The Uncle Gnarley Blog has a new website. Click here to visit to view the latest posts!

Monday 1 May 2017


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”.