Guest Post written by Frank Wright
I recently
had a look online simply using the search criterion, “Muskrat Falls”.
A NL Govt. website featuring the ‘Muskrat Falls Oversight Committee’ showed up
so I decided to have a look at what this “Oversight Committee” does.
I didn’t have to look hard to realize that the word ‘Oversight’ in the name was
at best a misnomer.
had a look online simply using the search criterion, “Muskrat Falls”.
A NL Govt. website featuring the ‘Muskrat Falls Oversight Committee’ showed up
so I decided to have a look at what this “Oversight Committee” does.
I didn’t have to look hard to realize that the word ‘Oversight’ in the name was
at best a misnomer.
Amongst
other things, the web page states the following: “Chaired by the Clerk of the Executive Council, the committee comprises
senior officials from Executive Council and the Departments of Finance, Natural
Resources and Justice. It is supported by a working group representing
expertise in the areas of law, engineering, project management, accounting and
auditing.”
other things, the web page states the following: “Chaired by the Clerk of the Executive Council, the committee comprises
senior officials from Executive Council and the Departments of Finance, Natural
Resources and Justice. It is supported by a working group representing
expertise in the areas of law, engineering, project management, accounting and
auditing.”
This sounds
like a good beginning for such a Govt. Oversight Committee; the right types of
people for undertaking vital governance practices for a mega-project are
identified. Apparently, however, the good beginning didn’t get any further than
this.
like a good beginning for such a Govt. Oversight Committee; the right types of
people for undertaking vital governance practices for a mega-project are
identified. Apparently, however, the good beginning didn’t get any further than
this.
In March
2015, the Oversight Committee “engaged Ernst & Young (“EY”)
to review Nalcor’s cost and schedule processes and controls for the Muskrat
Falls Project. EY issued a report entitled “Review
of Muskrat Falls Project Cost and Schedule Management Processes and Controls” on October 29,
2015. What the so called “working group” with so much
“expertise” to support the Oversight Committee was doing one has to
wonder. Looking into cost and schedule processes and controls seems like a
typical activity for such a group and at least by function, the right people
were assembled. However, and despite all this expertise, the Oversight Committee
felt the need to hire an outside organization to do it.
At first I
thought this may be a reflection of the Oversight Committee’s view of the abilities
of the working group; perhaps a lack of trust in this group or the lack of
awareness of the role of such people. Nevertheless, hiring an outside
organization for this work is very strange when you are supposedly surrounded
by so much key talent.
thought this may be a reflection of the Oversight Committee’s view of the abilities
of the working group; perhaps a lack of trust in this group or the lack of
awareness of the role of such people. Nevertheless, hiring an outside
organization for this work is very strange when you are supposedly surrounded
by so much key talent.
On looking a
little further I discovered where the problem really rests; it is actually the
ineptitude of the Oversight Committee itself. And this is borne out in another
EY report called “Review of project cost,
schedule and related risks, interim report” issued on April 8, 2016 and I
will come back to this report later in this article.
little further I discovered where the problem really rests; it is actually the
ineptitude of the Oversight Committee itself. And this is borne out in another
EY report called “Review of project cost,
schedule and related risks, interim report” issued on April 8, 2016 and I
will come back to this report later in this article.
The “reporting
period” under review by EY in its on October 29, 2015 report was from December
2014 to February 2015. I will also come back to the shocking findings of the EY
report, but for now what is most striking about this report is that:
1. EY
took almost eight months to deliver it; and
took almost eight months to deliver it; and
2. They
stated, “EY’s Major Capital Projects practice was engaged to bring additional experience
to assist the Oversight Committee in meeting its mandate.” [Emphasis
added]
stated, “EY’s Major Capital Projects practice was engaged to bring additional experience
to assist the Oversight Committee in meeting its mandate.” [Emphasis
added]
Let’s deal
with the eight months to produce a report first. In the project world, and
especially mega-projects, relevant and timely information is the backbone of
management. This is also true for those undertaking the oversight of a
mega-project. The risks are so much greater and the impact of those risks can
be disastrous. Best practice in project management and governance demands
timely, appropriate and quality information.
with the eight months to produce a report first. In the project world, and
especially mega-projects, relevant and timely information is the backbone of
management. This is also true for those undertaking the oversight of a
mega-project. The risks are so much greater and the impact of those risks can
be disastrous. Best practice in project management and governance demands
timely, appropriate and quality information.
A project
management team and its oversight body must be able to report on the status of
a project with ‘real time’ or at least, near real time information. Timely
status reporting allows everyone involved in a project to have up-to-date
knowledge of progress and make informed decisions early, when it is most
effective.
management team and its oversight body must be able to report on the status of
a project with ‘real time’ or at least, near real time information. Timely
status reporting allows everyone involved in a project to have up-to-date
knowledge of progress and make informed decisions early, when it is most
effective.
Taking eight
months to deliver a key project management report that is focused on a
timeframe long past, is generally viewed as useless. And most of the time it
is. On what basis is a stale-dated report of any value for comparing where a
project is, against where it was planned to be? For anyone, whether in the
project management business or otherwise, the answer to this rhetorical, but
very basic question is obvious. It is usually of no value; and more to the
point, such a lag in reporting on a mega-project is extremely dangerous. There
is a huge price to be paid for this folly.
months to deliver a key project management report that is focused on a
timeframe long past, is generally viewed as useless. And most of the time it
is. On what basis is a stale-dated report of any value for comparing where a
project is, against where it was planned to be? For anyone, whether in the
project management business or otherwise, the answer to this rhetorical, but
very basic question is obvious. It is usually of no value; and more to the
point, such a lag in reporting on a mega-project is extremely dangerous. There
is a huge price to be paid for this folly.
By their
nature, mega-projects are complex with many dynamic variables that intersect.
Timely, actionable information that measures work completed against a well-established
baseline is fundamental and offers the only chance to exercise any degree of
control. An outside organization that delivers key information so long after
the fact is asinine. One could easily say that it is simply throwing good money
after bad. I would normally hold this view of the EY report except that in this
case, the findings are worth several billion dollars – NL dollars that is –
pouring from the public coffers.
nature, mega-projects are complex with many dynamic variables that intersect.
Timely, actionable information that measures work completed against a well-established
baseline is fundamental and offers the only chance to exercise any degree of
control. An outside organization that delivers key information so long after
the fact is asinine. One could easily say that it is simply throwing good money
after bad. I would normally hold this view of the EY report except that in this
case, the findings are worth several billion dollars – NL dollars that is –
pouring from the public coffers.
Before I get
to the matter of EY findings in the October 2015 report, let’s have a quick
look at the second point I raised above. EY claimed in its report that it
engaged personnel from its Major Capital Projects to bring
“additional” experience to bear.
to the matter of EY findings in the October 2015 report, let’s have a quick
look at the second point I raised above. EY claimed in its report that it
engaged personnel from its Major Capital Projects to bring
“additional” experience to bear.
This statement begs several
questions: First, who did they have working on this review if its Major Capital
Projects personnel were simply “additional”? Given the nature of the Muskrat
Falls Project, it is only people with major capital projects experience who
are capable of performing this work.
questions: First, who did they have working on this review if its Major Capital
Projects personnel were simply “additional”? Given the nature of the Muskrat
Falls Project, it is only people with major capital projects experience who
are capable of performing this work.
Second, anyone experienced in major
capital projects has to know that delivering a report on a mega-project eight
months after being engaged and even longer after the time frame studied, may be
of some value in dealing with lessons learned when the project is completed,
but its value is seriously diminished for anyone engaged in managing or
overseeing an ongoing project. One has to question what EY means by Major
Capital Projects. I suspect it is simply a marketing term of art designed to
bring unwarranted comfort to a naive Oversight Committee.
capital projects has to know that delivering a report on a mega-project eight
months after being engaged and even longer after the time frame studied, may be
of some value in dealing with lessons learned when the project is completed,
but its value is seriously diminished for anyone engaged in managing or
overseeing an ongoing project. One has to question what EY means by Major
Capital Projects. I suspect it is simply a marketing term of art designed to
bring unwarranted comfort to a naive Oversight Committee.
Now let’s
tackle the content of that October 2015 EY report.
tackle the content of that October 2015 EY report.
Below is a
major excerpt from the report summary. Ordinarily, I would attempt to
summarize this but it is so compelling that it deserves to be read in its
original form.
major excerpt from the report summary. Ordinarily, I would attempt to
summarize this but it is so compelling that it deserves to be read in its
original form.
“The following observations
summarize key aspects of management processes and controls not fully
developed and deployed at the time of our review: [Emphasis added]
summarize key aspects of management processes and controls not fully
developed and deployed at the time of our review: [Emphasis added]
Key schedule management process and
control risks and issues
control risks and issues
1. Certain baseline documents
defining contractor schedules as well as the documents defining the control of
project schedules were not yet complete.
defining contractor schedules as well as the documents defining the control of
project schedules were not yet complete.
2. Contractors’ schedule updates
were not being systematically rolled up into the Nalcor Integrated Project
Schedule (IPS) that forms the basis of reporting to the Oversight
Committee.
were not being systematically rolled up into the Nalcor Integrated Project
Schedule (IPS) that forms the basis of reporting to the Oversight
Committee.
3. A completion date had not been
established for finalizing an integrated baseline of contractor and IPS
schedules to correct the issues noted in #1 and #2 above.
established for finalizing an integrated baseline of contractor and IPS
schedules to correct the issues noted in #1 and #2 above.
4. The IPS development and
maintenance process is not fully documented.
maintenance process is not fully documented.
