Guest Post by Ron
Penney
The
following are two segments containing speaking notes from my presentation to the Wessex Society on
October 14, 2020. A third part, dealing with the Province’s democratic deficit, will be posted on Monday, November 23. The presentation is available at the Wessex Society of
Newfoundland, wessexsociety.ca
Part 1
Setting
the Stage:
Unfortunately
the delayed release of the Muskrat Falls Inquiry Report on March 5 of this year
coincided with the worst public health crisis since the Spanish flue of 1918,
which had the effect of dampening public interest in the report and its
conclusions. So aside from a few interviews in March this is the first
opportunity given to me to comment on the report in some depth.
The
main thrust of my lecture is to deal with a fundamental issue which the
Commissioner declined to examine, which is what democratic deficits in our
society allowed “a Misguided Project”, to proceed.
A
couple of quotes:
“There
is a low tolerance for dissent in Newfoundland”. (Former NL senior public
official)
This
was said to my fellow naysayer, Dave Vardy, and I in the spring of 2011.
“Dissent
is the highest form of patriotism”. (Attributed to Thomas Jefferson but more
likely associated with the opposition to the Vietnam war.)
Our
dissent was framed as unpatriotic.
The
lobby group formed to support Muskrat Falls had as its mantra “we believe in
the power of Newfoundland and Labrador”.
The
Commissioner quoted from Mr. Williams testimony at the inquiry. “So the bottom
feeders who go out and try and disparage our people and state that they’re not
world class, I think, do a serious injustice to the people in the province.”
How
dare anyone question our “world class experts”!
Democracy
only flourishes if there is informed public debate.
Most
informed citizens now accept that the Muskrat Falls project is, by a large
margin, the worst public policy decision made in our history.
Myself,
Dave Vardy, and Des Sullivan, formed the Muskrat Falls Concerned Citizens
coalition with the purpose of seeking standing before the Inquiry. We were
joined by over 150 others.
I
would be remiss if I didn’t point out the incredible contribution made to this
debate by Dave Vardy, whose experience as Chair of the Public Utilities Board,
as a senior public servant, including being Clerk of the Executive Council, and
his training as an economist, along with his incredible work ethic, made him
the preeminent naysayer.
We
were granted standing and, as a result, given the opportunity to make a
presentation on the terms of reference, where we urged the Commissioner to
examine the democratic deficit which allowed this misguided project to proceed.
The Commissioner declined, obviously feeling that he had enough on his plate
without attempting to deal with that broad issue.
But,
as I will point out later, he did deal with the issue somewhat, because of
certain events which occurred during the inquiry hearings.
Now
why did we, and a few others, become “naysayers” at the very beginning of the
project.
In my
own case It was because of my experience with large projects when I was with
the City. Both Mile One and the Riverhead Sewerage Plant had large overruns
over their initial budget. Bespoke projects often do.
So I
suspected that the same thing was likely to happen with Muskrat Falls.
I also
felt that using the “Anglo Saxon” route to export power, attempting to bypass
Quebec didn’t make economic sense.
And,
most importantly, the end of the Upper Churchill contract in 2041, was ignored.
Unfortunately
I was right on all accounts.
My own
personal situation allowed me to become a “naysayer”. And my personality is such that I could not
stay silent. I wrote my first letter to the editor when I was 19!
I had
retired in 2011, just after former Premier Williams had announced the project
and then quickly retired from public life. If I had continued as City Manager I
couldn’t have taken a public position because of the impact it might have had
on the City.
And,
just as importantly, I felt that my family wasn’t vulnerable should I decide to
go public with my concerns.
Like
it or not, we are highly dependent on government and many of us are, rightly or
wrongly, concerned about reprisals should we dissent. The public sector
represents over 27% of employment here as opposed to 15% in Alberta. And most
professional services and contractors depend on government work.
Initially
Dave Vardy and I worked behind the scenes. The major initiative we took early
on was to ask the Government, through the then Minister of Natural Resources,
Shawn Skinner to lift the exemption of
the project from public utilities board review and approval.
When
the Lower Churchill was an export project that exemption made sense, because
the ratepayers wouldn’t have to pay for the project. While Muskrat Falls has a
large export component, the ratepayer was going to be responsible for the costs
of the entire project. Initially export revenues, as tiny as they are likely to
be, weren’t even going to be used to help the ratepayers! So it then became a
domestic project which should have required PUB approval.
We had
some limited success, as the Government decided to refer the matter to the PUB
for its advice on whether it was the least cost alternative. The PUB was
refused an extension to provide its advice so it could have the latest cost
estimates and declined to endorse the project, much to the annoyance of the
Government. My fellow naysayer, Dave Vardy, and I made it a point of attending
the House of Assembly when the PUB report was released. To be honest it was
knowingly provocative for us to attend and our provocation was successful. If
looks could kill ….
What
triggered a more public dissent from us was the refusal of the government to
grant the extension requested by the PUB.
One of
the key points in our first letter to the Editor was that we had heard private
concerns from other knowledgeable citizens about the wisdom of the project and
urged them to step forward as we had. They didn’t and the rest is history. More
dissent might have made a difference but we will never know.
I will
reflect more on that subject later on after reviewing the major findings of the
Inquiry but before doing so, I wanted to remind you of a previous report on the
project from the Joint environmental panel.
