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Thursday 30 June 2016


Nalcor CEO Stan Marshall has finally provided the update on the Muskrat Falls project that Ed Martin wouldn’t or couldn’t. He reset the schedule, estimated project costs at $11.4 billion, and advised that we should get ready for electricity rates of 21.4 cents per KWh, roughly double what they are now.

$11.4 billion and 21.4 cents are frightening numbers. They must be laid against a deficit exceeding $2 billion annually, declining GDP, and the reality that we are already paying some of the highest taxes in Canada — all of which is made worse by a shrinking population.

I don’t know if the public really understands the threat the province faces, or if they derive any comfort from a weak Premier stating that he won’t let the province go bankrupt. I hope the public and Premier Ball understand that words, alone, won’t solve this crisis.

Worrisome, too, is that we have heard little more from Stan Marshall than his disturbing arithmetic.

Marshall has changed the tone around the Muskrat issue. He even concurred with the view that Muskrat Falls is a “boondoggle”. To some it is just a silly word. But no one should laugh. 

“Boondoggle” implies willful, intentional, deliberate, reckless, wanton, capricious, malicious misconduct. Pick your choice. Google the word yourself. You will find no flattering definitions.

The new CEO’s comment is tantamount to an institutional admission of dishonesty.   

In his words, the project failed “to reflect costs and obligations”; it was “too large” for the province’s demand requirements; the “capital cost estimates were really aggressive and optimistic”; “false assumptions” were employed. The project was held up by “false underpinnings”. The CEO stated “there were clearly more affordable options”.

Marshall’s words constitute a damning indictment of successive Tory Governments and of Nalcor’s senior personnel.

Yet Marshall has made no changes at Nalcor; not in consequence of this troubling (but not surprising) conclusion, or due to the massive cost overruns which have occurred.

How are we to have confidence in him that the incredulous figure of $11.4 billion will not be exceeded? Why should anyone take the figures seriously when the project is being run by the same senior management, by the same project management, and by the same group of contractors, too?

Stan Marshall has some explaining to do on that account and others.

Marshall omitted reference to several key issues with financial implications:

-        The financial impact of a loss in the Quebec Superior Court of Hydro Quebec’s challenge to the Upper Churchill Renewal Agreement. The Agreement (to which Hydro Quebec refused to sign on) has major implications for the Water Management Agreement (WMA) which sets up an energy bank to exchange power with the Upper Churchill to compensate for periods when Muskrat can’t meet demand. Muskrat has a tiny reservoir and is therefore described as a “run of river” facility.

-        No reference was made to the integrity or the stability of the North Spur which constitutes two-thirds of the dam structure. Nor did Marshall appoint an international panel of experts to review geotechnical conditions and to assess Nalcor’s remediation plan for the Spur.

-        No reference was made to major Quality Assurance problems on the project. The recent blow-out of a large concrete form, and manufacturing of flawed transmission cables, are only the most recent examples. (See:  Design Engineer Baffled By Extent Of Muskrat TL Flaw Reported by CBC)

Each of those issues could be a project killer.

To have concluded that Muskrat must proceed, without exhibiting a detailed quantitative assessment of the option, suggests that Marshall is not without his own set of blinkers.

If he wants us to trust him, Marshall will have to provide transparency regarding his decisions.

Finally, there is little comfort to be found in Stan Marshall’s claim that he is “trying to minimize the capital costs” of the project and is “attempting to identify other opportunities to bring down” the anticipated rate of 21.4 cents per KWh for Muskrat power.

On the surface, that seems laudable. But the public would be foolish if it failed to realize that nothing is for free.

We should be concerned what Stan Marshall has been authorized to trade in order to reduce the financial burden. We need to know the public policy implications, short and long term.

One can expect Nalcor not to pay the Government dividends or even the interest on the debt raised for Muskrat.  The fiction, of course, is that the savings to ratepayers will be suffered by taxpayers — as if they can be distinguished. For that bit of fiction, you can expect fewer services and reduced program funding in aid of a “boondoggle”.

If Stan Marshall taps the Federal Government — as he proposes, ostensibly for additional loan guarantees — then the debt of an already heavily indebted province will be compounded.

Marshall says he is meeting with Emera of Nova Scotia and Hydro Quebec. Talk won’t be cheap with either of those entities, as history has shown.

Hence, we need to know what the implications of any proposal are, before new ink is applied to any agreement. Whether the trade-off is the Upper Churchill Contract (it had better not be!), the sale of equity in Muskrat, or any increase in the public debt, the public has a right to know first, not last!

Stan Marshall undoubtedly has the best of intentions. But don’t assume that he will give public policy issues the same weight that you will.

And his estimate of $11.4 billion is not a cap. It’s just another estimate derived by a group of people who consistently underestimate their own incompetence.

Unless Stan Marshall begins to describe fundamental changes taking place under his watch, my  suggestion is: don’t throw away those calculators just yet!