Falls project will begin soon, perhaps before Christmas. Before celebrating
this announcement we need to know that the Inquiry will have a broad scope, as
well as the necessary resources to do the job.
The Commissioners must have a wide range of expertise,
including experience in managing major projects, as well as expertise in energy
policy, project engineering and public utility regulation. The panel should
include people who operate at an international level as well as Commissioners
who understand the environment in which we operate. This mission calls for a
broad set of skills and requires more than one single Commissioner.
The terms of reference for the Inquiry should be framed with
public input through a consultation process. I agree with Uncle Gnarley that
Nalcor should have no role in writing the mandate of the Commission. The
mandate should be as broad as possible and it should allow the Commission to
report and recommend on all matters relating to the project. If there are any
restrictions they should be subject to public debate. Government should release
a draft of the terms of reference and invite public input, perhaps through the
good offices of an independent third party.
The purpose of the inquiry should be to improve public policy
and the management of public projects, with particular reference to the
completion of Muskrat Falls and the task of placing its future operation on a
viable footing. All major public inquiries in the past have had two major
components: the first to find out what went wrong and the second to find out
how to prevent the problems from recurring.
was to find out why the Ocean Ranger went down in February of 1982 with 84
people on board. The second was to improve safety standards to reduce the risk
of future disasters. The mandate for these inquiries included both a
retrospective as well as a prospective, or forward-looking, focus. The
same can be said of the Harris Panel on the State of the Northern Cod Stock,
the Dunphy Inquiry and the Wells Inquiry into Offshore Helicopter Safety.
The Inquiry should be given all the powers conferred under the
Public Inquiries Act, the power to subpoena evidence and cross-examine
witnesses, similar to other public inquiries such as the Ocean Ranger Royal
Commission and the Cameron Inquiry into Breast Cancer Testing. Government
should challenge the Commission of Inquiry to find solutions and to set a new
course for the operational phase of Muskrat Falls.
unvarnished truth, a rare commodity in the Muskrat Falls world. The Commission
must assess the many tainted assumptions and the flawed business model and tell
us if the project can be salvaged, despite its sullied provenance. The conduct
of a forensic audit will be essential to the process of tracking how decisions
were made and determining if professional or legal codes were breached.
In its Report and Recommendations, the Commission must reveal
what was wrong and why it was wrong but they must go beyond pointing out the
errors and search for solutions, solutions that will replace the flawed
components or pillars on which the project was sanctioned. The work of the Commission
must balance its work between investigating what errors were made, whether
through deliberate deceit or ignorance, and finding remedial solutions.
mistakes in policy and management, versus finding future solutions, should be
50/50, with equal weight between investigating past mistakes and proposing
future solutions. If no solutions can be found, the Commission should report
truthfully that the project is not viable and advise that further financial
commitments should be avoided.
While 78% of the project may be complete the question remains
as to whether the project is viable and whether it can support the increased
cost of $800 million each year on top of the $700 million annual cost of
running our electricity system on the Island. Indeed, the revenues may not even
be able to support the operating costs, estimated for 2021 at $143 million. If
revenues do not cover costs the project is doomed, sooner or later to be
mothballed, a monument to failure.
double, demand will shrink by 40%, eliminating all potential demand for Muskrat
Falls and devaluing the assets. Export revenues are unlikely to cover operating
costs. The project may have to be mothballed, even if it is perfectly capable
of generating power, albeit at a loss.
The joint environmental panel report was ignored and overruled
and the PUB was denied the opportunity to conduct a full review or to exercise
regulatory oversight over the project and its construction. The project is
being carried out without the environmental oversight needed to ensure that the
recommendations of the joint panel are implemented. From both an environmental
and financial standpoint this project is a disaster of epic proportions.
fundamental flaws can be corrected. If they cannot be corrected then the
project will go into bankruptcy because it will not be able to cover the
operating costs, let alone the capital costs.
The Muskrat Falls project was sanctioned without a sound
business case. Without fundamental changes the project will founder into
bankruptcy. The Inquiry should be mandated to report and recommend on all
matters which threaten the viability of the project. The “pillars” upon which
the project is founded are built upon sand and not on solid rock. Unless these
pillars are reconstructed on a solid rock foundation the failure of the project
is assured. If action to correct the fundamental flaws is excluded from the
remit of the Commission the project is doomed. I will cite only four examples
of such pillars.
The first pillar is the 50-year take-or-pay power
purchase agreement (PPA) which requires that NL Hydro purchase power from its
parent company Nalcor Energy, regardless of price. This unregulated monopoly
situation is intolerable in 2017 and belongs back in the 19th century, when
unregulated monopolies ruled the day.
will find ways to avoid contributing toward the cost of Muskrat Falls when
rates double, leading to a reduction in demand from 7,000 GWh to 5,000 GWh or
less. Revenues from rate increases may increase slightly or possibly decline,
depending on whether the elasticity of demand (in absolute value) is less than
one or greater. If the latter (greater than one or >|-1|) then
revenues will actually fall when rates rise, leaving no contribution toward the
estimated $800 million in incremental cost arising from Muskrat Falls, other
than meagre export revenues.
agreement to which Quebec has
to become a signatory, leaving the project without the ability to optimize
production and to achieve its capacity (824MW) and energy (4,900 GWH) production
targets. When the Quebec Superior Court ruled in 2016 that the rights given to
Hydro Quebec under the first 40 years of the 65 year power contract continue
intact into the final 25 years (the Renewal Contract) it struck a blow at a
fundamental pillar of the Muskrat Falls project.
provide power at rates below
rates offered to consumers in this province. This is an unsustainable pillar of
the Muskrat Falls project.
The fourth pillar is the back end loading of the
costs, which imposes an
burden on future generations. This is illustrated by Nalcor’s estimates of
capital cost recovery for generation assets, rising from $170 million in the
first full year of operation to $1067 million in year 50.
that must be challenged by the Commission, including the following:
The contrived cost estimates, which have risen
from $6.2 billion to $12.7 billion and are likely to rise further;
The assumption that oil prices would continue to
increase beyond the level prevailing at the time the project was announced;
Load growth projections, rising from 7,000 GWh to
10,000 GWh by 2030, along with the assumption that rate revenues will always
increase in lock step when rates increase;
The assumption that Nalcor should be given
extraordinary powers, including exemption from compliance with the Public
Tendering Act and removed from oversight by the PUB;
The assumption that Nalcor was capable of managing
a project of this magnitude; and
The assumption that the North Spur has been fully
remediated and is now safe. This poses intolerable risks upon people close to
the generation site. There must be a technical review of the science and
remedial action to avoid a disaster of epic proportions. While the Commission
may not have the expertise to conduct the necessary technical review they can
assess the need for such a review and recommend it be undertaken before the
project is completed.
