Guest Post by David Vardy and Ron Penney
Breaking
news from the CBC casts new light on Muskrat Falls!
news from the CBC casts new light on Muskrat Falls!
On January
30, 2017 Uncle Gnarley posted on the falsification of estimates, drawing upon
allegations made by a Nalcor engineer, who said that
30, 2017 Uncle Gnarley posted on the falsification of estimates, drawing upon
allegations made by a Nalcor engineer, who said that
I could not
put up with falsifying information anymore.To begin with, the original cost of
$6.2 billion on which the project was approved was a complete falsification.
The estimate was deliberately kept low — below $7 billion, so as to appear
favourable relative to the cost of thermal power generation.
put up with falsifying information anymore.To begin with, the original cost of
$6.2 billion on which the project was approved was a complete falsification.
The estimate was deliberately kept low — below $7 billion, so as to appear
favourable relative to the cost of thermal power generation.
The likely
costs were known about three years ago, but Nalcor Management kept it a secret,
steadfastly denying that there were major schedule delays and cost overruns,
until it was no longer possible to hide the true status with the election of a
new Provincial Government.
costs were known about three years ago, but Nalcor Management kept it a secret,
steadfastly denying that there were major schedule delays and cost overruns,
until it was no longer possible to hide the true status with the election of a
new Provincial Government.
 |
| David A. Vardy |
Yesterday,
on May 10, 2017, the CBC released its story on the Morning Show, preserving the
anonymity of Uncle Gnarley’s informant, but confirming the essence of the
story. The falsification of the project estimates allowed the proponents to
claim a large preference, based on cumulative present worth analysis, for the
Muskrat Falls project, a preference which we now know to be fabricated. Confirmation
of these allegations, through the due diligence of CBC’s Morning Show,
highlights the importance of a comprehensive and forensic audit by the Auditor
General.
on May 10, 2017, the CBC released its story on the Morning Show, preserving the
anonymity of Uncle Gnarley’s informant, but confirming the essence of the
story. The falsification of the project estimates allowed the proponents to
claim a large preference, based on cumulative present worth analysis, for the
Muskrat Falls project, a preference which we now know to be fabricated. Confirmation
of these allegations, through the due diligence of CBC’s Morning Show,
highlights the importance of a comprehensive and forensic audit by the Auditor
General.
The CBC
quotes the anonymous engineer as follows: “The risks were vastly
understated and the contingencies absurdly low.”
quotes the anonymous engineer as follows: “The risks were vastly
understated and the contingencies absurdly low.”
The engineer
— whose identity CBC News has agreed to protect, because he is not authorized
to speak publicly about his work on the project — believes that “the
purpose of this estimate was not to generate an estimate for project
implementation, but secure project sanction.”
— whose identity CBC News has agreed to protect, because he is not authorized
to speak publicly about his work on the project — believes that “the
purpose of this estimate was not to generate an estimate for project
implementation, but secure project sanction.”
This
forensic audit is beyond the normal scope of audit work performed by the AG. It
will require additional personnel familiar with industrial construction, having
knowledge of workforce costs and productivity, the costs of materials,
logistics, and quality control related to the construction. The AG will need to put in place a
professional team which can assess the extent to which variances from Nalcor’s
cost estimates are due to: poor management, falsified estimates, unqualified
contractors, poor workforce productivity, or inadequate material cost
estimates.
forensic audit is beyond the normal scope of audit work performed by the AG. It
will require additional personnel familiar with industrial construction, having
knowledge of workforce costs and productivity, the costs of materials,
logistics, and quality control related to the construction. The AG will need to put in place a
professional team which can assess the extent to which variances from Nalcor’s
cost estimates are due to: poor management, falsified estimates, unqualified
contractors, poor workforce productivity, or inadequate material cost
estimates.
Will the
audit be broad or narrow?
audit be broad or narrow?
The question
is how broad the AG’s review will be. Will it be a comprehensive review of the
project? Will it examine the factors which led to the sanctioning of the
project or will it be confined to the examination of individual contracts? Will
the audit rely totally upon Nalcor for data, as was the case with the Ernst and
Young interim report of April 8, 2016? Will it examine the decision making
process and the division of decision-making responsibilities among three key
groups, namely Nalcor management, Nalcor’s consultants and Nalcor’s Board of
Directors?
is how broad the AG’s review will be. Will it be a comprehensive review of the
project? Will it examine the factors which led to the sanctioning of the
project or will it be confined to the examination of individual contracts? Will
the audit rely totally upon Nalcor for data, as was the case with the Ernst and
Young interim report of April 8, 2016? Will it examine the decision making
process and the division of decision-making responsibilities among three key
groups, namely Nalcor management, Nalcor’s consultants and Nalcor’s Board of
Directors?
 |
| Ron Penney |
In addition
to fabricated cost estimates, questions have been raised in this blog about
hiring practices and the report that senior management have set up companies to
engage in head hunting on behalf of Nalcor? These questions call for the AG to
assess management policies and practices within Nalcor to determine if they are
in conformity with best practices, in terms of transparency, probity and
accountability.
We know
virtually nothing about the Auditor General’s review, about the audit plan and
its coverage and timing. The Premier has indicated that government will not
consider a public inquiry into the Muskrat Falls project until the AG’s review
has been completed. This suggests that the review will be comprehensive in
scope.
virtually nothing about the Auditor General’s review, about the audit plan and
its coverage and timing. The Premier has indicated that government will not
consider a public inquiry into the Muskrat Falls project until the AG’s review
has been completed. This suggests that the review will be comprehensive in
scope.
