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Thursday 9 February 2017


 Guest Post Written by David Vardy

The evidence is mounting that the Muskrat Falls project was ill-conceived and badly executed. Sadly there is also a growing body of evidence that the mismanagement of the project has been compounded by practices that are ethically questionable. They cry out for nothing less than a judicial inquiry into these practices and into the myths that were proclaimed as facts.

The Case for Muskrat Falls
The Muskrat Falls project lies at the heart of the financial dilemma facing the province. What was proclaimed as a “strategic investment” has become a financial and environmental disaster as well as an existential threat to our sovereignty. Why have we allowed this to happen, plunging the province into an abyss of debt, and into spiraling population decline?

There were three arguments for this project. Each has been debunked as urban myth.

Rising Demand for Electricity: The First Myth
The first myth was the rising demand for electricity.  Minister Jerome Kennedy said we needed the power, and Muskrat Falls was the least cost option – based on a forecast of $150 oil. The June 24, 2016 project update by CEO Stan Marshall presented a revised load forecast dramatically lower than the one on which sanction was based in December 2012. The load that was forecast for 2020 will not now be reached until 2036. The new Nalcor forecast recognizes for the first time the effect of consumer behaviour in substituting other energy sources when electricity prices rise significantly as a result of this project. Apart from the demand from the Vale smelter, loads have been virtually level over the past 15 years, and the declining population projected by the Department of Finance provides no basis to expect any increase.

Replacement of Holyrood thermal plant: The Second Myth
The second myth was the replacement of the Holyrood thermal plant. The PUB investigation into supply issues and power outages confirms the necessity for a large block of emergency power to be located on the Avalon Peninsula after interconnection. The Avalon is where most of the load is concentrated, and it can be easily isolated by extreme weather conditions from the lines from Muskrat Falls and from Bay D’Espoir, as well as from any emergency power from Nova Scotia. Even after interconnection there will still be a need to upgrade or replace the Holyrood plant. Muskrat Falls was never an alternative to Holyrood, which will continue to be needed.

By-passing Hydro-Quebec: The Third Myth
The third myth is that Muskrat Falls gives us an alternative path for power from Gull Island or Churchill Falls, thereby strengthening our position with Quebec. This myth has been propagated by political luminaries but has no foundation in fact. The reality is that the transmission lines are sized to carry only Muskrat Falls power, with a capacity of just 900 MW. The Maritime Link has a capacity of 500 MW. If we are to gain access to the full capacity of the Upper Churchill (5,428 MW) we will need new transmission lines and new submarine cables across both Straits in order to bypass Quebec. There will be no savings! Furthermore, by building Muskrat Falls we will have satisfied future demand for power on the Island, making it impossible for consumers to benefit from low cost Churchill Falls power when it is available.

Warning from the Joint Federal Provincial Environmental Panel
Both the federal and provincial governments ignored the warning from the joint environmental panel who told us in August of 2011 that “The Panel concludes 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.” (Joint Panel report page 34).

Warning from the Public Utilities Board
Instead of a robust inquiry by the PUB, in pursuit of its statutory mandate to ensure that new supplies are “lowest possible cost consistent with reliable service”, the Board was presented with an impossibly short timeframe and could not review a full range of alternative sources of power. Instead it was told to pick between two options only.

The provincial government ignored the advice from the PUB which concluded that “The Board concludes that the information provided by Nalcor in the review is not detailed, complete or current enough to determine whether the Interconnected Option represents the least-cost option for the supply of power to Island Interconnected customers over the period of 2011-67, as compared to the Isolated Island Option.”

By exempting the project from the Board’s jurisdiction the PUB was prevented from discharging its statutory duty.

No Business Case for Project
Having failed to “capture” the joint panel and the PUB the proponents contrived a business case by bold-faced manipulation. Government commissioned a number of consulting studies to buttress their business case but none of these were tested by cross-examination by experts in a public hearing. Instead these studies were a desperate flurry of activity to validate the project, which was built on a foundation of sand, with questionable assumptions including future escalation of oil prices beyond US $150 a barrel. At the time there were many warnings of the impact of the “shale gas revolution” but these were ignored by our “world class experts” in the euphoria of building our “Energy Warehouse.”

Royal Commission Needed
The Muskrat Falls project has escalated from $6.2 billion in 2010 to $11.7 billion today, based on Nalcor estimates. The project will double the public debt, and place a burden of $22,000 on each man, woman and child. My expectation is that it will escalate to $15 billion; the cost per person will then be $28,000 and in excess of $100,000 for a family of four.

We must have a Royal Commission of Inquiry into why this project was sanctioned and why Nalcor was given extraordinary powers, to circumvent the Public Tendering Act, to restrict access by the Auditor General and to limit public access to information. Deliberate policy decisions were taken to shield the project from proper oversight.

A great American jurist, Justice Louis Brandeis, once said that Sunlight is said to be the best of disinfectants; electric light the most efficient policeman. As has been documented by the undersigned previously on this blog, there has been little sunlight or oversight to instill confidence in the management of this megaproject. Without oversight the darkness has deepened.

The Royal Commission must have full powers to subpoena witnesses and evidence. The inquiry must explain why the Astaldi contract rose from $1.1 billion to $1.83 billion and who is bearing the cost of the aborted canopy over the project, reported to cost $120 million. It must determine who is bearing the cost of the transmission lines which had to be taken down and replaced because of a defective strand. And it must determine the truth concerning the allegations that the initial cosr estimates were falsified.

Such an inquiry will be commissioned only if the people of the province speak out and demand it. Citizens will make such a demand when they learn that the case for building Muskrat Falls was a fabrication from the beginning and that the cost estimates were manipulated to ensure an early decision to sanction.

The question the Royal Commission must answer is: Why did Nalcor and the government deceive us at the time of sanction and then mislead us for the following four years? This question must be answered before ratepayers receive their first bill for Muskrat Falls power. The government is playing with fire if they think people will endure power rates exceeding 21.4 cents without vehement public protest.  

David Vardy