Guest Post by Ron Penney
The following are two segments containing speaking notes from my presentation to the Wessex Society on October 14, 2020. A third part, dealing with the Province's democratic deficit, will be posted on Monday, November 23. The presentation is available at the Wessex Society of Newfoundland,
Setting the Stage:
Unfortunately the delayed release of the Muskrat Falls Inquiry Report on March 5 of this year coincided with the worst public health crisis since the Spanish flue of 1918, which had the effect of dampening public interest in the report and its conclusions. So aside from a few interviews in March this is the first opportunity given to me to comment on the report in some depth.
The main thrust of my lecture is to deal with a fundamental issue which the Commissioner declined to examine, which is what democratic deficits in our society allowed “a Misguided Project”, to proceed.
A couple of quotes:
“There is a low tolerance for dissent in Newfoundland”. (Former NL senior public official)
This was said to my fellow naysayer, Dave Vardy, and I in the spring of 2011.
“Dissent is the highest form of patriotism”. (Attributed to Thomas Jefferson but more likely associated with the opposition to the Vietnam war.)
Our dissent was framed as unpatriotic.
The lobby group formed to support Muskrat Falls had as its mantra “we believe in the power of Newfoundland and Labrador”.
The Commissioner quoted from Mr. Williams testimony at the inquiry. “So the bottom feeders who go out and try and disparage our people and state that they’re not world class, I think, do a serious injustice to the people in the province.”
How dare anyone question our “world class experts”!
Democracy only flourishes if there is informed public debate.
Most informed citizens now accept that the Muskrat Falls project is, by a large margin, the worst public policy decision made in our history.
Myself, Dave Vardy, and Des Sullivan, formed the Muskrat Falls Concerned Citizens coalition with the purpose of seeking standing before the Inquiry. We were joined by over 150 others.
I would be remiss if I didn’t point out the incredible contribution made to this debate by Dave Vardy, whose experience as Chair of the Public Utilities Board, as a senior public servant, including being Clerk of the Executive Council, and his training as an economist, along with his incredible work ethic, made him the preeminent naysayer.
We were granted standing and, as a result, given the opportunity to make a presentation on the terms of reference, where we urged the Commissioner to examine the democratic deficit which allowed this misguided project to proceed. The Commissioner declined, obviously feeling that he had enough on his plate without attempting to deal with that broad issue.
But, as I will point out later, he did deal with the issue somewhat, because of certain events which occurred during the inquiry hearings.
Now why did we, and a few others, become “naysayers” at the very beginning of the project.
In my own case It was because of my experience with large projects when I was with the City. Both Mile One and the Riverhead Sewerage Plant had large overruns over their initial budget. Bespoke projects often do.
So I suspected that the same thing was likely to happen with Muskrat Falls.
I also felt that using the “Anglo Saxon” route to export power, attempting to bypass Quebec didn’t make economic sense.
And, most importantly, the end of the Upper Churchill contract in 2041, was ignored.
Unfortunately I was right on all accounts.
My own personal situation allowed me to become a “naysayer”. And my personality is such that I could not stay silent. I wrote my first letter to the editor when I was 19!
I had retired in 2011, just after former Premier Williams had announced the project and then quickly retired from public life. If I had continued as City Manager I couldn’t have taken a public position because of the impact it might have had on the City.
And, just as importantly, I felt that my family wasn’t vulnerable should I decide to go public with my concerns.
Like it or not, we are highly dependent on government and many of us are, rightly or wrongly, concerned about reprisals should we dissent. The public sector represents over 27% of employment here as opposed to 15% in Alberta. And most professional services and contractors depend on government work.
Initially Dave Vardy and I worked behind the scenes. The major initiative we took early on was to ask the Government, through the then Minister of Natural Resources, Shawn Skinner to lift the exemption of the project from public utilities board review and approval.
When the Lower Churchill was an export project that exemption made sense, because the ratepayers wouldn’t have to pay for the project. While Muskrat Falls has a large export component, the ratepayer was going to be responsible for the costs of the entire project. Initially export revenues, as tiny as they are likely to be, weren’t even going to be used to help the ratepayers! So it then became a domestic project which should have required PUB approval.
We had some limited success, as the Government decided to refer the matter to the PUB for its advice on whether it was the least cost alternative. The PUB was refused an extension to provide its advice so it could have the latest cost estimates and declined to endorse the project, much to the annoyance of the Government. My fellow naysayer, Dave Vardy, and I made it a point of attending the House of Assembly when the PUB report was released. To be honest it was knowingly provocative for us to attend and our provocation was successful. If looks could kill ....
What triggered a more public dissent from us was the refusal of the government to grant the extension requested by the PUB.
One of the key points in our first letter to the Editor was that we had heard private concerns from other knowledgeable citizens about the wisdom of the project and urged them to step forward as we had. They didn’t and the rest is history. More dissent might have made a difference but we will never know.
I will reflect more on that subject later on after reviewing the major findings of the Inquiry but before doing so, I wanted to remind you of a previous report on the project from the Joint environmental panel.