The
undersigned have written to the AG and requested a copy of the audit plan. In our letter we suggest that six underlying principles be accepted as thefoundation for the audit. These are as follows:
undersigned have written to the AG and requested a copy of the audit plan. In our letter we suggest that six underlying principles be accepted as thefoundation for the audit. These are as follows:
1. Timeliness
2. Probity
3. Minimizing cost
4. Verification of data
5. Inclusion of project management,
governance and oversight, and
governance and oversight, and
6. Quality control
1. Timeliness
The AG
report should be more than an academic exercise or a post mortem review of the
project. It should instead become a living, breathing part of the management
and governance of the project. It can perform such a role if the audit will
enable Nalcor to learn from its mistakes and make course corrections, relying
upon the audit as a management tool.
report should be more than an academic exercise or a post mortem review of the
project. It should instead become a living, breathing part of the management
and governance of the project. It can perform such a role if the audit will
enable Nalcor to learn from its mistakes and make course corrections, relying
upon the audit as a management tool.
With more
than three years remaining before full
power is achieved there is every reason to believe that the AG can play a vital
role not only in informing the shareholders of the progress and success of the
project but also in the navigation of its future course over the next few
years. If the audit is conducted in a phased process, with robust reporting on
a phased basis, then the results can be a vital tool for management decisions
to improve the quality of future decisions on this project.
than three years remaining before full
power is achieved there is every reason to believe that the AG can play a vital
role not only in informing the shareholders of the progress and success of the
project but also in the navigation of its future course over the next few
years. If the audit is conducted in a phased process, with robust reporting on
a phased basis, then the results can be a vital tool for management decisions
to improve the quality of future decisions on this project.
2. Probity
Probity is a
key concern when so little information is disclosed and Nalcor is exempted from
the Public Tendering Act. In our letter to the AG we have suggested that a
review of hiring practices be conducted and that the award and management of
Nalcor’s contracts be scrutinized with care. The accusations that cost
estimates have been falsified need to be investigated with the most robust
forensic audit techniques as recommended by the engineer, who was interviewed
by both Anthony Germain of the CBC and Uncle Gnarley.
key concern when so little information is disclosed and Nalcor is exempted from
the Public Tendering Act. In our letter to the AG we have suggested that a
review of hiring practices be conducted and that the award and management of
Nalcor’s contracts be scrutinized with care. The accusations that cost
estimates have been falsified need to be investigated with the most robust
forensic audit techniques as recommended by the engineer, who was interviewed
by both Anthony Germain of the CBC and Uncle Gnarley.
The audit
should assess the quality of the original cost estimates, particularly the DG2
and DG3 estimates, and the adequacy of the allowances for cost escalation and
for contingencies? Why did it take so long for more realistic cost estimates to
be released to the public? Clearly, we relied upon contrived cost estimates up
to the time of the new estimates released by the new Nalcor CEO in June of
2016.
should assess the quality of the original cost estimates, particularly the DG2
and DG3 estimates, and the adequacy of the allowances for cost escalation and
for contingencies? Why did it take so long for more realistic cost estimates to
be released to the public? Clearly, we relied upon contrived cost estimates up
to the time of the new estimates released by the new Nalcor CEO in June of
2016.
3. Minimizing cost
Our letter
to the AG recommends that he examine the structure of Nalcor’s contracts to
ensure that there are incentives to minimize rather than maximize costs? Ernst
and Young (section 5.8 of their April 2016 interim report) pointed out a major
discrepancy in the incentive structure relating to Astaldi as disclosed by
Nalcor’s CEO at the 2015 AGM, compared with the incentives which EY found in
the actual contractual arrangements with Astaldi, which suggested “that the
payment mechanism is based on person-years expended rather than m³ of concrete
poured. Former CEO Ed Martin told David Vardy at the 2015 AGM that payments
were based on the amount of concrete poured. The contract was a “cost plus”
arrangement and not the purported fixed price or lump sum contract.
to the AG recommends that he examine the structure of Nalcor’s contracts to
ensure that there are incentives to minimize rather than maximize costs? Ernst
and Young (section 5.8 of their April 2016 interim report) pointed out a major
discrepancy in the incentive structure relating to Astaldi as disclosed by
Nalcor’s CEO at the 2015 AGM, compared with the incentives which EY found in
the actual contractual arrangements with Astaldi, which suggested “that the
payment mechanism is based on person-years expended rather than m³ of concrete
poured. Former CEO Ed Martin told David Vardy at the 2015 AGM that payments
were based on the amount of concrete poured. The contract was a “cost plus”
arrangement and not the purported fixed price or lump sum contract.
Our letter
also recommends that the AG direct particular attention to the Astaldi
contract, which has grown from $1.1 billion to $1.830 billion, with little
explanation of the reasons for the escalation?
also recommends that the AG direct particular attention to the Astaldi
contract, which has grown from $1.1 billion to $1.830 billion, with little
explanation of the reasons for the escalation?
Clearly the
AG must undertake an intensive review of the award and management of all major
contracts to ensure that they are designed to minimize cost and to protect the
ratepayer.
AG must undertake an intensive review of the award and management of all major
contracts to ensure that they are designed to minimize cost and to protect the
ratepayer.
There have
been reports suggesting that Nalcor contracts had loop-holes “you could
drive a truck through”. One report is that Astaldi was claiming extra for
weather delays to the work. Weather related risks are normally assigned to the
construction contractor. Additionally, there have been reports that Nalcor, at
least during the early days of the project, was very lenient in adjudicating
contractor’s claims. Therefore the AG should investigate:
been reports suggesting that Nalcor contracts had loop-holes “you could
drive a truck through”. One report is that Astaldi was claiming extra for
weather delays to the work. Weather related risks are normally assigned to the
construction contractor. Additionally, there have been reports that Nalcor, at
least during the early days of the project, was very lenient in adjudicating
contractor’s claims. Therefore the AG should investigate:
a. The adequacy of the contract documents
especially in the matter of sharing risks.
especially in the matter of sharing risks.
b. Nalcor’s contract management experience
and practice and whether it is capable of
and practice and whether it is capable of
dealing with a mega project of this
scale.
scale.