Key cost management process and
control risks and issues
control risks and issues
1. The conditions and processes for
rebaselining cost and schedule are not defined in the Project’s control
processes and procedures. The Oversight Committee’s understanding of such
conditions and processes is an important foundation as it conducts its
oversight activities.
rebaselining cost and schedule are not defined in the Project’s control
processes and procedures. The Oversight Committee’s understanding of such
conditions and processes is an important foundation as it conducts its
oversight activities.
2. Nalcor uses a relatively basic
approach to its updating of forecasted contingency requirements which in our
experience is not consistent with the expected practices for a project of this
scale and complexity. Given this, it is not clear whether the cost contingency
as forecasted in reports for the Project will be adequate.
approach to its updating of forecasted contingency requirements which in our
experience is not consistent with the expected practices for a project of this
scale and complexity. Given this, it is not clear whether the cost contingency
as forecasted in reports for the Project will be adequate.
3. The Project does not define
thresholds for variance management, reporting, and escalation purposes. We
would normally expect these to be in place as they assist in giving clear
indications of the severity of issues and the need to escalate to key stakeholders,
such as the Oversight Committee.
thresholds for variance management, reporting, and escalation purposes. We
would normally expect these to be in place as they assist in giving clear
indications of the severity of issues and the need to escalate to key stakeholders,
such as the Oversight Committee.
4. Fully quantified risks or trends
have not been documented for certain significant challenges on the project. The
scale of potential challenges is also not quantified in the summary reporting
made available to the Oversight Committee.”
have not been documented for certain significant challenges on the project. The
scale of potential challenges is also not quantified in the summary reporting
made available to the Oversight Committee.”
The summary
report from EY goes on to state:
report from EY goes on to state:
“Until such time as the
management process and controls risks and issues identified in this report and
the detailed supplementary report are addressed, the completeness and accuracy
of Project cost and schedule status reporting to the Oversight Committee cannot
be fully verified.”
management process and controls risks and issues identified in this report and
the detailed supplementary report are addressed, the completeness and accuracy
of Project cost and schedule status reporting to the Oversight Committee cannot
be fully verified.”
Let’s keep
in mind that the Muskrat Falls Project was sanctioned by the NL Govt. on
December 17, 2012 and apparently construction also commenced in late 2012. This is a disturbing approach to project management when you
consider that detailed project engineering work had reportedly only reached 98%
completion at the end of 2014. It is not necessary that detailed engineering be
complete before early construction works begins. However, it sure begs the
question what detailed engineering was done at the time considering that the
project received sanction at the same time as construction began.
in mind that the Muskrat Falls Project was sanctioned by the NL Govt. on
December 17, 2012 and apparently construction also commenced in late 2012. This is a disturbing approach to project management when you
consider that detailed project engineering work had reportedly only reached 98%
completion at the end of 2014. It is not necessary that detailed engineering be
complete before early construction works begins. However, it sure begs the
question what detailed engineering was done at the time considering that the
project received sanction at the same time as construction began.
At the end
of the “reporting period” under review (December 2014-February 2015), the Muskrat
Falls Project was already into construction for over two years. Yet, as the EY
report states, Nalcor hadn’t even put the most fundamental and absolutely
vital, fully functional project controls (schedule/cost monitoring and
reporting, risk management, forensic analysis of schedule/cost, and much more) processes
in place for managing the Project, something that should be implemented for any
project long before it is sanctioned. This is unforgivable and in the ‘normal’
project management world, the failure to do this would get people fired.
of the “reporting period” under review (December 2014-February 2015), the Muskrat
Falls Project was already into construction for over two years. Yet, as the EY
report states, Nalcor hadn’t even put the most fundamental and absolutely
vital, fully functional project controls (schedule/cost monitoring and
reporting, risk management, forensic analysis of schedule/cost, and much more) processes
in place for managing the Project, something that should be implemented for any
project long before it is sanctioned. This is unforgivable and in the ‘normal’
project management world, the failure to do this would get people fired.
If project
controls are not robustly established on the front-end of a project and
for all phases of the project life-cycle, there is no mechanism for properly
gathering relevant data, analyzing it and then using it to constructively
communicate and manage the schedule and cost of a project. In addition, in the
absence of robust project controls processes, the ability to undertake any form
of analysis to understand when a project is failing is absent.
controls are not robustly established on the front-end of a project and
for all phases of the project life-cycle, there is no mechanism for properly
gathering relevant data, analyzing it and then using it to constructively
communicate and manage the schedule and cost of a project. In addition, in the
absence of robust project controls processes, the ability to undertake any form
of analysis to understand when a project is failing is absent.
Robust
project controls processes implemented by highly skilled and experienced
personnel are the life blood of project management. Successful performance of a
project depends on it; it doesn’t guarantee success, but without it, failure is
guaranteed. All of the fabulous contracting strategies, plans for safety,
quality, communication, interface management, etc. are of little value without
it. In a mega-project, you are on a train that is out of control, it is off the
tracks (if it was ever on), it is crashing into a ravine, and you won’t even be
aware of it until you hit bottom.
project controls processes implemented by highly skilled and experienced
personnel are the life blood of project management. Successful performance of a
project depends on it; it doesn’t guarantee success, but without it, failure is
guaranteed. All of the fabulous contracting strategies, plans for safety,
quality, communication, interface management, etc. are of little value without
it. In a mega-project, you are on a train that is out of control, it is off the
tracks (if it was ever on), it is crashing into a ravine, and you won’t even be
aware of it until you hit bottom.
This
was the case for the Muskrat Falls Project.
was the case for the Muskrat Falls Project.
And
when a mega-project is off the rails, the very best that can be done is to stop
the hemorrhaging; the impacts cannot be reversed. Ask anyone in the
mega-project management business; the evidence is well documented.
when a mega-project is off the rails, the very best that can be done is to stop
the hemorrhaging; the impacts cannot be reversed. Ask anyone in the
mega-project management business; the evidence is well documented.
Based on
this long stale-dated EY report, is it any wonder that the Muskrat Falls Project is now massively over budget
and the schedule is blown out?
this long stale-dated EY report, is it any wonder that the Muskrat Falls Project is now massively over budget
and the schedule is blown out?
The findings
in the EY report are gobsmackingly staggering, and should have shocked the Oversight
Committee to the core. Indeed, one has to ask: What was the Oversight Committee
doing up to this point? It definitely was not oversight. Apparently, the
Oversight Committee hasn’t been doing anything related to oversight since this
report either. Take a look at the reports from Muskrat Falls Oversight
Committee. These documents read more like a project manager’s progress report
than an oversight report.
in the EY report are gobsmackingly staggering, and should have shocked the Oversight
Committee to the core. Indeed, one has to ask: What was the Oversight Committee
doing up to this point? It definitely was not oversight. Apparently, the
Oversight Committee hasn’t been doing anything related to oversight since this
report either. Take a look at the reports from Muskrat Falls Oversight
Committee. These documents read more like a project manager’s progress report
than an oversight report.
An oversight
report should be addressing oversight…’duh’. I went through these reports
looking for a section I would expect to see near the beginning with a title
such as ‘Critical Project Concerns’, followed by another section with a title
such as ‘Mandatory Requirements to Redress Critical Concerns’ (with deadlines)
and then a section with a title such as “Recommendations to the NL Government”.
report should be addressing oversight…’duh’. I went through these reports
looking for a section I would expect to see near the beginning with a title
such as ‘Critical Project Concerns’, followed by another section with a title
such as ‘Mandatory Requirements to Redress Critical Concerns’ (with deadlines)
and then a section with a title such as “Recommendations to the NL Government”.
Unfortunately, there is nothing like these in
any of the Oversight Committee reports. The Oversight Committee apparently only
has “Observations” coupled with a smattering of repetitions fed to them by
Nalcor or taken from the EY reports. This is not oversight; it is simply
another rehashed and badly presented progress report. Even a progress report should
flag critical issues.
any of the Oversight Committee reports. The Oversight Committee apparently only
has “Observations” coupled with a smattering of repetitions fed to them by
Nalcor or taken from the EY reports. This is not oversight; it is simply
another rehashed and badly presented progress report. Even a progress report should
flag critical issues.
 |
| Clerk of the Executive Council Chair – MF Oversight Committee |
On
the Muskrat Falls Oversight Committee website it says the “…Government mandated
the committee to provide reliable and transparent oversight so that the public
can have confidence in the management of project costs, schedule and risks.” Having
independent reviews done by a qualified organization with strong mega-project
knowledge is a valuable tool for the Committee. It is questionable whether EY
is the right organization for this, but that’s another issue. What is apparent
and appalling, however, is that the Muskrat Falls Oversight Committee uses EY
as a surrogate for its own mandate and responsibility, rather than exercising
its stewardship obligations, providing watchful care and imposing accountability
on Nalcor. On what basis can the people of NL have confidence in Nalcor’s
management of the Muskrat Falls Project when the Oversight Committee doesn’t
even discharge its own obligations?
To some,
this may seem like nothing more than an upbraiding of the Oversight Committee by
a malcontent. Well, consider the following little nugget from the EY interim
report recommendations issued in April 2016.
this may seem like nothing more than an upbraiding of the Oversight Committee by
a malcontent. Well, consider the following little nugget from the EY interim
report recommendations issued in April 2016.
