It was not abnormal for my old friend Uncle
Gnarley to pay a visit. But it was certainly
abnormal for him to call in advance. It
was at sunrise, this morning, when the phone rang, the old gruff voice was more
effective than any alarm clock in getting my blood moving, “Have you read it
“The Loan Guarantee! Have you read it”?
with his usual charm, “I am coming over this evening, I want to discuss some if
it’s finer points. Be sure that you drop
by the Controller’s today”. With that
the phone went dead.
I was’t sure if I should read the Term
Sheet, but I knew I had better pick up a bottle of Oban. Gnarley may be forgiving with the former, but
I would certainly feel his wrath, if I had forgotten the latter.
At about 8 o’clock evening, the knock came
on the door and I welcomed the old economist into the den. Gnarley
was the first to initiate the discussion.
“There are presently hundreds of well-trained engineers, lawyers and
economists working on the Muskrat Falls project. With 500 million spent, the engineering is
substantially complete, and they are frothing at the mouth to have the project
sanctioned, so that commitments can be made on the long lead equipment.
But, Nav, one of the greatest challenges of
running such a large project team is to make sure that the engineers,
economists and the lawyers are all talking to each other. They call it the interfaces, and let me tell
you they are important. The success of a
project is often defined by good management of the interfaces between the
various elements of the team. Failure is
often caused by details that fall between the cracks”
interface issue and how it has manifested itself in the Federal Loan Guarantee”.
I knew that the single malt alone would not
be sufficient to pacify my old friend. I
regretted not reading the Term Sheet during the afternoon. However, I did recall some of the press
conference on Here and Now.
“Well, Gnarley, I believe it was a great
success for the Premier. To get an
irrevocable guarantee on the project debt is a great success, indeed. It may well represent the last hurdle for the
“Nav, this is what I am trying to get at. The Premier states that this is an
irrevocable agreement. But it is riddled
with legal and technical loopholes which will provide the Federal Government
ample opportunity to get out! My
question is this: has the agreement been fully vetted by all the teams within
think that the engineers and lawyers of Nalcor did not review this document”?
“Nav…the Premier did not know the Loan
Guarantee was completed! It is safe to
assume that the engineering and legal leads were not aware of the final draft. Was it reviewed by all the required parties
prior to being signed”?
taking a toll on the old man. His
objectivity on the project was lost about the same time as Nalcor’s. But, I was interested in seeing what else the
great economist had to say. I was also
interested in the great stack of papers he had jammed in his recycled binder. I motioned to his bag and asked “What do you
“Nav, I have a collection of papers which
will hopefully prove my point. The first
is the Loan Guarantee itself”. He pulled
out the 20 page document, dogged and covered in coffee stains. “Nav, you may not be aware, but the Federal
Government can get out of this commitment for a countless number of reasons. Some of these are normal for this type of
agreement, but there are a couple of default provisions which cause me
concern. One of the biggest is the
requirement for the work to follow ‘Good Utility Practice’. That, in itself, is not disconcerting. What does concern me is, what defines good
utility practice, is decided by the Federal Government’s watchdog, innocuously
called the ‘Independent Engineer’. Sure,
you should read the language yourself, Nav.
But, the entire Loan Guarantee can be revoked if the Independent
Engineer deems that Nalcor or Emera didn’t follow good utility practice.”
Term Sheet and pointed his finger to Article 4.13:
My initial response was that the old
Economist was truly wet. I felt I had to
defend the professionals at Nalcor. “But
Uncle Gnarley surely with the 500 million spent in engineering and other works
the design is consistent with good utility practice”.
and took a wee dram of Oban. The wink
was confirmation of my careful selection for this evening.
following ‘Good Utility Practice’ but, it is important that the Independent
Engineer also agrees with this evaluation.
Which brings me around to my opening volley this evening about
interfaces. I am not sure if the lawyers
who reviewed the Loan Guarantee, for Nalcor, were familiar with all the
engineering reviews completed by the various third parties.
The old economist was now clearly in fine
form. His mind was at ¾ throttle, and
Review from earlier in the year. Despite
it being dismissed by Government, there were some very good recommendations. One was the design
criteria for the transmission lines through the Northern Peninsula. Manitoba Hydro was not blind to the obvious,
and suggested that the onerous alpine conditions be used for a 1:150 return
With that Uncle Gnarley handed over a
second piece of paper. “From Volume 1 of
their final DG2 Report. There were
several instances where MHI noted that Nalcor does not adhere to best utility
practice. Take for example the design of
the HVDC Lines to NERC standards”
Now in Nalcor’s Final Submission to the Board of Public Utilities,
the Company did note that they may not always follow Good Utility
Practices. They argued that the
application of ‘best utility practices’ may be cost prohibitive to the island
consumer. In their response, Nalcor eloquently
responded to the various technical issues identified by MHI. But, in the case of the NERC guidelines and
the transmission line design, MHI’s recommendations were largely ignored”.
that, Uncle Gnarley looked at me. Like a
lawyer in the courtroom, the old economist was pausing more for the benefit of
the jury, rather than himself. He then
continued. “Nav, we all know that there
was no opportunity for the PUB to pass judgment on this. But, these issues were again raised during
the DG3 works. Nalcor addressed the
departure from recognized North American standards within their Terms of Reference for MHI. Gnarley then passed over the terms of
reference, his third exhibit in the proceedings:
I was starting to realize the importance of
the term ‘Good utility practice’. I
asked, “all of this was almost a year ago; where do we stand now”?
“Well, Nav, you would have to ask the
independent engineer, to know with certainity, if Nalcor is meeting ‘Good Utility
Practice’. For it is the only opinion
that matters! But I do want to finish my
argument by identifying MHI’s opinion in their October Report on the Muskrat Falls Project.
line design, Manitoba Hydro argues that Nalcor still does not meet ‘Best
Utility Practice’. This is where I am
not sure the lawyers who reviewed the Federal Loan Guarantee consulted with
Nalcor’s engineers. Right now,
according to Manitoba Hydro, the project is not fully compliant with Best
Utility Practice. In accordance with the
Loan Guarantee, it is now up to the Federal Government’s watchdog, the
Independent Engineer, to make a decision as to what is, in fact, best utility
practice. A negative decision may put
the agreement in default.
You see, Nav, this is what I have called
the ‘Harper Paradox’. How can a Loan
Guarantee be considered irrevocable when it is in potential default before the
ink is dry?
Gnarley clearly proud of his reasoning took
up the glass as a reward for his self-proclaimed genius.
call the Independent Engineer into the House of Assembly to get answers to some
of these questions, prior to sanctioning?
We don’t want to spend 6.4 Billion dollars before we figure out the
solution to that particular paradox”.
With that momentary utopian slip of the
tongue, we both laughed whole heartedly.
In this democracy, calling witnesses is like the design storm. It only happens once every 50 years. I only hope that Harper proves to be more
predictable than the weather. Our Power
is in his Hands, now.
(Editor’s Note: JM is the anonymous author of a 175 page Submission to the Public Utilities Board (PUB) entitled: Muskrat Falls – The Benefits of a Phased Development. He has also written Labrador Mining – A Reason to Rethink and Upper Churchill – The Unexplored Alternative). He has written several Posts for Uncle Gnarley Blog, most recently, The Pursuit of Apathy.