In his letter to the editor in The Telegram of Feb. 15, (“Wangersky wrong about business case”) Derrick Sturge, vice-president (finance) and chief financial officer of Nalcor Energy, states that Telegram columnist Russell Wangersky is inaccurate in claiming that the business case for Muskrat Falls was not examined, because of the federal loan guarantee.
In his column, Wangersky refers to Drew Hasselback’s Financial Post article of Jan. 31,which cited the following quote from TD Securities, one of the co-underwriters for Muskrat Falls: “The benefit of the guarantee was that no one had to look at the merits of the underlying project,” says Steve Halliday, managing director and head of global credit trading and distribution at TD.
Sturge concluded his letter by inviting Mr. Wangersky and others to “contact us at any time to obtain information so we can help inform a constructive dialogue on the Muskrat Falls project.”
We wish Mr. Wangersky well in that endeavour but our own experience suggests otherwise. We still don’t know what the power rates will be once Muskrat Falls is interconnected. So the public needs to have access to the power purchase agreement (PPA) between Nalcor and Hydro before that “constructive dialogue” can begin.
Prior to Nalcor’s June annual general meeting, we requested a copy of the reports prepared by the credit agencies, showing that there is a business case for Muskrat Falls, both with and without a loan guarantee. The response we received was that these reports cannot be disclosed.
We received the same answer when we asked for a copy of the report of the independent engineer, along with updated cost estimates. We were denied access.
When we asked for information on the cost of the services provided by SNC Lavalin, Nalcor responded that this information is “commercially sensitive.” We don’t know if these arrangements are based on a markup on project costs but we expect that it is what used to be known as a “cost plus” contract, in the Smallwood era.
At the AGM in June, Nalcor CEO Ed Martin said that the total cost is “north of $100 million.” This does not measure up to any reasonable standard of transparency for a Crown corporation.
While the people of the province are the owners of Nalcor, the project is shrouded in a cloak of secrecy. Nalcor has not released updated cost estimates on the overall cost to complete the project. The auditor general has not to date conducted an audit.
However, the auditor general released a report in early January 2014, stating that the commitments, as of Nov. 15, 2013, were $1.8 billion. This did not include a major project signed off by Nalcor on Nov. 29, 2013 for the powerhouse and other structures, awarded to an Italian company, Astaldi Canada Ltd., and valued at $1 billion. So we can safely assume that commitments to date are in excess of $3 billion, and rising. It is imperative that the auditor general audit this project, the largest ever undertaken by government in the history of the province, and the audit should done on an ongoing basis, through the course of the project.
If there is a business case for the Muskrat Falls project, the shareholders have not been told what it is. The information that is in the public domain suggests that the business case is very weak or non-existent.
Nalcor has been given an absolute monopoly. This came in the form of amendments to the Electric Power Control Act (EPCA) passed a year ago.
These amendments are a deterrent to innovation; they force customers to buy from Hydro; and they fly in the face of the open access rules mandated by the Federal Energy Regulatory Commission for energy providers who want to export power into the United States.
The legislation reflects precisely the kind of behaviour for which Newfoundland has long criticized Quebec, when seeking wheeling rights through Hydro-Québec’s transmission grid.
How does usurping the operation of a competitive free market and strengthening Nalcor’s absolute monopoly power support a strong business case for Muskrat Falls?
Derrick Sturge has called for constructive dialogue on Muskrat Falls.
When he was sworn in as premier, Tom Marshall indicated he will be listening to the people.
He commissioned an independent review of Bill 29. A constructive dialogue on Muskrat Falls can take place only if there is greater transparency than has occurred to date, and this goes well beyond Bill 29 and its repeal or revision.
There are provisions in the Energy Corporation Act (ECA) which allow Nalcor to refuse to disclose information requested under the Access to Information and Protection of Privacy Act.
Other provisions of the ECA limit the freedom of the auditor general to audit Nalcor and require the auditor general to report to the cabinet and not to the House of Assembly in the case of a disagreement between the auditor general and a chief executive officer respecting whether information in a draft report is commercially sensitive information.
We call upon government to ask the auditor general, pursuant to section 16 of the Auditor General Act, to undertake a special audit of Nalcor Energy and to report on the expenditures and cost commitments on Muskrat Falls undertaken up to the end of the current fiscal year.
To facilitate such an audit, government should remove the restrictions upon the auditor general under section 5.4 of the Energy Corporation Act.
The PPA between Nalcor and Hydro will, unfortunately, not be subject to review by the PUB. Up to this point the PPA has not been released to the public.
We call upon government to release it forthwith.
In addition to the special inquiry and report by the auditor general, we call upon government to make the following reports public:
• The power purchase agreement;
• All reports of the independent engineer; and
• All reports of credit rating agencies on the business case for Muskrat Falls with and without the loan guarantee.
Only if such measures are taken to improve transparency will it be possible to have the constructive dialogue that is called for by Derrick Sturge.
Ron Penney is a former deputy minister of justice and former city manager, City of St. John’s. David Vardy is a former clerk of the Executive Council and a former chairman of the Public Utilities Board.