“Project
governance and independent oversight should be re-evaluated by the Provincial
Government and strengthened at the Project, Nalcor Board and Provincial
Government levels; and
governance and independent oversight should be re-evaluated by the Provincial
Government and strengthened at the Project, Nalcor Board and Provincial
Government levels; and
Project
reporting should be enhanced to support senior management focus on key risks
and issues, to communicate more clearly how key risks are reflected in the
forecast and to enable more effective Provincial Government oversight.”
reporting should be enhanced to support senior management focus on key risks
and issues, to communicate more clearly how key risks are reflected in the
forecast and to enable more effective Provincial Government oversight.”
It is worth noting, that while not
part of its mandate, EY felt the need to make a seriously stinging
indictment of the Oversight Committee. That
takes chutzpah, especially from the very consultant that was hired by them. You know
it must be really bad for EY to do that. Even the consultant couldn’t stand it
any longer. Quite
frankly, I wonder if the Oversight Committee even recognized the overt
effrontery.
part of its mandate, EY felt the need to make a seriously stinging
indictment of the Oversight Committee. That
takes chutzpah, especially from the very consultant that was hired by them. You know
it must be really bad for EY to do that. Even the consultant couldn’t stand it
any longer. Quite
frankly, I wonder if the Oversight Committee even recognized the overt
effrontery.
The October
2015 EY report should have also shocked Ed Martin, CEO of Nalcor, and Gilbert
Bennett, VP responsible for the project, to the core, and should have gotten both
of them fired. Of course, to be shocked implies that Ed Martin and Gilbert
Bennett actually understand the role of project management. Clearly, that
assumption cannot be made.
2015 EY report should have also shocked Ed Martin, CEO of Nalcor, and Gilbert
Bennett, VP responsible for the project, to the core, and should have gotten both
of them fired. Of course, to be shocked implies that Ed Martin and Gilbert
Bennett actually understand the role of project management. Clearly, that
assumption cannot be made.
Mr. Martin
got himself conveniently fired, and replaced by Stan Marshall, retired CEO of
Fortis, and there has been much hullabaloo about whether Martin should have
been fired for ‘cause’. Not having a properly constituted set of project
controls processes (the most critical of project management processes) in place
and fully functional on the front-end of the Muskrat Falls Project sure has the
look and feel of gross negligence. The evidence is in the October 2015 EY
report for all to see.
got himself conveniently fired, and replaced by Stan Marshall, retired CEO of
Fortis, and there has been much hullabaloo about whether Martin should have
been fired for ‘cause’. Not having a properly constituted set of project
controls processes (the most critical of project management processes) in place
and fully functional on the front-end of the Muskrat Falls Project sure has the
look and feel of gross negligence. The evidence is in the October 2015 EY
report for all to see.
The April
2016 EY interim report also makes some very disturbing revelations. Consider
these excerpts:
2016 EY interim report also makes some very disturbing revelations. Consider
these excerpts:
“The overall conclusion of the Review is that the
September 2015 Forecast [Nalcor’s forecast] is not reasonable.”
September 2015 Forecast [Nalcor’s forecast] is not reasonable.”
“The MFG civil works contract is the highest dollar
value contract. The deliverables on this contract are required to
allow progress on other contracts, e.g. installation and commissioning of
the turbines and generators, installation of spillway and intake gates and the
balance of plant contract….Progress on this contract is significantly behind
the original contract schedule….As at December 2015, the proportion of
contract value paid to the contractor is significantly greater than the
proportion of the concrete that has been placed. [Emphasis added]
value contract. The deliverables on this contract are required to
allow progress on other contracts, e.g. installation and commissioning of
the turbines and generators, installation of spillway and intake gates and the
balance of plant contract….Progress on this contract is significantly behind
the original contract schedule….As at December 2015, the proportion of
contract value paid to the contractor is significantly greater than the
proportion of the concrete that has been placed. [Emphasis added]
.
“HVdc
transmission line contract….In the first nine months of the 32-month contract
duration, actual progress has been only 50% of plan….Performance to date
and the ongoing risks described above create potential for a multiple-month
delay to the contract schedule. This potential delay could be greater than the
time contingency included in Nalcor’s Project schedule and so presents a risk
to overall Project milestones.” [Emphasis added]
transmission line contract….In the first nine months of the 32-month contract
duration, actual progress has been only 50% of plan….Performance to date
and the ongoing risks described above create potential for a multiple-month
delay to the contract schedule. This potential delay could be greater than the
time contingency included in Nalcor’s Project schedule and so presents a risk
to overall Project milestones.” [Emphasis added]
“HVdc
convertor stations contract….Nalcor and the contractor are currently
forecasting delays to the mechanical completion of the convertor stations, with
the Muskrat Falls delay being approximately two months. Mitigation plans are
being implemented to maintain the forecast and recover this delay; however,
the contractor would be required to more than double its rate of progress to
date to maintain the forecast schedule.” [Emphasis added]
convertor stations contract….Nalcor and the contractor are currently
forecasting delays to the mechanical completion of the convertor stations, with
the Muskrat Falls delay being approximately two months. Mitigation plans are
being implemented to maintain the forecast and recover this delay; however,
the contractor would be required to more than double its rate of progress to
date to maintain the forecast schedule.” [Emphasis added]
“The
scope of EY’s review did not include a formal review of the Project governance…However…EY has observed that certain elements of governance and
reporting arrangements have not been effective in respect of the Project’s cost
and schedule forecasts. There is a need to strengthen Project governance
and reporting to provide more effective oversight and constructive
challenge to Project performance and execution, key decisions and forecasting.”
[Emphasis added]
scope of EY’s review did not include a formal review of the Project governance…However…EY has observed that certain elements of governance and
reporting arrangements have not been effective in respect of the Project’s cost
and schedule forecasts. There is a need to strengthen Project governance
and reporting to provide more effective oversight and constructive
challenge to Project performance and execution, key decisions and forecasting.”
[Emphasis added]
There are many more scary comments
from EY in this interim report but it not necessary to prolong the agony. The
Muskrat Falls Project started out a mess and has not recovered. In fact, it has
gotten worse; far worse. Nalcor’s management, the Oversight Committee, and the
NL Govt. have to all share the blame. Unfortunately, it is the people of NL who
have to pick up the multi-billion dollar tab.
from EY in this interim report but it not necessary to prolong the agony. The
Muskrat Falls Project started out a mess and has not recovered. In fact, it has
gotten worse; far worse. Nalcor’s management, the Oversight Committee, and the
NL Govt. have to all share the blame. Unfortunately, it is the people of NL who
have to pick up the multi-billion dollar tab.
There is one other point that must
be considered. The causes for project failures are well documented. They can generally
be summarized under the following headings:
be considered. The causes for project failures are well documented. They can generally
be summarized under the following headings:
1.
Poor/incompetent
leadership at all levels
Poor/incompetent
leadership at all levels
2.
Inadequate
business case to support going ahead with the project
Inadequate
business case to support going ahead with the project
3.
Disregard
of project warning signs
Disregard
of project warning signs
4.
Poor
planning, inadequate project procedures and processes
Poor
planning, inadequate project procedures and processes
5.
Inadequate
methodologies/personnel to document and track cost, schedule and risks
Inadequate
methodologies/personnel to document and track cost, schedule and risks
6.
Failure to
set expectations and manage them
Failure to
set expectations and manage them
7.
Inappropriate
contracting strategy
Inappropriate
contracting strategy
8.
Inexperienced
project management personnel
Inexperienced
project management personnel
9.
Inadequate/unreliable
cost estimate
Inadequate/unreliable
cost estimate
10.Inadequate/unreliable schedule
11.Lack of appropriate communication
12.Competing priorities
When you read the two reports from EY
you can only conclude that the Muskrat Falls Project fits into every one of
these headings. With Ed Martin out of the way, the next person in the queue
with the responsibility for establishing the groundwork and delivering the
project is Gilbert Bennett. Clearly, he has also failed on every front. Even
without the damning EY reports, you just have to ask the question: What the
hell is Stan Marshall thinking?
you can only conclude that the Muskrat Falls Project fits into every one of
these headings. With Ed Martin out of the way, the next person in the queue
with the responsibility for establishing the groundwork and delivering the
project is Gilbert Bennett. Clearly, he has also failed on every front. Even
without the damning EY reports, you just have to ask the question: What the
hell is Stan Marshall thinking?
 |
| Gilbert Bennett – Executive V-P Nalcor |
Gilbert Bennett was a key Nalcor
executive responsible for the project and the unmitigated mess it is in? Instead
of getting fired by Stan Marshall, he gets promoted to Executive VP. An
explanation in the press that he is “good people” doesn’t cut it. He may be
“good people” but his inability to plan and deliver a project of this magnitude
is now well documented and it has cost the people of NL many billions of
dollars. You don’t promote this person, you fire him, and for ‘just cause’.
Stan
Marshall is expected to provide his own project update by the end of June. It
is obvious his initial steps to realign senior management were serious missteps.
You don’t have to read between the lines in the EY reports to quickly
understand that the most significant failures on the Muskrat Falls Project lie
at the feet of Nalcor’s leadership. In fact, the EY reports scream it. However,
in this case the missteps involved just a handful of people.
Marshall is expected to provide his own project update by the end of June. It
is obvious his initial steps to realign senior management were serious missteps.
You don’t have to read between the lines in the EY reports to quickly
understand that the most significant failures on the Muskrat Falls Project lie
at the feet of Nalcor’s leadership. In fact, the EY reports scream it. However,
in this case the missteps involved just a handful of people.
Now Stan
Marshall must deal with a larger (approx. 400 personnel) and also seriously
underperforming project management team.
