DARKNL: IT WAS INCOMPETENCE STUPID

When CBC Morning Show Host Anthony Germain invited this blogger to come on the Show and discuss the Public Utilities Board's release of its September 29th Report entitled "Supply Issues and Power Outages On The Island Interconnected System"  - on the root cause of DARKNL and other major outages on the Island transmission system - I could not say, no! Nalcor, the Tories, and most recently Premier Ball, want to hold onto the narrative that covers everyone's derierre - except the public's. That's the old "aging assets" excuse. Sorry folks, that won't do. 

Germain is a demanding interview; he reads this stuff. I like to prepare by writing out answers to possible questions. I usually end up with more material than the interview can afford - which I suppose is not a bad thing. Imagine if I ran out of things to say!  

Still, I thought that Uncle Gnarley readers might want to see a little more detail on what the PUB said in its Report - which would have been better titled "Who Is Responsible for DARKNL?"  So, what Germain asked and what he didn't - you get to read it all. Oh joy!

Has anyone learned anything from two years of investigation by the Liberty Consulting Group, and from the PUB’s Report? Does it matter that DARKNL was not the fault of aging infrastructure? Did Liberty and the PUB convince anyone that the power blackouts resulted from poor management practices and the "operating culture" at Nalcor and NL Hydro? 

With the lights back on and the heat cranked up this may not be the sexiest topic in the morning - any morning - and Nalcor is counting on that. 

So, for that reason, and because the problems at Hydro and Nalcor generally remain a pressing public policy concern, thanks again for the invite Mr. Germain. - Des Sullivan

Notes - Interview with CBC Morning Show Host Anthony Germain

October 5, 2016

1) When the PUB says there are issues with regards to hydro's 'generation asset   

    management'... what does that mean?

Essentially it means that the outages - which occurred in January 2014 - were caused by Hydro’s failure to effectively plan for demand on the system and a failure to manage its physical assets - like Holyrood and Hardwood and other thermal assets.

Back in January, 2014 - when the lights went out - we were told by Nalcor and Hydro management that the problems were related to aging assets. That wasn't the case. And for a long time the public have been kept in the dark about what really happened. Based upon a lengthy investigation by the Liberty Group and follow-up by them, the PUB is able to tell us the truth. According to the PUB:

- the rotating outages which began on January 2, 2014 were caused by a 

  shortage of power to meet demand;  

- then, it states, the extended outages, which began on January 4, 2014 were 

  associated with transmission system failures and  equipment failures - In a 

  nutshell, the PUB states those failures were caused by deficient   

  management and deficient maintenance.

In the PUB's view Hydro’s management "did not meet the standard of generally accepted sound public utility practice."

2) What, if anything, has changed or improved at NL Hydro?

The PUB Report states that "A great deal of work has been done since the January 2014 outages" .... but it says that with a big caveat.  

It states: "Hydro has not fully addressed the recommendations set out by Liberty in its March 2015 report"....

More than two years later, the PUB says it still has concerns about Hydro’s transmission and generation and what it calls asset management execution, operating culture and the adequacy and reliability of supply. For example:

- Liberty notes ongoing problems with Hydro’s thermal fleet, Holyrood (2x170 MW, 1x150 MW), Hardwoods C.T. (50 MW), Stephenville C.T. (50MW).

- The Consultancy found Hydro’s load forecasting procedures outdated and likely to underestimate peaks in demand compared to approaches used by large utilities in North America…Liberty takes a more conservative approach demand forecasting…..

BUT: The PUB says it is not satisfied that Hydro has made real progress in addressing the systemic issues that contributed to the outages in January 2013, January 2014, and March 2015 and therefore will review this matter as part of Phase Two of this investigation."

3) The report also says there are problems with NL Hydro's "Operating Culture"... what does THAT mean?

