Guest Post
by David Vardy
by David Vardy
Summary of
Submission to BCUC
Submission to BCUC
This is a
summary of my detailed submission entitled “Site C and Muskrat Falls Compared” made to the British Columbia Utilities Commission relating
to their inquiry into Site C. This inquiry was initiated by the new NDP
government of BC and is directed towards the determination of the costs of
continuing, suspending or terminating the project.
summary of my detailed submission entitled “Site C and Muskrat Falls Compared” made to the British Columbia Utilities Commission relating
to their inquiry into Site C. This inquiry was initiated by the new NDP
government of BC and is directed towards the determination of the costs of
continuing, suspending or terminating the project.
In both
provinces there were joint federal provincial environmental reports. In each
case the joint panel recommended further detailed financial and economic
analysis to confirm the wisdom of proceeding, recognizing that no strong
business case had been presented for either Site C or Muskrat Falls. Both
provincial governments proceeded with little deference to the advice from the
joint environmental panels.
provinces there were joint federal provincial environmental reports. In each
case the joint panel recommended further detailed financial and economic
analysis to confirm the wisdom of proceeding, recognizing that no strong
business case had been presented for either Site C or Muskrat Falls. Both
provincial governments proceeded with little deference to the advice from the
joint environmental panels.
In a
Telegram article dated May 25, 2013 the Honourable John Crosbie said that
“Muskrat Falls is worth the risk”, quoting T. S. Eliot on the subject of risk:
Only those who would risk going too far can possibly find out how far you can
go. Since then we have sailed on a sea of risk and reaped the whirlwind. In
Newfoundland and Labrador (NL) the challenge now is to prevent the risks from
destabilizing the provincial economy. The risks of operating the project may
prove to be just as daunting as those of building it, due to the impact of high
power rates. The incidence of these power bills is likely to be placed on those
with the least ability to avoid the burden, namely residential customers.
Telegram article dated May 25, 2013 the Honourable John Crosbie said that
“Muskrat Falls is worth the risk”, quoting T. S. Eliot on the subject of risk:
Only those who would risk going too far can possibly find out how far you can
go. Since then we have sailed on a sea of risk and reaped the whirlwind. In
Newfoundland and Labrador (NL) the challenge now is to prevent the risks from
destabilizing the provincial economy. The risks of operating the project may
prove to be just as daunting as those of building it, due to the impact of high
power rates. The incidence of these power bills is likely to be placed on those
with the least ability to avoid the burden, namely residential customers.
Also
included in the risk of Muskrat Falls is the risk of landslides and earth
movements in a one kilometre long hill known as the North Spur which is a
natural dam which encloses the new run-of-the-river reservoir. This summer a
graduate student released a thesis which concludes that that the rise in the
water level from 17 m to 39 m may trigger a landslide and that the “North Spur
does not form a safe and reliable part of the impoundment wall.” Both projects
have an impact on the population living close to the generation sites and
impose environmental risks that need to be mitigated. The risk of dam breach is
common to both projects, along with methylmercury contamination. These risks to
human safety must be given absolute priority in reviewing the implications of
the options at issue in the BCUC inquiry.
included in the risk of Muskrat Falls is the risk of landslides and earth
movements in a one kilometre long hill known as the North Spur which is a
natural dam which encloses the new run-of-the-river reservoir. This summer a
graduate student released a thesis which concludes that that the rise in the
water level from 17 m to 39 m may trigger a landslide and that the “North Spur
does not form a safe and reliable part of the impoundment wall.” Both projects
have an impact on the population living close to the generation sites and
impose environmental risks that need to be mitigated. The risk of dam breach is
common to both projects, along with methylmercury contamination. These risks to
human safety must be given absolute priority in reviewing the implications of
the options at issue in the BCUC inquiry.
People
living close to the Muskrat Falls site have insisted on the need for an expert
geo-technical panel to confirm the safety of the natural dam, which is
underlain by sensitive clays which threaten to liquefy, placing residents and
workers at risk, along with the capital investment. The government of NL has
accepted Nalcor’s assurance that the dam is safe. The NL experience suggests
that stronger environmental oversight is needed, along with mechanisms for
monitoring and community liaison and for complaint resolution, independent of
the project proponent.
living close to the Muskrat Falls site have insisted on the need for an expert
geo-technical panel to confirm the safety of the natural dam, which is
underlain by sensitive clays which threaten to liquefy, placing residents and
workers at risk, along with the capital investment. The government of NL has
accepted Nalcor’s assurance that the dam is safe. The NL experience suggests
that stronger environmental oversight is needed, along with mechanisms for
monitoring and community liaison and for complaint resolution, independent of
the project proponent.
Both
projects were exempted from the jurisdiction of their respective public utility
board, preventing the utility boards from fulfilling their mandates to protect
ratepayers by making decisions based on detailed assessments of alternatives.
projects were exempted from the jurisdiction of their respective public utility
board, preventing the utility boards from fulfilling their mandates to protect
ratepayers by making decisions based on detailed assessments of alternatives.
Both
projects are being financed in unorthodox ways. Both impose costs on future
generations, drawing upon 50-70 year time horizons for repayment. Not only is
the financial structure for Muskrat Falls complex but it violates fundamental
principles relating to the need for arm’s length relationships between a
regulated utility and related companies (including the parent company). The
take-or-pay power purchase agreement (PPA) between NL Hydro and its parent
company, Nalcor Energy, is the pivot around which the deal is contrived.
projects are being financed in unorthodox ways. Both impose costs on future
generations, drawing upon 50-70 year time horizons for repayment. Not only is
the financial structure for Muskrat Falls complex but it violates fundamental
principles relating to the need for arm’s length relationships between a
regulated utility and related companies (including the parent company). The
take-or-pay power purchase agreement (PPA) between NL Hydro and its parent
company, Nalcor Energy, is the pivot around which the deal is contrived.