4. Verification of Data
The
Independent Engineer and the Oversight Committee have relied on data supplied
by Nalcor. Similarly the Ernst and Young interim report relied fully on data
supplied by Nalcor. Our suggestion is that the AG should verify data directly
with contractors and subcontractors, without being reliant solely on Nalcor.
Independent Engineer and the Oversight Committee have relied on data supplied
by Nalcor. Similarly the Ernst and Young interim report relied fully on data
supplied by Nalcor. Our suggestion is that the AG should verify data directly
with contractors and subcontractors, without being reliant solely on Nalcor.
5.
Inclusion of Management, Governance and Oversight
Inclusion of Management, Governance and Oversight
Governance
and project management should be included in the audit, recognizing that the
Ernst and Young review (section 1.7) “did not include a formal review of the
Project governance arrangements”. The AG should assess the governance structure
within Nalcor and its capacity to manage a project of this magnitude and scope?
He should also review the decision of the new CEO to continue with the same
management team, with modest realignment, as well as his decision to maintain
Nalcor’s lead role in project management.
and project management should be included in the audit, recognizing that the
Ernst and Young review (section 1.7) “did not include a formal review of the
Project governance arrangements”. The AG should assess the governance structure
within Nalcor and its capacity to manage a project of this magnitude and scope?
He should also review the decision of the new CEO to continue with the same
management team, with modest realignment, as well as his decision to maintain
Nalcor’s lead role in project management.
6. Quality control
Quality
control should be included, recognizing that there are numerous examples of
lack of quality control relating to “popped” transmission wire strands, leaking
coffer dams and collapsing formwork at the powerhouse to suggest that quality
control may be an issue.
control should be included, recognizing that there are numerous examples of
lack of quality control relating to “popped” transmission wire strands, leaking
coffer dams and collapsing formwork at the powerhouse to suggest that quality
control may be an issue.
Conclusion
The proposed
audit plan should be made public as soon as possible so the public can be aware
of its scope and make comments before it is finalized. The credibility of the
audit will depend upon the qualifications and experience of the team as well as
the quality of the audit plan itself.
audit plan should be made public as soon as possible so the public can be aware
of its scope and make comments before it is finalized. The credibility of the
audit will depend upon the qualifications and experience of the team as well as
the quality of the audit plan itself.
In our
letter we asked how a strong audit team can be assembled, one with the capacity
to review a major hydroelectric project of this magnitude? Will the AG be
seeking outside audit expertise?
letter we asked how a strong audit team can be assembled, one with the capacity
to review a major hydroelectric project of this magnitude? Will the AG be
seeking outside audit expertise?
If the AG
adopts these six principles there is some hope that finally the public will
know where we stand on the cost and schedule of this project.
adopts these six principles there is some hope that finally the public will
know where we stand on the cost and schedule of this project.
However it
has to be noted that this audit will not provide the cost benefit analysis for
which we have been calling over the past year. Such an analysis would have
allowed government to stop the project if it confirmed that the cost of
finishing the project far exceeds the cost of stopping it, taking into account
only future costs and ignoring sunk costs which are irrelevant. Both Nalcor and
government have refused to undertake this analysis.
has to be noted that this audit will not provide the cost benefit analysis for
which we have been calling over the past year. Such an analysis would have
allowed government to stop the project if it confirmed that the cost of
finishing the project far exceeds the cost of stopping it, taking into account
only future costs and ignoring sunk costs which are irrelevant. Both Nalcor and
government have refused to undertake this analysis.
Nor will the
audit disclose whether the project was a wise decision. For such an analysis we
need nothing less than a full public inquiry, a Royal Commission to determine
how we as a province made such a monumental error in public policy.
audit disclose whether the project was a wise decision. For such an analysis we
need nothing less than a full public inquiry, a Royal Commission to determine
how we as a province made such a monumental error in public policy.
David Vardy
and Ron Penney
and Ron Penney
The AG does not have the breath of expertise nor staff to do what needs to be done with respect to Muskrat Falls
Skip the AG and go directly to a Royal Commission
Agree totally – a Royal Commission is the only way we will find out what led us to where we are today with regards to Muskrat Falls.
The AG should have the competence to properly run a forensic audit.
For MF, it just need additional personnel with expertise in industrial construction/project management. (Competent audit shops ALWAYS get additional expertise onboard when a specific audit requires it – that's the only way to run an audit)
My only fear is how independant is Nfld AG…
Eric
I have had discussions with the AG and can confirm that they there is insufficient funding and experience to get to the bottom of a problem of this magnitude. I offered my services years ago. You would need excellent IT skills to recover deleted or buried evidence. You would need to offer protection to professionals that offered evidence, such as being told to change reports they wrote so that the company wouldn't look too bad if ever leaked. You need the engineering expertise on mega projects to be able to make judgement calls on competence. I suspect that this mess was driven from the top by powerful people and that very little was recorded on paper or via e-mail. However, if many people provide similar stories that back each other up, we will be very close to the truth. Some people may have recorded conversations or saved voice mails. Digging through this mess will be daunting and there will be powerful enemies. I'd like to see an outside firm involved that has nothing to lose – e.g. the prospect of being blacklisted is inconsequential.
