Two steps the government must take on Muskrat Falls

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I refer to the column by Russell Wangersky in the Feb. 8 Telegram concerning Muskrat Falls and the recent Standard & Poors review of the province’s credit rating.

In the very pertinent section of the S&P review cited by Wangersky, S&P says that the province has an “incentive” to provide an “extraordinary” level of financial support to Muskrat because of Muskrat’s “high profile and economic importance” and because Newfoundland and Labrador Hydro provides “essential services” — presumably referring to NL Hydro’s existing on-island electrical generation and transmission system.

However, phrases like “high profile and economic importance” are mere political arm-waving and have no place in a dollars and cents analysis of the Muskrat fiasco.

Additionally, the billions being sought by Nalcor for Muskrat do not relate to any “essential” service — rather they are for an unwise and suboptimal choice to meet rather small incremental increases in electrical demand — indeed, for the most expensive and most insecure of options.

So S&P provides poor reasons for finding a way of straightening out a Muskrat-induced mess without touching Muskrat. In other words, by cutting the level of current provincial expenditures that are mostly used to provide what many would ironically consider  “essential services.”

Now, at the very least, such a drastic choice should not be contemplated by the new Liberal administration without taking two steps.

First, and immediately, conduct and make public a full analysis of the costs of shutting down the Muskrat Falls project conducted by a group of specialized workout lawyers and financial and hydro engineering experts independent of Nalcor.

A Muskrat shutdown at this stage would not pose issues unknown to the private sector (led by qualified and experienced teams) which currently face such issues on energy megaprojects all over the world totalling hundreds of billions of dollars — sunk costs do not enter into it.

And these teams are working on the basis that hoping for a rebound in oil prices to the $135-per-barrel level used to justify Muskrat is illusionary and not a proper basis for analysis in this new age of shale-induced $30 to $50 oil.

Second, if the North Spur collapses in a quick clay landslide, it would  cause, as James L. Gordon (one of Canada’s leading hydro experts) has forcefully put it, the Lower Churchill River to shift its course to the north of Spirit Mountain, leaving any Muskrat generation assets  “high and dry” and unable to produce electricity.

The firm of EY is doing a review of Muskrat “project risks” but apparently has been instructed to ignore the North Spur issue — the biggest project risk.

Maybe that is just as well. As for the North Spur, it is best to use the hydro industry standard procedure of appointing a “hydro review board”  (as advocated by James Gordon) comprised of three hydro/geotechnical experts to tackle what is an exceptionally complex quick clay technical issue — an analysis of which could well constitute an unsolvable “red light” for the project.

Sound technical and complex?  Sound like a bold bit of decision-making ?

Well, given the stakes, the two steps advocated above seem the least we can justly expect from the new Liberal government.

Cabot Martin

St. John’s

Organizations: Newfoundland and Labrador Hydro

Geographic location: Muskrat, Canada, Lower Churchill River Spirit Mountain

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Recent comments

  • WInston Adams
    February 16, 2016 - 09:30

    John Smith, it`s been a while since you popped up on Muskrat Falls. I agree, that considerable costs would be incurred to shut down the project, but that does not mean we should throw good money after bad. For me, I am now into year 5 without failure of my minisplit heat pump on my cottage: the heating component for the worst winter month is 50 dollars in energy used, and 258 dollars for heating for a full year. Not bad, hey! That is for 1000 sq. ft. and the temperature not below 73F. Since engaging you on this subject a year or more ago, I recently learned that by 2011 Nova Scotia was installing 20,000 of these per year. You said this technology would never catch on here, that people were more or less too backward, or the systems were unreliable, or other excuses. My system is now paid for in saving, and I am doing my bit to reduce grid system peak demand. Meanwhile did you know that Nfld Power are predicting a much reduced demand for power going forward, as compared to what was used to promote Muskrat Falls. And I read elsewhere that export sales are expected to be 80 million per year, not 400-500 million you say, and interest costs 320 million per year, so likely a long term losing situation. Can we get carbon credits big enough to save us on Muskrat! Almost wish you are right and the naysayers wrong..... in fact, hope you are right, but your bullshit seems rather irrational....but who knows for sure. I am pretty sure, if this was a private project it would be put on hold. Perhaps we need Donald Trump to arrange a shut down deal, I mean can Ed Martin save any of the 6 or 7 billion not yet spent!

  • OTP
    February 15, 2016 - 14:12

    The song of John Smith and the arrogant PC's who could fore.- saw.significant revenues flowingto the government coffers from this mad project was "Muskrat Love".. The real song emerging to the tune by Tennesee Ernie Ford is " we gambled on the oil.and what did we get, another day older and deeper in debt. Saint Peter don't you call me cause I can't go....... cause I owe my soul to the MUSKRAT FALLS FLOW"

  • roy206
    February 14, 2016 - 07:57

    Just this week Hydro are relocating lines between Sally's cove and Rocky Harbor due to soil conditions and plastic flow in the area...The soil is similar to Goose Bay area. There was a slide as well in Daniel's Harbor a couple of years back, and another further south. The soil is very fine sand with a head of water behind it....Conditions that will exist at Muskrat...and FYI.. Quebec Hydro power cost is 0.2 cents/kwh and our cost is 22 cents and rising...Selling power from Muskrat to the USA in competition with Quebec....what foolishness...although it seems like an ideal ACOA grant.