The contract
is a Power Purchase Agreement which commits NL Hydro, a regulated utility, to
buy Muskrat Falls power from Nalcor Energy, its parent company, and prevents NL
Hydro from purchasing lower cost energy in the market. NL Hydro is compelled by
extraordinary provincial legislation enacted in 2012, pursuant to the federal
loan guarantee agreement, to purchase power only from Nalcor.
In both
cases the proponents are crown corporations which were mandated to build
megaprojects embraced as legacy projects by their political masters. Both
provincial governments have given their energy corporations a broad mandate but
fettered their public utility boards by limiting their powers.
cases the proponents are crown corporations which were mandated to build
megaprojects embraced as legacy projects by their political masters. Both
provincial governments have given their energy corporations a broad mandate but
fettered their public utility boards by limiting their powers.
 |
| Artist’s Rendition Site C Dam, B.C. |
While the
projects are similar in terms of energy, capacity and cost they are different
in terms of the scale of the burden they will impose on each province.
The population of British Columbia is nine times that of Newfoundland and
Labrador and is projected to increase by one million over the next 20 years,
while NL will experience a decline in population. The cost of Site C represents
just 3.7% of the Gross Domestic Product of BC compared with 42% for Muskrat
Falls and NL. The scale of Muskrat Falls, relative to the size of the
province’s fiscal capacity and population base, is a major concern. The per
capita net debt in NL is $26,883, compared with $8,429 in BC. (RBC)
The Liberal
government of NL inherited the Muskrat Falls project from their Progressive
Conservative predecessors. The project was announced by Premier Danny Williams
in 2010 and sanctioned by Premier Kathy Dunderdale in 2012. The Liberal
government of Premier Dwight Ball, which took office in December 2015, has
resisted calls for an investigation into the merits of stopping or suspending
the project. Prior to sanctioning the Muskrat Falls project the
Dunderdale government presented a reference question to the NL PUB, a more
limited question than has now been given to the BCUC, one which strictly limits
the alternatives under consideration. The PUB concluded in its report to the
government of Premier Dunderdale that the cost estimates and other supporting
projections were too imprecise for them to offer an informed opinion, having
asked for additional time to review revised and updated cost estimates, based
on more detailed design work. This request was refused.
government of NL inherited the Muskrat Falls project from their Progressive
Conservative predecessors. The project was announced by Premier Danny Williams
in 2010 and sanctioned by Premier Kathy Dunderdale in 2012. The Liberal
government of Premier Dwight Ball, which took office in December 2015, has
resisted calls for an investigation into the merits of stopping or suspending
the project. Prior to sanctioning the Muskrat Falls project the
Dunderdale government presented a reference question to the NL PUB, a more
limited question than has now been given to the BCUC, one which strictly limits
the alternatives under consideration. The PUB concluded in its report to the
government of Premier Dunderdale that the cost estimates and other supporting
projections were too imprecise for them to offer an informed opinion, having
asked for additional time to review revised and updated cost estimates, based
on more detailed design work. This request was refused.
In NL there
has been a call for a public inquiry into the escalating costs of Muskrat Falls
and for a forensic audit to review allegations that cost estimates were
falsified deliberately in order to secure project sanction. Government’s
response has been that any public inquiry should wait until the project is
completed, a position rejected by most critics.
has been a call for a public inquiry into the escalating costs of Muskrat Falls
and for a forensic audit to review allegations that cost estimates were
falsified deliberately in order to secure project sanction. Government’s
response has been that any public inquiry should wait until the project is
completed, a position rejected by most critics.
There has
been a public debate about Muskrat Falls but many knowledgeable people have
refused to engage openly in the dialogue. In a province where government plays
a large role there has been a “fear factor” as people have been reticent to
speak out for fear of retribution by government and by Nalcor, which can take
many forms. Some people are concerned that the careers of their children may be
jeopardized. In a community where Nalcor employs many engineers and engineering
companies there is a concern about being blacklisted. I suspect this is not as
big an issue in BC.
been a public debate about Muskrat Falls but many knowledgeable people have
refused to engage openly in the dialogue. In a province where government plays
a large role there has been a “fear factor” as people have been reticent to
speak out for fear of retribution by government and by Nalcor, which can take
many forms. Some people are concerned that the careers of their children may be
jeopardized. In a community where Nalcor employs many engineers and engineering
companies there is a concern about being blacklisted. I suspect this is not as
big an issue in BC.
My
submission provides a comparison of the two projects, along with a more
comprehensive overview and analysis of the Muskrat Falls project. In my
executive summary I offer the BCUC a list of 14 recommendations, of which the
top six are as follows, beginning with human safety as an overriding priority.
submission provides a comparison of the two projects, along with a more
comprehensive overview and analysis of the Muskrat Falls project. In my
executive summary I offer the BCUC a list of 14 recommendations, of which the
top six are as follows, beginning with human safety as an overriding priority.
1.
The BCUC must be guided by the policy objective of ensuring a reliable supply
of power at the lowest cost possible. Yet they must also keep in mind an even
higher social goal, which is to ensure the safety of those affected by the
project, both those working at the site and those living in its vicinity.
People living close to Muskrat Falls have become convinced that the project
poses a danger to themselves and to their way of life. They are concerned that
the North Spur may collapse and cause a dam breach that may threaten their
lives and they are concerned that their country food will be poisoned by
methylmercury.
The BCUC must be guided by the policy objective of ensuring a reliable supply
of power at the lowest cost possible. Yet they must also keep in mind an even
higher social goal, which is to ensure the safety of those affected by the
project, both those working at the site and those living in its vicinity.
People living close to Muskrat Falls have become convinced that the project
poses a danger to themselves and to their way of life. They are concerned that
the North Spur may collapse and cause a dam breach that may threaten their
lives and they are concerned that their country food will be poisoned by
methylmercury.