The Commission must be given a broad enough mandate to
allow them to examine all the pillars, including the contrived cost estimates
and the neglect of the effect on demand when prices double and remain high.
Only by inviting the Commission to bring forward recommendations based upon
their analysis of the failed business model and contrived assumptions can we
hope to make this a viable project.
We know we cannot make a silk purse out of
a sow’s ear but we have to strive at least for a “polyester purse”, for a
project which covers most of its costs, without plunging the province into
bankruptcy, or else making it a dependency of the federal government.
strengthen the project’s viability. These may include legislative changes to
place Nalcor under full regulation by the PUB or the merger of all of Nalcor’s
electric power assets into a fully regulated NL Hydro. They may include
abandonment of the take-or-pay contract as well as the unconscionable energy
sales agreements with Nova Scotia. They may include recommendations concerning
the flawed business practices and lack of transparency of Nalcor.
reports which will enable government to introduce changes in project management
and in the business model under which Muskrat Falls will be operated. With at
least three years remaining before full power there is ample opportunity to
make improvements in the project, particularly in the way it will operate after
construction. If the Commission discovers that the business model is beyond
remediation they will have no choice but to recommend termination, in order to
avoid digging us deeper and deeper into a hole from which there is no escape
other than declaring provincial insolvency.
An excellent summary statement of what a public inquiry needs to focus on (including an outline of the kind of structure that is needed to do it).
No doubt, any such inquiry needs to do more than look backwards.
It is critical that the inquiry, as a priority, look very carefully at whether or not Muskrat can be made safe AND VIABLE. If so, how? If not, make recommendations that are in the best interest of the people of the province.
Government would do well to follow closely Mr. Vardy's recommendations.
Not so bad for false pillars and false assumptions, however it seems to me that several important potential frauds are not mentioned:
1. the actions to ignore the SNC-Lavalin risk analysis of 2012
2. the possibility of SNC-Lavalin bribes to become involved in the lucrative(for them and others) Muskrat project in the first instance
3. the potential for political interference in the killing of the Tobin/Grimes scheme to develop Gull Island on the basis that it was too big a risk for the people of NL. It seems to me that some of the same characters who were involved in killing that project also supported the Muskrat boondoggle/fiasco and now look at its risk to the people of NL.
Yes, an excellent summary for sure, with possibly a few points missing, that no doubt would be included if the terms of reference are released to the public for changes, etc. As mentioned by Mr. Vardy. From a laymans point of view or a joe blow, assuming there is adequate funding for the inquiry, I seriously wonder where we may get the required comissioneries to do the job that's required. Think we need the status of a bob muller that is doing the Russian meddling in the us election, along with similar back up support, and similar powers. Does that kind of expertise exist or do we need to go abroad to find it, otherwise we may end up with so called world class experts doing the inquiry of the calibra that called themselves world class experts in NALCOR in planning the project from the beginning. In or other words the inquiry is only as good as the people doing it.
For a Joe Blow, your statement shows a keen understanding of our system having deep roots of corruption. The Squires investigation in the 1930s, the Walker Inquiry , I believe , was carried out by British officials, that cites corruption here.
There is a musical chairs approach here leaving too much room to evade finding the unvarnished truth.
Even the recent Dunphy Inquiry had no recommendation that police use body cameras, assuming they are not a perfect tool for evidence.
Yet car cams and stationary cameras are routinely capturing driving violations (drivers reckless passing on solid lines, near misses with moose, even the guy picking up the missing girl in the pickup.
If these are just random captures of high importance, how could Barry ignore this as a necessary tool for police given documented almost daily cases of USA police violations captured with their own body and car dash cameras.
Considering your points in order Anony @ 9:40, what is more important are:
1) the subsequent RA completed double blind (I have seen it, but cant explain why it isn't onhand at Nalcor), this RA was invoiced for but I cannot find a copy of within Hydro Place
2) I dont think any nefarious activity happened, or will ever be proven—this is a waste of time in my opinion
3) these details are known by insiders, just ask the right questions of the right person
For Vardy's assessment, I think he is pretty much spot on—I would make a couple of small adjustments having insider knowledge.
My opinion is that we should look more to the future—what is past is done and we cannot affect that now except to learn going forward. I am not sure trying to lay blame is worthwhile, we all know who and why this went wrong—how to fix going forward is what is essential now…
PENG2–Are you suggesting that those responsible for this (what certainly appears to be) monstrous fraud and corruption coupled with gross mismanagement and incompetance, should not be taken to task??? Seriously??? The poor souls of NL will be paying for this forever and you seem to be saying "let bygones br bygones". Ch""st ALmighty!!
I have trouble with PENG2 saying `I am not sure trying to lay blame is worthwhile, we all know who and why this went wrong……..what is past is done and we cannot affect that now except to learn going forward`
He says he is not sure, so may be open to reconsider.
I give these examples:
1. Knowing a public inquiry is to come, Ball proceeded with the Mud Lake flood report to get `to the bottom of the cause, by an independent` report.
This report is not independent when done by a consultant already involved with Muskrat. PENG2 says it gives plausable deniability for Nalcor being at fault if one believes the conclusion stated.
2. PENG2 agrees that conservation was a very important component to the island`s energy options instead of MF. Yet we have Take Charge intentionally, still today, hyping many measures that give no meaningful savings to customers, and avoiding meaningful measures that save customers a lot of energy…….and, dishonesty, by overstating savings on the one hand and understating saving on the other, a process that helps keep us second worse in the country for conservation. This will lead to serious demand reduction going forward as a result of huge rate increases, as cited by Vardy.
How can we fix things going forward as we continue today such blatant dishonesty. In essence, as Liberty would say,there is no change in the culture that got us into this mess. The buck stops with Ball to change this culture, and need not wait an Inquiry to state this. We continue on the same path while we say we must change. Smoke and mirrors still. And to announce the Inquiry during a political fund raising dinner …….the optics is obvious.