Marshall must deal with a larger (approx. 400 personnel) and also seriously
underperforming project management team.
Nalcor originally engaged SNC Lavalin as the Engineering,
Procurement & Construction Management (“EPCM”) contractor. It is well
documented that engaging an EPCM to manage your project is a recipe for
disaster. EPCMs are most often paid on a cost reimbursable basis. Even if they
are performing under a lump sum contract (which is rare), the business model of
an EPCM is totally inconsistent with the needs of a project owner. An EPCM’s
motivation is to make more work for itself. More work requires more bums in the
seats and therefore, more profit for the EPCM. It has no interest in delivering
a well-managed project. As the saying is well known in the project management
world, ‘chaos equals cash’ for an EPCM.
Procurement & Construction Management (“EPCM”) contractor. It is well
documented that engaging an EPCM to manage your project is a recipe for
disaster. EPCMs are most often paid on a cost reimbursable basis. Even if they
are performing under a lump sum contract (which is rare), the business model of
an EPCM is totally inconsistent with the needs of a project owner. An EPCM’s
motivation is to make more work for itself. More work requires more bums in the
seats and therefore, more profit for the EPCM. It has no interest in delivering
a well-managed project. As the saying is well known in the project management
world, ‘chaos equals cash’ for an EPCM.
In
November 2013, Nalcor did get around to changing the management model to an
‘integrated project management team’ using Nalcor staff, SNC Lavalin personnel and
other third-party consultants. At first blush, this looks like a good move.
However, the recent EY interim report states that one of the
“…main drivers [for cost overruns] reported by Nalcor…” is related to “project
management execution”.
November 2013, Nalcor did get around to changing the management model to an
‘integrated project management team’ using Nalcor staff, SNC Lavalin personnel and
other third-party consultants. At first blush, this looks like a good move.
However, the recent EY interim report states that one of the
“…main drivers [for cost overruns] reported by Nalcor…” is related to “project
management execution”.
So
what went wrong?
what went wrong?
The
model of an integrated project management team is sound in principle. However, management
models don’t perform project management or make it successful. Quality
personnel working with quality processes and procedures (something clearly
lacking at Nalcor from the beginning and from the top down) working as an
integrated team are what make the model successful.
model of an integrated project management team is sound in principle. However, management
models don’t perform project management or make it successful. Quality
personnel working with quality processes and procedures (something clearly
lacking at Nalcor from the beginning and from the top down) working as an
integrated team are what make the model successful.
In
an integrated project management team it is standard procedure to utilize
personnel from an organization such as SNC Lavalin and third party consultants.
Owner’s often do not have sufficient numbers of the right kinds of personnel to
fully staff a large project. However, it is fundamental to the success of this
model that there are sufficient and highly experienced personnel to fill all
key project management positions from the owner’s organization. With the right
people in the right positions, the right behaviours can be driven in those who
report to them. This is central to the integrated project management model. And
if the owner doesn’t have them, it must hire them. They must be beholden to the
owner.
an integrated project management team it is standard procedure to utilize
personnel from an organization such as SNC Lavalin and third party consultants.
Owner’s often do not have sufficient numbers of the right kinds of personnel to
fully staff a large project. However, it is fundamental to the success of this
model that there are sufficient and highly experienced personnel to fill all
key project management positions from the owner’s organization. With the right
people in the right positions, the right behaviours can be driven in those who
report to them. This is central to the integrated project management model. And
if the owner doesn’t have them, it must hire them. They must be beholden to the
owner.
Based on the
notation from the EY interim report, one can only conclude that Nalcor
overlooked this crucial ingredient. Without this, organizations such as SNC
Lavalin and the third party consultants are still left running the show.
Ultimately, it ends up being no different than having an EPCM managing the
project. Get ready to pay and keep the cash pouring.
notation from the EY interim report, one can only conclude that Nalcor
overlooked this crucial ingredient. Without this, organizations such as SNC
Lavalin and the third party consultants are still left running the show.
Ultimately, it ends up being no different than having an EPCM managing the
project. Get ready to pay and keep the cash pouring.
 |
| Stan Marshall – CEO Nalcor |
The
importance of strong project management at every level is fundamental. When Stan
Marshall delivers his own report at the end of June he will have to demonstrate
that he personally understands the problems that have plagued this project from
the start, especially internal project controls, appropriate and sufficient
owner personnel in the right positions, and the demanding process of oversight.
If Stan
Marshall’s response to all of those deep seated problems is as superficial as
the executive changes he announced last week, get ready for the final project
cost to reach a level that will be well beyond every Newfoundlander’s worst
nightmare.
Marshall’s response to all of those deep seated problems is as superficial as
the executive changes he announced last week, get ready for the final project
cost to reach a level that will be well beyond every Newfoundlander’s worst
nightmare.
__________________________________________________________________
Editor’s Note:
Frank Wright is a seasoned
executive with 25 years’ experience delivering large EPC projects around the
globe. He possesses immense strategic and technical knowledge of energy
construction project development and management. His international experience
includes projects in North Africa, Middle East, South East Asia, South America
and Mexico. Frank says that focused leadership and prudent management are the key
influences on project success. Frank’s curiosity was piqued when he happened
upon the Uncle Gnarley Blog. He decided to take a closer look at the Muskrat
Falls Project and offered to share his views.
executive with 25 years’ experience delivering large EPC projects around the
globe. He possesses immense strategic and technical knowledge of energy
construction project development and management. His international experience
includes projects in North Africa, Middle East, South East Asia, South America
and Mexico. Frank says that focused leadership and prudent management are the key
influences on project success. Frank’s curiosity was piqued when he happened
upon the Uncle Gnarley Blog. He decided to take a closer look at the Muskrat
Falls Project and offered to share his views.
And thank God Mr. Wright happened on Des's Uncle Gnarley Blog. Well done Des and Mr. Wright — well worth the read. Maurice Adams, Paradise
SNC Lavallin doesn't have the knowledge to built a dam like that..as for the transmission line Hydro-Quebec advised you that it will not work transmitting the electricity underwater…as of now the deficit is up to 10 billions dollars and SNC Lavallin is asking for another 10 billions dollars….what has been done on the dam will have to be demolish because it will not be able to stand the water pressure to do so…so when will Hydro-Quebec will be call to do the job…apparently HQ already built a transmission line to transport the eventual electricity….another newfie joke
Mr Wright your analysis of the project management finally defines the scope and scale of the Nalcor incompetence (or worse). This scale of failure was predicated by an arrogance that Nalcor had political cover, enforced by secrecy, disabling regulatory oversight and the shocking lack of even the most rudimentary project management controls that you have clearly outlined.
That shocked Project Managers and bloggers bear the responsibility of informing the public (as volunteers), speaks to a confounding issue in this unfolding tragedy. Both your media and political opposition are functionally dead. They are both incapable or unwilling (or both), of analysis, communication of the real issues, or action.
Thank you Frank for your clear, informed analysis of the problems.
How do we translate this frightful knowledge into effective action given that two legs of the stool (media, opposition) are sawed off?
Good read and true facts….I have worked many mega projects in the west and there are three words in this report that we always refer to…Chaos means cash…we always say..I myself have seen it over and over poor management makes good projects bad…..
You say Chaos means Cash!!! If I I remember correctly at the beginning of this project, we were told that there would be many cost over runs. So then were there many multi millionaires created from the chaos of this project at the expense of the taxpayers and hydro consumers of Newfoundland and Labrador for the next hundred years?
Do these fiascoes only happen or continue to happen in NL?
Many thanks to Frank Wright.
There should be public inquiry into this Mega Failure, when the new cost update given by Stan Marshall shows the project is now $11-12 billion instead of $6 billion initially, the shit will hit the fan…
Well Frank, Stan Marshall’s response to all of those deep seated problems is indeed as superficial as the executive changes in his "update". He did not address any of the project management shortcomings. In fact he defended Gil Bennett!
He trashed the assumptions at the outset "just a mistake by good folks". Updated cost 11.4 billion and counting! Stopping not an option despite no quantification or investigation of the cost of stopping! Cost will be 22cents a kilowatt hour. Oh my god.
When the bill crosses 15 billion Stan will claim his assumptions were wrong!
Who was and who is the Cost Engineer involved with this project?
SNC-Lavalin. Need I say more? The entire project is rotten to the core and little more than a last-chance extraction of the only resource we have left: our financial credit with the bond markets. When we can no longer borrow money for this project the principal players will walk away leaving the province insolvent. Why does it continue? If Mr.Marshall is serious about taking a hard look at the project why not stop it now and conduct a complete analysis with the aid of a third party with appropriate expertise and no interest in the game? Sorry, EY does not pass that test. The poor, the elderly, the stupid, the immobile, the desperate, the hopefull will pay for this ad infinitum while those that particpiate will take their gains and run. Again, Ed Martin's cashing in of his pension is proof that he has no confidence in the future of this province. There is nothing new going on here: just the continuation of a pattern of exploitation that has been going on for hundreds of years. SNC-Lavalin vs. dumb Newfies. Guess who wins….
Regretfully,
John D Pippy
As I got close to the radio( I have some hearing deficiency) to listen to Stan Marshall, I was reminded of the the pictures I have seen of the families listening by the radio in 1941, as Roosevelt declared the disaster of Pearl Harbour. That thought crossed my mind before Marshall spoke.
Marshall is not a polished speaker. That short coming is more than made up by his brutal straight forward approach and honestly of the circumstances and situation, or so I thought. We got more straight talk in 15 minutes than in 3 years from Ed Martin and all the politicians who promoted and misled the province.