They have
learnt a great deal more about these dangers and they have received no
reassurance from government or Nalcor to allay their fears. They are not
satisfied that the environmental oversight mechanisms are sufficiently
independent of the proponent and they are disappointed that the independent
oversight mechanisms recommended by the joint panel have been compromised. They
have learnt that the only way to make their voices heard is to protest and
occupy the site and they have been arrested and incarcerated because of such
protest.
learnt a great deal more about these dangers and they have received no
reassurance from government or Nalcor to allay their fears. They are not
satisfied that the environmental oversight mechanisms are sufficiently
independent of the proponent and they are disappointed that the independent
oversight mechanisms recommended by the joint panel have been compromised. They
have learnt that the only way to make their voices heard is to protest and
occupy the site and they have been arrested and incarcerated because of such
protest.
On May 9th,
2017 a petition to government signed by over 1,000 people was presented asking
that a panel of geotechnical experts be appointed to review the North Spur
remediation work to ensure that the dam will be safe but no response has been
received.
2017 a petition to government signed by over 1,000 people was presented asking
that a panel of geotechnical experts be appointed to review the North Spur
remediation work to ensure that the dam will be safe but no response has been
received.
My first
recommendation is that the BCUC recognize that where human safety is at issue
the precautionary principle must be followed, giving deference to those who are
at risk. This means that people must have an independent authority to whom they
can go to seek solutions, whether the problems be risk of dam failure or poison
in their food.
2.
Beware the lure of jobs and the lobbying efforts of contractors and consultants
to keep the project going! The terms of reference for the Site C inquiry
include the words “advise on the implications” of continuing, suspending or
terminating the project. The BCUC should focus on supplying reliable energy
safely, at least cost, and not on the economic development or employment
“implications” of the project. Project proponents emphasize the number of
jobs created without disclosing the fact that the cost per job is very high,
the leakages from the local economy enormous and the jobs are short term.
Beware the lure of jobs and the lobbying efforts of contractors and consultants
to keep the project going! The terms of reference for the Site C inquiry
include the words “advise on the implications” of continuing, suspending or
terminating the project. The BCUC should focus on supplying reliable energy
safely, at least cost, and not on the economic development or employment
“implications” of the project. Project proponents emphasize the number of
jobs created without disclosing the fact that the cost per job is very high,
the leakages from the local economy enormous and the jobs are short term.
3.
In order to avoid nasty surprises it is best to avoid committing to a project
unless a high level of engineering design has been done to anticipate problems
and to build a high level of confidence in cost estimates. In the building of
Muskrat Falls a lot of engineering work was left to be done after the project
was sanctioned. The level of engineering design completed was not sufficient to
provide reliable estimates prior to consideration by the NL PUB and in advance
of sanction.
In order to avoid nasty surprises it is best to avoid committing to a project
unless a high level of engineering design has been done to anticipate problems
and to build a high level of confidence in cost estimates. In the building of
Muskrat Falls a lot of engineering work was left to be done after the project
was sanctioned. The level of engineering design completed was not sufficient to
provide reliable estimates prior to consideration by the NL PUB and in advance
of sanction.
4.
Do not overbuild the system. Build accordingly to your need and ensure that the
system is as adaptable as possible. This is particularly important in an era of
rapid technological change. For NL, Muskrat Falls was far too large for our
needs and far too expensive.
Do not overbuild the system. Build accordingly to your need and ensure that the
system is as adaptable as possible. This is particularly important in an era of
rapid technological change. For NL, Muskrat Falls was far too large for our
needs and far too expensive.
5.
Financing mechanisms should be as transparent as possible. In NL the financial
arrangements surrounding Muskrat Falls are so byzantine that they are difficult
to comprehend.
Financing mechanisms should be as transparent as possible. In NL the financial
arrangements surrounding Muskrat Falls are so byzantine that they are difficult
to comprehend.
6.
Seek input from all parties and prompt reticent stakeholders to participate,
even if they fail to register or file evidence. In the case of the 2011-12 PUB
hearing in NL one of the major players remained silent, namely Newfoundland
Power (NP), a Fortis subsidiary, which is a regulated, investor owned utility
with a mandate for the distribution of power to most of the Island’s
population. Their failure to participate denied the investigation access to a
vast reservoir of expertise. NP manages the interface with the customers who
consume power from Nalcor’s subsidiary, NL Hydro, a regulated company which
generates most of the power and operates the high voltage transmission system.
This interface places them in a good position to advise on growth in consumer
demand for electricity.
Seek input from all parties and prompt reticent stakeholders to participate,
even if they fail to register or file evidence. In the case of the 2011-12 PUB
hearing in NL one of the major players remained silent, namely Newfoundland
Power (NP), a Fortis subsidiary, which is a regulated, investor owned utility
with a mandate for the distribution of power to most of the Island’s
population. Their failure to participate denied the investigation access to a
vast reservoir of expertise. NP manages the interface with the customers who
consume power from Nalcor’s subsidiary, NL Hydro, a regulated company which
generates most of the power and operates the high voltage transmission system.
This interface places them in a good position to advise on growth in consumer
demand for electricity.
 |
| Artist’s Rendition Muskrat Falls, NL |
The
government of NL has just released a report by EY, which was commissioned to
review cost estimates and scheduling of project completion. The mandate of EY
did not embrace a review of the cost of continuing, terminating or suspending
the project yet it took almost two years to complete at a cost of $2.2 million.
EY, or preferably the PUB of NL, should have been tasked to ask the fundamental
question whether we should be continuing the Muskrat Falls project. This was
the kind of fundamental review which was expected of the new government after
it assumed power in December of 2015. Yet we are presented with a report on
August 31, 20117 which fails to address the key question, which is: why are we
continuing with this project as presented by Premier Williams in 2010 when the
underlying assumptions have been demonstrated to be flawed?
