Muskrat Falls and a box of provisos

Russell
Russell Wangersky
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Last month, the provincial government announced the new expected bill for Muskrat Falls, and released yet another study from Manitoba Hydro International (MHI), a report that clearly nudged the project closer to project sanction.

Here’s what Premier Kathy Dunderdale said at the news conference announcing the release of the report: “Muskrat Falls sets the stage for us to finally take control of our destiny and achieve the enviable position of total energy independence in the international marketplace. … This project will have a tremendous impact on the people of Newfoundland and Labrador for years to come.”

Good enough.

But do yourself a favour: read the darned thing. It’s not likely to change the minds of those who oppose the project, and for those in favour of the enterprise, it’s more inextinguishable proof of its intrinsic value.

Positions on Muskrat Falls have hardened like arteries, and little will change the minds of the entrenched on either side.

But it’s also not likely to provide an objective observer with full confidence that all major risks have been extinguished.

Why? It’s a relatively broad-brush report that says the project meets accepted utility standards for forecasting and preplanning major projects, many of which go hugely off the fiscal rails (even in Manitoba), despite those standards.

Sometimes, an interesting way to look at a report is in the inverse: for a moment, imagine that Muskrat Falls went horribly off the rails and costs shot through the roof (this is purely a hypothetical case).

Could you then go back to the MHI report and say that they got it wrong?

Well, no.

First of all, MHI is pretty clear in their disclaimer: “The recommendations, opinions or findings stated in this report are based on circumstances and facts as they existed at the time MHI prepared the report. Any changes in circumstances and facts upon which this report is based may adversely affect any recommendations, opinions or findings contained in this report.”

More to the point, if you hunker down and read the 80 pages, you’ll find there are a fair number of sections where MHI is basically saying the review holds up only if they’ve been given the right information — and all of their information is coming from Nalcor.

Things like this, about the power line to the Avalon: “The design and construction schedule proposed by Nalcor is achievable provided there are no major changes to the project scope, unusual weather encountered during construction seasons, and adequate contractors are retained with resources available.”

Or even the report’s final conclusions: “With the assumptions and inputs provided by Nalcor to MHI, the Interconnected Island option remains the least cost option to meet the needs for capacity and energy to supply the forecasted load in Newfoundland and Labrador until 2067.”

In other words, if the inputs and assumptions are off the mark, MHI can hardly be held responsible for things going sideways.

It’s a fine report, as far as it goes, and this isn’t to suggest that there’s no value to reading it — there certainly is real value in there, especially to see the dramatic number of changes between the way the project was envisioned last spring and what it looks like now.

One major change? The entire powerhouse at the falls has been turned by 30 degrees, and there’s been a dramatic strengthening of some of the transmission grid.

There are even wonderful nuggets like this: “Outage periods up to one month or greater in remote line sections are possible. The emergency response plan needs to consider the availability of alternate generation in addition to the potential duration and extent of an (high-voltage direct current) transmission line outage. Nalcor acknowledges that an emergency response plan is necessary and will undertake the development of one prior to in-service.”

Hope so.

The only real danger is believing that the report is something more than it actually is.

Happy reading.

But ever-so-limited liability.

Russell Wangersky is The Telegram’s editorial page editor. He can be reached by email at rwanger@thetelegram.com.

Organizations: Manitoba Hydro International

Geographic location: Muskrat Falls, Newfoundland and Labrador, Manitoba

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Recent comments

  • Todd
    November 13, 2012 - 21:14

    Can anyone answer this question: when comparing the two options, what was the price of oil used in calculating the alternative to MF?

  • Ed Power
    November 13, 2012 - 18:29

    Notwithstanding the full partnership agreement with the Cree nation, John, MHI was still taken to task by the Manitoba PUB for their failure to idenitfy markets for the Wuskwatim project's power and inability to control costs on the project. This, as well as MHI's long term hydro plans, resulted in a PUB ruling that directed MHI undertake a "thorough and quantified Risk Analysis including all identified operational and business risks. This report should consider the implications of of planned capital spending taking into account revenue growth, variable interest rates, droughts, inflation experience and risk, and potential currency fluctuation". This was not the first time MHI was censured for poor planning and excessive costs in these areas. In 1979, MHI was the subject of a Commission of Inquiry as a result of the excessive capital costs and massive overruns on another project they were involved in. So, as I said earlier, I would take any analysis prepared by MHI with a large glass of rum.

  • Don II
    November 13, 2012 - 15:56

    As usual Russell Wangersky sees the forest beyond the trees and lays the facts out for all to see. The bottom line is that Hydro Quebec owns 1/3 of the Upper Churchill Falls project and have contractual rights that they will enforce. The only way that Muskrat Falls should proceed is after the Government of Newfoundland has obtained legal certainty from the Courts that Hydro Quebec cannot in any way interfere with or obstruct the construction and operation of the Muskrat Falls project. Without such legal certainty, the Government of Newfoundland is rolling the dice against its arch enemy and hoping the dice roll up 7's only. If Quebec can stop, interfere or get a piece of the Muskrat Falls project it will whether Newfoundland likes it or not. The only solution is for the Government of Newfoundland to move before the year 2041 to expropriate CFLCO and Upper Churchill project and transfer those assets to NALCOR. The Government of Newfoundland will have to be prepared to take the major national unity and Federal Government backlash and financial fallout, including the immediate withdrawal of the Federal Government loan guarantee, that will come from exercising that excessive option! The decisions required to make the Muskrat Falls project a reality will finally separate the wheat from the chaff! The right decisions will make heroes out of zeroes. If the wrong decisions are made and carried out, the negative fallout will destroy careers and a Provincial economy. Go for it!