Not surprised that we have gone too far to turn back, in terms of money already spent. Not surprised that more help is expected from the Canada on financing. This is in many ways a regional project, but we Nflders are holding the bag for the cost. Not surprised he sees value in Gilbert Bennett: that he was more or less following the leadership. Now there is new leadership, so Bennett can be an asset, despite his being part of the cheerleaders for this boondoggle. I have waited for the newspaper headlines calling Muskrat Falls a gigantic blunder. Boondoggle is close to that.
Not surprised that power rates could hit near 22 cents, unless some steps can reduce this. 22 cents will cripple Nfld Power sales of electricity, and negatively impact Fortis. And this impact must be contained.
This blunt report and assessment by Marshall must take the shine of Danny William's star as a insightful businessman, who had the province's interest at heart.
Yet Fortis has some responsibility as to this boondoggle. Nfld Power, owned by Fortis, had perhaps the main input and assumption into the overly optimistic forecast for power demand and energy use needed by the island. The forecast was a joint effort by Nfld Power and Nfld hydro. The forecast suggested that WE NEED THE POWER. Neither company use best practises for forecasting (no end-use research, that can predict reduced energy use and reduced peak demand, for heating and hot water, as pointed out by Manitoba Hydro consultant to the PUB). Marshall now says we did not need much power, and our needs could have been addressed in much less costly ways. Perhaps Marshall should have been more vocal before sanction of Muskrat Falls. But then again, most Nflders at the time would have believed Danny Williams, that more polished speaker, preferring bullshit over substance.
Winston Adams
Are you saying that the Project Cost Engineer, (SNC Lavalin?), was influenced to accept the pumped up "optimistic forecast for power demand and energy use needed by the island", while government, (Power Company), promoted "all electric" construction as project feasibility justification vs energy conservation measures? Sort of a conflict of interest would you say.
Certainly that is the case, to ignore efficient heating and other conservation measures. Example, to heat a 4000 sq ft R2000 house, we recorded in early April, at -8C, using 10 minute interval recording, with charts print out from the sensors to show this : 2kw needed with a heatmump, 5 kw when switched to baseboard heaters, and 17.5 kw when recovering from programmable set back thermostats with baseboard heaters. The latter two is the recommended options by our power companies. On a province wide basis you can see how we can cut power demand and energy use at relatively low cost, and reduces monthly energy bills about 35 percent for regular houses.But who wants that!
Power consumers, (ratepayers), would do well to seek alternate living space and heating fixturing, to reduce their specific energy needs. As a boy living in Heart's Content in the 40's, modest poorly insulated house, wood and coal, kitchen stove plus small fireplace… you know the rest. Small, central oil furnace came in the 50's.
I always thought the Avalon would utilize wind generated power to supplement central oil fired, (Holyrood type) generation.
Robert, may boyhood experience was similar to yours… coal, wood, then oil stove, then electric heat in the late 1960s. I did engineering, worked on Churchill Falls, first heard of heat pumps in 1970s. Realized they use one third the electricity for heat as baseboard heaters. Seen these used extensively in commercial buildings from 1980s onwards. Lower cost models for residential became popular in the 1990s, and 10 years ago could handle residential use under our cold temperatures, to provide full heat. Could have converted every house in Ndld for about 1.5 billion dollars (750 million if half paid by rebates and half by customers). Use so little electricity that it reduces energy use 60 percent for heating, so while expensive to install, saves thusands in heating costs.These were being installed at about 20,000 units per year in Nova Scotia before Muskrat Falls sanction. Benefits should have been well known to the power companies and government. I made it known to the PUB. All ignored. Still being ignored. Now being installed at about 1000 units per year in Nfld, promoted by word of mouth. We will move to a higher rate of installations going forward that will decrease energy use further, and reduce peak demand when units are sized correctly. You are correct, more wind would have been part of the option that should have been followed. They operated at about 43 percent capacity, as the wind is variable. But it is an important asset to reduce oil burning. This is mostly water under the bridge, as these options were ignored or misrepresented as to least cost. And consumers were too little engaged and too content to trust slippery politicians. It is our nature, too trusting, and too content… with our status, short lived, as a have province with oil revenue. So we have been shafted… again , nothing new.
Winston
I am wondering what kind of research did Stephen Harper's PC Government put into this ill fated Muskrat Falls Comtract before he put the Ottawa Government's signature on the Loan Guarantee, not only to protect Ottawa, but to make sure the Government of Newfoundland and Labrador and its people were protected as well? I have a feeling given the ill-will that existed between Harper and Williams, the Harper PC Government didn't give one iota whether this project failed or not, since Ottawa was covered and Nova Scotia would get its cheap hydro-energy no matter how much stress would be put on the people of Newfoundland and Labrador. Isn't that the way we Newfoundlanders and Labradorians and the province have been treated by the Ottawa government for the 67 years that our province has been part of the Canadian Federation?
Sent from my iPad
From the beginning I never thought that Harper was doing NL a favour with the loan guarantee — the opposite. Maurice Adams. And Stan Marshall? He is just a fresh horse that Ball is using to finish the race (as Marshall says —- a strong finish). Maurice Adams
This project is 4 times more beneficial to Nova Scotia to reduce coal burning, then to Nfld to reduce Holyrood oil, so it regional importance. So it could have regional and Canadian benefits, but very uneconomic for us.
If Marshall had been there a year or more earlier, it perhaps would have more justification for stopping the project.Even now, Marshall says he may be wrong, and I expect there is a lot of risk that the 11.4 billion could be exceeded. Timing is a big part of this decision. I have little doubt that Ball asked Marshall to save this project, not stop it. Worse can happen… we finish it and the North Spur gives way in a few years, or maybe in a few months. With luck and good engineering it may last 50 years, who knows. I don't just see Marshall as a fresh horse, but also a smarter horse, a cross breed (an engineer and lawyer),but business skills, and hopefully with more of Nfld's interest at heart than Williams and company. And he appears interested in working with Quebec and all the interested parties, and not to make foolish decisions to get back at Quebec, as was Dannys idea.
I do wonder if Nfld interest takes priority over Fortis interests, but is there another, better horse that you would chose!
Winston
I have a question for whoever would like to give the people of Newfoundland and Labrador an answer. Shouldn't Ottawa have had a more accurate accounting of the cost of the MUSKRAT Falls project before giving us a loan guarantee?
The decision, both federally and provincially, was a political charade and was sanctioned without proper oversight, as Mr. Sullivan so succinctly points out.
It was, in my opinion, Harper's final revenge on the PC's, as it gave an extraordinary advantage to Nova Scotia while putting the screws to NL. The sheer stupidity of Kathy Dunderdale, and a host of other minions who kowtowed to Danny Williams, must have made Harper smile at the time.
The question is very legitimate but the answer is not entirely about the cost of the project cost estimate. It extends to the rationale of the entire scheme (the business case) which covers fundamental assumptions used to justify the investment, and to various environmental issues, including with respect to the North Spur, and others like the inherent legal issues regarding the Water Management Agreement. Natural Resources Canada (NRCan) conducted a Review of the project for the Federal Government. It was an incomplete, amateurish analysis that omitted discussion of serious project risks. For example, the risk of "Quick Clay" at the North Spur was not mentioned, nor were other concerns raised by the Federal-Provincial Environmental Panel. I don't know if this was the result of incompetence or if this was the kind of Report the Natural Resources Minister sought, at that time. I challenge anyone with a knowledge of the MF project to read the NRCan Report and offer a contrary view.
The question is very legitimate but the answer is not entirely about the cost of the project cost estimate. It extends to the rationale of the entire scheme (the business case) which covers fundamental assumptions used to justify the investment, and to various environmental issues, including with respect to the North Spur, and others like the inherent legal issues regarding the Water Management Agreement. Natural Resources Canada (NRCan) conducted a Review of the project for the Federal Government. It was an incomplete, amateurish analysis that omitted discussion of serious project risks. For example, the risk of "Quick Clay" at the North Spur was not mentioned, nor were other concerns raised by the Federal-Provincial Environmental Panel. I don't know if this was the result of incompetence or if this was the kind of Report the Natural Resources Minister sought, at that time. I challenge anyone with a knowledge of the MF project to read the NRCan Report and offer a contrary view.
Thanks Mr. Sullivan for your reply that gives us some insight into the liabilities that could accrue to us and our province through the oversight of problems, whether deliberate or not, that could add another 100 per cent or more in cost overruns. I see no possible way where those who are being relied upon, the tax payers/hydro consumers, to pay for the mistakes of others can be avoided, as I don't think there are insurers out there who would take on such a liability. Ottawa shouldn't have either if it didn't have all the facts through its own understanding of what would be involved in the project.
Sent from my iPad
Around 2011 (at the end of my first Nalcor AGM), a CBC reporter asked my thoughts on the project (they were never broadcast).
I replied "We don't need it, we can't afford it, and it's too high a risk".
I think all aspects of this boondoggle fit under one or the other of those perceptions. Maurice Adams
So Stan Marshall has defined his role as "Grand Wizard". He will lower the cost of power below 22 cents KwH. He has no plan, has disclosed nothing new, and has left his disgraced project manager in place at MF despite the abject failure of planning, co-ordination, and execution that is the subject of this posting. And by the way SNC Lavalin still rules the roost. What could go wrong?
It is true Winston that we heard more plain talk today in 15 minutes than in 4 years from Martin, but you were still fed a load of mularkey from the new Nalcor Wizard. No plan, no team, no oversight, just loads of pixie dust from your plain speaking new wizard. Just trust Stan. He has such an honest face does he not?
