high rates, cut services and higher taxes. And those that profit big, as you say, can take their money and run. Poor Ed, only 6 million......lots of Gravy for him.
    So why complain....even Russell at the Tely says we complain, too much, and no benefit. Rural Nfld can benefit from Townies buying summer homes there, he says.......and rural towns really need that..........that is the best that Russell can offer......pitiful.
    Winston

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