This is a massive Green House Gas emission project, not a Green project ?!; Extract millions of tonnes of met coal in the Elk River Valley, BC, transport by rail/ship to Asian steel plants, (pollute the atmosphere), ship tonnes of carbon steel to NL, Clear transmission corridor with GHG emitting vehicles, etc. etc. Consider the vulnerability to storm damage, conductor failure. There were less environmental damaging alternatives. The inquiry can really dig into the mire.
They may need to dig in the mire to find the towers when they fail in the Long Range Mountains.
Nalcor ignored Manitoba Hydro's advice to build to a 1 in 500 year standard. They trumpet they upgraded to 1 in 200 standards in some areas. What can go wrong?
David, As one who has been decrying the abuse of democratic process in the MF sanctioning from the outset I am puzzled you are suddenly alarmed. When I challenged you and others in the "intelligentsia" to act in time to stop the madness you were passive.
Your proposed inquiry is a much too broad prescription to ever come to fruition. It reads more like a confessional for your past omissions and sins.
What is needed is a focused audit of spending and contracts to follow the money. The engineering needs scrutiny by unimpeded engineering specialists to determine the spur stability and competence of those responsible for the faulty wire, abandoned dome, leaky coffer dam, tower disasters, draft tube failure, etc.
The other piece that should be undertaken after some soul searching is how were the regulatory and democratic institutions like the AG and CA rendered useless without a whimper from the media, academia or civil servants? A renowned retired civil servant like yourself would ideally lead this cultural and political public inquiry.
I would agree Bruno, the contract files need to see the light.
PENG2, are you in agreement?
Are you not near the end of contract, and will soon show your face name?
Tom Adams again referencing Muskrat Boondoggle. Maybe NALCOR/NL Gov will copy the Ontario Legislation.
In addition to the Pillars listed by Mr Dave Vardy,there must be a good review of Nalcor; in fact if there was no Nalcor, we would not be in this mess. Nfld Hydro was a well respected organisation and provided least cost power to its customer. It all changed when high priced oil crowed was brought in to form Nalcor to run Hydro. Nalcor management was ill prepared to undertake such a large Project. Proof is here with with more than double the original estimated cost. I suggest, Nacor should be devided in two separate companies, Hydro and perhaps an Oil related management company. There should be no link between the two companies, including no common management or Board.Hydro without Oil business would serve Nfld customers much better as it did in the past.
Couldn't agree with you more madan. I have been saying that on this blog for some time, and you are right, " if there were no NALCOR we would not be in this mess". I used the analogy of creating the Frankenstein monster, that we had no control over. NALCOR was counting their billions years ago that they would control from oil, minerals, and hydro. They were the energy whare house of the free world, supplying half the American market with energy, and billions were rolling in, in their dreams. Yes NALCOR has to go, it is too rich for our economy, they want to spend way beyond our means, and we simply can't afford it. All hydro including muskrat shoul go back under nl hydro, we don't need three companies, to control the little power we need for our meger population and very little industry. So I say NALCOR has to go. Slay the dragon.
I am not so sure it is the Nalcor corp model that is the problem or the people running it. If you check out a corporate listing, none of these people ever had responsibility for anything larger than a lemonade stand and they cant multitask across different lines.
NL Hydro is Nalcors largest operation; and that hasnt changed since WA left, and it wont change going forward. All the side businesses are flavor of the day dreamed up by Dear DW—a waste of time in my opinion….
Nalcor corp as we see today are a function of DW and his MF dream of creating a legacy, fine job he did; he put the wrong people there with the wrong experience( did DB quote you don't put oil babies incharge of a hydro job???)…..
All I/we can do now is to try and put a tourniquet on and raise technical wrongs to correct going forward….. Anyone thinking we can avenge the past are living in a dream world…
PENG2, I see you avoid the tough questions and requests for information that would be useful public information.
Your long winded, philosophical musings are little more than smoke to slake your self serving, and ratepayer betraying, ego.
Please answer the questions posed by Robert and I. Self serving talk is cheap.
That is the point, Hydro and oil business require different skill sets and there is very little in common. Oil people ran Nalcor and we see the results in MF. On the other hand Hydro Management, most of them came through ranks to serve, did very well, prior to Nalcor days.
If Nalcor stays as it is, there will be repeats of MF.
While this is an excellent write up by David Vardy. However, I feel the scope is far too big to ever work in practice. As David suggests, if the inquiry first focuses on why and how all costs, capital and operating were so completely wrong – see what is discovered, then move onto other aspects of the project. After all it will be the costs that will bankrupt the province, not the engineering. What is discovered must be made public.
Yes, a good question, what will we get from this inquiry? Let's face it, no one will go to jail, no one will pay back any money, we may know where to place the blame for the boondoggle, we may make some of those people squirm in a public forum, but so what. The real focus should be looking forward to what to do with three things, 1) the 15$ dollar debt, is there anything we can do to mitigate that, with the Feds, 2) what to do with muskrat, now that it will be completed and if it is a money looser, should it be mothballed 3) and what to do with NALCOR the monastery that got us in this mess to begin with. Hopefully something positive can come from these three items.
The inquiry needs to focus as a fraud investigation. The policy changes are miniscule i.e. appoint competent people with relevant experience to the PUB and listen to them. The consumer advocate needs to be independently appointed and not a total flack as was Tom Johnson. The problem with MF was that the objective was for some people or perhaps just someone to make a lot of money and join the billionaire club.
The Ontario election scandal has shifted to fraud and if there is anything done about the Labrador paving contract it should be fraud related. Both the Minister and Deputy Minister acted for personal interest which would have resulted in hundreds of thousands of dollars in their pockets over time. The Minister being able to remain as a Minister and collect such a pension and the Deputy being elevated to the Clerk.
In order to do a proper fraud investigation it needs to be able to determine who is making all the money. Who owns all the numbered companies. Some of the professionals may have incorporated their own companies but as an example I know an Engineer on site who approached and interviewed with Nalcor but had to be hired by another company who makes about $100K mark up on him for doing nothing. He has his own company which is paid by the middle company. Sadly that mark-up along with other contracts was the objective here to keep this gravy train rolling. A fraud investigation also needs to be able to reach internationally and find where all the Astaldi money is going. It is simply not believable that Ed Martin and his executive didn’t know the difference between a fixed price and cost plus contract nor did they not know that Nalcor was on the hook for the failed $120M dome.