The PUB called it a systemic issue - Operating culture relates to Hydro’s management practices, its approach to mitigating problems, how it strives to meet the Corporation’s mandate.  On a more specific level “operating culture” is about Hydro’s diligence about its maintenance and operations programs, quality control and outage mitigation procedures,  the adequacy of its training systems – and ultimately the diligence with which it pursues its role as a public utility.

Concern over Hydro's operating culture led Liberty’s Group's president - who gave testimony during Hydro’s general rate application in 2015 - to question whether there had been sustained and effective change at Hydro.

Furthermore, Liberty’s Phase Two report confirmed that “many of Hydro’s past issues, including the major outages in 2013 and 2014, and 2015, were as much or more due to organizational issues as they were due to system inadequacies.”

Liberty said it is essential that Hydro develop a plan to address those issues.

The Liberty Group also administered Hydro a number of tests regarding whether it made prudent decisions in the course of managing the Company. It was following this examination that the PUB refused to permit Hydro to levy what it deemed to $26.9 million in unnecessary and avoidable costs.

************************************

P.54 of PUB Report

Hydro’s deferral of preventative maintenance was imprudent ....

weakness in Hydro’s supply planning….

Hydro failed to take action in relation to black start capability at Holyrood until directed by the Board in October 2013, even though Hydro had identified it as critical.

The widespread outage in January 2013 was associated with Hydro’s failure to conduct its own testing to demonstrate that the lube oil system worked as intended and to verify that the required test was performed by its contractor and Hydro had still not addressed the ongoing risk of common mode failure of the lube oil system.

****************************************************

4) QUOTE: The board believes that Hydro let down its customers and the people 

    of this province who collectively will bear the significant financial burdens 

    associated with these failures…What ARE those costs?

When there is an outage of more than a few minutes, everyone pays...

- school closures resulting in additional day care costs

- business closures

- loss of income, lost productivity

There are longer term costs, too:

- frequent or lengthy outages cause a loss of confidence which could affect investment 

  in the province

- people are motivated to purchase alternative sources of heat and electricity 

  i.e wood stoves and generators – robbing purchasing power for other   

  needs…  

- when any system is allowed to deteriorate it often costs more to get it back to 

  a high standard than if it were well maintained in the first place.....

…and there's only one group of ratepayers to pay for all of it….

5) The PUB concludes that the flaws on which it reported "pose a continuing threat to the adequate and reliable supply of power on the Island..." Is the PUB suddenly relevant again... why are we seeing this kind of muscle-flexing now?

The PUB has always been relevant; it is an important institution in the province...as the regulator of electricity transmission system and for its role in levying rates which meet the lowest cost requirements of the Electrical Control Act under which it operates. 

Following DARKNL it ordered this investigation. This Report is its first specifically in response to investigations and three Reports – so far- by the Liberty Consulting Group over a two year period.

In fact, it is the only institution that has had the courage not to comply with Government's expressed wishes...and I'm thinking of Muskrat here, which it refused to endorse.

The public will hear more as the PUB gets into Public Hearings regarding Phase II of its investigation which will largely deal with reliability and security issues in the post-Muskrat Falls era.

6) Concluding comment:

The public should demand accountability from NL Hydro regarding the PUB’s damming indictment of its operations. The Provincial Government, including the Minister of Natural Resources, should end their cone of silence – start governing, begin responding - describe for the public the actions Hydro is taking respond to the PUB's concerns about it laxidaiscal approach to utility management - prove that corrective action is being taken to prevent a repeat of the worst and most costly electicity failures the Province has ever experienced.

Premier Ball did tell reporters following the Liberal fundraiser last week that he isn't as concerned about DARKNL as he was a few months ago. 

The Telegram reported the Premier saying "with the province's aging electricity-producing infrastructure....Muskrat has been even more problematic with ....the delay in getting to reliable power". (my emphasis).

Imagine if the Premier had read the PUB's Report....and discovered that the problem is NOT THE AGING ASSETS but Hydro's managers and the poor "management culture" they have inculcated into that Utility.

And if only he knew it's the same "culture" that is managing Muskrat Falls!