"…can confirm that they there is insufficient funding / experience to get to the bottom of a problem of this magnitude"
Funding has to be found (a Royal Commission would way more expensive anyways, and would be more political than forensic). Forensic expertise is more complex to obtain.
Let's say Nfld officialy requests the support of the Office of the Auditor General of Canada (OAG), an independant audit might then be organised and provided (at a cost $). The Feds may waive some of those costs if it can be somehow linked to that "enabling" loan krap…
The OAG has forensic auditors in house. They also have financial auditors, and all know how to assess efficiency et effectiveness.
Most of them can uses ACL or IDEA audit softwares, and some know how to extract erased accounting data, or emails.
The OAG would still need to hire external expertise in project management / industrial construction / contracting practices. But the OAG knows how to handle this and integrate these ressources within the audit team.
The external expertise would be private sector related. OAG obviously has expertise in government project management and contracting practices.
The OAG also has expertise in auditing Crown Corporations (Nalcor might fit this definition) and smaller Departements that don't possesses Internal Audit fonction.
You may be right Wayne about the AG being ill equipped to do a thorough review. The problem is that by the time a Royal Commission reports NL will be insolvent. It may be useful for documenting democratic perversions for future generations. Will it provide comfort to ratepayers on the hook for the next 57 years? I doubt it.
Putting MF on hold until competent fiscal analysis and an engineering review is done by independent parties is the only way to limit the damage to life and limb and the treasury.
http://www.cbc.ca/beta/news/canada/newfoundland-labrador/forensic-audit-muskrat-falls-political-reaction-1.4109191
By reading above, not sure if Ball will ever commit to a forensic audit. He is waiting for the results of the current AG review on Nalcor (which might not cover MF, as stated a few months ago!?!)
The estimates were wrong for several reasons. It could have been lack of experience, optimism bias, incompetence, political interference, and/or misrepresentation. It is likely a combination of it all. The estimate was 5.0 Billion at DG2 when the project went before the Public Utilities Board.
Projects of this complexity, in these adverse locations do go beyond budget. What is truly unacceptable is how the leadership of Nalcor and the Project trotted before the PUB to talk about the robustness of the estimates.
My own view it was a complete lack of relevant experience from the Nalcor and Muskrat Falls project teams, from top to bottom. The form work collapse report just indicates that there is a concerning lack of experience (and it could be argued common sense) amognst the member of the project team.
A lack of experience does not explain why Nalcor often claimed that its 50 year average compound annual load growth rate forecast of 0.8% was "conservative".
In fact, Nalcor had to compare its 0.8% forecast to the previous 40 year average in order to make that claim — when in fact 98% of that 40 year average increase in demand occurred in the first 20 years of that 40 year period (when residents were switching from oil heat to electric heat).
The most recent (and relevant) 20 years of that 40 year load growth period was near ZERO.
So, a go-forward/forecast 50 year average annual load growth increase of 0.8% was in fact many multiples HIGHER THAN the previous and most relevant near zero 20 year average. ——— Nothing conservative about that forecast (and such misleading statements cannot be explained away by inexperience).
Same thing applies to the often repeated claim that Holyrood burns 18,000 bbls of oil a day in winter. When in fact that is only when Holyrood operates at capacity (which occurs for less than 6 days per year, less than 2% of the time).
The formwork report confirms much of what I had heard from people on site, but it also fails to mention other very important damming items that have nothing to do with lack of experience and are far worse. I wouldn't trust any written report from Nalcor. You would have to speak to the report authors to find more and they aren't going to speak freely if they need future employment in the province. Ideally, get a copy of all draft reports — those would be damning — especially the parts that got removed from the final version.
Manitoba Hydro, consultant to Nalcor, pointed out that Nalcor used the wrong tool to estimate future demand. Rather than looking back in time utilities now use a forward looking analysis that takes into account changes in the consumption patterns of consumers. This produces a much more accurate estimate of likely demand.
This was but one way Nalcor misrepresented the need for Muskrat Falls. I pointed out at the JRP that Nalcor was the only utility in North America projecting increased demand going forward. Nalcor of course stood by their estimates. They needed to show compound annual growth to justify building an unneeded project. Using the wrong backward facing tool was part of the deception. Wildly underestimating costs and ignoring the tumbling cost of wholesale power due to the fracked gas revolution was another. Another was ignoring the fact that NL is not FERC compliant. FERC requires reciprocity and NL passed a bill giving Nalcor a monopoly on supply making sales to New England impossible.
A whole suite of manipulation was required to justify Muskrat Falls.
Still missing from the proposed review by the authors is the extent political direction led to the use of outmoded tools used to justify this project. It seems the naked emperor is still above scrutiny. Why is that?
There is no doubt in my mind that this was a wilful manipulation to justify decisions made from the highest political echelon.
Well said Bruno — and I have had a sense, since about 2011, that 'wilful manipulation' has been occurring and been used not only to obtain sanction but also to prop up public opinion —- and the 'fake' oversight committee, the fake prospect of multi-billion dollar revenues, the delayed EY and 'independent engineer' reports, and now a toothless audit have and are all parts of a process by both governments to do the bidding of both the PC and Liberal parties and those who control them.
The minutes of the fake oversight committee are pathetic. Not only are the minutes a year and a half behind, they can be summarized as; we met, we talked, we adjourned. They are absolutely devoid of any information about oversight!
Bruno, the improved forecasting tool you refer, I assume is that which incorporated END-USE research, as mentioned by Manitoba Hydro International Consultant. It is a sort of verification of prediction for forecasting, that is more accurate, it not just shows patterns, but can verify energy savings and peak demand reduction instead of just making assumptions which are often false , and often known to be false or very misleading. The latter is what Nfld, both Nfld Power and Nfld Hydro use and continue to use.
