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Russell Wangersky: 22 words with a very big bite

The Muskrat Falls hydroelectric project site in Labrador.
The Muskrat Falls hydroelectric project site in Labrador.

The single dirtiest trick played on electrical customers in this province hasn’t hit home yet. But it will.

Russell Wangersky

And it’s not the increase in power rates to an anticipated 22 cents per kilowatt hour.

No, it’s the fact that the government that brought us Muskrat Falls in the first place always had a clear knowledge that there could be cost overruns and delays, and a similarly clear knowledge that ratepayers would have to be forced to pay all of them.

The story on cost overruns now is that they were always to be expected.

“That’s the very nature of megaprojects,” former premier Danny Williams said in a January speech to the St. John’s Board of Trade. “You can’t make excuses for overruns, but by the same token they’re a fact of life and they happen.” 

And to make sure that we would be paying, and to make sure that lenders would be comfortable lending money to build the project, a crucial tweak was made to the province’s energy rules.

It’s only a handful of words, tucked into the Energy Corporation Act, which created Nalcor: “17. (2) The corporation is not a utility as defined by the Public Utilities Act and that Act does not apply to the corporation.”

Why are those 22 words important?

Well, the Public Utilities Act requires that utilities and their projects are subject to a test that includes, “power being delivered to consumers in the province at the lowest possible cost consistent with reliable service.”

And Muskrat Falls is, on the face of it, clearly a public utility. The Public Utilities Act says a public utility is a company involved in, “the production, generation, storage, transmission, delivery, or providing of electric power or energy, water or heat either directly or indirectly to or for the public or a corporation for compensation.”

So why is it important to have legislation that says a chicken is not, in fact, a chicken?

Well, in Manitoba right now, there are similarly over-budget hydroelectric projects being built. And there, the Public Utilities Board is dealing with a rate increase application to cover Manitoba Hydro’s costs, and is taking the utility apart to see if the costs are justifiable.

In Manitoba, the PUB is hiring consultants and doing its own research to establish whether or not Manitoba Hydro’s power export sales forecasts are reasonable, whether its load forecasts are supported by facts, and whether changes in the electric industry as a whole are properly accounted for.

The PUB there is also looking at Manitoba Hydro’s over-budget and delayed Keeyask dam project, including getting independent research to “determine whether Manitoba Hydro followed best practices for its pre-construction design and engineering work including whether sufficient geotechnical analysis was undertaken.”

There’s work to “review and assess Manitoba Hydro’s cost estimating methodologies, identifying best practices and shortcomings. Explain why the cost estimating methodologies resulted in an overly optimistic cost estimate.”

The board wants independent experts to “review and assess Manitoba Hydro’s scheduling methodologies, identifying best practices and shortcomings. Review and assess Manitoba Hydro’s tendering and contracting methodologies, including choices of contract types, decisions to tender versus directly negotiate contracts, and identifying best practices and shortcomings.”

Still more review will be done to establish the potential impacts of power rate hikes on individual citizens of Manitoba, and on the Manitoba economy as a whole — and whether the technology the utility chose for dam and power line systems is economically defensible.

Consultants will look at the amount of demand that will flee from higher-priced electricity, and the impact of that on overall costs.

All of those are questions we’d love to have answered about Muskrat Falls, but our PUB can’t even legally ask them — because the provincial government of the day deemed Nalcor not to be a utility. At the end of the day, Manitoba’s PUB will decide whether Manitoba Hydro’s rate increases to fund its dam projects are justified and legitimate, and whether the public should pay for them.

Compare that to the fact that we had Newfoundland and Labrador Hydro, which is a public utility, sign an agreement that says we’ll pay the full costs of Muskrat Falls even if we use not one kilowatt hour of its power — a deal the utility signed with its “utility-not-a-utility” parent company. Arm’s length, it wasn’t.

In this province, there’s no requirement for Muskrat Falls answers, and even the former head of the Public Utilities Board wasn’t even comfortable talking about the project until he had left the job.

So, were we well served by the government of the day, or were we sold a bill of goods?

It’s water over the dam. The money’s gone anyway. The best thing we can do is to learn from the mistake, allow for independent oversight and not step in a pile of crap like this again.

 

Russell Wangersky’s column appears in 35 SaltWire newspapers and websites in Atlantic Canada. He can be reached at rwanger@thetelegram.com — Twitter: @wangersky.

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