Time to lift the veil from your eyes methinks!
How naive and unsophisticated I have been for most of my life. I absolutely have lost all faith in politicians and bureaucrats. For most of my life I thought they worked for the established salary of the respective politician whether it was for a MHA, MP, PREMIER or a PRIME MINISTER. I thought they were in their position on behalf of conducting business on behalf of their province or in the case of the Prime Ministers their country. Never in my wildest dreams did I think a Project such as Muskrat Falls would be dreamt up to be foisted upon the electorate and the province that would cause so much abuse and stress that would bring our wonderful province to the BRINK of bankruptcy.
Bruno, 6.7 billion spent and billions to settle if the project is cancelled….. sounds like 9 billion with no power if we cancel. To go forward, another 2.4 billion, and maybe another 3 or 4 billion if things continue to go wrong. Seems like between a rock and a hard place. So I can swing either way given the circumstances.
Is Marshall one of the same who cares little or wants to rip off the average Nflders. I can only hope not.
My preference from day one was lots of efficiency and conservation to level off and actually roll back energy use and peak demand. Add some more island hydro, and add more wind. Retire Holyrood gradually and have some newer gas turbines for emergency power.
Now for sure, with these continued higher cost forecast for power, customers will step up on efficient heating, so energy use and demand will drop continue to drop to slow and may go negative. Even more of the MF power will go to Nova Scotia, that we pay for. Good for Nova Scotia, bad for Nfld. We have to suck it up, because all the naysayers, including you were ignored.
Marshall says assumptions made were wrong. That energy use and demand will continue to grow was an assumption that was wrong, and only now showing it`s head. Nfld Power(a Fortis company) was part of that forecast assumption. So Marshall`s company was part responsible for that…. and notice that conservation and energy efficiency and demand management was NOT part of the formula going forward, for Marshall or Ball. Customers will opt for this, forced by high energy costs. All other jurisdictions follow this option somewhat aggressively, but not here.
Why… part to protect Fortis shareholders from revenue reduction and reduces earnings per share.
Really think I have veils over my eyes…. my written comments to the PUB bordered on unacceptable language (I was told) in 2013. To my amazement, Nfld Power officials get credit on salaries with success with the regulatory agency (PUB) on rate hearings, and the Consumer Advocate and the PUB are seldom holding them accountable for their failings on efficiency and conservation. Government, big business, and soft regulators….giving little protection for the consumer here. I know all that. No veil there.
Winston Adams
This comment has been removed by the author.
Winston you are forgetting that if the spur fails it will be 15 to 20-billion spent and no power. Blind trust must be replaced with informed examination. Show us the engineering, costs and contracts before we continue to believe that pixie dust will save us.
Billions will be saved by rate/taxpayers if the transmission is completed and recall power from the Upper Churchill is used to offset the Emera giveaway. Of course this assumes the under designed towers remain upright and Manitoba Hydro are wrong and Martin/Bennett are right about the design criteria!
The least cost option now if one has clear eyes and an informed mind is stop the dam and continue the transmission project. Does that even matter any more?
Bruno, you are up early this morning, with comment posted at 07.54. But then , this boondoggle should keep more Nflders awake at night.
You say that I forgot that the North Spur may fail. See my comment yesterday at 15:42, saying the worst that can happen is for the North Spur to fail. These are issues raised most by Cabot Martin and Maurice Adams, and I had long ago commented that this alone could be a half billion dollar fix, if a fix is even possible.
My position has been that even the transmission line was not needed : 1. That up to 600 megawatts of demand reduction is possible and economic through aggressive cost effective efficiency measures. 2. That the transmission line may have serious reliability issues. St John`s depending on power from 1100 kw away with many risks, even if the towers stay up, it is subject to severe salt contamination caused outages. And has anyone but me ever mentioned geomagnetic induced currents, which caused the great Northeast blackout of 1989. A risk not even mentioned; cost to Hydro Quebec in 1989 ,some 1 billion. I had some experience with this issue in the 1970s when I worked with Hydro as an engineer.
This project was a gamble and speculation. Still is, for both the dam and transmission line.
Should we suck up the sunk costs or try and save the project. Marshall says try and save it, but at a steep cost. In terms of climate change, and offsetting oil and coal burning, it has value if it can be saved. This means looking at the regional and world energy problem. If for Nfld only, I would say shut down the whole thing , including the transmission line, but this then require aggressive efficiency and other measures. And this is not even on the radar in this province, yet. The new Liberal Canadian government seems committed to dealing with climate change. I think they should kick in several billion, not as a loan, but a grant, to this project, as infrastructure benefits justifiable under climate change programs. They kicked in 25 percent (100 million) toward the new Core Science building at MUN this week.
Winston
I agree with all your points Winston, except for your conclusion. Marshall has done zero examination of the stop option by his own admission. He wants to save the project (at any and all costs) without the management changes this post demonstrates is woeful. Marshall refused to make public the contracts so you must act on FAITH once again Winston. What fuels your optimism?
When your blind faith is once again betrayed you have exactly what besides pixie dust left?
He has set as his goal selling the "surplus" power to lower the cost. He has no plan to fix a project he describes as a boondoggle. It is mindboondoggling really.
Winston you want the feds to shovel money into the churning, lawsuit riddled disaster that is the current state of the MF money pit without them seeing a plan or input into project management? Would feeding the monster not be exactly the wrong thing to do? An airing and disinfection is in order instead.
Bruno, the Feds should never have approved the loan guaranteed before it had all the facts, figures and details of the Muskrat Falls Contract and they should have inspected the project at every juncture because of the liability of the loan guarantee. The Feds also also knew, I am sure, that the NL provincial government was in the process of enacting Bill 29 and everyone with one brain cell knew what that Bill was brought into being for. As far as I am concerned the Loan Guarantee sealed the fate of Newfoundlanders and Labradorians. This project was guaranteed for the benefit and hydro needs of Nova Scotia AND Newfoundlanders and Labradorians were to be doomed with back breaking hydro bills for 57 years..
Bruno, I take it that his figure of over 6 billion spent and committed and several billion to cancel reflects some analysis of the cost of stopping. I have little optimism that going forward can make this a good project, just might be possible to make the best out of a boondoggle.And it may be in the end we may look back and say it should have been stopped in June 2016. I supported stopping this a year or two ago when there was less money spent.
Marshall has assessed the worth of the so called gravy, (export sales) at helping reduce costs here 0.8 cents per kwh, which is peanuts. He says he hoped our final electricity cost to be in the middle of the pack (Canadain average I take it). We are about there now, so I cannot see how we can avoid being the most expensive, without other measures: Ottawa help, more cash from our government etc.
Fortis did come in on budget and on schedule on a recent Hydro project in BC., a 1 billion project.
I guess I feel this project is at the tipping point on the wisdom of cancellation. I expect costs will perhaps exceed 11.4 billion. Marshall has a long history of being a capable manager, but I do not think he is much of an environmentalist, but as I do not know him, this is just an opinion.
So I have little optimism, just some hope, for what that`s worth. Under Ed martin, from day one I felt we were heading for a boondoggle. If we stop now, power rates may need to go say 19 cents, to complete the project it 21.4 cents, but maybe some mitigation as Marshall says, can lower it some. If there is pixie dust … it must be to achieve keeping our costs in the middle of the pack. That can do with some clarification, as seems largely impossible, and perhaps misleading.
I expect he will do his best, also for this reason: very high power rates will negatively impact Nfld Power sales and revenue and profit. Aggressive efficiency will do the same. Modest efficiency will occur more slowly after high rates kick in. Nfld power is between a rock and a hard place for profit growth. To make the best of MF to give moderate rates is best for Nfld Power and Fortis. So it seems that Fortis interests and Nfld interests is to tame this monster instead of killing it. A year ago I would say kill it. It was the PC objective to get this to the point of no return, and it seems they did that. Too few naysayers and too little main media attention to those wrong assumptions. In many cases the assumptions were plainly wrong.
Having said that, I do not know if Marshall is aware of the potential for very significant reductions in load and peak demand on the island going forward. He says he has looked at everything… but Nfld Power is in denial of the effects of efficient heating that is just starting here, and doing what they can to slow it down efficient heating. Marshall may look back in a few years and say `we ASSUMED efficient heating wouldn`t catch on so fast`. If he is not aware of what is happening in other jurisdiction, then he is less aware than I would hope. He is either on top of this risk or he is not.I would like to know.
Winston
It is never too late to kill a project doomed to fail that destroys the way of life of Labradorians and that will leave the old and poor shivering in the dark(even if the towers stay upright).
You seem to have swallowed the "too late to stop" line without any evidence. I remind you again that there was no analysis of the cost of stopping. You grasp at non-existent straws to come to your conclusions.
The "naysayers" (read the informed and alarmed) numbers swell by the day. There is plenty of legitimate concern Winston, what is missing is the willingness to confront the lies and the oligarchs that keep feeding you tripe and stealing your future.
Evidence, not blind faith is what is required if Stan is to be believed.
Bruno, Your statement "Evidence, not blind faith is what is required" is correct. But Bruno there are three entities in this marriage NL, NS and Ottawa and everyone should have used their due diligence and kept up their surveillance. Now it appears that the province of NL and its people are doomed. The need for hydro energy for the people of NS and the Ship Building Industry contract that was awarded to Nova Scotia by Ottawa desperately needed to be taken care of and that is the reason for the dilemma we are facing in this debacle.