Nova Scotia, I discovered just recently, changed to a partial End -USE method long ago , and fully by 2014.
There has been no requirement by government policy here or pressure by others to adopt the best practices used elsewhere (JM , I believe has noted that deficiency in his analysis). It is to the interest of Muskratreers to avoid such best methods, and the avoidance of best methods therefore helped their cause for the Muskrat sanction.
Can you name a single MHA who is familiar with or promoted end-use research for electricity use forecasting! It is a foreign concept to them, no doubt. And it is a odd term……one might think of it as Trust but Verify, which really means do not trust the usual forecasting method.
This is a key point, as justification of MF required poor and exaggerated forecasting…….easily achieved when ignoring best methods. Maurice has often correctly cited the errors inherent in their forecasting, over long time frames.
As Muskrat was to solve our growing electric winter demand, efficient heat would be a prime application for end-use research input for our energy policy.
And to my comment posted below at 10:26, whereby I refer to the Wise Men, I use that term with sincerely, and would include JM, Bruno, and others that have contributed to pointing out many of the flaws of Muskrat, on their own time and without any public resources of Nalcor…. who produced what Stan Marshall states was FALSE ASSUMPTIONS made. They were not made by accident. It was by design. And the false estimates as to costs, as noted by the Nalcor engineer was but one part of a great deception on the public.
Winston
This piece concludes by saying that this audit will NOT determine if this project was a wise decision, nor will it allow the government to stop the project if the cost of stopping it is less than the costs to finish it, ignoring the sunk costs, or how we made such a monumental error in public policy.
If an audit does none of this, it can be of little value, unless to the extent to show criminal activity and fraud was involved, and a cover up existed. Even that does little to mitigate the shock price of power rates to come.
Has any of our wise men, which includes Vardy, Penny, Cabot Martin, Des Sullivan, Maurice Adams, Dennis Brown, Ed Hollett and others assessed the methods and public energy policy of Nova Scotia as a comparison of how we could have avoided this blunder of Muskrat Falls.
Only recently have I become aware of their comprehensive policy whereby they could fully assess all their options for least cost and reliable power and such as to always adhere to a `no regrets` result.
Their policy, studies, engagements with stakeholders over the years showed prudence, and willingness to learn and benefit from proven policies that had worked in progressive jurisdictions in the USA for the past two decades to ensure the lowest cost of power for consumers.
We not only ignored the USA experience but ignored the policy that Nova Scotia explored and chose.
The Nova Scotia search and studies are all on line. While our circumstances are not identical to Nova Scotia, our problem of sufficient, reliable and renewable power for the island was minor compared to Nova Scotia. We are using 11 percent fossil fuel for our total energy here, where they had the problem of about 75 percent coal burning.
And any Royal Commission into this boondoggle and blunder of Muskrat would, I submit, conclude that a policy generally similar to Nova Scotia, would have allowed our power rates to have remained stable, and the 12 to 15 billion of waste to have been avoided.
Just one of their policy items was the issue of conflict of interest. Ball now says (after the Coffey scandal) that our rules on conflict of interest are 25 years old and needs to be brought to date.
In Nova Scotia, they determined that their power companies were in conflict of interest to handle issues of customer conservation and efficiency. Their policy of `no regrets` made sure that an independent corporation was set up to look after customer interests, with cost effective measures that that not only made large contributions to mitigate power costs, but to avoid energy waste and bring down system energy use and peak demand. Efficiency Nova Scotia solved that conflict issue, and saw investments of 40 million dollars a year to assist customers and bring down demand.
How could we be,(and still be) so blind to ignore the Nova Scotia plan. It was in plain sight, long before Muskrat sanction. Instead of a `no regrets“plan, we chose the plan that is full of regrets. And it continues on to a path of a Trail of Tears.
As the Nalcor engineer said…….the deceit on the public destroys the soul.
Winston Adams
I am afraid that a forensic audit from within Nfld cannot be trusted. To be truly effective it would need to be done by firm from outside of Canada, preferably the US or the EU, with experience in large scale construction projects and looking for corruption. What has been going on at MF cannot si ply be written off as lack of experience or even incompetence. The smoking gun is that draft-tube collapse report. Given the number of P.Eng.'s, managers, and organizations involved the only rational conclusion to come to is that there is oblvious malfeasance going on at MF. Couple this with the allegations of phony cost estimates and we have a potential for thirld-world style corruption using billions of dollars of public money. I am amking serious allegations but I cannot come to any other conclusion. You do not need to have Phd from MIT or Stanford to design and oversee the construction of structural concrete formwork. Nor, do you need 25 years of mega project experience to accurately estimate costs for a project which is largely composed of civil works and equipment installation of tried and true technology. Some will say the terrain and weather is unpredictable and at the limits technical feasability. Bullshit. Work has been done in northern Canada and around the world in conditions just as harsh. Finally, as with any despotic regime, the corruption begins with secrets, morphs into lies, then goes to work with other people's money. This project will not be stopped because too many people are making too much money. When it is over there should be an accounting for what was done. We will probably get a royal commission with a limited mandate and the same actors we are used to but dont expect an American-style congressional inquiry and don't expect to see handcuffs and pleadings. Things are not so different now as they were in 1933. If there is to be real change it will have to come from without as our own apple is rotten to the core.
As an aside, anyone interested in where this province is headed should be following what is going on in Puerto Rico. The NYtimes has had several rcent articles about changes coming to thier island economy.
John D Pippy
.