While there
are many lessons BC can learn from our mistakes it is vital, even at this late
date, that we emulate the BC model by examining the wisdom of continuing with
the project in its present form, given the fundamental change in energy markets
and the massive cost escalation experienced in building Muskrat Falls. Perhaps
we will discover that the value of the generation component, as measured by the
sales revenue it will produce, will be far below the remaining cost to complete
it. If so, the analysis may reveal that the generation component should be
suspended or terminated.
are many lessons BC can learn from our mistakes it is vital, even at this late
date, that we emulate the BC model by examining the wisdom of continuing with
the project in its present form, given the fundamental change in energy markets
and the massive cost escalation experienced in building Muskrat Falls. Perhaps
we will discover that the value of the generation component, as measured by the
sales revenue it will produce, will be far below the remaining cost to complete
it. If so, the analysis may reveal that the generation component should be
suspended or terminated.
David Vardy
I agree that Nfld Power should have had a substantial say prior to MF sanction, especially since Stan Marshall had given a warning. Yet there was no detailed opposition by Nfld Power or Fortis.
Indeed, Nfld Power`s 5 year power forecast, reflecting a temporary robust energy demand, helped Nalcor to develop a long term forecast that was unrealistic, but necessary to promote MF. That robust forecast was a false assumption, that is already shattered.
Further Nfld Power and Nfld Hydro failed in their Conservation and customer Efficiency Plan……even Tom Johnson, a MF supporter and our Consumer Advocate, admitted to that to the PUB in April 2016, and was shortly after fired.
Still , today, Nfld Power, through the Take Charge program, in partnership with Nfld Hydro, has no meaningful conservation and efficiency measures for customers……….being rated second worst in Canada. They enable the fiasco of MF to continue by such measures. To do otherwise,with cost effective measures, as Efficiency Nova Scotia does, would reduce power demand even further, and impede the revenue for Nalcor. All the power companies here are engaged in trying to prop up the demand, by depriving customers of awareness, informed decisions, and incentives that help them save significant energy. Even the Oversight Committee member of James Feehan is in on that game, having publically stated that rates should not be too high as to encourage customers switching of heat pummps…….a delusional wish as many already are switching.
By staying silent at the early stage, Nfld Power have enabled the project to proceed, and enables the Generation plant to proceed in the face of rapidly declining demand, with no request by them to reevaluate. Their reputation and approval rating will greatly suffer when the shock rate power bills arrive under the Nfld Power letterhead. To duck and cover will give them little protection in the eye of the public. You reap what you sow. Yet they are protected by the regulators, all on the backs of the consumers and residents.
Winston Adams
For the Ball Government to continually refuse to sanction a Forensic Inquiry into MF leaves one to believe that (1)Someone or some entity has a gun held to the head of those in power which is akin to blackmail. (2) Mr Ball and/or others in authority have a vested interest in Companies doing business with Nalcor (3) Government knows that proceeding as we are is leading to bankruptcy of the province (NL residents cannot pay the cost of future electricity rates and inevitable tax increases)and whether we stop it or continue it is irrelevant.
Just where is Government going to get the extra billions to complete the project?? NL is at/over its limit already. Being over the proverbial barrel leaves Government no choice but to strike a deal with the Devil– Emera and Quebec will soon(if not already) be calling the shots. Quebec will get ownership of the Upper Churchill and full control of whatever they want/need from Labrador. Emera will get full control of MF and the distribution lines thus making NL Hydro a subsidiary of Emera. NL Power will be buying power from Emera with the PUB of NS calling the shots setting power rates for both NS and NL.
Proceeding with no accountability and total disregard for the future of NL's 500,000 suckers is what is happening. Businessmen and big business is raping us daily and we have absolutely no say whatsoever. Voting them out at election time will only put the original authors of this boondoggle back in power and on and on it goes. Refusing to implement a Forensic Audit allows this to continue with no consequence to the crooks who are lining their pockets. Mr. Ball saying it will happen when the project is finished lets him off the hook as he knows full well that he is a one term Premier who will go back to his Business as if nothing happened.
Talk about a 3rd World dictatorship!! How sad we have no legal recourse to protect ourselves and our grandchildren from being whipped daily and into the future.
Our demise is inevitable thanks to the likes of Danny Williams and his cronies–Kathy, Ed and Gil and other sleeveens— We are helpless lambs being led to the slaughter.
Mr Vardy, has anyone from the mainland investigative media been approached by yourself and/or others with enough insight into MF, to conduct an investigation?? Those who are supposed to protect us are continuing to allow this to go on with no consequence to those who should be held accountable.
Does anyone have a different view??
You are correct in your analysis. Colleagues in the confederation building joke that the only thing missing from the oligarchy in the province are the epaulets (comparison to Idi Amin of Uganda / 3rd world / banana republics).
Compromised people who can be blackmailed are put into positions of power precisely because they can be controlled. The real power isn't in the hands of our elected officials, it is in the hands of those that use their influence, money and power to place them there. Who we vote for doesn't even matter.
I've sent requests to investigative news programs and I am sure many others have too. The fact that something of this importance isn't being covered by corporate media doesn't bode well for our democracy. Investigative journalism that has the potential to upset powerful people is now found only in blogs.
Interesting assessment, Mr Vardy. I will first qualify that I have limited info on Site C (some previous consulting work, but no first hand execution experience), but am involved in MF as a senior engineer—both design and execution.
