THE LABRADOR ISLAND LINK IS “SUNK COST”

We should be worried that GNL will double down as big problems persist and costs continue to rise on Soldier’s Pond and the LIL, all the way to Muskrat Falls. It seems destined to be a victim of the “sunk cost” fallacy which describes a tendency to sink more money into a scheme in which a large
investment of time and money has already been made, regardless of whether the
costs outweigh any benefits.

Last week’s post described
the chief conclusion of the second Haldar and Associates report that the Labrador
Island Link transmission line (LIL) is under-designed and may need salvaging as
often as every six years.

The Report was ultimately
conducted for Public Utilities Board which wanted more data to help forestall a
repeat of the 2014 outage known as #DarkNL.

#DARKNL WAS BAD. A NEW REPORT ON LILWILL LEAVE YOU COLDER refers to an LIL failure in January
2021 when rime ice damaged a number of towers in southern Labrador, which took
seven weeks to repair.  

The Haldar report concluded
that the “return standard” of the LIL (the on-average period during which a transmission line will withstand weather
conditions based on its design) was far lower than that claimed by Nalcor.
The consultant found that it could be as low as 1:6 years
and estimated the repair period, under ideal conditions, to be three to six
weeks.

When Manitoba Hydro International (MHI) reported to the PUB in 2012, the
firm recommended a return period of 1:150 years using an alternate supply (i.e.
the Holyrood Plant). They proposed a return standard of 1:500 years without an
alternate supply…and “an even higher standard in the alpine areas.”

Like the project budget and most things Muskrat, the return standard was
cooked up. Nalcor needed to close Holyrood; the forecast fuel savings
represented the ostensible basis of Muskrat Falls’ economic viability.

Hardar notes
that “
Hydro has developed,
and is continuing to develop, detailed engineering solutions…to expedite
re-energization of the LIL following a bipole (two lines) failure.” Wood poles
and modular aluminum structures, in addition to better logistics for faster
access to a damaged section of the line, are being examined.
 


These initiatives might sound encouraging if at issue were old towers scheduled for refit. Instead, under the microscope is a brand new, barely used Labrador Island Link, an 1100 km. transmission line that has never been energized to more than half of its design capacity. 

The very same
people who defended its original substandard design are now permitted to play
with more public money to cover up their monumental error (deception and
recklessness, actually).  This is
infuriating enough, but the implications of the problem are maddening.

Naturally, most
people will see the issue in the context of their own power security. Those who
recently purchased generators expect to be protected for the duration of an LIL
failure. But an under-designed LIL poses other problems for the province that
compound the existential challenge of paying for this nearly $15 billion
project.
 

Any “fix” of the 3,224 towers erected,
whether experimental or a response to catastrophic damages, is sure to add tens
of millions of dollars of Operation and Management (O&M) costs annually,
and additional hundreds of millions to remediate the TL every half dozen years
or so, as weather tests Nalcor’s technical temerity.
 

Haldar does not
address climate change and how related extreme weather events are already
giving fright over infrastructure robustness in many towns and cities,
including within Canada. Eventually, NL Hydro will be forced to add these
events to the calculation of the “real” return standard of the LIL.
 

The current
O&M budget is still untested, too, the estimate having doubled after Stan
Marshall became CEO and dialed back when the requirements for rate mitigation
became unachievable. That won’t make the actual costs any lower.
 

Of course,
lawyers will constantly remind GNL, as they have done already, to think of
commitments made to Nova Scotia in relation to the Maritime Link. But as fellow
blogger, PlanetNL notes, “there ought to rationally be a tipping point” in this
LIL salvage operation, one “where suffering a
settlement agreement with Emera to abandon the Maritime Link is
preferable to dumping more money into the ML or the LIL.”
 

The Haldar report logically leads us to
another conclusion that Holyrood – or an equivalent replacement plant – will
have to be kept running as the permanent backup to both TLs. That means the
public should be on-guard that Holyrood becomes the backup supply for Nova
Scotia’s Emera, too.
 

Except that PlanetNL knows provincial
politicians will spend an empty Treasury dry before they will ever arrive at a
conclusion as sensible as abandoning the LIL.
 