I am inclined to agree, John. Previously, I have asked on this Blog for accountability at the Federal Level, and have had lukewarm response. Now I would favour an independent international auditor for the reasons you give. "This project will not be stopped because too many people are making too much money."
Harold A. Innis in his "The Cod Fisheries" provided an objective view of why Newfoundland found itself bankrupt in 1933, through mismanagement of its own resources. History repeats.
Great to hear you're not considering for the job the AG from…. Manitoba 😉
I could hear the shredders from Nalcor this morning all the way down in Torbay
they are burning that garbage at muskrat too!
Readers must have heard that profits have SURGED at Nalcor, to 57 million for the quarter, up from 29 million last year, says Stan Marshall
Now Nalcor includes 6.5 million increase from higher oil productions at Hibernia and the price being up 13 dollars (thanks to Russia and the Saudis).
Yet on the electricity side of things, power sales from Nfld Hydro is down (there goes the Nalcor forecast down the tube) and profit from Churchill Falls is also down ( another Nalcor failure to allow for USA shale gas generation).
75 percent of Nalcors assets produce no income, as most is tied up in Muskrat Falls. Yet the more they spend , the greater the value of their assets, on the assumption that the 12 billion boondoggle is worth 12 billion.
As the government has pumped some 3 billion into Muskrat, as equity, interest on that is about 120 million a year , or 30 million a quarter. So Nalcor shows a paper profit on a propped up asset value, while we the taxpayers pay the Nalcor interest costs via the levy and higher taxes and fees to make Nalcor look good. Robbing Peter to pay Paul.
Fortis, on the other hand, makes real profits. ….281 million in the same quarter, an increase of 48 percent from last year.
How do we know they are real……well , they issue dividends, real dividends, 1.53 per share in 2016, and have increased every year since 1972.
Can anyone guess what Stan`s dividend income from Fortis is…….
Know if Nalcor wasn`t hurting, would they have tried to get a 18 percent rate hike past the PUB, and then admit they could do with half of that……..gosh, with all their profits, Nalcor could for the time being leave the rates as is….given the hits the taxpayer is already taking because of the boondoggle.
Now Stan accused Nalcor of using false assumptions for the boondoggle…….false assumptions made before he came on board.
So, are these surging profits of Nalcor fake of real…….
And was the 18 percent needed as a power hike for July 1st, fake or really necessary. They have already admitted that the need for 18 percent was false, having now submitted 5 alternatives at almost half of what they asked for.
Now if only Nalcor had properly assessed 5 good alternatives for our island power needs,in 2012, under Stan`s leadership, instead of only two proposed by Ed Martin, Stan might have saved us 10 or 12 billion.
But that is hindsight……
Did Stan, as the Fortis boss, put any proposals to our government., ……I mean sane proposals,as alternatives to Muskrat, or just stay silent knowing the likely outcome.
Now Stan seems to be up to Nalcor`s old tricks……fake profits. Fake asset value.
When do we see a real dividend from Nalcor!
When do we get the good news of substantial mitigation of power rates coming down the pipeline from Muskrat……mitigation that Stan promised. Mitigation on rates that is not just billed via new taxes from Cathy Bennett.
Stan….. a straight shooter…….not any more, me thinks.
Winston Adams
Note that rate increases were 7% in 2011 and 5.4% in 2012 though the increases in the cost of oil were far less than those forecast for 2017/2018. And don’t forget we got a rebate for this time period. Is it a coincidence this rate increase comes up when Muscrat Falls is back in the news? I cn send you the 2011 and 2012 RSP’s if you wish.
“Rate stabilization plan 2011”
“The price of oil has increased and therefore electricity rates are increasing as well,” said Jim Haynes, Hydro’s vice president of regulated operations.
“The fuel price projection used for setting electricity rates has climbed from $84 per barrel to $103 per barrel — almost $20 more per barrel over the last 12 months — and electricity rates will rise by approximately seven per cent effective July 1, 2011. The cost of oil is a direct pass through to consumers and neither utility receives any profits or benefits financially from changes in oil prices.”
“Rate stabilization plan 2012” “
Rising oil prices cause increase in Rate Stabilization Plan adjustment for electricity consumers,” April 24, 2012: “Newfoundland and Labrador Hydro (Hydro) filed an updated fuel price projection for the Rate Stabilization Plan (RSP) with the Newfoundland and Labrador Board of Commissioners of Public Utilities (PUB) today. This will result in an increase in electricity rates to Newfoundland Power and therefore most electricity consumers. The fuel price projection used for setting electricity rates has climbed from $103 per barrel to $119 per barrel — $16 more per barrel over the next 12 months. As a result, the wholesale rate for electricity will increase by approximately eight per cent resulting in an RSP adjustment to consumers of an estimated 5.4 per cent effective July 1, 2012.”
Gerry Goodman
Gerry……I see that the proposed 18 percent rate hike comes from an application filed in 2013, as this is 2017, leaves one to question the efficiency of our PUB and the cost of all these hearings , filings and re-filings……like 2 million in expenses to re-file……..great for accounts and lawyers fees.
The initial application consisted of 706 pages…..
So how does a 18 percent hike, like magic, get dropped to 9 percent.
At 706 pages I was discouraged to even look at it, but did a little review (as Ashley at the Telegram provide a link, but did no analysis herself)…. and I found, as related to what to include for fuel related costs for Holyrood:
1. They were forced to drop the price of No 6 diesel from 93 dollars a barrel to 55 dollars.
2. Costs related to the new gas turbine for 2014 was adjusted down by 73 million , because the unit never got in service until 2015, instead of 2014. This suggests to me a one year delay in this and so expect to see another increase next year to cover this.