Focus on the fraud and then we won’t see a whole bunch of bureaucratic oversight that is unworkable.
From what I have seen I don't believe a series of charges will be sustained—for the layman there appears to be significant 'dirt', but I would suggest not sustainable.
For the Engineer you know on site, you are talking the recruiting agency—-except the 5-10% of direct Nalcor hires, everyone is contracted via a recruiting agency. The base rates charged to Nalcor for each employe class is posted via 2 Atippa requested dated to 2016, the cut each recruiting agency comes from this base rate and the amount is based on how hard-nosed each person negotiates with the recruiter(Nalcor LCP is rarely if ever involved in wage negotiation).
My experience, I truly believe incompetence is the greater factor here; in my questioning most of the upper's that control the works really don't understand civil construction contracting. Maybe what we have is how a privately funded oil project is executed(I have never worked on one), but I have never seen anything like this in civil works. This is why there wont be a fraud charge, let alone a conviction.
The inquiry needs to focus 75%-25% on the future—determine what issues will persist through construction and will need to be address. There in no chance of any sort of redress from any of these contractors—they are cash positive in their contracting, if we push too hard they will walk. Based on penalties and the need to have completion that would cost us NL taxpayers more short and long term.
I truly hope this happens, but I hold no faith that it will. we're surrounded by scoundrels, with the law on their side. sadly. 🙁
PENG2, are you suggesting that the falsfication of information, which was the major factor in having the project sanctioned in the first place, deserves no investigation and laying of blame??
Don't let PENG2 distract you. His puffery is self serving and he will not answer questions about the "interesting spur engineering" or won't produce engineering documents that would illuminate funding and contingency money.
He ignores the billions of losses that will burden ratepayers for 57 years. He ignores the "interesting spur engineering" after admitting they used the wrong remediation.
His is the haughty arrogance that characterizes this project. "I am the expert. Trust me. No you can't see what we are up to but don't worry until I leave town."
By the way PENG2 does incompetence preclude fraud or do they go hand in hand?
Sorry, but I disagree and I hope that you are being sincere and not trying to cover up.
Head Hunters are well used in many industries and provide a valuable service but none was provided for my friend before, after or during his work on MF that continues. Nalcor has hired other professionals directly through their own personalized companies so what is the annual $100K mark-up for in this case? Re-read what I wrote about the engagement.
Incompetence vs Fraud
a. Read the post plus interviews from about six months back from PEGNL1. Direct allegations of deceit in low balling construction estimates
b. Read the SNC report of April 2013 and released a couple of months after PEGNL1 came forward. Nothing to the imagination about overruns there. Given that SNC was clearly trying to protect their legal liability what are the chances that this report was not at least discussed with senior personnel at Nalcor
c. Astaldi contract. Have you ever before heard of a Billion dollar construction contract that was set-up as cost plus contract. It is now $1.8 B plus it adds about $1 B to the interest during construction.
d. One hundred and seventy kilometres of faulty wire allowed to slip through without accountability
e. Motive – There is potential to make Billions in profits collectively from a lot of these bits and pieces. The more the project goes over the more profit made particularly when all the mistakes are covered by Nalcor. The money that was made here would make George Clooney and Ocean’s Eleven team feel inadequate for the measly $160 million heist they did in the movie.
f. Perfect crime – As you say it is difficult to make it stick and NLers are so easy going they could just allow it to slip by. Let the oil money pay for it assuming it comes back.
No, I’m sticking to fraud and pursuit of lots of money as the motive.
For your Engineer friend, you are mistaken—-if he progressed through the onboarding far enough he would have been expected to engage a 'head hunter', no ifs ands or buts about that(a list of head hunters are available on Nalcors website, some of them have interesting connections to the LCP management). There is nobody employed at LCP that is not contracted through an agency, including those with their own incorporation or limited partnership.
For your other points:
a) agreed, but alleging and sustaining fraud are different
b) more important is the 2nd double bind RA report that is nowhere to be found
c) no, this situation doesn't exist anywhere except here
d) accountability, blame etc is to come. this situation is still being debated at the highest reaches of Nalcor and government
e/f) I cant comment—I am not inside that far
You may stick by fraud, but I am not so sure it will be sustained.
It's as I stated in the first post. He went thru the process and THEN directed to Head Hunter middleman. No service and no value added other than ink the offer and cut the cheques to his company.
All major Banks offer this service for about $1 per transaction if you bank with them. They input an algorithm with rates and deductions and the Contractor just provides the hours. It's worth about $50 per year vs the $100,000 being paid. Multiply this by perhaps 100 people on this arrangement and that's $10 million per year for about $5,000 in service total. That is a major incentive to low ball the project estimates and collect the $10M annual booty and that is only the minor parts.
Add in kick backs on the Astaldi $800M overrun and we are talking major fraud.
I don't care what sort of policy changes are made if fraud such as this is allowed to go unchecked this time then it is easy. Just as you say, claim incompetence and quietly collect your booty. No charges will stick.
Please comment on my 2 questions below:
1) wrt to Pillar #3, we endorsed a contract with NS/Emera to the effect in basic terms that they complete the link and they get a power supply. Should we decide to argue to change these terms are we not treating this as a similar issue to the UC terms which our requests have be routinely shot down? Secondary, are the terms of the link transfer really 'bad' if the original projections were realized?
2) wrt to Pillar #2, my understanding is that ineffect we don't 'own' the flow outside the UG powerhouse(just the byproduct flow) and it could be shut off or regulated up/down such that MF is practically unusable—is this your understanding?
Otherwise, you other points/pillars for the inquiry are spot on, but I do believe we were our own authors on those since 2003 when this thing was put in motion…
The other note I will make, to the chagrin of many in NL—our complaining of the UC/MF deals is the same as Quebec complaining of the 1927 Privy council decision, except in 1927 the decision went in our favour…
Before I am chastised, I am a born and bred NLer—just realistic enough to cut the BS……
You make an important reference to the root cause of Quebec/NL relations, resulting in bad management of the Churchill, and area rivers and resources.
Consider the overall benefits to Canada, were the controversial boundaries simply voided. How do you propose resolution to this long festering dispute?
Should it be comforting that quislings can be born and bred in NL PENG2?