From my standpoint, the answer to your key question surrounding the recent EY report ‘ie why don’t we stop Muskrat’ lies in an analysis of generating a cost curve for both Site C and Muskrat. In assessing the costing for MF vs Site C it is apparent that we have the following factors at play (ie failures at MF):
1. A difference in front end engineering completed
2. Differing contract language for contractors
3. Differing management theologies and a complete lack of local ability at the execution level
4. A complete lack of indepth analysis of need vs cost vs execution ability
In my quick analysis of the cost curve, a key reason to MF being the fail it is lies in determining the construction activities instigated in 2014(worthwhile to review published reports for the info, it is available)—I quoted this as a problem to the media then, and my comments have stood the test of time. Also looking over the cost curve wrt current completion status, I would surmise my long standing $15B total estimate is looking sound.
I will state that reasons provided for overruns such as weather and geotechnical conditions are not valid—-there were known issues, though definitely not fully understood but none the less unchanged since before sanction. Any veteran of the Labrador construction scene can verify that in a heartbeat.
Finally, I will give you that there has never been a thorough technical or financial analysis of Muskrat that I know of—but I still believe that due to reasons I have previously stated that MF is beyond the point of no-return and has been for 3-4 years or so… I have not seen anyone refute my offerings on this stance to date with facts.
WRT Site C, I don’t have enough first hand info to really comment—other than I do know of people that have been courted to help right that ship….
PENG2
I disagree that it is too late to stop. You state "MF is beyond the point of no-return and has been for 3-4 years or so… I have not seen anyone refute my offerings on this stance to date with facts."
Given the extreme costs that will likely bankrupt the province, the North Spur which will eventually fail and kill people, methyl mercury and the insanity and/or corruption of the business case — MF should be stopped until the government can prove it should continue.
I have seen zero evidence that it is too late to cancel the project. I believe the debts incurred should be defaulted on if necessary under the doctrine of "regime / odious / illegitimate" debt and that many people should serve the remainder of the lives behind bars for this crime.
Some of us living in BC are anxiously awaiting a discovery of what project costing errors, obfuscations, risks await us on Site C. Note the similarities and time scales. Once the site preparation phase of the project progresses to the generation plant construction phase, foreign supplied mechanical/Electrical/Transmission cost surprises tend to double the cost estimates. Say Muskrat tops out at $15B, I would expect Site C to follow a similar track. David, you do a great service to expose to the public and the always trusting ratepayers some truths about the Hydro power plant mega projects boondoggles.
Anon @ 13:42:
I previously posted 7 reasons why I believe that stopping MF now is a bad idea—see my reasons: http://unclegnarley.blogspot.ca/2017/08/the-ag-and-consumer-advocate-do.html
By all means, if you can refute my reasoning for pushing on, I would be willing to adjust my stance on completion.
PENG2
I have no direct financial stake in whether or not Muskrat and/or Site C continues to be a "Go".
I take it that you, PENG2, have a stake in the continuance of Muskrat.
Robert:
Yes, I do have a stake in MF—-I am a NLer with a family, and my tax $'s are paying for this beast.
My MF salary is typical for an engineer of my experience band in consulting or construction—-certainly not over the top and not all my annual income, if I was let go it wouldn't be the end of the world.
What people need to realize about the numbers quoted in the Atippa releases is those $s are what is paid to a recruiting company, not the staff persons salary. the recruiting companies cut could be as much as 30%, then the staff get paid.
PENG2
Good on ya fellow Engineer. I hope the experience gained is worth it.
PEG2, You have an odd attachment to a project that will bankrupt NL and when the spur fails the 15 billion will be a stranded asset. What creditable engineering have you seen that the spur is stable?
To answer your question directly the cost of MF completed will be at LEAST 60 cents KwH. The cost of wind is currently 4-6 cents KwH. Get your slide rule out and do the math! The as yet unannounced overruns at MF would build all the energy NL will need for decades!
I will address a number of points here. One is whether I have tried to engage national media. The answer is that I and others have tried hard to get national media, including CBC, the Globe and Mail, the Financial Post and others to cover Muskrat Falls. My main purpose in preparing the submission for the BCUC was to compare these two projects, Site C and Muskrat Falls, and thereby attract media attention for both. Perhaps it will be successful. It is too early to say.
I believe that attracting investigative reporters is vitally important in placing pressure on decision-makers, both federal and provincial, to consider options other than the course of action on which they are embarked. Already the submissions on the BCUC site are focusing on how to evaluate the project, based on the flow of revenues it can be expected to generate. Harry Swain, former chair of the Site C joint environmental panel, placed a $2 billion value on the project and argues that if the incremental (future) costs to complete the project exceed that threshold then it should be stopped.
Eoin Finn (http://www.sitecinquiry.com/wp-content/uploads/2017/08/DOC_90050_F44-1_Finn-E_Site-C-Submission_Redacted.pdf) also has an interesting submission which appears to confirm Swain’s analysis, examining a range of options for marketing Site C power, and concluding that exports sales, at about 3 cents per kwh is the benchmark against which it ought to be compared. Swain derives his $2 billion estimate using this export price.
Various submissions refer to the “own price elasticity of demand” as a key issue in projecting the demand for power. On page 11 he makes the following statement:
Price elasticity is a measure of the degree to which customers reduce their consumption because of rising real prices. It varies with the type of good, available alternatives, consumer tastes, and the turnover rate of capital goods used in consumption. Conservation, fuel switching and equipment replacement (appliances, LED lights, heat pumps, etc.) are common responses to electricity consumption as prices rise. Substitution possibilities rise with time and changes in technology, so the relevant measure is long-run price elasticity. In reviewing literature for the JRP Report, I found numbers ranging from -0.1 to -0.7, with a clustering around -0.4.
What is meant by a -0.4 coefficient of price elasticity? This means that if the price rises by 10% then demand will drop by 4%. If price rises to 23.3 cents per kwh as forecast by Stan Marshall it will likely lead to a reduction in demand of about 40%. In this scenario the demand for additional revenue simply vanishes.