3. Even the power produced per barrel of oil they cheated on, by 2 percent, and had to adjust for that.
Now 18 percent instead of 9 percent is in proportion with 12 billion instead of 6 billion for Muskrat.
Liberty says repeatedly that Nfld-Nalcor culture has showed no significant change…….and so this is more of the same.
Also, I am not an economist or an accountant, but I notice that Hydro`s average capital assets were 1.62 billion in 2015, and they show along term debt of 1.65 billion, older debts at about 10 percent interest rate and newer ones at about 3.6, with average about 6.5 percent rate.
For 2015 on sales of 662 million in electricity they show a net income of 33 million. (Fortis by the way is expected to see a net income of 1 billion this year).
But with Hydro`s assets more or less equal to debt, what is the market value of Hydro`s assets……. If producing 33 million is net earnings and using 10 times that , it suggests a market value of only 330 million for all of Hydro`s island assets. I must be off base……..as this is peanuts…….perhaps someone can clarify it……..
It suggest, perhaps, MF 12 billion is probably not worth more than 1.5 billion……….if so, Fortis or Emera is waiting for opportunity to buy in dirt cheap, me thinks.
Lesson learned: as a ratepayers we get screwed, and incur all the costs of this boondoggle, while if you are are Fortis or Emera shareholder…….there lies the gravy and profits, on the backs of the ordinary Joe or Jane. Might we call it a RACKET!
Winston
LEAVE IT TO THE AG says the editorial of the Telegram, which I assume was written by Russell.
His reasons…….one is : what if it gets to throwing good money after bad, as a forensic audit would be an added expense…….so he is inline with Stan Marshall`s opinion….likely a waste of money.
Russell says `the last few days a former Nalcor engineer suggested to the CBC that the project should undergo a forensic audit, that the estimates used were unrealistic from the start`
Well, lets get this straight: 4 months ago this blog quoted that engineer. He said `I could not put up with the falsifying information anymore. The original cost of 6.2 billion was a complete falsification……..to appear favourable to the cost of the thermal power generation`
Now I take his words of COMPLETE FALSIFICATION to be actions of a criminal nature…….in other words FRAUD.
Russell, of course uses the words `the numbers used were unrealistic`.
Russell goes on to say that `a series of INFORMED ASSUMPTIONS has been made (by Nalcor) to argue for the project,some , if not all , of those projections might turn out to be wrong.
He goes on to defend the Telegram`s record : We questioned MF for years. He concludes by saying that if there was a crime, that the AG could uncover it. So no forensic audit needed. So saith Russell.
Of course the Telegram, And Russell has pussyfooted on this boondoggle for years. When he says :We have questioned…….who has he questioned……..did he seek out this Nalcor engineer, or anyone in an investigative style. His so called questions has been little more than soft opinions of his, many which were not well informed. It is perhaps not too severe to suggest that the Telegram has been an enabler of this boondoggle, in their lack of any serious investigation.
Even Stan Marshall said the project was sanctioned based on false assumptions…….yet Russell goes a step further, saying they used INFORMED ASSUMPTIONS.
Informed assumptions or Complete Falsification…….not the same in my book. Certain reasonable principles apply is estimating and arriving at costs, and the notion that Nalcor was World Class, suggests those principles were prudently used. Complete falsification does not meet the standard of prudence in the mind of a reasonable person,I suggest. How can Russell argue that they used informed assumptions. Informed by who and what……to have gotten everything wrong.
It begs the question……is Russell a reasonable thinking person to write such an editorial. I would not yet suggest Russell has fallen so low as to be on the FBI list ( for a public flogging), as perhaps he wrote his editorial after a few too many drinks, or smoking some weed, or a medication effect, or other temporary impairment of the mind, which we all can be subject to from time to time. And one can always change their mind.
As I generally enjoy Russell`s writing, I do hope he gets well, and comes over from the dark side. One is either a part of the solution or part of the problem. Russell seems part of the problem …….a pity.
Winston Adams
Slowly, ever slowly, the Power and Authority crowd seem to be admitting that all is not well with the project accounts. Stan must know by now how the contract administration has been tampered with. The CA is required by normal professional, (Cost Engineering, Quantity Surveyor),process to forecast cost to complete, including allowance for changes in process, disputes registered, and contingency. Stan knows the situation, but is he permitted to report?
Independent Audit long over due. Not much room for procrastination by the Government and NALCOR.
Here is what you get, when the "Government of the People", persist in self regulation, (Professional Reliance), with respect to Christie's business partnerships with Foreign and National Fossil Fuel Corporations; It's all about Dams and compromised Governments.
http://www.policynote.ca/dam-big-problem/
Interesting : a 100 or more dams built in BC to store water for gas companies to do fracking; built without permits and no designs approved……….wow……make no wonder the Green Party had recent success in BC. Thanks for the link Robert
WA
Follow the money. Who owns the numbered companies getting the contracts. It is difficult to believe that Nalcor was that incompetent without someone influencing and making a lot of money on the backs of the rate payers. Take the Astaldi contract as an example. Even the average home owner knows that you don't build a house based on cost plus.
This should be a fraud investigation and I don't know if the AG is equipped to do it even if the money is made available. There needs to be legal approvals given to dig into the ownerships both here and in Italy and perhaps other countries. The bottom line is that about $3000 per year is going to be taken each year from the average home owner to support this boondoggle probably fraud and jail sentences will go a lot further than new policies to protect it from happening again.