With PENG2s mindset "the past is the past–lets concentrate on the future" would leave our prisons empty. Anyone can commit a crime for tomorrow it was in the past and prosecuting them would serve no purpose. MY mindset and the mindsets of most is IF YOU DO THE CRIME YOU DO THE TIME.
I am writing in reply to your questions.
I do not think Nova Scotia would expect us to operate the Muskrat Falls plant at a loss to fulfill the terms of the agreements with Emera. With rates to local consumers doubling power consumption will drop by 40% or more, eliminating any demand for Muskrat power in NL. This leaves export sales as the only option, but based on the Energy Access Agreement and the wholesale rates prevailing in the Maritimes and Eastern states we cannot cover cost. So if we are to sell surplus power to Nova Scotia the terms must be renegotiated. Bankruptcy appears virtually inevitable if we cannot cover operating costs, let alone fixed costs.
In response to your question on water management, control on river flows remains in the hands of Quebec so we cannot achieve the full potential of Muskrat Falls unless Hydro Quebec’s demands are perfectly synchronized with ours. The Quebec Superior Court ruled in 2016 that the rights enjoyed by Quebec for the remaining 25 years of the (Renewal) contract are the same as those they exercised in the first 40 years. Nalcor had hoped that NL would enjoy access to as much as 1600 MW in addition to the 300 MW of Recall and the 225 Twin Falls Block for the last 25 years of the 65 year contract. Their hopes were dashed. If they really believed we were going to enjoy such vastly enhanced access why would they have committed to Muskrat Falls? The Supreme Court of Canada may reverse that decision of the Quebec Superior Court but the next step in the process is the Appeal Division of the Quebec Supreme Court. I would not bet the farm on the SCC.
My response in 2 parts:
2) I agree 100% with your take on WMA
1) I suggest that fixed costs are inevitable (approximately $15B for MF construction, or a bit less and we NLders will bourne this irregardless via taxes or rates), I would also concede operating the MF plant is not economically feasible based on current sale rates. If NS/Emera decide to enforce their guarantee of ~200MW for completing the link what options do we have, personally I see little avenue other than operating MF at a loss?
For the record, I would offer(as I previously said)that the Anglo-Saxon route was a poor decision and the federal government should have granted us an easement via Quebec. Also, MF was too small considering development costs per MW—we should only have considered Gull Island, and export via QC 100% for profit; and then only if we were going to get into the 'power warehouse' business….
Your contribution and opinion is appreciated on my part.
As usual PENG2 your self serving, full steam ahead excuses are entirely irrelevant to the issues at hand.
You have just admitted that MF will lose money, back loaded, for 57 years. Yet you continue to say we must continue to march into the machine gun fire. You are about a century too late for that approach.
You are happy to ignore the faulty spur engineering that again you admit is inadequate. Yet you want the victims to keep marching into the machine gun fire unquestioningly. Why is that?
Good commentary Vardy/PENG2. Let's take the negotiations forward.
What do Bloggers say to a negotiated trade/boundary settlement involving the three governments plus indigenous; Quebec, Feds, NL, Natives? Think of the benefits, no more quarrelling, shared resources, smart grid delivery of power to demand centres, standardization of technologies and business practice, etc.
The operating companies set up by Nalcor will likely go bankrupt very soon if we operate at a loss in order to supply power to Nova Scotia.
I have been rereading some of the keystone documents on MF, including Muskrat Madness and the 2012 reference report of the PUB dated March 2012. The PUB report makes no reference to demand elasticity, nor do the reports from Nalcor and its consultants recognize that demand will collapse in the face of large rates increases, which are expected to remain high and to rise higher.
If demand elasticity exceeds |-1| then not only will sales drop like a stone but revenues from sales will shrink. What we are experiencing is a “perfect storm” with the confluence of sharply escalating costs and the collapse of demand. The longer we continue to dig the hole deeper, whether by completing the project, rather than terminating it, or operating the plant at a loss after construction, the sooner Nalcor and its MF subsidiaries will drown in red ink. Perhaps they will drag the province into the same quicksand, shedding our political sovereignty as we did in 1934. Before that happens we can renegotiate with Emera or else let them take us to court, after we refuse to adopt the status of an eleemosynary institution on behalf of Nova Scotia.
I am not nearly as sanguine about Gull Island as you are. The same fundamental changes in energy markets which make Muskrat Falls more and more unviable bear, with equal force, on Gull Island. If market conditions change and allow Gull Island to proceed let us hope that the risk of the project is borne by private investors who will put in place appropriate safeguards to ensure the project is successful, including the selection of experienced project managers.
In the case of the Upper Churchill the project was managed by Acres-Canadian Bechtel. There was a single contract to Acres-Canadian-Bechtel for design and construction management. Acres did the design, while Bechtel undertook construction supervision. The project came in at $946 million and within schedule.
Jim Gordon has informed me that SNC has no Canadian hydro construction supervision experience – all their work for Hydro-Quebec was design only; HQ did all construction supervision, management and awarding contracts. Nalcor is the project manager. Some of us had hoped that Stan Marshall would place the project in the hands of an experienced consortium, following the good example of Brinco, in appointing Acres-Canadian Bechtel.
Do you see a future for Gull Island? Hopefully if the project precedes it will not taxpayers who bear the risk, or ratepayers!
I have not since day 1 place any credo in a report of MF backgrounding —-it was always a bad idea. The background supporting info was insufficient, insufficient that I was not even willing to place a Class D estimate and attach my name, my log notes tell my in 2008 I suggested costs between $8B and $20B—-I built this cost in 30mins on a napkin….
Now, the question is since we have this item how do we recover? I never look towards the past, that I cannot fix, how do we fix what we can control in the future???
If we were to permit Gull Island, I would suggest that the tradition ‘turn-key’ project would be the way to go, or possibly the dreaded P3. I do understand that SME who executed UC are a predecessor of SNC(Bechtel et al); but would stipulate that nobody within the current SNC group I have encountered have hydro experience, More important than their lack of hydro experience would be their lack of sub-arctic/NL experience….
The only future I see in Gull is that a design-build group executes it—after this mess we have from MF, our population would never accept it, or at least I that is my thought.
I have also spoke with both Gordon and Helliweg over the years on this and you are correct—no SNC experience except for what they brought in on last minute notice.
