Flyvbjerg’s thesis posits that “… forecasters and planners deliberately and strategically overestimate benefits and underestimate cost and schedule in order to increase the likelihood that it is their projects, and not the competition's, that gain approval and funding.”
Undoubtedly, there are still people who believe that the Muskrat Falls project grew out of a process of evaluation based on the statutory requirement of lowest cost and reliability.
Put through a year of tedious Witness testimony at the Muskrat Falls Inquiry where the pre and post-sanction narrative took on a coherent thread, you might not be so readily assured that Government’s legislated public interest obligations superseded those either political or personal (legacy).
It is well worth chronicling the direct evidence supporting Nalcor’s record of “strategic misrepresentation”. But even before the plethora of examples piled up there is significant evidence to suggest that the “fix” was in for Muskrat (or Gull Island).
It wasn’t easy in those early days to access the resumes of the small group inserted into NL Hydro under Williams, the ones whom Dunderdale described as “international experts” nor to get information that was more than propaganda. Then, an applicant conducting a request under ATIPPA often had to be content with an answer from Nalcor that stated bluntly: “does not support the Reference question”.
The Inquiry served its purpose on this account, too, confirming that from the moment the Williams Government announced its intention to use public funds to development an “energy warehouse” it became less a plan than a conspiracy.
During Phase I of the Inquiry, Commission Counsel’s examination of Paul Harrington, Muskrat Falls Project Director and member of the Project Management Team, began on November 19, 2018 and continued for three days. His testimony filled in some of the gaps in knowledge of how the megaproject got started.
Principally what Paul Harrington had to offer the Inquiry was the detail of his own work history as well as a little knowledge of Ed Martin’s.
As it turns out neither man previously led a megaproject or for that matter, a large company unless, of course, Harrington omitted something from his encounter with the Commission Co-Counsel. An appraisal of Harrington's own experience – and that of Ed Martin’s with Petro Canada - suggests that they were middle level managers, each one some promotions away from the top job of a project general manager and much farther from the corporate suite.
Most notably, Harrington was sought by Martin, not at a reasonable point in advance of Muskrat Falls Sanction in 2012, but far earlier – in 2005.
You might ask: What was an ostensibly world-class megaproject manager doing tied to a desk in St. John’s for seven years when, from Asia to the Middle East to North America, the best ones were in demand for “shovel ready” projects?
On the Witness Stand Commission Co-Counsel, Kate O’Brien, asked Mr. Harrington about “the previous work that you’d done – in what previous position did you have that was closest in scope and responsibility to that that you eventually took on with the Lower Churchill Project. Harrington replied: “I would say the Hibernia Project…” O’Brien asked further: “So at – on the Hibernia Project, what specifically was your title?”
MR. HARRINGTON: I was the – initially, the mechanical completion or completions manager – or completions lead I think they used to call it then, and then I was the deputy RFO manager (Ready For Operations). (p.3)
So, on Hibernia – the project most complimentary to Muskrat - Harrington
was not the Project Manager, nor even the Ready For Operations Manager. He was
the deputy RFO Manager. Back then Martin, as Harrington describes his friend’s
position, was in “kind of a business manager type role”.
Hibernia was completed in 1997,
fifteen years before construction on the Muskrat Falls project began. It is not
unfair to expect that Harrington might have been subsequently hired as ‘lead’ on
some other megaproject, beefing up his resume and his skill-set. At the
Inquiry, his testimony suggested no such thing.
Following completion of Hibernia both he and Ed Martin worked
on the Terra Nova project for Petro Canada. It, too, proved a long
distance from the top jobs both were seeking.
So even after completion of the Terra Nova production platform, which went into service in 2002, Harrington is assigned work on an insurance claim which was “primarily led by Mr. Martin”.
Martin became Nalcor CEO in 2005 and, it seems, lost no time assembling some of the old cronies with whom he had worked in the oil patch.