It
reported in August, 2011, and one its conclusions was “that Nalcor’s analysis
that showed Muskrat Falls to be the best and least cost way to meet domestic
demand requirements is inadequate and an independent analysis of economic,
energy and broad-based environmental considerations of alternatives is
required.”
This
was never done. The fix was in.
Part 2
The
Inquiry
The
title, “ Muskrat Falls: A Misguided Project” sets the tone for the Report.
I want
to congratulate the Commissioner and his counsel on the conduct of the Inquiry
and the final report and to thank our own legal counsel, Geoff Budden, for his
work for the Coalition.
It was
a tough slog for all of us and it is worth pointing out that we were volunteers
and were faced with a difficult task to prepare for each days testimony. In
most cases we only received the witness interviews the day before witnesses
were due to give testimony and we were also faced with the impossible task of
reviewing millions of pages of exhibits sent out on a daily basis. We were
overwhelmed. I should acknowledge the help of a small band of private citizens
who assisted us.
The
report will stand the test of time as the definitive statement on the project.
On to
the major findings:
1.
The
Government “had predetermined that the Project would proceed. In so acting, GNL
failed in its duty to ensure that the best interests of the province’s
residents were safeguarded.”
2.
“GNL
had no capacity or strong inclination to oversee Nalcor. Instead it placed its
faith and trust in the Crown corporation it created. Nalcor exploited this trust by frequently
concealing information about the Project’s costs, schedule and risks.” Most notably the latest cost estimates of the
project, which were $300 million more than the previous estimates were not
properly communicated to the government nor the Board prior to financial close,
which was the last time the project could have been stopped.
3.
In selling the project as the lowest cost
option “ the alternatives to it were not fully explored and some were discarded
for unjustified reasons.”
4.
“The
cost estimates for the project were knowingly understated in several ways,
resulting in a budget that proved to be inadequate as soon a bids for major
contracts were received.”
5.
“To
a significant extent the culture and processes at Nalcor were shaped by its
first Chief Executive Officer, Ed Martin.
I was
recently reading about business leaders who have supreme self confidence and
how that self confidence, even if misplaced, infects an organization and
everyone else develops the same characteristics.
This
accurately describes Nalcor. I privately described Mr. Martin as the most
dangerous person in NL. What I meant by that is his combination of supreme self
confidence and a silver tongue would likely result in a very bad public policy
decision. Unfortunately I was right.
I also
said privately that before Mr. Williams left public office he was going to make
a very bad public policy decision and that it was likely to be the Lower
Churchill. Right again.
With
respect to Mr. Martin, one important fact did not come to light in the Inquiry,
because we were precluded from asking questions of a former VP who had been
fired, was about the first thing Mr. Martin did when he took over.
He
fired eight of the most senior Hydro VP’s and Directors with over 200 years
experience collectively in the Hydro business, just before we were about to
commence the largest hydro project in our history.
The
result was that, to quote the Commissioner, “all of the core members of the PMT
came from the oil and gas industry.” Hydro expertise was substituted by limited
oil and gas experience. None of them had extensive project management
experience.
A
number of alternatives to Muskrat Falls, such as waiting for the end of the
power contract in 2041, which was the option I and others advocated “were
screened out using questionable justification….”
Others
improperly screened out were imports from Quebec, Grand Banks natural gas, liquified
natural gas, additional wind generation, small hydro and conservation and
demand management.
Conservation
was a pet peeve of mine. Our problem is the widespread use of electric
baseboard heating. My view is that we could have avoided peak winter demand by
shifting to heat pumps, financing them and recovering their cost from the
reduction in electricity use. That was given no consideration.
Dave
Vardy and I advocated that the exemption of the project from PUB oversight be
rescinded. We were unsuccessful but achieved a partial victory with the
reference question to the PUB. A requested extension so that the PUB could
consider the latest estimates in answering the reference question was denied.
The PUB said it could not conclude that Muskrat Falls was the lowest cost
alternative because it didn’t have those estimates.
We,
and others, also asked the PUB to conduct an inquiry into Dark NL, which they
did. More importantly, we, supported by NL Power, asked that the PUB extend its
inquiry into post-Muskrat Falls reliability, which they also agreed to do. That
work, which continues, has also revealed a lot of information about that issue.
Contrast
this with what happened in Nova Scotia where there was an unfettered review by
their Board of the involvement of Emera in the project.
The
exclusion of the PUB is not unique to NL. It also happened in Manitoba with
their Bipole – 3 transmission project and in BC with the equally controversial
Site C project.
There
is an outstanding important and potentially very costly outstanding issue and
that relates to reliability. The Commissioner concluded that “there is a
reasonable likelihood that additional costs will be incurred to ensure that
there is adequate reliability for Island ratepayers, and, in particular, those
who live on the Avalon Peninsula. It is clear that Nalcor did not communicate
this reality to GNL when it was seeking sanction for the Project”.
You
can add another billion dollars to the $13.1 billion latest estimates to pay
for that!
There
was lots that went wrong and continues to go wrong on the construction side as
the date for completion lies well into the future, increasing the cost of the
project by $50 million in interest costs each month. Software issues and
problems with the synchronous converters continue to bedevil the project with
no end in sight.