David Vardy
Wade Locke mad an unprofessional joke at Jim Feehan's expense "we could increase the cost of electricity so there would be no demand!" How's the 100% rate increase fit into your absurd demand forecast Locke or the minimalist price elasticity your Nalcor rehash slideshow had? Locke wholeheartedly supported MF through emotions and agreed with all of Nalcor's assumptions (forever $100 oil, $6.2B initial price and the insane demand forecast of 7600GWH in 2010 to 10500GWH by 2041 and 12000GWH by 2067)
If the presentation was a thesis it would be flatly rejected, no original research or proving the mathematics and assumptions were correct.
10% population drop before UC contract expires, was this used in MF calculations? Residential demand was never studied in detail by Nalcor, the only full paying customers.
Nalcor BoD were ill equipped for Muskrat Falls as it fell far out of their limited expertise and 8/13 seats unfilled – criminal activity on the party of the PCs.
100% agreed Fortis/NP really dropped the ball on MF, good thing NP is only 6% of Fortis currently expect a sharp revenue decline post rate shock.
Mr Vardy makes an excellent explaination of price elasticity.
My first attempt to bring the subject was not as successfull.
My comment on December 1st 2016 at 10:43:
"Believe me, 22 cents rates will induce demand management/electricity consumption reduction big time… (which will then affect Nalcor sales, thus more rate increases to compensate…)"
Then Anon answered me the following:
"Your flawed logic is that you assume that the more you reduce energy sales the more they will increase rates. Same as assuming the more you reduce purchase of beef the more they will charge for beef"…
Oh well…
http://unclegnarley.blogspot.ca/2016/11/over-barrel-start-of-new-resource.html?m=1
In response to my query to Nalcor I was informed on April 5, 2017 that Nalcor had indeed formed an Advisory Board of senior engineers. I was told it would be “re-engaged” in 2017 to deal with “critical construction activities.” Why did EY make no reference to this board in its discussion of oversight activities? It hardly inspires confidence in EY. Yet the re-engagement signals the complexity of the work yet to be accomplished.
It is disappointing how EY have downplayed the risk of the North Spur, relegating them as “other unforeseen directives from government” a not-so-subtle message that no technical advisory panel should be appointed by government, against the clearly expressed objections of Nalcor.
The EY report is a big disappointment and took too long to make a series of trite observations, falling below the expectation they created in their more insightful report of April 8, 2016.
EY can hardly be blamed for the mandate they were given in December 0f 2015. Who drafted their terms of reference? Was it the new government or the public servants who comprised the Oversight Committee? The terms of reference failed to deal with measurement of the cost of continuing, versus suspending or terminating the project. This is the assignment the BCUC has been given with respect to Site C, namely to measure the cost and ought to have been core questions in the terms of reference of EY.
On March 1, 2016 Ron Penney and I wrote to the Premier recommending that a panel be appointed to “assess both the cost of stopping the project and the cost to complete it, as well to conduct a benefit cost analysis of the options available to government. The services of Ernst and Young should be made available to the panel along with any other resources which the panel may deem necessary, which would likely include engineering expertise. The scope of the work of Ernst and Young would need to be expanded in order to facilitate a full benefit cost analysis of the options, including full and partial suspension.”
This remains the core question as we enter a phase with an “expected high planned spend rate” (EY p 8). While the transmission lines are well advanced there remains a lot of work to complete the generation site. There also remain many unanswered questions at this late stage of construction, many of which surround the reliability and cost of power if the project is completed. The saga of Muskrat Falls continues, while the fate of the province hangs in the balance.
David Vardy
Vardy:
The EY report was what I expected—not much. Granted, I will offer that things have gotten somewhat better over the past couple years.
On location, we hear of media, OHS, MWH and any other visitors—but I have never heard of this Advisory Board, nor have I heard from anyone in my professional circles that they are a participant. Considering my professional circle, this leaves the members as being from 1 of 2 groups:
1) imaginary
2) not local(and this would feed back directly to one of the biggest issues with the project execution to date)….
To me the greatest deficit in experience is the lack of true civil engineering experience working on the project—lots of electrical/mechanical and 'oil industry' guys, but almost no hard core civil guys.
My thought as explained previously here is either completing or mothballing carries the same $15B price tag(give or take 1-2%)—I just cant see how mothballing at this point makes sense….
My opinion, for what it is worth; I am not sure if you can explain the mothballing value better than it has been previously…
PENG2
PENG2
Good questions. Why should we terminate or mothball. Of course I do not know how much it will cost to cancel contracts and to compensate contractors for lost profits. I suspect that the transmission lines are so close to completion that it may make little sense to stop. We are told that 66% of the site work is done but we do not know how much more it will take to remediate the North Spur, or indeed if it is possible. We know the work to be done is complex and that the “expected spend rate” is high. The remaining work is vulnerable to errors in quality assurance, both past and future.
With a demand elasticity of -0.4 and a doubling of prices to at least 23.3 cents per KWH the load will contract by 40%. Look at Stan’s June 23, 2017 update page 18, which shows the latest load projection. The curve will assume a strong downward slope as 7000 GWH falls to 4200 GWH. This means no domestic demand for Muskrat Falls power and that demand for Holyrood power will also be reduced.
We have committed over 1TWH to Nova Scotia as part of the “Nova Scotia Block” for 35 years, with no offsetting revenue. Assume, as does Harry Swain in BC, that we can generate 3 cents per KWH for 3000 GWH in export power. Hydro Quebec’s 2016 annual report discloses an export revenue income of only 2.5 cents per KWH and Nalcor’s income per KWH for sale of Recall power through Quebec nets less than half of this.
Assuming 3 cents per KWH gives us $90 million in revenues, less than the cost of operation. The pie chart on page 15 of the June 23 update shows O and M cost at 5.5 cents per KWH. Using 4.6 TWH as the plant’s output, net of line losses, I calculate $244 as O & M costs. Would it pay to operate the plant? If you could net $90 million in revenue for 20 years then the present value of the plant, discounting at 5%, would be $1.1 billion. For 35 years it would be $1.5 billion. But when net income is negative ($90 million minus $244 million) then the value of the plant is zero.
