Guest Post
by David Vardy
Summary of
Submission to BCUC
This is a
summary of my detailed submission entitled "Site C and Muskrat Falls Compared" made to the British Columbia Utilities Commission relating
to their inquiry into Site C. This inquiry was initiated by the new NDP
government of BC and is directed towards the determination of the costs of
continuing, suspending or terminating the project.
In both
provinces there were joint federal provincial environmental reports. In each
case the joint panel recommended further detailed financial and economic
analysis to confirm the wisdom of proceeding, recognizing that no strong
business case had been presented for either Site C or Muskrat Falls. Both
provincial governments proceeded with little deference to the advice from the
joint environmental panels.
In a
Telegram article dated May 25, 2013 the Honourable John Crosbie said that
“Muskrat Falls is worth the risk”, quoting T. S. Eliot on the subject of risk:
Only those who would risk going too far can possibly find out how far you can
go. Since then we have sailed on a sea of risk and reaped the whirlwind. In
Newfoundland and Labrador (NL) the challenge now is to prevent the risks from
destabilizing the provincial economy. The risks of operating the project may
prove to be just as daunting as those of building it, due to the impact of high
power rates. The incidence of these power bills is likely to be placed on those
with the least ability to avoid the burden, namely residential customers.
Also
included in the risk of Muskrat Falls is the risk of landslides and earth
movements in a one kilometre long hill known as the North Spur which is a
natural dam which encloses the new run-of-the-river reservoir. This summer a
graduate student released a thesis which concludes that that the rise in the
water level from 17 m to 39 m may trigger a landslide and that the “North Spur
does not form a safe and reliable part of the impoundment wall.” Both projects
have an impact on the population living close to the generation sites and
impose environmental risks that need to be mitigated. The risk of dam breach is
common to both projects, along with methylmercury contamination. These risks to
human safety must be given absolute priority in reviewing the implications of
the options at issue in the BCUC inquiry.
People
living close to the Muskrat Falls site have insisted on the need for an expert
geo-technical panel to confirm the safety of the natural dam, which is
underlain by sensitive clays which threaten to liquefy, placing residents and
workers at risk, along with the capital investment. The government of NL has
accepted Nalcor’s assurance that the dam is safe. The NL experience suggests
that stronger environmental oversight is needed, along with mechanisms for
monitoring and community liaison and for complaint resolution, independent of
the project proponent.
Both
projects were exempted from the jurisdiction of their respective public utility
board, preventing the utility boards from fulfilling their mandates to protect
ratepayers by making decisions based on detailed assessments of alternatives.
Both
projects are being financed in unorthodox ways. Both impose costs on future
generations, drawing upon 50-70 year time horizons for repayment. Not only is
the financial structure for Muskrat Falls complex but it violates fundamental
principles relating to the need for arm’s length relationships between a
regulated utility and related companies (including the parent company). The
take-or-pay power purchase agreement (PPA) between NL Hydro and its parent
company, Nalcor Energy, is the pivot around which the deal is contrived.
The contract is a Power Purchase Agreement which commits NL Hydro, a regulated utility, to buy Muskrat Falls power from Nalcor Energy, its parent company, and prevents NL Hydro from purchasing lower cost energy in the market. NL Hydro is compelled by extraordinary provincial legislation enacted in 2012, pursuant to the federal loan guarantee agreement, to purchase power only from Nalcor.
In both
cases the proponents are crown corporations which were mandated to build
megaprojects embraced as legacy projects by their political masters. Both
provincial governments have given their energy corporations a broad mandate but
fettered their public utility boards by limiting their powers.
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| Artist's Rendition Site C Dam, B.C. |
The Liberal
government of NL inherited the Muskrat Falls project from their Progressive
Conservative predecessors. The project was announced by Premier Danny Williams
in 2010 and sanctioned by Premier Kathy Dunderdale in 2012. The Liberal
government of Premier Dwight Ball, which took office in December 2015, has
resisted calls for an investigation into the merits of stopping or suspending
the project. Prior to sanctioning the Muskrat Falls project the
Dunderdale government presented a reference question to the NL PUB, a more
limited question than has now been given to the BCUC, one which strictly limits
the alternatives under consideration. The PUB concluded in its report to the
government of Premier Dunderdale that the cost estimates and other supporting
projections were too imprecise for them to offer an informed opinion, having
asked for additional time to review revised and updated cost estimates, based
on more detailed design work. This request was refused.
