Guest Post written by Ron Penney
Premier Davis has recently compared Muskrat
Falls with the Hoover Dam project.
Premier Davis has recently compared Muskrat
Falls with the Hoover Dam project.
The Hoover Dam is one of the wonders of the
modern world.
modern world.
It was constructed during the Great Depression
and came in under budget and two years ahead of schedule.
and came in under budget and two years ahead of schedule.
It cost $219 million dollars (Canadian), which
is equivalent to $3.3 billion dollars today. Its capacity is 2000 megawatts.
is equivalent to $3.3 billion dollars today. Its capacity is 2000 megawatts.
In contrast, the Muskrat Falls project is almost 50% over budget, nearing $10
billion, and rising, and its capacity is 824 megawatts. And it is well behind
schedule.
billion, and rising, and its capacity is 824 megawatts. And it is well behind
schedule.
So the Muskrat Falls project is at least three
times the cost of the Hoover Dam for less than half the power.
times the cost of the Hoover Dam for less than half the power.
The Muskrat Falls project is no Hoover Dam and
it won’t be one of the modern wonders of the world. Rather it will rank as the
worst public policy decision made in Newfoundland and Labrador since
Confederation.
Given that the Hoover Dam is named after a
former President of the United States, the least that we can do is to rename
Muskrat Falls after a certain former Premier. How does Williams’ Falls sound.
Or perhaps Williams’ Folly. We could, of course, rename the Churchill River
after him, but even Mr. Williams might concede that Sir Winston Churchill is a
slightly more deserving figure.
former President of the United States, the least that we can do is to rename
Muskrat Falls after a certain former Premier. How does Williams’ Falls sound.
Or perhaps Williams’ Folly. We could, of course, rename the Churchill River
after him, but even Mr. Williams might concede that Sir Winston Churchill is a
slightly more deserving figure.
In this way we will always remember that it is
Mr. Williams’ legacy to us as we pay our electricity bills or the power is off
for weeks on end.
Mr. Williams’ legacy to us as we pay our electricity bills or the power is off
for weeks on end.
The current Premier also claims that our
electricity rates will be the lowest on North America, when in fact our rates
will likely double, making them among the highest in North America. Our rates
are currently in the middle of the pack
in Canada, but at 11.34 cents per kilowatt hour, a lot higher than rates in
Montreal or Winnipeg. Because most others places use gas to heat their homes,
the impact on most of us who use electric heat here will even be more dramatic.
electricity rates will be the lowest on North America, when in fact our rates
will likely double, making them among the highest in North America. Our rates
are currently in the middle of the pack
in Canada, but at 11.34 cents per kilowatt hour, a lot higher than rates in
Montreal or Winnipeg. Because most others places use gas to heat their homes,
the impact on most of us who use electric heat here will even be more dramatic.
This will have a terrible effect on lower income
families at a time when government is faced with a financial crisis and will
not have the ability to help those families.
_________________________________________________________
Ron Penney is a former deputy minister of justice and city manager for the City of St. John’s.
families at a time when government is faced with a financial crisis and will
not have the ability to help those families.
_________________________________________________________
Ron Penney is a former deputy minister of justice and city manager for the City of St. John’s.
What is forgotten in the discussion about rates, is that in the model used to develop the rate structure Nalcor has looked for a back end return on the equity investment (which was borrowed). This has kept rates artifically low in the first years of the project. So If Nalcor are now saying we will pay 19.2 cents in 2020, expect that rate to go up each and every year in the 1-2% range. To make matters worse, Nalcor assumed that demand would grow also in the 1% a year range, even though there is no population growth. I will tell you with the increases we will see in electricity pricing, demand will not grow as predicted. This will make the cost even higher. Muskrat Falls will inflict us with the highest electricity bills for the next 50 years. When we will be exporting the cheap Upper Churchill power to fuel industry in other jurisdictions.
It is an absolute mess. If NAlcor would have delivered this project on budget and on schedule, you could with rose colored glasses on agreed with the project. With the current cost and schedule over-runs it is a fiasco.
Cost comparisons to the Hoover Dam are absurd. The cost of labour and materials in the great depression were well below what would have been normal. By contrast Muskrat Falls began construction during the peak of economic boom in Newfoundland and Canada driving up the costs of labour and materials over what would be considered normal. Add in other factors such as working in the cold isolated north vs the very accessible warm United States and costs of safety which were not present in the 1930's there would be every reason to expect a large discrepancy in costs between these two projects, A much better comparison would be other recent hydroelectric projects in Canada. For example the Keeyask project in Manitoba is currently under construction and has a completion date in line with Muskrat Falls. A 2013 estimate said the construction of Keeyask would cost $6.2 billion and it is expected to generate 695 MW. This is comparable with Muskrat Falls.
The contractors abuse the hiring policy to artificially increase the cost of labour, claiming they need to hire out of town specialized labour to scrub toilets and shovel walk ways. This extra cost gets billed to nalcor, and the contractor walks away with a cost plus advantage of unjustifiable using expensive labourers to capitalize on the cost plus lucrative government contract.
The project employeed 5200 people in nov. 2015, of those 400 at a rough guestimation didnt require room, bored, and transportation, airfare.
So 4800 project employees did, so 4800 x 250$ a day, for room, bored, and travel. Equal 1.2 million a day in extra cost for contractors to bill nalcor, by making up a reason they cant follow the contracts hiring policy.
1.2 million a day x 365(a year) is an extra 450 million a year for tax payers to give the contractors.
This is the kinda activity that puts a project like this over a 5 or 6 year period to become 3 billion over budget. The artificial escalation of actual cost. If the contractorsvfollowed the hiring policy, it would cut cost dramatically. Crafty way to bleed the newfoundland taxpayers.