Former president and CEO of Nalcor Energy Ed Martin says he fully informed the Crown corporation’s board of directors and the Government of Newfoundland and Labrador about the cost of the Muskrat Falls hydroelectric project, including the risk of overruns.
Martin says he didn’t talk in terms of the specifics from risk reports, the “P factor” used in cost estimates and schedule setting, or differentiate risk with terms like “tactical risk” and “strategic risk.” But the key information was clearly conveyed, he testified Tuesday.
It was his second day on the stand at the Muskrat Falls Inquiry, and in one of many tense exchanges with inquiry co-counsel Kate O’Brien — where more than once Martin wondered aloud about the questioning — Commissioner Richard LeBlanc stepped in.
He said there were people beyond the CEO’s position, including the Nalcor board of directors and the government — whom he collectively referred to as the “true decision-makers” on whether or not the project would be built — who were expected to consider Martin’s thinking and decisions.
“I think there’s a distinction to be made here with regard to who was ultimately making the decisions and what right they had to full information. So I think that’s the rationale behind these questions,” Le Blanc said.
“And I appreciate that and I guess that’s where I get a bit confused,” Martin replied. “Because I keep repeating the information that was provided, and in the context of how it was provided, and the fact I summarized that information and made sure they understood the risks inherent in the project, both from the tactical and strategic (risk) perspective.”
He said strategic risk couldn’t be fully quantified, so he told the provincial government generally there could be issues arising that drive the project over budget — the budget was not a certainty. And the province agreed to fund any overruns.
Martin said he felt he was answering essentially the same question over and over.
“Because a lot of what we’re coming at here is the fact that I believe that I did share the information with the board and the shareholder (the province) and I considered my job to put that information in a manner that enabled those people to focus like a rifle shot on the key issues,” he said, referring to various actions taken to try to keep costs in line, including an early start on construction to reduce risk to the schedule.
O’Brien asked about a consultant report not passed up the chain, asking if it was a case where details should have gone to the rest of the board of directors, but didn’t.
“It’s a difference of opinion, it appears, on how that information would be brought forward,” he said. “As I stated, I ensured that when I went to the board or the government I explained these concepts and the key element of what had to be achieved.”
Martin was asked about documentation that might support the idea the Nalcor board and provincial government were fully informed.
As The Telegram has reported, witnesses at the inquiry — including former board members and former government ministers — have demonstrated varied understandings of the breakdown in the cost estimate and risk involved.
The former Nalcor CEO did not have notes to offer, as did former minister of natural resources Jerome Kennedy or Nalcor Energy’s chief financial officer Derrick Sturge. O’Brien highlighted documents, including slides from presentations made to the government, that she said specifically did not offer clarity.
She showed Martin a page of bullet points covering what was included in the project’s cost estimate. She pointed out it did not explicitly note “strategic risk” was not covered in the estimate. She argued it wasn’t clear that “strategic risk” was on the radar.
“Don’t agree. I was clear,” Martin said, in an abrupt response closing a back and forth.
O’Brien raised the $500-million ($497-million) estimate provided by Westney Consulting for strategic risk. She asked why it wasn’t reported to the government.
Martin said the exact number was not relevant, that efforts — with approval — were taken to address the issues behind the dollar figure, and he considered the real risk for what was identified to be $0. However, he agreed strategic risk remained.
He testified he considered overruns, but never expected them to run into the billions.
In terms of confidence in the estimates and accounted contingency, Martin said he personally made the decision to use a “P50” — a P factor, or probability factor, meaning there was a 50 per cent chance costs would come in at or below $6.2-billion.
The inquiry has heard evidence the estimate should have been developed on a P75 or even higher, given it was a utility project under a Crown corporation with the province as the financial backstop.
Martin said he was aware of cases where a P50 was used — for example, by Manitoba Hydro — and he also based his decision on the approach to cost estimates in some other megaprojects in other sectors, particularly oil and gas. He said part of his thinking involved the ability to apply revenues from outside electricity sales and other offsets to overruns if needed.
“It was out there, what the elements were,” he said.