“…
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.
 |
| Paul Humphries, former V-P Newfoundland Hydro |
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.