However, I would suggest that the CM system Nalcor has setup up gives our so-called 'construction experts' no leeway to direct the contractor, maybe that is for the best—all in a preemptive guise to set a claim argument down the road…
Nalcor are not PMs in a typical sense, just a group of paper pushers—that is why a few such as myself are frustrated with the direction this is heading since we cannot effect real change….
Except for your irrelevant musings you will not answer for the contradictions in your story PENG2. You state "that is why a few such as myself are frustrated with the direction this is heading since we cannot effect real change" yet you insist the farce continue. Why?
You are illogical and selective in your comments to a self serving end that is riddled with contradiction. Why must the show go on when the risk to human life and the asset are at stake?
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Gentlemen please give yourselves a shake. Wind and or solar plus battery storage currently comes in at 9 cents KwH. Gull island will need new transmission to get to market. Can Gull plus new corridor compete with 9 cent renewables? With 19 cents? With 29 cents?
The age of remote, large new capacity is over. MF would never have left the drawing board if it needed private venture capital to build. The cost structure (and novel 57 year amortization) is ridiculous. In addition the principals of a private utility would have long ago been ousted by a board and shareholder revolt.
That is something we, I hope, can all agree on.
Robert, in response to your comment concerning a negotiated political settlement I ask you who would you trust to conduct the negotiations on behalf of our province? Given the actions of past and previous governments and the corporate culture of Nalcor, should citizens trust their leaders to undertake these negotiations?
David, this is a sobering but accurate assessment of the political dysfunction in NL. It is surprising coming from your lips.
It points to the need for a democratic renewal of institutions, the presently cowed civil service and a renewed commitment to transparency and accountability. This seems an ideal role for you to play after the MF debacle is investigated and halted after an audit.
This replaces the last paragraph of my comment, which contained two errors.
Do you see a future for Gull Island? Hopefully if the project proceeds it will not be taxpayers who bear the risk, or ratepayers!
Boy, this is good frank commentary today, by PENG2 and Dave Vardy, and the usual blunt provoking comments of Bruno.
Indeed,me thinks that we in Nfld Have a Culture problem, and nowhere more than at Nalcor (but not limited to there).
Liberty, a USA company….in their reports to the PUB on DARKNL…….how often have they talked aboout the inappropriate culture of Nalcor, with only a smidgen of improvement.
Culture……..in Saudi Arabia, it prevented women from driving cars this past century……and just now starting to change. In India, women at university are confined to their rooms after 8 pm and not allowed to make phone calls……..deemed necessary to protect them from men who sexually harass them if they are on the street after 8 PM.
Here, our culture allows that our politicians and their connected business friends to royally screw our citizens and even the financial integrity of our whole province……..forever it seems: Take the Nfld Railway,Squires schemes,Joey`s blunders……, no escaluation clause for the Upper Churchill, Come by Chance, Stephenville Linerboard,….. Peckford with Sprung, and the worse of all, Danny`s Dream, the present Muskrat fiasco.
How much can such a small province take…..we are probably worse off financially than Puerto Rico. Perhaps, soon, we too will have someone tossing us paper towels, to dry up our tears.
If we do not change the negative aspects of our culture for the better, and soon, there seems little hope.
Can we even survive this fiasco…….who has the plan and directions….will an Inquiry correct our culture defects…….
So much at risk…….and so many silent.
Vardy is cutting to the chase….getting down to brass tacks.
PENG2 seems content to keep throwing money in to make the boondoggle operational,(which Stan Marshall calls finishing strong) and then pour in more money to make it reliable,if that is even possible before we go tits up.
Can we NUDGE our culture along for some lasting prosperity. A Nudge for transparency, efficiency, good governance, and actually on some levels be world class…….at something……..is that expecting too much……
What kind of leaders do we elect that they cannot be trusted to look after the public good, as Vardy says!
We need not expect saints or saviours, but something better than scallywags.
Can we even Nudge them in the right direction……that they genuine concern for the public good.
Nudging is the latest proven economic theory. Seems to have merit, and not yet tried in Nfld.
Great article from Mr Vardy, and really great informative discussions from everyone.
"no escalation clause for the Upper Churchill"
Winston, I agree, this is indeed the MAJOR (actually ONLY) cause of this insanely low cost HQ is enjoying from UC.
When the contract was negotiated, electricity cost was expected to further decrease – due to the belief that new more efficient nuclear power would be coming in shortly.
Deflation/inflation were purposely excluded as CFLCo/BRINCO could just not afford the risks of lower revenues (while having to repay that $1B or so loan).
Had BRINCO insisted on inflation only clauses (ie excluding deflation), HQ would probably have walked (again) away in favor of its next cheaper project (James Bay).
James Bay would then have been built earlier, for way cheaper – by totally avoiding the steep construction inflation years of late 70s / early 80s.
UC would been built afterward (let's say after James Bay), but at double or triple the costs (ie not the current bargain anymore) as it would have to swallowed the new inflated construction costs.
Just trying to put everything in perspective…
(My above post was intended to new readers… as Winston is probably among the most knowledgeable person concerning UC)
PENG2, seems, I think, to be as stable as the marine clay on the North Spur on some of his opinions, that is, I think he is shifting ground.
He says most of the problems is due to incompetence, and we all agree there is plenty of that, but as to fraud he seemed to think not that much of an issue. But when challenged by Bruno he replies at 20:18, that yes, he is sticking with the believe that there was fraud.
PENG2 opinions here are rather important……..and ok, we have 2 Nalcor engineers who allegde fraud….a criminal offence. When will the main media do there job as to these allegations, or the police , or the justice dept.
Not sure why you say my position has 'shifted', let me summarize:
1) MF must continue—for reasons I previously explained on this blog, it will cost us more if we halt/pause/moth ball etc; this is not to say we must operate the facility in the future
2) sure there is enough to convince the layman of fraud(that is easy enough to do, my wife suggests that me taking a pay cheque weekly is fraud because of the media), however I am not so sure it would be sustained nor do I think when a professional is given direction by his client that a fraud is even committed though on times it is an ethical battle
3) incompetence abound for sure
4) MF was as ill advised in 2003 as it was in 1970
To be clear, I do not, nor have I ever thought MF was a good idea; my preferred paths to additional insular power resources have been previously stated here.