Is it suggested we should complete the project for the benefit of Nova Scotia, to provide them with power at six cents per KWH?
Need I go further? There are lots of further refinements necessary but it seems to me that the case for completing the project has yet to be made.
David Vardy
The silence is deafening!!! Has everyone come to the same conclusion. Seams David Vardy and peng2 has come to the same conclusion, the cost to complete muskrat and mothballing it is the same… 15B. Peng2 travels as far as completion, mr Vardy takes it one step further, the cost to operate after completion, without considering the failure of the north spur. So the prisoner is wanted dead or alive, the ransom is the same 15$ billion. I say take him dead, because if he is taken alive what is the cost to maintain him at public expense. Case closed. Shut her down.
Yes the argument for shut down, shut in, mothball is made on the realization that economic operation was made on false demand forecasts. Retain Winston to demonstrate how the Avalon can get along without building excess hydro, based in Labrador.
Anonymous
I have not, repeat not, concluded that the cost of suspending/terminating Muskrat Falls is the same as that of continuing it. My expectation is that once we have a full account of the cost to complete and the cost to cancel construction contracts the result will show a preference to terminate the generation component, which is where the work is least advanced and most fraught with risk, particularly the risk of liquefaction at the North Spur. The saving from cancellation would have been much higher if it had been done when the Ball government first came into office.
David Vardy
PENG
I am responding on the advisory board. See my question and Nalcor's reply:
Q2. Is there such an external technical advisory or review board for Muskrat Falls similar to the Site C technical advisory Board?
Q3. Was there such a Board in the past for Muskrat Falls or for the Lower Churchill development?
The following information addresses Q2 and Q3.
An Advisory Board was established for the Muskrat Falls facility and associated dams. The Advisory Board and was in place during Engineering Phase of project. The members of the Advisory Board included: Donald Coulson; Brian Forbes; Bernard Hagin and Stephen Rigbey. These are accomplished engineers, geotechnical engineers and experts in their respective fields. While the Advisory Board does not sit as a whole, they are engaged on regular basis to provide support in specific technical areas related to their expertise. We have engaged the individual experts as required and have expanded the team of experts we call upon beyond the Advisory Board team members.
The engagement of the Advisory Board was taken at the Muskrat Falls Project team management level to provide an independent opinion on the work undertaken by the project’s designers.
Q4: Why was the panel disbanded?
An Advisory Board was established for the Muskrat Falls facility and associated dams. The Advisory Board and was in place during Engineering Phase of project. While the Advisory Board does not sit as a whole, they are engaged on regular basis to provide support in specific technical areas related to their expertise. We have engaged the individual experts as required and have expanded the team of experts we call upon beyond the Advisory Board team members. Note also that as we move into critical construction activities in 2017, including RCC construction and turbine/generator installation, LCP is re-engaging the Advisory Board in its complete form in 2017 for ongoing review of design implementation in construction.
Q5: To whom did the review panel report within Nalcor?
The review panel was coordinated by the Muskrat Falls Generation Engineering Manager and the board has met with the Executive Vice President and Project Director.
Q6: Were the reports reviewed by Nalcor’s Board of Directors?
As indicated above the Advisory Board was engaged by the Muskrat Falls Project management team.
Q7: Were these reports shared with the Independent Engineer and with the Federal Government?
The Independent Engineer (MWH) was engaged and aware of the board and indicated in its November 2013 report that “MWH personally knows these individuals they are qualified to provide sound opinions for the Integrated Project Team to consider.”
Q8: Were these reports shared with the Minister of Natural Resources?
As indicated above the Advisory Board was engaged by the Muskrat Falls Project management team
Q9: Did the Minister of Natural Resources participate in the decision to terminate the technical advisory panel?
The Advisory Board has not been terminated as indicated in the information provided above.
David Vardy
PENG2
In responding to your question I missed question 1:
Q1. Does Nalcor have a sub-committee of its Board of Directors with specific responsibilities for Muskrat Falls, similar to the Site C Project Board?
Muskrat Falls Corporation is a separate subcommittee of Nalcor Energy and it has its own Board of Directors.
David Vardy
Sorry Folks, I have to agree with PENG2 in that shutting the project down is not a viable option. If the project is shutdown it becomes a stranded asset. That is an asset that essentially has no value, but has an enormous cost, does not produce any revenue, but has to be paid for.
This project will run for the next 100 years and produce revenue. This is the best decision in a very bad situation. It is much like jumping off an oil rig that is on fire. If you stay, you will burn to death. If you jump off you may stay alive. I opt for the latter.
James Fulton
Not sure if I agree with you or your anology. Run for the next hundred years and produce revenue; as I understand it the cost to operate far exceeds any revenue produced, so the nl taxpayers have to foot that bill too, cut our losses and shut it down. Yes if you jump of a burning rig you may survive, or , you may become a vegetable, so you take your chances, but at some point someone may have to pull the plug; don't think anyone would want to live like that, God forbid.
James you miss two points.
First when the spur fails MF will be a truly stranded asset with zero output. Secondly if it does, by some miracle, not fail it will be a money LOSING asset for a century. Power that costs at least 60 cents a KwH to produce that is worth about 4 cents KwH on the spot market and 23 to the captive hostages in NL for the power is still less than half the cost of production. Where exactly is that revenue you refer to?
The arguments presented here by David Vardy are valid but complex. Howver, the easiest questions are the hardest to answer. Who is blocking the Forensic Audit, when 70% of the population of NL are asking for one. It has been endorsed by previous Premiers. The arguments for not conducting an audit have no validity. Everyone agrees on that. It appears that the Premier, Minister Coady, the Auditor General and the Consumer Advocate can ignore the wishes of the people with impunity. Also, why does the mainland media steer clear from Muskrat Falls. Does anyone has the answer.
