The hard part

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As the Muskrat Falls project steams forward, it might be easy to think that the hard part is over. In reality, though, the hard part has only begun.

Now comes the difficult twin tasks of staying on time and on budget — in a business where budgets regularly fly out the window.

Consider Manitoba, for example. It was a division of Manitoba Hydro, after all, that reviewed Nalcor’s numbers for Muskrat Falls and said they were comfortable with the estimates. But new numbers show how difficult it can be to make with accurate budgets for megaprojects.

There has already been plenty of mention of Manitoba Hydro’s problems with its Wuskwatim hydro project, which came in at 85.5 per cent overbudget. But it’s also worth looking at two other projects on Manitoba Hydro’s horizon. Muskrat Falls was announced in 2010; just one year earlier, Manitoba Hydro had been talking about two new hydro ventures, the Keeyask project, which would produce 4,400 gigawatt/hours (Gw/h) of power, and Conawapa, set to produce 7,000 Gw/h. At that time, the smaller of the two, Keeyask, was budgeted to cost $4.59 billion to construct. Conawapa? It was on the books as costing $6.33 billion. By 2011, those number had changed: Keeyask was forecast to cost $5.6 billion, and Conawapa, $7.77 billion, a combined increase of more that 23 per cent in just two years.

Since then, the Manitoba government (apparently more fond of its Public Utilities Board than the Newfoundland government is of ours), ordered the Manitoba utilities board to review Manitoba Hydro’s development plans in what it’s calling a “Needs For and Alternatives To” (NFAAT) examination.

Late this August, Manitoba Hydro submitted its planned development strategy to the NFAAT review, saying it still believes Keeyask and Conawapa to be the best plans. Interesting, though, is what the budget numbers for the developments are now.

Keeyask, given current construction and technology costs, is expected to cost $6.26 billion. Conawapa now tips the scales at $10.2 billion. Since 2009, that means the price tag for the two projects combined has jumped from $10.92 billion to $16.46 billion, an increase of 54 per cent over just four years. (If you really want a fright, have a look at even earlier numbers than 2009 for the two dams. Manitoba’s PUB raised concerns in January 2012 that the combined price of the dams had jumped from an even-earlier $8.6 billion to the 2011 numbers. The combined cost is now a whopping 91 per cent higher than first forecast.)

Different hydro projects may well be as different as apples and oranges. Right now, Nalcor says new numbers for Muskrat Falls will be released in the new year.

A spokeswoman said, “We will aim for a capital cost update during the first quarter of 2014. We just finished financing and we are still letting some large contracts and we need to get a full picture before an updated capital cost estimate can be provided. This time-frame is when we anticipate having the last of the major contracts in place and that would be the right time to provide an update on the full cost picture.  … These are early days on the project and we continue to aggressively manage the cost profile.”

Fair ball. But it’s worth thinking about.

Nalcor has repeatedly stressed Manitoba Hydro’s expertise in hydro development. If anything, the Manitoba experience shows that expertise and goodwill are only a small part of the costs battle. The hard work has only started.

Organizations: Division of Manitoba Hydro, Public Utilities Board

Geographic location: Manitoba, Wuskwatim, Newfoundland

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  • Cashin Delaney
    December 15, 2013 - 19:37

    "Now comes the difficult twin tasks of staying on time and on budget — in a business where budgets regularly fly out the window. " Traditionally, this is where quality drops to maintain spending level and schedule. This dubious logic sans quality is standard Telegram fare now, intended to frame this project beyond it. Beyond mercury pollution. Beyond flooding Mud Lake. Beyond social challenges. Beyond salmon, beyond cariboo. Beyond people into the realm of the abstract.

  • Ed Power
    December 14, 2013 - 23:58

    Thank you, Mr. Pseudonymous Smith, for your "detailed" rebuttal of the facts stated in this editorial. I can't help but notice that you failed to provide any cost analysis or other evidence to refute the figures presented, only your usual - and exceedingly tiresome - ad hominem attacks and pro-Muskrat blather. No matter how much the Dunderdale/Nalcor rationale for this project has changed - almost weekly, it seems - from "freeing us from the Quebec stranglehold" to "green energy" to "replacing Holyrood" to "selling surplus energy to NS" to providing power "to mining and industry (not the citizens) of Labrador" to whatever the "Muskrat Talking Point of the Week" is , there you are, pontificating as if you actually knew what was going on. One has to wonder what, exactly, your stake is in this? Are you, in fact, Ed Martin or Gilbert Bennett? Maybe you are just some poor PC party hack who has been removed from the "Pad the CBC/VOCM/Telegram Question of the Day Poll Unit" and assigned the job of turning this sows ear into a silk purse. Only a sycophant could rationalize how a company (Manitoba Hydro) with decades of experience in underestimating the costs of, and overestimating the returns from, their own hydro projects could - miraculously, and in complete ignorance of their own failed cost estimates - accurately assess and provide cost estimates for the Muskrat Morass. The gang that couldn't shoot straight are, suddenly, transformed into the master snipers. Not even the Monty Python cast could pull that scenario off.

