Trouble with abstract concepts? Then hold onto your chairs. And welcome to the decision gate process.
Whenever the Muskrat Falls project comes up, there’s regular discussion of Decision Gate 2 (DG2) and Decision Gate 3 (DG3) numbers. Right now, the project has passed DG2 and the provincial government is waiting — and has been for some time — to see the DG3 numbers.
But what are they? Not the DG2 numbers and DG3 numbers, but what is this strange gating process?
Well, it may sound a little peculiar, but it’s a process where a major project moves ahead through specific — and sometimes quite arcane-sounding — steps on the way to being approved.
Here’s how Nalcor describes it: “The owner of the gateway process, or gatekeeper, is Nalcor Energy’s CEO and president, with responsibility for the implementation and stewardship of the process delegated to the responsible vice-president. The gatekeeper consults with the Nalcor board of directors and seeks shareholder alignment and approval. Within the project, the phases are managed by cross-functional teams and are referred to as gateway phases, while the gates (known as decision gates) are structured decision points at the end of each gateway phase. … For each decision gate there are a number of gate requirements that have been agreed with the gatekeeper. These gate requirements must be produced to an acceptable quality to facilitate efficient and effective decision making regarding the forward direction of the project. …
“Certain gate requirements may be considered by the gatekeeper, board of directors or the shareholder as ‘showstoppers,’ which means that the decision gate cannot be passed until those gate requirements are fully satisfied. An example of a showstopper would be environmental approval to proceed with the construction. The requirements for each gateway phase are developed specifically for the project and are developed with consideration of both standard project execution best practice, but more importantly with the consideration of the overall risk spectrum and tolerance for the project.”
Here are the five steps that Nalcor is using to look at the Muskrat Falls project: “Decision Gate 1 — approval to proceed with concept selection; Decision Gate 2 — approval of development scenario and to commence detailed design; Decision Gate 3 — project sanction decision; Gate 4 — approval to commence first power generation decision; Gate 5 — approval to commence decommissioning.”
It’s cradle to grave, and right now, the costs we know of — and what the entire Muskrat Falls discussion has been about to this point — are merely the ones available at the start of the detailed design process. There is an amount added in for escalation costs and a 15 per cent contingency, but the thing about DG2 numbers is that they have a broad margin of error.
How broad? Here’s Nalcor again: “-15 per cent to -30 per cent on the low side to +20 to +50 per cent on the high side, depending on the technical complexity of the project, degree of project definition (i.e. percentage of design complete), appropriate reference information, and the inclusion of an appropriate contingency determination.”
So bring on those DG3 numbers and we can have a real discussion about what this project actually is.