In NL there
has been a call for a public inquiry into the escalating costs of Muskrat Falls
and for a forensic audit to review allegations that cost estimates were
falsified deliberately in order to secure project sanction. Government’s
response has been that any public inquiry should wait until the project is
completed, a position rejected by most critics.
There has
been a public debate about Muskrat Falls but many knowledgeable people have
refused to engage openly in the dialogue. In a province where government plays
a large role there has been a “fear factor” as people have been reticent to
speak out for fear of retribution by government and by Nalcor, which can take
many forms. Some people are concerned that the careers of their children may be
jeopardized. In a community where Nalcor employs many engineers and engineering
companies there is a concern about being blacklisted. I suspect this is not as
big an issue in BC.
My
submission provides a comparison of the two projects, along with a more
comprehensive overview and analysis of the Muskrat Falls project. In my
executive summary I offer the BCUC a list of 14 recommendations, of which the
top six are as follows, beginning with human safety as an overriding priority.
1.
The BCUC must be guided by the policy objective of ensuring a reliable supply
of power at the lowest cost possible. Yet they must also keep in mind an even
higher social goal, which is to ensure the safety of those affected by the
project, both those working at the site and those living in its vicinity.
People living close to Muskrat Falls have become convinced that the project
poses a danger to themselves and to their way of life. They are concerned that
the North Spur may collapse and cause a dam breach that may threaten their
lives and they are concerned that their country food will be poisoned by
methylmercury.
They have
learnt a great deal more about these dangers and they have received no
reassurance from government or Nalcor to allay their fears. They are not
satisfied that the environmental oversight mechanisms are sufficiently
independent of the proponent and they are disappointed that the independent
oversight mechanisms recommended by the joint panel have been compromised. They
have learnt that the only way to make their voices heard is to protest and
occupy the site and they have been arrested and incarcerated because of such
protest.
On May 9th,
2017 a petition to government signed by over 1,000 people was presented asking
that a panel of geotechnical experts be appointed to review the North Spur
remediation work to ensure that the dam will be safe but no response has been
received.
My first
recommendation is that the BCUC recognize that where human safety is at issue
the precautionary principle must be followed, giving deference to those who are
at risk. This means that people must have an independent authority to whom they
can go to seek solutions, whether the problems be risk of dam failure or poison
in their food.
2.
Beware the lure of jobs and the lobbying efforts of contractors and consultants
to keep the project going! The terms of reference for the Site C inquiry
include the words “advise on the implications” of continuing, suspending or
terminating the project. The BCUC should focus on supplying reliable energy
safely, at least cost, and not on the economic development or employment
“implications” of the project. Project proponents emphasize the number of
jobs created without disclosing the fact that the cost per job is very high,
the leakages from the local economy enormous and the jobs are short term.
3.
In order to avoid nasty surprises it is best to avoid committing to a project
unless a high level of engineering design has been done to anticipate problems
and to build a high level of confidence in cost estimates. In the building of
Muskrat Falls a lot of engineering work was left to be done after the project
was sanctioned. The level of engineering design completed was not sufficient to
provide reliable estimates prior to consideration by the NL PUB and in advance
of sanction.
4.
Do not overbuild the system. Build accordingly to your need and ensure that the
system is as adaptable as possible. This is particularly important in an era of
rapid technological change. For NL, Muskrat Falls was far too large for our
needs and far too expensive.
5.
Financing mechanisms should be as transparent as possible. In NL the financial
arrangements surrounding Muskrat Falls are so byzantine that they are difficult
to comprehend.
6.
Seek input from all parties and prompt reticent stakeholders to participate,
even if they fail to register or file evidence. In the case of the 2011-12 PUB
hearing in NL one of the major players remained silent, namely Newfoundland
Power (NP), a Fortis subsidiary, which is a regulated, investor owned utility
with a mandate for the distribution of power to most of the Island’s
population. Their failure to participate denied the investigation access to a
vast reservoir of expertise. NP manages the interface with the customers who
consume power from Nalcor’s subsidiary, NL Hydro, a regulated company which
generates most of the power and operates the high voltage transmission system.
This interface places them in a good position to advise on growth in consumer
demand for electricity.
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| Artist's Rendition Muskrat Falls, NL |
While there
are many lessons BC can learn from our mistakes it is vital, even at this late
date, that we emulate the BC model by examining the wisdom of continuing with
the project in its present form, given the fundamental change in energy markets
and the massive cost escalation experienced in building Muskrat Falls. Perhaps
we will discover that the value of the generation component, as measured by the
sales revenue it will produce, will be far below the remaining cost to complete
it. If so, the analysis may reveal that the generation component should be
suspended or terminated.
David Vardy
