“… I'm Paul Humphries, manager of system planning and ultimately the decision on the requirement to move forward and the alternative for the best alternative, and the determination of the cumulative present worth of those alternatives is the responsibility of my department.”
The Cumulative Present Worth (CPW), to which Mr. Humphries refers, is a methodology used to discount to present value, for comparison purposes, the Isolated Island and the Muskrat Falls options. Of course, the calculation is meaningless if the inputs used aren’t prepared rigorously. In such a case, the boosters of the preferred option always win.
Critics believe that Nalcor favoured the Muskrat Falls option from the beginning. They argue that bias crept into multiple inputs including the project estimates, the oil price forecast, and the value of conservation and demand management programs — all of which would have negatively impacted the CPW in relation to the less-risky Isolated Island option.
Based upon his testimony, Paul Humphries may have held preconceived notions regarding the effectiveness of conservation and demand management (CDM) programs as well as the importance of interconnectedness which, ostensibly, all except island grids have achieved. Unfortunately, his views were not tamed by considerations of cost or risk, even if an interconnected grid - with the mainland - makes sense from a strictly utility perspective. The thinking likely fed into a disposition held by a management team at Nalcor in favour of the Muskrat Falls project.
There are several posts that could and should be written on Mr. Humphries’ testimony including the lack of consideration given to variability in the demand forecast, how it was derived, and his seeming failure to challenge the forecast prior to Nalcor undertaking a megaproject.
Only one position taken by Mr. Humphries will be challenged in this post. That is his exclusion of potential CDM savings from the CPW for the Isolated Island option. Remember that this option included small hydro, wind and the refitting of Holyrood with Combined-Cycle Turbines (thermal).
In contrast to the Interconnected option (Muskrat Falls), the Isolated Island option would have afforded Nalcor the opportunity to add energy capacity slowly — as growth in demand warranted additional investment.
But, as noted, Humphries sought interconnectedness. He argued that larger grids are also stronger, adding that there are “lots of interconnections. Lots of reserves.”
Humphries did acknowledge , however, that the maximum load that can be returned over the Maritime Link, during an emergency, is 300 MW. He could not be certain either who would produce that power nor how the Nova Scotia block of power, committed under the MF deal, would be replaced.
Humphries offered no view of the cost vs. benefit of interconnection. More striking for a systems planner, he failed to acknowledge that the best security is found when power generation capacity is located close to the demand — in this case, the Avalon Peninsula.
Mr. Humphries held strong views, and on a human level one might wonder if his was a closed mind that helped reinforce other views equally fixed about the direction Nalcor was determined to take in order to replace Holyrood.
Humphries was prepared, for example, to place his faith in a 50-year demand forecast - a guess at best - because that was what the financing plan for Muskrat required. But as to savings from Conservation and Demand Management, he suggested that “… if we were counting on that load reduction [from CDM] to serve the load, it could effectively be the end of the world from a utility perspective.” Humphries was arguing that you could not reliably exclude savings from conservation because it might not materialise.
The view contrasted with that of the Inquiry Forensic Auditor, Grant Thornton, who suggested that such a stance (and other factors) may have resulted in an “overstatement” of the island's electricity needs. The CBC also properly noted that Humphries’ position got pushback from an earlier Inquiry “Fact Witness”, Phil Raphaels, who stated that “he's not aware of any North American utility company excluding CDM savings when developing a power plan.”
Humphries’ only reference to Hydro’s use of CDM was the “Take Charge” program, via Hydro and Newfoundland Power, which offers rebates on energy-efficient light bulbs and thermostats.
By any measure, “Take Charge” is more façade than serious CDM program. A well-planned and funded CDM would be designed to permanently remove significant demand in order to mitigate the necessity for additional high risk, high cost infrastructure, especially when there is no population growth forecast for the Province. Doesn’t weak policy virtually guarantee a weak outcome?
A serious CDM program might have justified generous rebates to encourage homeowners to replace their electric baseboard heaters - the genesis of a short peaking problem in Winter - with heat pump technology, as one suggestion. Along with marginal pricing in concert with time-of-day pricing — to make people think twice before putting on their wash at 7AM — CDM programs needed mostly enlightened public policy.
Also required was the removal of CDM programs from management by the utilities which have no vested interest in allowing any diminishment of consumers' reliance big power utilities. That would be neither in Hydro's nor Newfoundland Power's interest.
That is one perspective, but there is another that has an even greater relationship with the institutional bias to which Mr. Humphries may have been a party.
It seems he had forgotten that building capacity and burning oil are two different inputs.
Of course, the building of the required capacity, plus some margin, should naturally have been a part of the inputs. But CDM, properly designed, would have caused a reduction in fuel consumption which, in turn, would have resulted in a material reduction in the cost of the Isolated Island option — because of its impact on the CPW. It might have even afforded sufficient operating margin to ensure there was no repeat of DarkNL.
Mr. Humphries went unchallenged in his comments, and it’s a shame.
Humphries said on many occasions that his department made the best decision based on the information available to him at the time. But neither a multitude of options nor proof that (real) CDM programs work can pry open a closed mind.
As unlikely as it was that his deaf superiors would listen, it seems that Humphries didn't even try.
When an organization like Nalcor can’t see that a 50% growth in electricity rates would curb demand, there is little point in employing the virtues of Professor Flyvbjerg’s theory of “Optimism Bias”. For Nalcor it would have to be a megaproject - Come Hell or High Water.