Bruno, you rise early, posting again at 06:45. My extra sleep may have taken me from the shock of our Pearl Harbour announcement of Marshall. Shock symptoms: My many posting on this and tipping to give Marshall the benefit of doubt. And I said that it seems Fortis, Nfld Power and Nfld interests are alighned as to proceeding with MF, that it is too late to stop.
My reasoning that very high power rates will negatively impact sales and hurt Nfld Power and Fortis. The first part is right, the laws of elasticity means less energy sales. My insight this morning: It will not hurt Nfld Power and Fortis. Let me explain and see if you agree. Energy price doubles or close to that and say elasticity at least 0.3, what is the result: Sales of energy drop 30 percent. Someone with a $4000 yearly bill see $8000, but will reduce energy use and wind up spending $5600. Nfld Power income at present is about 560 million. If sales stay constant it would jump to 1120 million, but with reduced sales, it would be 754 million, an apparent increase of 194 million. At 8 percent return, that is an extra profit of 15.5 million. Not sure if it works exactly that way, but if so, Fortis share holders can profit from these high prices, even with less energy sales. If elasticity is greater than 0.3, sales reduce further and there is less of a profit gain.
Can you or some reader clarify the impact on Nfld Power`s profit of these high rates.
At the PUB hearing on Apr 12, the issue of elasticity was raised by lawyer John Green ( who I did not know who he was or who he represented). It was stated that elasticity is currently at about 0.2 but expected to go to 0.3 with the Muskrat infeed. I have read since that John Green is a lawyer for Fortis, but has now switched to Nalcor. As Fortis was not a party to the Rate Application, I wondered how he got to even ask a question on this. It seems they wanted on record that Nfld Power and Nfld Hydro are in general agreement that we are headed for elasticity of 0.3, which doubles the present rate. Why have it on record…. I suppose to deflect blame on the government Nfld Hydro down the road, and not the fault of Nfld Power that they used false assumptions for MF forecasting for energy and demand use. Is this an attempt to avoid being accused of `imprudent` decisions and assumptions, I wonder.And Liberty is not fond of imprudence as we now know.
Winston Adams
I presume by "elasticity" you means the 'price elasticity of demand'. This is a term used by economists. There are several other 'elasticities' used by economists but I won't bore you with that. I'm not sure why a lawyer is talking about this to the PUB but I will give him the benefit of the doubt since I too, am a lawyer, but have also studied economics.
Price elasticity of demand ("PED") is a measure used by economists to show the responsiveness, or 'elasticity', of the quantity demanded of a good or service to a change in its price (all other things being constant). For a 1% change in price, it gives the percentage change in quantity demanded. 'All other things being constant' is simply a way of saying that there are often many other variables that affect the demand for a product or service but to measure PED, it is assumed that there are no changes in those other variables, otherwise the calculation of PED is a nightmare.
Electricity has what is called an 'inelastic demand'. In other words, for a 1% increase in price, the quantity demanded will fall by less than 1%. This is because it is the kind of commodity that people must have. They can't easily or quickly change to an alternative to electricity. The PED of a box of chocolates, for example, is considered 'elastic'. If the price of a box goes up by 1%, the quantity demanded will go down by more than 1%. This is because you can easily switch to another product that will satisfy your need for chocolates.
The bottom line, electricity sellers are not very sensitive to the consumer when it comes to price increases, they will always get their pound of flesh (which is why it is generally a regulated commodity, so the seller can't gouge the consumer).
Your reference to the "elasticity" going from 0.2 to 0.3 is not particularly helpful. It doesn't mean much without knowing what the price change is that will cause the elasticity to go from 0.2 to 0.3. And there is no reference to the time period that this change will happen. All it says is that there is an expectation that PED will become slightly less 'inelastic'. My take on this is that there is an expectation that demand for electricity will actually go down over some period of time. I expect that some consumers will switch to other forms of electricity or there may be fewer consumers demanding electricity in the future.
Of course, this calls into question the very foundation for the decision to build Muskrat Falls. If demand is actually going to fall in the future, it flies in the face of the assumption that it will increase (one of the premises for the Project).
Without more information it is difficult to offer more analysis. And I can't say I have the inclination to go looking for the presentations to the PUB. Given the status of the Muskrat Falls Project, it is all too little, too late for this.
The best I can offer is the same recrimination as you have. NL has a disaster on its hands that was totally unnecessary and actually irresponsible and reprehensible. The reckless disregard by Danny Williams and Nalcor for the NL citizens is disgraceful. It demonstrates the ruinous contempt they had for the very people they were supposed to serve.
As one who has been saying MF makes no sense from the outset it annoys me that even when the reality dawns the victims of this debacle remain compliant. It is never too late to stop a boondoggle. The cost will continue to soar, the project management is incompetent and nothing is being done about it, the spur may fail and sink ALL the money, Labrador's traditional way of life is being destroyed in a callous and again racist dismissal of the value of indigenous peoples way of life and rights. I am sorry but shrugging ones shoulders and saying oh well I told you so is not good enough.
Winston, Nalcor and NL Power will do just fine as always. The burden remains on the chumps that continue to be kept in the dark–the rate/taxpayer. Is it not time the rate/taxpayer had a good look at what they are buying? Because 6 billion have been wasted is no reason to waste 10 billion more for power no one needs or wants especially because of the environmental destruction it will wreak.
Winston I mind the heat more and more as I age so I do my gardening early in the cool part of the day.
Boys, the prime motive which twisted the feasibility seems to be a "get even with Quebec attitude". Living in NS at the time, (2005-2010), there were open discussions as to how to resolve an Atlantic Power Grid, (Renewable, Hydro preferred), which simply put was achievable through interconnect with Hydro Quebec. There were obstacles; NB Power, a public utility was in the process of selling its assets, (Lepreau and its problems), to Hydro Quebec. That was stopped by change in government. Emery and SNC Lavelin were hungry for cash cow work, NS changed government, NL government was hot to "get even", and everybody wanted to avoid dealing with HQ. Any thoughts on negotiating a deal with the most solvent Power Corp, (HQ), to take on the Muskrat, and become the natural power supplier for the region?
Correction, I meant Emera.
To : the lawyer who studied economics
Yes, price elastics of demand…. for electricity , David Vardy has used a figure of 0.5 expected from MF cost effect. I have read that where there is cost effective alternates for electric heat. say were gas is available , the figure can be more than .5, which suggests a very large reduction in use. Efficient mini-split heat pumps save up to 65 percent on electricity use and can reduce peak demand significantly. The PUB discussion reflected the increase in use of these and also a slowing economy, and the cost of MF, which was then stated to be 9.1 billion. That was when the increase in PED was indicated to increae from .2 to .3, a 50 percent increase. Now with MF at 11.4 billion and rising, PED will increase more.
In the Rate application, it seems PED is accounted for as a factor that they cover as extra cost to cover and pay out to the power company, but obviously a concern to them….. and all the more reason to avoid further reductions by promoting efficiency, as I see it. And of course, pre-sanction it was stated that efficiency saving for housing was reaching saturation, a false assumption, by a long shot, but they assumed this for forecasting.
To Bruno: The mercury issue… you are right. The flooded area at 41 sq km is about kalf the size of Bell Island in Conception Bay. Seems appropriate to clear cut, and perhaps have a wood pellet machine to feed isolated communities on the Labrador coast to reduce oil consumption. The Spur…. Marshall is reckless if the concerns of quick clay is not properly addressed. And Marshall said he hopes to keep our electricity rates in the middle of the pack. It is all ready in the middle of the pack, with Quebec at about 6 cents, Nova Scotia at 16 and we at 10.5 before tax. If headed for 22 cents and he keeps it a few cents lower, we will still be the highest in the country. How can we take serious being in the middle of the pack. Having gone with other options instead of MF we should be in the lower third of Canadian rates.
An engineer with the major oil companies here to day said to me , as to MF, if this was a project by them, even at this stage, they would mothball the project.
In all, with further reflection, I have again tipped back to my original position: too many risks to continue, even at this late stage of sunk costs. If one can vote on this, I would vote to halt the project, not that it seems to count much.
Winston Adams
I was very dubious on this project when Ed Martin said on Back Talk that he looked at every option including dealing with Quebec (whom at the time was selling power to southern ON for about 4 cents). When Paddy said he'd get and post the detail, Martin was quick to point out that they never really sat down with Quebec Hydro formally but that dealings in the past were difficult.
A lie or deliberate deception? This left me with a very strong distain for Ed. Not a great to follow up that they looked at every cost option. From then on, I knew this project was a back-room affair with other's affair's in interest.
When people say we as NLers supported this in the beginning I disagree. Most NLers were unaware MF was in progress until hundreds of millions, maybe even over a billion was already spent on it. I'll go so far to say now that many NLers are still unaware what this will mean come 2019. We are guilty of not ousting the PCs over Bill 29 and not demanding full disclosure on the project before it was ever sanctioned.
I feel the polls said most Nflders supported MF once Danny Williams said it was a no brainer. And Dunderdale carried the MF banner until DarkNL . And most (54percent) still did, as of a couple of weeks ago. However, I feel the support, by the public, was in large part due to not being informed on the complexity and risks of such a project. Not only not informed, but misinformed. Our media is in no small way part responsible for poor investigative reporting. But it is more than that. These is basically NO INTEREST or participation by the public or other private companies in the power rate applications, where efficiency and conservation is a component to be considered. We defer to the Consumer Advocate, a MF supporter who has said little on efficiency, and uses no energy efficiency consultants nor brings any evidence to advance these issues for the consumer. Who can blame the power companies from taking advantage from a disengaged public and rubber stamping by the consumer advocate and PUB. Is it not true that this blog is the number one media that has tried to engage the public that they are being screwed by both the government, the consumer advocate and the power companies. And this post by Mr Wright,while free of cost, truly is of great value when compared to how money has been wasted by other experts engaged by government and power companies in support of poor assumptions instead of evidenced based decisions.
