Muskrat Falls report slams Nalcor CEO, province

Gavin MacRae

Muskrat Falls under construction in 2015. Photo by Government of Newfoundland and Larbrador, CC, cropped from original

On March 10, the long-awaited 1,000-plus page final report of the Muskrat Falls inquiry became public, revealing a project so misguided and predetermined that the Government of Newfoundland and Labrador “failed in its duty to ensure that the best interests of the province’s residents were safeguarded.”

The report’s executive summary states the Government of Newfoundland and Labrador did not prove a business case for Muskrat Falls. Instead, the province placed faith in Nalcor Energy, a provincial crown corporation created in 2008, and tasked with developing potential electricity generation at Gull Island and Muskrat Falls, on the Churchill River in Labrador.

Nalcor’s answer was the Muskrat Falls Project, which, upon completion, will include a 824-megawatt hydroelectric dam on the Churchill River in Labrador, an overland and subsea transmission line between the dam and Newfoundland, and a second transmission line between the Muskrat Falls dam and a generating plant at Churchill Falls, Labrador.

The project now accounts for roughly a third of Newfoundland and Labrador’s debt.

Nalcor rammed through the project despite a mandate to “conduct a comprehensive study of all potential long-term electricity supply options in the event that the Lower Churchill project does not proceed.”

In doing so, the corporation exploited the trust given to them, the report said, by “frequently concealing information about the project’s costs, schedule and risks” in order to present the Muskrat Falls project to the province and the public as the lowest-cost option for electricity.

Cost estimates for the project – appraised at $7.4B in 2012, and currently sitting at $12.7B – were “clearly influenced by optimism bias, strategic misrepresentation, and political bias.”

The project now accounts for roughly a third of Newfoundland and Labrador’s debt.

“The decisions Nalcor made to reduce the cost estimate must be seen as part of a pattern of questionable decisions that systematically tended to overstate the Project benefits, understate its cost and disregard alternatives,” the report reads.

Exempted from utility regulator

Deciding what option would result in the least expensive power for consumers would normally fall on the Public Utilities Board, Newfoundland and Labrador’s utility regulator. But because the Lower Churchill Project had been exempted from this oversight by an Order in Council in 2000, the choice was left to Nalcor. In arriving at a decision, the report found Nalcor used “questionable justification” in screening out other potential options including importing electricity from Québec, natural gas from the Grand Banks, wind power, smaller hydro sites, and electricity conservation and demand management.

At Nalcor’s helm was then-CEO, Edmund Martin. With a background in oil and gas, limited experience in megaprojects, and no experience in hydro or transmission projects, Martin nonetheless significantly shaped corporate culture at Nalcor, said the report. His zealousness for the Muskrat Falls project “resulted in a combination of unrealistic optimism, a willingness to misrepresent costs, schedule and risk, and an inability to change course when things were going wrong.”

Martin’s core management team, with one exception, also had no experience in hydroelectric generation or transmission projects.

“It is noteworthy that ratepayers on the Island of Newfoundland, who are responsible for repaying the cost of the Project through electricity rates, face the prospect of greatly increased power bills when the Project comes on-line,” the report notes.

The report has been referred to police and the provincial justice department.


This article appears in our April-May issue.

 

 

 

 

 

 

 

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