  • OTP
    February 13, 2016 - 12:13

    Well said and timely in view of the recent slide due to marine clays on the northern peninsula. The people should expect no less than the goverment facing this major project's problems headon. Its cost will have a significant inpact on the future and wellbeing of the people of the province.

  • OTP
    February 13, 2016 - 12:12

    Well said and timely in view of the recent slide due to marine clays on the northern peninsula. The people should expect no less than the goverment facing this major project's problems headon. Its cost will have a significant inpact on the future and wellbeing of the people of the province.

  • yt
    February 13, 2016 - 11:21

    Smart, educated, experienced, learned, savvy individuals have already condemned MF in Letters to the Editor, and in other media sources, since the days of Williams and Dunderdale , all falling on deaf ears and blind eyes. When the time comes when we are financially cleaned out, poor credit rating, nowhere to go for money for MF, basically bankrupt, they might take a look at spending the last penny we have on MF. That's how stupid it all has become.

  • Anthony Rockel
    February 13, 2016 - 11:15

    Cabot Martin is one of the few voices of sanity in this whole disastrous affair. Captain Dwight Ball, however, has apparently tied himself to the wheel and is prepared to go down with the ship. That would be fine with most of us if he weren't taking us all down with him.

  • Errol
    February 13, 2016 - 11:09

    Exactly...well said. For those of us who have seen through this terrible political imperative since day one...the most logical thing for a newly elected Government to do is to conduct a complete review, including the merits of mothballing the project until markets and prices make sense. The EY report, expected soon, does not have that mandate. If anyone has taken the time to read the minutes of the 'oversight committee'...interestingly, only 4 months behind, they would find a morass of bureaucratic mumbo jumbo, mostly concerned with scheduling more meetings about meetings. The Chair of this Committee is the current Clerk of the Executive Council, our chief civil servant. It is a useless effort, and should be disbanded. Interestingly, the reports for this Committee are produced by EY, and are concerned with technical construction detail, instead of Project Management. It is amazing that project management is not the top Priority of Nalcor's Board of Directors. That is normally the body representing the owners, that would hold management to account for this completely ill timed disaster. Perhaps it is because there are only three members of the Board, one being the CEO of Nalcor and executive manager of the Project, Ed Martin...the one man show who has been President and CEO of everything. Schedule slippage and cost issues aside...who, exactly is measuring his performance? Certainly not the 'oversight committee', or the Board of Directors, which with a total of only three members, according to their website, does not have the weight to properly manage anything.

  • james
    February 13, 2016 - 10:21

    Well little man what have you done

  • John Smith
    February 13, 2016 - 09:44

    Great to see the lunatic fringe are still alive and well...where would we be without the tin foil hat set? The Liberals are already wasting over a million dollars on yet another review of the project, and Cabot thinks we should waste a few more finding out how much it would cost to shut it down? Well, if there is one thing Ball and the Liberals are good for is requesting studies and reviews, and spending money we don't have.Cabot and his compatriots have been against the project since day one, Cabot invested heavily in the gas play on the west coast, and so when we went hydro he was left high and dry...and not too happy.They have been fairly silent as of late, but now they see a new way to creep into the public consciousness....we have no stop MF? Who cares about the 3 billion in cash already spent, the plant in Holyrood about to fall down, the penalties and lawsuits, the contractual obligations....nope none of that matters....just Cabot's ego...that's all that matters. Just imagine if we did shut down the project, throw 3,000 people out of work, leave much of what is built to be overgrown, and left to decay? Right now we are depending upon Holyrood more and more due to low water levels on the island....what happens if we loose the plant altogether? Does Cabot have a plan for that?No, I didn't think the fringe roll out the old North Spur bogey man, and suggest all kinds of unsubstantiated calamity, rivers changing course etc...LOL....Meanwhile Hydro are hard at work, building a magnificent, state of the art, non- polluting(yes, it is non-polluting) hydro facility that will provide us, not only with all the reliable power we will need forever, but connectivity to the national grid, and sales of 400-500 million a year to offset our power bills....We should all be very proud of this intelligent, well thought out answer to our coming energy needs, and stand behind it with everything we have...

    • Anthony Rockel
      February 15, 2016 - 23:28

      "intelligent", "well thought out"? Ha ha ha! Hilarious! John Smith doesn't need a tinfoil hat: there's nothing inside his skull worth protecting.

  • Winston Adams
    February 13, 2016 - 08:53

    These steps to assess the logic of shutting down Muskrat Falls is the correct approach. Cabot Martin says that what was needed was not the huge MF scheme, but provision for small increments in our energy demand here. Indeed, even Manitoba International Consultants stated that modest incremental new generation would normally be the preferred choice and less risky that such a large single expensive project. A review of the costs of shutting down MF must also include a reassessment of the Isolated Island Option. The MF option originally had an economic analysis that was stacked to give the appearance of the `least cost` way forward. Nalcor and Nfld Hydro did not assess the economics of all the alternatives, but just two alternatives. We now see the folly of this approach. But to consider shutting down MF, the full range of alternatives must be assessed, to allow for our real needs: MODEST increases in new generation to meet power demand on the island. What was previously IGNORED was the ability of efficient electric systems ( heat and hot water) with heatpumps to REDUCE power demand. Nalcor said they `looked` at this but did not really assess it. It`s past due that a proper assessment was done, given that the Efficiency approach is a first (and least cost) choice in other jurisdictions, and our climate has more advantages than other areas. For the smaller,incremental new generation needed, the Efficiency option further REDUCES these incremental new generation sources, allowing customers to use less energy and considerably less impact on energy cost going forward.