Those consultants gave a few clues of concern that were ignored: that new generation should be of moderate capacity said Manitoba Hydro. At 11.4 billion, that is 4 times the value of all our energy assets build up on the island over the last 100 years, and for one third of the firm generating capacity of our other assets. They warned that end use research was not being done to get a better handle on forecasting power needs. Now we find forecasting is already gone way off, and likely to get worse. And still no proper end use research being done. And just recently ICF consultants suggested mini-split heatpumps could provide tremendous energy savings and likely significant peak demand savings. This was ignored just last month. And Manitoba Hydro said our wind generation could be increased from 2 percent to 15 percent, which was ignored (though a very useful benefit to offset oil burning at Holyrood or fuel for gas turbines). Not only were the naysayers ignored, but even when the consultants for the government and power companies that gave some warnings, these were ignored. To rationally explain this boondoggle is beyond my ability, other than to suggest it must have been known to be high risk, but was profitable for many who promoted it. And most professionals, who likely had grave concerns, chose to stay silent. Where is the gravy that Ed Martin promised. 6.2 million for him.
Winston Adams
Anonymous 24 June 2016 at 21:01 Every point you made here is correct. We were duped and I will concur that Bill 29 should have spelled the end of the PC government. It was a bill enacted to cover up many corrupt aspects of the Contract. As you say Many NLers are even presently unaware of what is going to be their downfall in 2019 since they will end up with not enough income to keep their heads above water. Many multi-millionaires have already been made from this boondoggle of a contract, and you can be assured that money is probably waiting to dupe us all over again in public-private partnership contracts.
An interesting and informative analysis, but it is an analysis that was also done by many MF naysayers immediately after the first EY report was issued. However, it fell on deaf ears. As regards SNC Lavalin, there are rumours of a "risk report" being delivered by that firm to Nalcor back in 2013 that demonstrated that this project was, in Mr. Marshall's words yesterday, a boondoggle and should be cancelled. Of course, that was not what Nalcor and Danny Williams wanted to hear. So what did Nalcor do? They apparently reduced SNC Lavalin's role from full project management (EPCM) to one of engineering-only, and took on the project management duties themselves through that "integrated team" Mr. Wright mentions. That way, the risks and actual cost estimate of MF was kept from the public, the project got sanctioned, and the runaway train was waved and cheered from the station. Someone with some journalism skills should be digging deeper here. How were these 400 people that Mr. Wright mentions hired? Through what process? And by whom? And at what cost?
The Details that are being revealed on the Muskrat Falls Project are becoming more and more alarming and disturbing each day that passes. If most of us had any "project managerial skill input" into the MF Project, we would long ago have taken to our beds with a severe mental illness. Let us face the piper now, the looming debt problem that is about to be foisted upon us has to be ameliorated somehow, since 500,000 with no more than 200,000 taxpayers out of that number cannot be counted on to pay off this monstrous debt unless it is amortized over 200 years. And to make matters worse the Conference Board of Canada stated the province of Newfoundland and Labrador is the only province in Canada about to suffer a recession over the next few years. Where Have all Of our Province's Natural Resources Gone to Create Economies and Population Bases? We have, no doubt, been severely duped by every politician in country. Time for Change!
Thank you for posting the expert opinion of Mr. Wright. I have followed this project since I heard the Williams battle cry…" We don't need Quebec – we'll build around them". My immediate reaction was that he needed to look at a map again.
Never has there been a more egregious disregard of the public good, as that displayed at the 'Mad Hatters' tea party at sanction in Dec. 2012. My anger today is immeasurable over this pillage of the public treasury by dilettantes and poseurs. Muskrat Falls was painted by Tom Adams as the worst electricity generation project in Canada at the time. It is much worse than that today.
I too thought Stan Marshall would bring his experience to bear on this project, realizing that the first thing necessary would be the analysis required to assure the shareholders, ratepayers and taxpayers (one and the same) that the decision was prudent…whether to proceed or delay. It seems that was not the case, and once again he has made the big assumption that the information provided him internally was correct, without any independent verification. This is completely unacceptable. I too informed the Premier, that EY was not necessarily the right consultancy to carry out this work. I also said that we are the only Province in Canada to have had the PUB removed from the examination of the largest expenditure in the Province's history, and that this cannot be tolerated.
There will inevitably be forensic auditing required of this whole debacle. It is unavoidable. An 'estimate' of $11.4 billion to complete today is $13.8 million/MW! This is several multiples of conventional hydro costs of construction. Even taking into account the 1100 km isolation of the plant from the perceived and inflated demand, and the expensive undersea crossings, it is still wildly out of line. Listening to the Premier yesterday, he seems to be simply…confused. There is no conviction there, other than support of Stan Marshall. We require independent verification of his opinion. The proven reputation of the Nalcor project team at providing lousy information, simply excludes any other conclusion.
Mr. Marshall does not seem to understand that the NL shareholder does not care about his bleatings that Gilbert Bennett has done his damndest to make the project work. The fact is, he has failed, miserably and spectacularly. Who selected Astaldi? His efforts simply were not good enough, and Marshall rewards him with an Executive VP title and puts him in charge of powerhouse construction? He must be replaced. I cannot believe that accountability in NL is so seldom carried to conclusion…virtually never!
Government oversight has failed completely. Julia Mulalley, Clerk of the Executive Council, an accountant with no construction management experience at all, and who has worked nowhere else in her career but in the NL Government, cannot possibly provide the leadership necessary for such a task. Again, she depends upon EY to provide reports for review by the 'Oversight Committee'. I have read all the meting minutes, and can find not a whit of assurance there, that my investment is safe. Another miserable failure based on the disclaimer by EY in all their reports…'that the information contained therein has been provided by Nalcor, and has not been verified.' We certainly cannot trust Nalcor at all.
We are the only Province in Canada that does not have the final opinion or decision of the PUB (or equivalent) on record for the largest expenditure in the Province's history. Their professionals are charged with engaging the appropriate consultants, to ensure that the shareholders investment is safe. (I have no connection to Wells or the PUB whatsoever) That is their mandate and they need to be permitted to carry that out.
There is no real option but to mothball the dam component of this project. Try to salvage the transmission line, despite my grave reservations about that part of the project as well. The final cost is now over $11 Billion and counting, with no end in sight. This project was an assault on the viability of the province and nothing less than a Public Inquiry is ever going to get to the bottom of it. The authors of this project, Danny Williams and his cohorts, need to have their day of reckoning as the province heads toward its collision with bankruptcy.
Cyril, I had hoped the dam and transmission line would be mothballed. And with that the necessity of aggressive efficiency and conservation. I have made several presentations to the PUB on this issue since 2012, the latest in April this year, and even the Consumer Advocate made a recommendation in April that the power companies have failed on their conservation programs here.
I had testing done here, perhaps the most detailed results of any testing in North America as to the benefits of efficient heating systems, which is just amazing. The Consumer Advocate recommended an improved program here and some rebates. The PUB ignored it, and went along with the power companies with the status quo,…. just acknowledged we are our of step with other jurisdictions.
There is no organised movement here for good efficiency measures. There is almost no awareness by the public of how this could have decreased instead of increasing electricity bills, and the media have ignored it.
With the PUB decision on efficiency and conservation I have accepted the Marshall Plan, but not my preferred option. The original Marshall Plan restored Europe after Hitler. Can only wish our Stan good luck.
Winston Adams
We now know who and why the National Energy Program from the 70's was beaten up and dissed by the Tory-backed fossil fuel lobby. It is the nub of the "climate change wars". Energy Conservation, Barrel of Oil displacement, Engineering conversion of transport, buildings, process industries have been the battle grounds to this day. Sad
Winston, I would ideally like to see the whole project scrapped. I don't know enough about the transmission line's progress say anything intelligent about it but, if well on its way to completion, it "may" make the best of a bad situation.
This project is about vanity and feeding the greed of those we entrusted with leadership, a trust they never deserved. I am totally disgusted with politicians of all political stripes and in how they have safety the people of the province. Sadly, they are continuing to make decisions that are not in the best interests of the province and its people but most of the blame falls squarely on the shoulders of one Danny Williams. People trusted him and he let his people down in the worst possible way.
I get very little satisfaction from being one of the naysayers from way back….. because I know the long term harm that this monstrous project inflicted on the province's fiscal balance sheet and the untold damage it continues to inflict.
Should be "shafted" the people of the province.
Did I miss something? As Danny Williams given any comment on this Muskrat Falls fiasco that he created?
N&L should have given more consideration to the offer made in the 2000s by HQ and Ontario to develop the Lower Churchill projects essentially to service Ontario. N&L must realize that making some money without risk (e.g. Churchill Falls) is better than taking on project development risks and losing tons of money (Muskrat Falls).
Errare humanum est, perseverare diabolicum.
Cyril, as I commented to Bruno, while I swayed on whether Marshall is right to continue, I finally reconsidered that there is still too much risk and negative impacts, even with sunk costs.
The word `naysayers`….., you and I and others that have long been vocal in written comments and opinions as naysayers. It now seems a badge on honour to have been a naysayer. Danny Williams said MF was a no brainer, if I recall correctly.