David Lean
Your feudal chieftain! Have you not been paying attention?
Just an aside; God vs Trump ….Hurricane Irma
CNN weather reporters say they hope and pray it will turn north before getting to Florida…….they call this a gutter ball……as with bowling, and so heads toward Nfld.
They do not say they hope it hits Nfld, and better odds it goes out to sea…..but who here hopes this is a gutter ball……….and heads this way…….should we pray for no gutter ball……..
It is projected to keep going west until in line with Florida , then turn North, with Miami a possibility………maybe Trumps`s property!
Here , locals plan concerts for Houston victims, meanwhile the Houston mayor says they don`t want PITY PARTIES……big egos them Texans.
No doubt there are a lot of need there………..but Muskrat caused a flood at Mud Lake and a lot of damage and loss………..what happened to the fund raisers for our own people of Labrador………
PF
Kudos again David for the warning to the BCUC of the risks of letting sunk costs drive the project at Site C.
You point out the similarities with Muskrat Falls but you omit to warn that the similarities emanate from a common cause. SNC Lavalin used the formula you eloquently outline, take or pay contracts, blunt regulatory oversight etc. at both Site C and Muskrat Falls. It, not coincidentally, is the same playbook used by SNC Lavalin overseas to facilitate fraud and corruption. David you still fear the plain unvarnished truth. If you take the last step it can set you free David.
As to our future…….Ches Crosbie for Premier:(Back to the Future)
He has what he calls a NO BS Newsletter…….that contains no news.
This month he gives a recipe for banana bread ( no kidding) and last month it may have been for a stew or something.
He days we need more truth in politics……….no kidding!
He pats himself on the back for class action law suits.
He admires Winston Churchill and George Bernard Shaw, but does not understand why they never got along…….for a guy who studies philophosy, ……..unbeleivable! And he a Rhodes scholar, or so he says, which in itself should have an attachment of shame ……Ches, you should have kept that secret……so you are in company with some some not so great Nflders, being also schooled in the morality of Rhodes.
Ches as Premier…….God help us.
Ches ……speak some truth on this Muskrat Fall fiasco, if you can,and have the guts, on this blog. The only place where some truth is being told.
PF
'Twas the night before Ches…mas,
And all through the blog land
Not a comment was made from child, woman or man,
I shutter to think what might be the cause
Had we all become so ancious, or what was the matter,,
Then I realized we were all waiting for Ches and his newsletter……
Think you said it all PF….
David Vardy, you are obviously very knowledgeable and well connected. Could you please find out who is blocking the audit and inquiry. According to the Telegram – Pam Frampton – we are in Stage 4 of the boondoggle, where people are screaming for ownership and accountability. We NLers have been screaming for an audit for at least 5 months. It is so successfully blocked for so long. This cannot be done by just one person. There must be an organization that is blocking the audit, with the Premier's approval, and totally impervious to the demands of the people. Please find out and let us know.
David Lean
It would be great if we could get this answered but I seriously doubt that Danny and his clique will allow this to be publically disclosed even though it's suspected who the culprits are—I can hear the threat of a lawsuit now which is the main stumbling block for many
I think the Bonding agencies, Banksters, Financial stakeholders, guaranteed by the Trudeau government, will not permit any disruption to cashflow until completion. Too much $$ at stake. This project has long since passed the point where economy, energy, and the interests of ratepayers are concerning. "Follow the money".
The answer is easy., and has been said many times by many on this blog….there is not a politician in this privince, even if they know, that have enough intreguity, self-respect, and honesty to discuss why an audit canot be called, and that includes the minister of justice, and the speaker of the house. And has also been said before that everyone of them should throw up their guts every time they look in the mirror, and hang their collective heads in shame, but by God no they continue to go on the public airways and spout lies and half truths. We as a people do not have the ability to govern ourselves, and perfer to bankrupt tis province with a 30$ billion debt and counting.
Maurice, on his VIsion 2041 quotes EY saying ` The Project , the Nalcor Board and the Prov Govn should maintain a relentless focus on the Projects inherent risks`. He adds, that `SNC-Lavelin defines risk to be a function of BOTH the probability of occurance and the impact, magnitude, and consequence of such occurance`,and says one would think such risks would be described, quantified, and costed. If not, why not.
As Vardy has said in the past,for such matters as forecasting, power consumption decline from shock rates (the elasticity effect of the commodity of electricity) is a fundamental economic principle. Such matters should have been quantified and costed a decade ago, before MF sanction, and updated regular since sanction. A figure of -o.4 or higher is very likely. If not done, why not!
Other jurisdictions enjoy the low cost heating of natural gas. Yet in many areas, where the power grid exists, as well as natural gas, ( but a feeder gas line would need to be run to a new subdivision), many developers find that minisplit heatpumps are competitive with natural gas, and they chose that option as the least cost, and avoid the natural gas option.
So here , customers have the benefit of switching to heatpumps as being close to equivalent to natural gas for home heating.
Rather than admit this fact, the power companies, government, and the Oversight Committee ignore this reality. They neither want to describe, quantify or cost the inherent risks to this project…….whether from reduced power demand, the North Spur failing,and other substantial risks.
For alternative heating, they engage in delaying the awareness of customers of their options, and to minimise the benefits and savings that are available to customers. Current applications for power rate increases before the PUB have subtle warnings of their need for projected power sales and revenue…….a stick your head in the sand approach, as if customers can be fooled and can be expected to remain ignorant of cost effective technology long term. This approach only delays a little, but long term enables the outcome that is inevitable……….a 15 billion project that provides little income to pay for it, as Vardy says.
The inherent risks are muddied, by design, with no intention for clarity.
Winston Adams