  • David
    November 13, 2012 - 14:45

    It struck me odd last week when I read that the corporate structure for CFLCo is owned (partially) by NL Hydro, not Nalcor, while Muskrat Falls will be owned by Nalcor, not NL Hydro. Thinking long term......Nalcor intends to be a diversified energy business, with interests in hydro, wind and oil and gas. What happens if 20 or 30 years down the road Nalcor is responsible for a BP Macondo type of event and is forced to sell Muskrat Falls at a discount to pay off its creditors? How will us, the rate and tax payers of this province be protected from our “investment” in Muskrat if that ever happened?

    • first david
      November 13, 2012 - 18:26

      Too bad it didn't hit you a bit harder.

  • Winston Adams
    November 13, 2012 - 11:19

    Russell, you feel that no blame can be laid at the door of MHI because all the data and inputs are coming from Nalcor. Most, yes. But consider the issue of efficiency savings. Nalcor suggests and MHI concurs that efficiency savings have reached the saturation point! Really? They never assessed efficient heating which gives saving of over 60 percent reduction on heating. MHI just opened their new headquarters in Winnipeg which has 70 percent energy savings. This issue is not a small oversight and has significant impact. This is shameful for our engineering community that this is being ignored. Why the silence by Nalcor ? Nflders just not interested? We rather spend more for heating not less?

  • Ed Power
    November 13, 2012 - 10:01

    Judging from the near 100% cost overrun on their (still unfinished) Wuskwatim hydro project - $900 million esitmated, $1.67 billion to date - I would take any forecast/estimate from Manitoba Hydro with a very large dose of salts. Better yet, a tall glass of dark rum - straight up.

    • John Smith
      November 13, 2012 - 10:33

      Ed...you should take a closer look at the project...the first and last time that Manitoba hydro will enter into a full partnership with the cree nation in developing the project...we will not be entering into a full partnership with the cree nation on Muskrat falls....

    • factmaster
      November 13, 2012 - 10:40

      John: you must have gotten your briefing notes from the eighth floor tangled up. Wustwakim was a joint venture with the Cree, but hardly the last - Manitoba Hydro is partners with the Cree on the Keeyask project right now as well, even larger than Wustwakim and already substantially overbudget, too. Hope Nalcor does its research better than you do...

    • John Smith
      November 13, 2012 - 13:23

      @fact nope...totally different setup...involving 4 first nations groups...and it is not over budget....shovels in the ground only 8 months ago. In any event...when you involve first nations as full partners it is a different setup than we have here with Muskrat. Nalcor holds all the cards...with Emera taking responsibility for the link.

    • Factmaster
      November 13, 2012 - 13:39

      Happy hair-splitting, Johnnie. Why not look at facts? “Like Wuskwatim (see section 4.3.1), Keeyask generating station is to be developed through a First Nations partnership. In this case, the project will be developed and operated through the Keeyask Hydropower Limited Partnership (KHLP), a partnership between MH on the one hand and (1) the Tataskweyak Cree Nation and War Lake First Nation, acting as Cree Nation Partners, (2) the York Factory First Nation, and (3) the Fox Lake Cree Nation (collectively, the Keeyask Cree Nations or KCN) on the other hand.” That’s from Manitoba’s PUB — and, the PUB points out, even with shovels just in the ground, the cost of the Keeyask facility is already up $1.94 billion to $5.64 billion (a 53% increase). Spin away, me Johnnie boy, you're all gone away.

  • Cold Future
    November 13, 2012 - 09:56

    The premium cost for Muskrat is about $4 billion to cover the cost to go around Quebec.Hypothetical options and costs are all balony, not the kind that Maple Leaf makes. If we choose to take this expensive route, then step right up and say so. Go around Quebec, take the risks, do not minimize them, pay the price and get on with it. Why fabricate justifications that just don't add up. But stick to the blue book plan and use the oil money. Don't lay it all on the backs of the ratepayer/taxpayer and create too much hard ship to the fixed income people from the take or pay committment in the process.

  • John Smith
    November 13, 2012 - 09:21

    Russel...do you think there is such a thing as a report that would step up and say we are 100% positive about everything that will occurr with this 7.5 billion dollar project? Really?We have gotten report after report all pointing out that this is indeed the lowest cost option, and that we will need the power, Navigant, the original MHI, the second MHI...all saying this project will be at least 2.5 billion less than the nearest alternative. Which gives us a 2 billion dollar buffer for screw ups....the deal could cost us 2 billion more and would still be the lowest cost alternative...this with the nearly 1 billion Nalcor has built into the deal for cost overruns(730M)... No Russel...in the real world of construction projects, and with having to provide electricity there are no 100% assurances...but time after time we have been shown that Muskrat is a well thought out, intelligent answer to our coming energy needs....

  • craig scott
    November 13, 2012 - 08:24

    I heal all this talk about 2041 but exactly how much power is going to be at our disposal at that time. Lets keep in mind that Hydro Quebec owns 1/3 of Churchill Falls. They will certainly have influence and can potentially block us from moving any of that power. They are already building new production of their own, they could essentially decide to take their 1/3 of the power and leave the rest to flow down the river. Could they not?

  • Maurice E. Adams
    November 13, 2012 - 07:05

    I wonder who might be held liable if Nalcor proceeds with Muskrat Falls --- when it knowingly could enter into a competitive power purchase agreement with Hydro Quebec (to take us up to 2041) and thereby save island ratepayers about $26 billion over 50 years (about 5 times LESS EXPENSIVE) --- and GREENER than Muskrat Falls..... see www.vision2041.com ------------ Where is the report confirming that Hydro Quebec will not provide the power we need until 2041 at very competitive costs?