Returning to the transcript (p.4), O’Brien asks Harrington how he got to be Project Director of the Muskrat Falls Project. He responds: “Okay. Well, I was, you know, working on doing the start-up for White Rose, and I was contacted by – I think it was Ed Martin, Mr. Martin, at the time. He asked me to attend a kind of a brainstorming session that was being carried out in some – I think it was the Guv’nor Pub on Elizabeth Avenue…”
Had Martin rescued Harrington from another mid-level position, this time on the White Rose project?
On the Witness Stand, Ms. O’Brien asks Harrington about the selection process that got him the job:
What was Harrington doing from 2005 to the time of Sanction – November 2012? Evidently, planning a megaproject, pushing paper, getting ready for a role, based on his testimony to the Commission of Inquiry, that he had never previously occupied and for a project that would be either Gull Island or the smaller Muskrat Falls. The “Isolated Island” Option didn't even rank reference in dialogue with Commission Co-Counsel.
The “Isolated Island”, included a collection of thermal, wind and small hydro, which could be constructed incrementally as Demand growth, if any, occurred. That far less risk laden option found purpose only when then Premier Dunderdale was forced by critics to subject Muskrat to review by the PUB. Little wonder that the PUB complained bitterly that it literally had to drag information out of Nalcor, even with a time extension, in its consideration of Government’s limited Reference Question.
Gilbert Bennett had already been placed by Williams as Ed Martin’s second-in-command, having conveniently ‘moved over’ from his role as V-P of Cable Atlantic. Who else was at the Gov’nor Pub that day? Interestingly, Ms. O’Brien asked that question, too. This is Harrington’s answer:
One name that Paul Harrington likely missed was that of Derrick Sturge, V-P Finance and Chief Financial Officer for Nalcor. His testimony further confirmed Nalcor’s myopic mission to build a megaproject.
On the Stand at the Inquiry, Sturge recalls his return to Hydro in 2006 preparing for Nalcor’s formation and his subsequent focus on financing alternatives for a large project. He recounts the team’s effort to find a large-scale industrial customer; aluminum producers were a particular focus. But the effort came to nothing. He picks up the story on p.9 (of his Inquiry Transcript):
Least cost and reliability later enters Sturge’s testimony but he notes that “least cost” depended upon returns from the export market. It was important that he made this admission.
Realistically, there never was an export market that offered returns except at a fraction of the cost of generating and transmitting power from Labrador. Besides, Sturge ought to have known that even a back-of the-envelope calculation of export revenue equalled only more "Muskrat Madness" considering the amount of capital employed in that pursuit.
The decision to do a deal with Emera, however, illustrates the level of desperation felt within Hydro Place and with Premier Danny Williams. Having no large industrial customer willing to make a large investment either in Labrador or on the Island AND dodgy Demand forecasts justifying only a 40% share of Muskrat's capacity for Holyrood and growth (a figure both debunked and derided) Danny Williams and Ed Martin were in a position where, if their megaproject dreams were ever going to be realized, they would have to hang the entire project on the one and only - captive - market available - Island ratepayers.
Returning to the Witness Stand for a moment, Sturge explains to Ms. O'Brien that the export market returns helped Nalcor meet the requirement of “least cost” as well as Nalcor's Internal Rate of Return (IRR).
You might ask: why was 100% of project cost and 100% of the risk downloaded on Island ratepayers – rather than a figure apportioned to the relative share of revenues expected from export sales?
Who was warning the public of the direction of power rates in the North Eastern United States in advance of the Sanction Ceremony? Not Nalcor or the Government.
Sturge’s testimony lacks any preoccupation with the “risk” which ought to have accompanied consideration of a large-scale project. In the real world, “risk” ought to have been center stage in his testimony, as well as that of Ed Martin and Gilbert Bennett. At the end of it all, an observer would be hard pressed to be sure that “Isolated Island” was an option at all.
Related:
When You Think Muskrat, Do You Believe Never Again?
Optmism Is Not A Plan: Addressing NL's Fiscal Crisis