One would thing that a senior engineer claiming complete falsification at Nalcor that one of two things would happen
1. Have him (or her) charged with mental incompetence…..take him to the Waterford and locked up for a week…..and treat him like Crockwell (as Hydro once treated him), or as the RNC recently did with the guy from Corner Brook…….which is what happens in third world countries, and here at times…
2. Take serious the allegations, and the Minister of Justice ask the police to take his allegations as the basis of a police investigation of the same, for fraud by those responsible.
Instead, there is silence by officials, it takes 4 months for the CBC to take it serious, and the Telegram ignores it.
It suggests a lack of justice at all levels. Even now, no one objects to a forensic audit, but no one with authority will initiate one…….hoping it will be forgotten
The fraud of some 100 million that recently got dismissed by our court of appeal, but now will be heard by the Supreme Court of canada, had been ongoing for some 10 years. Here we now deal with billions……the guilty will die of old age, as the wheel of justice is in bad need of some grease
Heard Vardy on VOCM this morning, on the North Spur issue…….Paddy Daley has slowly turned to be a serious critic of Nalcor, although rather late. He had good words in support of Vardy.
If Patty is not more careful, he may end up like Sucey. But maybe Sucey gave Daley some courage, and shows a bit of the the fighting Nflder character…….a rare character trait by Nflders, as we are more sheep-like and allow ourselves to be fleesed. Even at MUN, but for the foreign students, there would be silence at the wasteful masters. Our culture , I guess, from our long colonial history…..originally not allowed to have a chimney in a house to stay warm……..to discourage settlement…….and soon will have to disconnect the power line, our source of warmth…….like 400 years ago……live in a cellar or a sod hut, electricity will be for the rich only. So, who is at fault! Obama says people get the politicians they deserve, and that citizens need to stay informed and engaged…….is this the source of our problem……not caring until it is too late………
There's been quite a bit of talk over the past 2 years about putting the project on ice. Also whether or not it would cost more to stop MF or allow it to continue. Stan says it's gone too far to stop but offered no substantiated evidence to support his claim. I contend the longer they can stall on this and the more money is spent, he will eventually come up with figures to continue the project as opposed to stop it. We have no protection in the expenditure of our money and never will unless the courts get involved and no one is willing to take the first step because "the exalted one" will "bare his teeth".
Like all bullies "the exalted one" will whimper like a puppy if he is ever challenged. It just takes someone with balls to go toe to toe with him. With the stench of corruption and incompetence emanating from Muskrat Falls demanding transparency now would do it.
The 9% raise in rates is just a pre Muskrat tax that can't be justified with oil below $50 and heading south to less than $40 within a few months. This is just a sleazy way to boost rates to make the MF commissioning rate look less staggering. Surely it is time for a consumer uprising.
Boys or is it byes, I think you all are pissing into the wind here. M'rat will be completed, if that is technically possible due to the marine clay, and NLers will pay in any case, either through rates or taxes or a combination thereof. Audits and enquiries will only cost NLers more and accomplish little. The political system here or anywhere else will not change without a revolution.
For those who missed it, Dave Vardy (with Paddy Daley) stated that a few months ago he had written Bernard Coffey about the issue of the North Spur.
Coffey, supposedly the Top Oversight Guy of Muskrat,never even responded to his letter. After a lengthy delay, some lesser official responded to say that his concerns were passed along to Nalcor……..so much for oversight by Coffey.
Given the North Spur stability is key to both safety and protection of the 6 billion asset of the power facility…. what does that say about the why Coffey held that position. Now we have a petition of 1000 people wanting assurances……….Guess that too gets passed along to Naclor…….who says Be Happy, Don`t Worry.
The PUB rejection of the 18 percent rate hike was for the reason, they said, that 18 percent was a SHOCK RATE. Apparently 9 percent does not meet that standard of being a shock.
Now given that Muskrat at some initial figure of 6 billion indicated a requirement of about 45 percent hike in rates …….that would have been a shocking shock rate. Now, at 12 billion cost, expected rates of 100 percent increase is expected…..well call it shocking shocking shocking…or crazy shocking.
One assumes that a shock rate is something that is not acceptable to the public, or the PUB, but ok with the power companies and the government.
So why did the PUB in 2012 or 2013, not outright reject Muskrat on the grounds that the 45 percent increase in rates necessary would be a shock rate…..instead of saying they had insufficient information to make an informed decision, which let the government off the hook to proceed with sanction.
18 percent is now a shock, but 45 percent back then was not a shock!
Looking ahead we can expect 2 shocks, 50 percent once the line is connected, and another 50 percent when the powerhouse is completed and running, 2 years behind the first shock.
Now mitigation is intended to reduce these shocks instead each being 50 percent, perhaps to 35 or 40 percent each time.
Will the PUB disallow it or have no control of it.
We just averted a shock…….but not likely to avert much worse shocks soon coming.
Just shocking! But what real affect will this have……
I was a bit familiar with shell shocked…..but rate shocked…..that is a different animal, and something our media should further analysis and explain to the public…..I am sure most are not familiar with the term and the implication. Why was shock rates not discussed back then……and only now the term being used!
WA
I would suggest to you all, that an opportunity presents itself on the 25th in St. John's, to bring your concerns about Muskrat to an Atlantic Institute of Market Studies at a public event;
http://www.aims.ca
Ed is already a commissioner, and needs your support to raise the serious national consequences of the Boondoggle to higher levels of public consciousness.
All it takes is for a few Greens, to upset the site C Dam establishment.
Are there not one or two Greens/NDP willing to stand against the establishment Tory-minded Lib/PC's in NL?
http://www.theglobeandmail.com/news/british-columbia/bc-green-leader-andrew-weaver-is-the-most-sought-after-man-in-victoria-but-who-exactly-ishe/article34981489/