My opinion that MF was ill advised does not preclude me ethically from striving to execute as good as possible, provided I have advised my client/employer of my opinions.
If there was a fraud, or other questions asked of me in the future I will continue to answer honestly as I do here.
WA, BM et al; feel free to challenge me, but dont take a single typed statement and try to hang me for it—I am not the author of this, rather I am trying provide clarity, maintain my career and give some insight as to why we are where we are.
I appreciate you input on this blog, and see you somewhat as like the generals trying to keep the Trump White House from going further off the rails.
With political decisions to complete the project,those with competence is a benefit, but if things are as bad as Vardy says, on the economics, then any further expenditure adds to the debt burden. And the life Safety issue of the North Spur, which there is significant uncertainty,must make ethical questions a real problem, as Bruno points out. I am in sympathy with all 3 points of view, in that there is not certainty.
Most, to protect their career, fear to comment at all, while knowing the many wrongs that has landed us here.
Your situation…..tough spot to be, and best advise is let your conscience, not your career, be your guide. I hope both of these may survive intact, and wish you well. Even engaging here as you do takes considerable effort and a window to those outside that you acknowledge that the public has been duped having been sold on this as a great project, a legacy project.
Well PENG2 you have descended to the Nuremberg defence. You were just following orders. That can't be fraud or complicity can it?
Stop refusing to take responsibility for you actions.
Can you comment on a technobabble item……GICs (geomagnetic induced currents)……which you may not be familiar with if you are a civil engineer.
Western Nfld has one of the worlds highest readings for low voltage induced currents into the neutrals of the big power transformers on our AC grid. These result from sun spot activity, and can quickly fry large transformers.
The 1989 NE USA grid was taken down by this type of event, a very severe outage.Following that event,Hydro Quebec spent 1 billion dollars to help reduce the effect of GICs on their system,necessary to improve reliability, being connected to the USA grid. Churchill Falls had effects from that solar storm.
Our isolated grid has effects,which are manageable,typical some 3 out of 11 years of the solar cycle,
I wondered if DC transmission was immune from such disturbances, seeing no references in Nalcor documentation in 2012. My research showed such problems exist on DC systems both in South Africa grid and in China.
I recall about 4 or 5 preconditions for the the MF line (example, long length, West east component in direction etc) that suggested a concern.
If this can be a problem,then standards for connecting to the mainland grid may mean serious additional costs in the future.
Of the risks assessed by SNC or Nalcor…….was this considered a risk, or was it determined that the type of DC design for MF is immune to GICs……..if you can comment.
I am aware of it, but as you say I am a civil guy—so not my area.
I was involved in some conservations that Bottom Brook and Point Auconi stations would need some additional works–preliminary talks and I don't know what came of it after.
And as a result of the recent Mud Lake Flood report, as to mitigation of flood damage in the future , even if the North Spur holds, I expect
1. problems will cause Mud Lake to be abandoned as a community, whether for fear of life, or increasing and more frequent occurances of flood conditions.
2. creation of an embackment 10 or 15 ft high, with rock protection on the river north back, from Lake Melville west to or beyond Goosebay, some 10 or 15 miles…….a considerable cost
3, Or whether reduced generation at MF and CF at spring thaw, and much better control of the MF spillway than in May 2017, as an alternative to 1 and 2 above.
Are your views similar………
Whether GICs or flood mitigation……..would you agree such items (risks for additional costs) should have been all evaluated prior to sanction, and avoidance helped create MF as a least cost, which we might say was fake news. And further unforeseen problems, and costs, are likely to occur for MF to be a reliable source for the Avalon.
I am not sure a combination of 2/3 or 1/2 will work—-if it were my home, I would take option #1; as a professional I would not entertain taking on the responsibility of construction #2, I wouldn't take on the life risk responsibility and fool myself into thinking I could tame that river…. As I have said previously the choices on these type of scenarios were made in 2003 and not up for debate afterwards….
I would suggest that GIC, floods and any number of other risks were considered and factored into the cost projects, though I don't have first hand knowledge on how much consideration some items were given—-whether they were given due consideration is another questions. That is why I say incompetence not fraud is the larger error here….
Much easier to prove fraud to a layman or to someone with an emotional attachment than to a learned panel assessing whether or not a professional group executed due diligence…
I agree that option 1 is the best choice for Mud Lake, given the risk, unless the power house is terminated.
I agree that some issues are incompetence instead of fraud, but not all.
Take the issue of expected outages from salt contamination on the GPN:
Nalcor documents said salt was not a contaminant for the DC line, and seemed to base it on few outages on the island from salt on 230KV AC lines.
This is generally correct, but only because most 230 kv lines are not near the coast, except for the Avalon near Sunnyside.
But on the GNP there are many outages from salt issues, but there the lines are 69 or 138 kv, not 230.
So compare with 230 kv was very inappropriate, I think you would agree. Surely, anyone with Nfld Hydro in Controls and Protection would know this…….this seems to me inexcusable unless staff were asked to turn a blind eye to the known past operations and experience ( perhaps 10 times the rate of outages for the GNP). And this is a key component as to power reliability for St Johns via DC coming to Soldiers Pond, ……. If you can comment.
Meanwhile, through the PUB questions and answers, it seems now that Nalcor admits salt to be a contaminant for the DC line…….but phase 2 of the PUB seems stalled, so no explanation for the change.
Moreover, the Jan 2013 outage was caused by salt contamination that lasted some 6 hours on 230kv at Holyrood (69 and 230kv contamination).
Event sequences by Hydro engineers correctly identified that cause within 24 hours……….but took even Liberty some 2 years to state that. Point being, there is competence in Hydro that is being ignored by Nalcor.
I cannot see how saying salt was NOT a contaminant for the GNP could get past both Nfld Hydro, Nalcor and Manitoba International Consultants, or even Nfld Power concern…….it waved a red flag for me, and likely other Hydro staff.
PENG2, You have made a career it seems working on boondoggles. No wonder you have learned to deflect personal responsibility after so many boondoggles.
Point Aconi is the biggest boondoggle in NS history. It was built in the early nineties using a technology (CFB) the federal government warned was not appropriate for high sulfur coal. In what has become a recurring theme in my life, my warnings at the EA hearing were ignored. The "naysayers" were attacked by an angry mob of 200 miners at one point. I can't say I enjoyed the experience, being one of the primary targets.