David Vardy and PlanetNL have written extensively
about the Muskrat Falls project’s lack of viability and the shortcomings of the
“rate mitigation” scheme concocted by the Furey Administration, with the
Federal Government’s assistance. At all times, GNL has assumed that Muskrat is,
at least, technically viable project and is worth spending large annual
subsidies will make the financial problems go away. On this level, too, Vardy
and PlanetNL argue that the thesis is wrong.
 

The Haldar Report confirms, however,
that the LIL’s low return standard makes it technically untrustworthy, too.
Haldar only reviewed the LIL. Other major issues prevail: Three patched up
synchronous condensers at Soldier’s Pond, vital to the operation of the
electrical grid, are fitted with elliptical bearings which lower vibrations levels in
the foundation. Nalcor doubts it is a long term “fix”.
 

Software issues keep the project at
half production. As yet unproven China-purchased generators (Nalcor neglected
to have their manufacture surveyed, though the large Units were the first of
their size produced by the manufacturer) sit
in the powerhouse. Add 
the North Spur stability problem and a Water Management Agreement, which the Quebec Superior Court
was limited in its ability to resolve. All compound the technical weaknesses of the
project.
 

Governments are not capable of big, courageous decisions; most of them made are of the incremental kind. For that reason, the financial bleed of rate mitigation promises to be compounded by a series of multi-million dollar “band-aids”, none of which will can cure the diabolical array of problems that, at its birth, entered Muskrat’s DNA.  

Holyrood will have to be kept running as
the backup to the LIL, adding to the annual rate mitigation requirements. Does Premier
Furey have the cohunes to tell Emera and the Nova Scotia UARB of their failure
to perform an adequate assessment of the LIL, and that they should pay for
their own bad decisions?
 

Someone will need to consider all those
issues, not separately as they present, but together – now – before their
collective financial consequences start to make the current price tag look
cheap.
 

Face it: There is already ample
evidence that the LIL won’t be anything better than a rotten lemon.  The
other assets are not giving off great smells either.
 

The correct incremental decision,
therefore, is to shut the LIL down now, and let the MF powerhouse operate until
it doesn’t. That is the only answer to the PUB’s worry over the question of power
security on the Island.
 

A cryptocurrency mining industry in Labrador will bring in some
revenues until the decision to close Muskrat Falls is made.
 

A perfect idea for a province too quick to fall in love with a good
story!

Des Sullivan
Des Sullivan
St. John's, Newfoundland and Labrador, Canada Uncle Gnarley is hosted by Des Sullivan, of St. John's. He is a businessman engaged over three decades in real estate management and development companies and in retail. He is currently a Director of Dorset Investments Limited and Donovan Holdings Limited. During his early career he served as Executive Assistant to Premier's Frank D. Moores (1975-1979) and Brian Peckford (1979-1985). He also served as a Part-Time Board Member on the Canada-Newfoundland Labrador Offshore Petroleum Board (C-NLOPB). Uncle Gnarley appears on the masthead representing serious and unambiguous positions on NL politics and public policy. Uncle Gnarley is a fiscal conservative possessing distinctly liberal values and a non-partisan persusasion. Those values and opinions underlie this writer's views on NL's politics, economy and society. Uncle Gnarley publishes Monday mornings and more often when events warrant.

OPINION POLL OVER-RATES INEFFECTIVE TORY OPPOSITION

Having survived in spite of themselves, in Opposition the Tories have been lazy and uninspiring.  The fact that it is summer, and the House of Assembly is closed, admittedly makes their job tougher, except that the Party’s manifest weakness is not a seasonal problem.

REMEMBERING CABOT MARTIN (1944-2022)

He was an exceptional person. A gifted intellect for sure; irascible and argumentative, too. What endeared him to many was not just that he was analytical and insightful, but that he was honest and forthright. He was a public policy wonk; resource policy interested him most. He loved to travel and read; people, with something to say, were always important.

GNL RUSHING INTO ANOTHER “SCHEME”: CABOT MARTIN

I must say that after the Muskrat Falls fiasco, I thought our government had finally learnt its lesson and would not to rush into another such scheme where calling it “green” was enough to suspend all critical analysis.