  • Cyril Rogers
    December 14, 2013 - 14:15

    I seem to recall that these are the same "experts" who were hired by NALCOR to guide them along the path of enlightenment and absolute truth in ensuring that Muskrat Falls stayed on budget. It is indeed possible that it will...but highly unlikely....if their own projects are any indication. The issue is that so many variables can, and often do, enter the equation that the original estimates are usually grossly underestimated. If that were the only concern with this project....I could almost live with it. However, the fact is...it is both unnecessary and being built now to become a total giveaway to Nova Scotia. Of course the feds are onside....they are pandering to their constituents in that province..... so why should they be concerned if the actual cost goes well beyond the loan guarantee? We, in the meanwhile, are still in a precarious position from the uncertainties surrounding the North Spur and, more ominously, the court challenge by Hydro Quebec. Here we are.... building a project that will lose big time every time we send power to Nova Scotia.... and the Premier somehow thinks it is a good deal. How desperate and idiotic can one get?

    • John Smith
      December 15, 2013 - 09:22

      No...not desparate or idiotic....do you call 400-500 millon dollars a year deparate or idiotic? I guess we could forget the link, as was originally planned, and let the water spill over the dam for 20-30 years untill we need the power here? That sounds like what the Liberals would do, what you would do...God knows how the Liberals ruined the upper churchill...and they would do the same here...

  • david
    December 14, 2013 - 09:32

    The hard part is never the trial.....it's the prison sentence afterwards. We got railroaded by our own lawyers, and got life with no chance of parole. Oil might have saved a handful of us from 'hard times', but we're all in for 'hard time' now. Save up your cigarettes.

  • John Smith
    December 14, 2013 - 08:36

    ...so predictable...after every other hurdle has been overcome, our provincial paper, and chief naysayer, will now focus on the only boogeyman we have left...cost over runs...now the job is to beat that to death for the next 4 years... give me a break...

    • david
      December 14, 2013 - 16:33

      Ah, Newfoundland......where if it just wasn't for that nagging detail of "money" that the rest of the world seems to think matters, everything here would be rainbows and gum drops! We dream big, take big swings, and it has always served us SO well....details are for chumps!

    • Blind Trust
      December 14, 2013 - 17:14

      Analyzing potential risks is better than being a dupe. Can we trust our leaders? Ever hear of the Senate scandal or the sponsorship scandal? Which of the cabinet ministers have proven themselves competent? Has the Premier? The details of the Grand Falls mill expropriation slipped by her.

    • Ken Collis
      December 15, 2013 - 08:03

      Well John Smith, answer my easy questions. What will my power bill be, and don't point me to the Nalcor website, and why does Nalcor get to keep all the proceeds but I have to pay 100% of the project. Ratepayers are legally bound by PC legislation to pay the cost of the project, and until the legislation is changed to reflect something different, and to remove Nalcor as the single voice that will set the power rates, I'll believe what Kathy said a while ago. You know, where she said, I mean backtracked and said that maybe they might use some of that proceeds to help out ratepayers. Do you think anyone should believe a politician? I remember a few elections ago that NTV did a poll that said 96% of voters don't believe that their MHA speaks the truth.

  • Ken Collis
    December 14, 2013 - 07:49

    Before my town was a part of the Provincial power grid, we got electricity from diesel generators operated by NL Hydro. I remember one time when they decided that they would like to cool the diesel engines with a continuous supply of fresh water. The project got underway in typical Government fashion With huge new cooling fans on order, building renovations underway, and a barge bringing in a water well drilling machine. The well drill went to where Hydro needed the well and drilled away. Water, yep, but it's salt water you know. That's ok says Hydro. We'll still be able to use it, just some modifications to the design is all. So back to work for all of us, I was hired on for the project, and a few weeks later we were done. Now, lets turn on the water. Discovering that the well couldn't provide enough water was a big surprise. No problem says Hydro. We'll cool the diesel engines by using a radiator and coolant, just like the big rigs use. Just like the initial cooling system. Do I have faith in these folks to handle a big job? Well, I think they may have learned something since that job. I just can't figure out how they don't know the cost. That should be something they could spit out any time. Never mind BSing us with "decision gate" details and such. Fancy phrases don't impress me. Billion dollar projects are too big for me to understand? Ho Hum... I've been working overseas on multi billion projects for years, and we know the costs daily. All I want Hydro to do is tell me what my power bill will be, and for government to put it in legislation so they can't back track later. I would also like to know why ratepayers have to pay the full cost of the project but any proceeds from the sale of power from "Our" dam goes to strengthen Nalcor and pay for future projects. This is what REALLY poisons me.

    • joebennett
      December 14, 2013 - 17:48

      You got my vote.