The technology failed, the boilers had to be redone several times and the mine that was supposed to save the coal industry was abandoned and the jobs disappeared.
The plant, landlocked because the marine approaches are too shallow, must be supplied by trucks overland. The primary fuel today, petroleum coke (PET coke), is cheap because it is treated as toxic waste in most jurisdictions and is a liability.
Thanks for the legacy here in NS too PENG2.
Good on you Bruno. Us older dogs need to bark a warning on so many bad management situations.
I recall sadly, Steve Neary, with site information on neglected safety on Ocean Ranger, was not listened to; The loose chain smashed the control room porthole, water shorted the controls, and 68? of our best died.
Many knew what was going on inside Mount Cashel, but remained silent.
Too many don't want to hear and deal with sobering news.
Amen Robert on us old dogs needing to bark.
The unbelievable neglect of health and safety on the Ocean Ranger is shocking. That no one aboard was trained to manually operate the valves to keep the Ranger upright is unconscionable.
On the CBC site, while reading about Steve Kent still getting paid after stepping down as MHA (delayed he said to secure his files, maybe the Inquiry will open them up),……up pops a Take Charge, withthe cartoon creatures saying: `Scallywags are stealing your energy and your money`
I say to myself :You got that right. Lets put names to these scallywags…….Ed Martin is high on the list…….but the list is a long one…….many mentioned on this blog, and the Take Charge Team are swarming with them.
Just threw a 7 foot long electric baseboard in the dump and right beside me was another person dumping a very long baseboard heater too. I was thinking these are the scallywags that should be in the TakeChargeNL ads. However, scallywag is something you'd call a child. The sociopaths behind Muskrat Falls are far worse than scallywags and should be worried about serving hard prison time.
That blathering fool Gerry Byrne, a fitting poster boy of the rotten, worm-infested apple that is NL politics…
Dave Vardy, in comments, mentions that Nalcor did no assessment to the elasticity effect of electricity, that is , the extent of power reduction as power rates increases or doubles. Vardy suggests a 40 percent reduction on the grid.
Electric heat is close to 60 percent of residential component of electric heated houses.
Nfld Power say basement insulation reduces heat energy by 30 percent, so 0.6 x .3 = 18 percent reduction on a year bill. leaving about 42 percent component for baseboard heaters.
Mini-splits, instead of baseboard heaters, as field measured, with outdoor mounted compressors, save 60 percent , so .42 x .6 = 25 percent reduction. 25 + 18 = 43 percent reduction (for insulation and HP saving.
Mini-splits , attic mounted and best practices can achieve 75 percent reduction, so 0.42 x.74 = 31.5 percent, and 31.5 + 18 = 49.5 percent reduction.
Heatpump water heating gives 15 percent X .5 = 7.5 percent reduction.
Assume no further reduction for light fridges , TV etc = 0 reduction
Basement, heatpumps and Hp hot water gives UPPER range of 18 + 31.5 + 7 = 56.5 percent reduction
A more typical range would be 18 + 25 +7 = 43.5 percent reduction
A less than typical reduction may be 15 + 20 + 3 = 38 percent reduction for electric heated houses. So use 38 instead of the optimum of 56.5 percent reduction.
Reductions for switching to wood, pellet , oil , or propane would add to the the 38 percent reduction…….so 45 percent reduction may not be unexpected for residential electric heat houses.
Electric heated house use 650 MW, so this 38 percent reduction suggest a drop of 247 MW on the grid.
Then there is the commercial and non electric heated houses, whose reduction is a lesser percentage ……. so all components perhaps not less than 35 percent reduction on the grid overall. On a peak demand of 1700MW , a 35 percent reduction is about 595 MW reduction on the grid.
If a made a boo boo here,readers …. please advise.
There was some discussion at the PUB on April 12, 2016, in almost a whisper, Nfld Power anknowledging something was happening already, and that elasticity, presently, was 0.2 , but might go to 0.3 if rates went to 16 cents.
With doubling of rates Vardy`s figures is about what can be expected, long term, as very cost effective alternatives ARE available. If such cost effective alternatives were not available, then the reduction would be considerably less………but baseboard heaters, for Nfld has a best before date that is already expired. Big problem going forward for MF viability , as alternatives are going in at an exponential rate. The ship has sailed on stopping that trend.
I wonder if Danny Williams ever reads these kinds of comments boards?
If so, it must warm the cockles of his tiny heart to see how little "credit" he gets for this massive failure.
David, Upon reflection on your proposed terms of reference I can find no fault. The likelihood of this type of Inquiry, unhindered by politics, is extremely unlikely.
The Harris Inquiry comes closest to this prescription. It was comprehensive, reviewed the science critically, issued clear warnings of the implications of the status quo and made firm recommendations.
Harris issued the warning that Canada had been fishing at twice the reference level (F0.1) since custodial management due to errors in the assessment models used. He used the haddock demise to illustrate what was happening to cod stocks. He warned that if we did not reduce effort by 50% the cod stocks would crash.
Some of us begged that Harris, an accomplished academic that loved his culture, be listened to. Both Harris and civil society were ignored. Crosby maintained all out fishing effort by three years of "paper cuts" to effort. He set the current quota at the level of landings the previous year in a declining stock. He bragged in his autobiography that he ignored DFO advice and kept quotas high to ensure his re-election the year before the moratorium. NL paid for his re-election with 50,000 departed jobs and massive rural decline.
Without naming names David, governments and bureaucrats ignored Harris' sage advice and did nothing. In the aftermath of the devastation caused by the moratorium I recall one bureaucrat that turned to the devil incarnate at that point and asked, "What do we do now"? Need I remind you that a quarter of a century on the North Atlantic remains a marine desert, ravaged by destructive gear and greed.
To that concerned but too polite to act bureaucrat I say the oil windfall saved the day for two decades but here we are again, staring into the abyss. The ugly politics of self interest and imperial vanity have again squandered NL's financial future. Have we learned anything David or will we be morally upright but politically impotent yet again? NL needs both a Harris type inquiry and the courage of all to ensure it is adhered to. Are you up for it this time?
One last thing. The last thing NL needs is a retrospective inquiry like the Dunphy inquiry that ignores evidence of evidence tampering (trunk and gun location changed) without justification to come to predetermined conclusions. You cheapen your argument by comparing Harris and Dunphy.