Natural Resources Minister Jerome Kennedy was back on the airwaves over the weekend, extolling the virtues of Nalcor and the Muskrat Falls project. It’s clear at this point that the decision is basically made: there will the window-dressing of a legislative debate, but, listening to Kennedy, there’s no way to not recognize that the die is cast.
Kennedy was on air to refute concerns raised by Tom Adams, an energy analyst, who suggested that Muskrat Falls supporters should look at the massive cost overruns of the just-opened Wuswatkim project in Manitoba.
Kennedy’s riposte was that there will not be significant overruns and that, while there are already cost increases, he feels comfortable that Nalcor knows what it is doing and knows what its costs will be.
Manitoba Hydro’s Wuswatkim project was budgeted at $900 million, but wound up costing $1.69 billion.
It’s worth looking at the review of the Wuswatkim project by the Manitoba Clean Environment Commission (CEC) in 2004, which said, in part: “Uncertainties in project construction variables were incorporated into the estimates through a range-estimating cost-risk analysis performed by Decision Science Corporation. Manitoba Hydro
(MH) used the range-estimating approach for the generation project, which represents over 80 per cent of the overall project costs. Uncertainties in costs were accounted for by assigning a cost range to each of the major and key cost components. The estimates indicated that, with a 90 per cent confidence level, costs will be within -8 per cent to +9 per cent of the estimated cost.
“In March 2002, MH retained Both Belle Robb Limited (BBR), a consulting firm, to conduct an independent overview of the range-estimating process, assumptions and major inputs used to arrive at the generation project cost estimates. BBR concluded that the range-estimating approach used by MH to prepare the estimate was consistent with prudent estimating practice. The method of risk analysis has determined a contingency amount that is consistent with traditional rule-of-thumb methods. In addition, the risk analysis method reduced subjectivity in the estimating process. BBR indicated that the basic mitigation compensation expense might be underestimated. However, BBR also found that the amount of contingency determined in that analysis should be sufficient to accommodate variations in the cost factors that might be experienced.”
The CEC’s forecast, obviously, was woefully inaccurate.
If you were to change things around a little, replacing Manitoba Hydro in the above paragraphs with Nalcor, and replacing Both Belle Robb with Manitoba Hydro International or that of Nalcor’s earlier consultants, Navigant, it would be pretty clear that the language used and the confidence in each project is similar.
Kennedy’s other assertion? That rising costs for Muskrat Falls are immaterial, because the costs for any other source of power are likely to rise in exactly the same way and at the same rate. That is one heck of an assumption
The biggest concern in the Muskrat Falls equation?
That forecasts for how much power we’ll need are actually wrong. The Muskrat Falls deal is structured in a way that requires this province’s consumers to buy power from the project even if we don’t need it — and to buy that power at a fixed price that will cover the project’s full construction and financing costs.
That being said, no one should doubt that Nalcor has skilled, experienced staff and the highest of intentions for the people of the province.
That doesn’t mean they are guaranteed to make all the right decisions, regardless of their honesty or conviction.
Manitoba Hydro officials were no doubt just as sure, just as professional and just as committed to making the right choice for residents of that province.
For years, public inquiries have asked a simple question in cases of wrongful conviction: why do police sometimes target particular individuals early in an investigation, accepting all evidence that suggests the individual is guilty, while discounting anything that suggests innocence?
The police call it tunnel vision.
What we have to be careful of is developing dam vision. Skilled professionals can still make bad decisions with the best of intentions.
We are not insulated from that, any more than Manitoba was.
Russell Wangersky is the editorial page
editor of The Telegram. He can be reached by email at email@example.com.