It reported in August, 2011, and one its conclusions was “that Nalcor’s analysis that showed Muskrat Falls to be the best and least cost way to meet domestic demand requirements is inadequate and an independent analysis of economic, energy and broad-based environmental considerations of alternatives is required.”
This was never done. The fix was in.
The title, “ Muskrat Falls: A Misguided Project” sets the tone for the Report.
I want to congratulate the Commissioner and his counsel on the conduct of the Inquiry and the final report and to thank our own legal counsel, Geoff Budden, for his work for the Coalition.
It was a tough slog for all of us and it is worth pointing out that we were volunteers and were faced with a difficult task to prepare for each days testimony. In most cases we only received the witness interviews the day before witnesses were due to give testimony and we were also faced with the impossible task of reviewing millions of pages of exhibits sent out on a daily basis. We were overwhelmed. I should acknowledge the help of a small band of private citizens who assisted us.
The report will stand the test of time as the definitive statement on the project.
On to the major findings:
1. The Government “had predetermined that the Project would proceed. In so acting, GNL failed in its duty to ensure that the best interests of the province’s residents were safeguarded.”
2. “GNL had no capacity or strong inclination to oversee Nalcor. Instead it placed its faith and trust in the Crown corporation it created. Nalcor exploited this trust by frequently concealing information about the Project’s costs, schedule and risks.” Most notably the latest cost estimates of the project, which were $300 million more than the previous estimates were not properly communicated to the government nor the Board prior to financial close, which was the last time the project could have been stopped.
3. In selling the project as the lowest cost option “ the alternatives to it were not fully explored and some were discarded for unjustified reasons.”
4. “The cost estimates for the project were knowingly understated in several ways, resulting in a budget that proved to be inadequate as soon a bids for major contracts were received.”
5. “To a significant extent the culture and processes at Nalcor were shaped by its first Chief Executive Officer, Ed Martin.
I was recently reading about business leaders who have supreme self confidence and how that self confidence, even if misplaced, infects an organization and everyone else develops the same characteristics.
This accurately describes Nalcor. I privately described Mr. Martin as the most dangerous person in NL. What I meant by that is his combination of supreme self confidence and a silver tongue would likely result in a very bad public policy decision. Unfortunately I was right.
I also said privately that before Mr. Williams left public office he was going to make a very bad public policy decision and that it was likely to be the Lower Churchill. Right again.
With respect to Mr. Martin, one important fact did not come to light in the Inquiry, because we were precluded from asking questions of a former VP who had been fired, was about the first thing Mr. Martin did when he took over.
He fired eight of the most senior Hydro VP’s and Directors with over 200 years experience collectively in the Hydro business, just before we were about to commence the largest hydro project in our history.
The result was that, to quote the Commissioner, “all of the core members of the PMT came from the oil and gas industry.” Hydro expertise was substituted by limited oil and gas experience. None of them had extensive project management experience.
A number of alternatives to Muskrat Falls, such as waiting for the end of the power contract in 2041, which was the option I and others advocated “were screened out using questionable justification....”
Others improperly screened out were imports from Quebec, Grand Banks natural gas, liquified natural gas, additional wind generation, small hydro and conservation and demand management.
Conservation was a pet peeve of mine. Our problem is the widespread use of electric baseboard heating. My view is that we could have avoided peak winter demand by shifting to heat pumps, financing them and recovering their cost from the reduction in electricity use. That was given no consideration.
Dave Vardy and I advocated that the exemption of the project from PUB oversight be rescinded. We were unsuccessful but achieved a partial victory with the reference question to the PUB. A requested extension so that the PUB could consider the latest estimates in answering the reference question was denied. The PUB said it could not conclude that Muskrat Falls was the lowest cost alternative because it didn’t have those estimates.
We, and others, also asked the PUB to conduct an inquiry into Dark NL, which they did. More importantly, we, supported by NL Power, asked that the PUB extend its inquiry into post-Muskrat Falls reliability, which they also agreed to do. That work, which continues, has also revealed a lot of information about that issue.
Contrast this with what happened in Nova Scotia where there was an unfettered review by their Board of the involvement of Emera in the project.
The exclusion of the PUB is not unique to NL. It also happened in Manitoba with their Bipole - 3 transmission project and in BC with the equally controversial Site C project.
There is an outstanding important and potentially very costly outstanding issue and that relates to reliability. The Commissioner concluded that “there is a reasonable likelihood that additional costs will be incurred to ensure that there is adequate reliability for Island ratepayers, and, in particular, those who live on the Avalon Peninsula. It is clear that Nalcor did not communicate this reality to GNL when it was seeking sanction for the Project”.
You can add another billion dollars to the $13.1 billion latest estimates to pay for that!
There was lots that went wrong and continues to go wrong on the construction side as the date for completion lies well into the future, increasing the cost of the project by $50 million in interest costs each month. Software issues and problems with the synchronous converters continue to bedevil the project with no end in sight.