Government not talking to independent Muskrat Falls watchdog

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James McLeod
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Refuses to release report due to ‘commercially sensitive’ info

The provincial government isn’t talking to an independent agent who’s responsible for keeping an eye on the Muskrat Falls project during construction, according to an access-to-information request filed by The Telegram.

Muskrat Falls on the Churchill River in Labrador.

According to the Department of Natural Resources, it has had absolutely no correspondence with the independent engineer assigned to do oversight and monitoring of the Muskrat Falls project while construction is underway.

When The Telegram got the response to an access to information request Thursday, Natural Resources also told The Telegram it had not received any reports from the independent engineer.

But one day later, on Friday, Nalcor said it just received a copy of the report from the independent engineer — and forwarded it on to Natural Resources — but a spokesperson said Nalcor would not make it public, because it contains “commercially sensitive information.”

When the federal government agreed in principle to provide a loan guarantee for the Muskrat Falls project in the fall of 2012, it placed a raft of conditions on deal.

One of those terms was that an independent engineering firm had to be appointed to go over Nalcor’s numbers and do due diligence to satisfy Ottawa, as the guarantor, and the lenders who would be putting up the money.

Engineering firm MWH Canada was hired to do the job. In June of 2013 The Telegram reported that its independent review was underway.

It’s unclear exactly what MWH concluded about the project — no one from either the federal or provincial government was available to speak to The Telegram for this story.

Presumably the company gave Muskrat Falls a thumbs-up, because this fall Nalcor went to the financial markets and borrowed $5 billion based on the finalized federal loan guarantee.

With that first report done, MWH Canada is also responsible for ongoing oversight on behalf of the federal government and the lenders as the Muskrat Falls construction continues.

Early in February, The Telegram filed an access to information request for “any reports, documents or other communications sent to the Department of Natural Resources from the Muskrat Falls independent engineer.”

Last week, the department said it had no documents whatsoever that meet that description.

That might come as news to Premier Tom Marshall. Last spring, when he was Natural Resources Minister, he responded to a question from NDP Leader Lorraine Michael about the independent engineer in the House of Assembly, and seemed to believe that the government would be getting reports.

“The independent engineer will make sure on behalf of the people of the province and on behalf of the government of the province that this project proceeds in a robust, fair, economically feasible, and fiscally feasible manner,” Marshall said on March 21.

In response to a followup question, Marshall promised total transparency around the Muskrat Falls project.

“We have been completely open and transparent about this project,” he said. “We will continue to do so because it is right for the people of Newfoundland and Labrador. It creates the lowest rates for ratepayers. It creates thousands of jobs for Newfoundlanders and Labradorians, something the NDP clearly does not support.”

A spokeswoman for Nalcor, meanwhile, said that it had just received a copy of the independent engineer’s report on Friday — even though the report would have been completed months ago to satisfy the conditions of the federal loan guarantee.

“We just received the Government of Canada’s independent engineer report this afternoon,” Nalcor spokeswoman Karen O’Neill wrote Friday. “We have not yet reviewed this report; however, due to the commercially sensitive information contained in reports of this nature it is not normal practice for such reports to be released publicly.”

 

If the Department of Natural Resources isn’t talking to the independent engineer, it’s unclear who — if anybody — is doing independent oversight on the Muskrat Falls project during construction.

The Nova Scotia energy regulator — the Utilities and Review Board — deemed the independent engineer reports sufficiently important that Nova Scotia utility Emera is required to file all reports with the board.

One of its regulatory decisions specifically said, “independent engineering reports will be critical to keeping the Board informed.”

Natural Resources Minister Derrick Dalley was unavailable to do an interview, but a spokeswoman sent a statement on his behalf to The Telegram, saying the provincial government is keeping a close eye on the Muskrat Falls project and Nalcor.

The provincial government is the sole owner of Nalcor.

“As shareholder, the Provincial Government has close relationship with Nalcor and has processes in place to ensure the corporation remains accountable to the people of the province,” the statement from Dalley said. “At each phase of the Muskrat Falls Project, from sanction, to financing, construction and finally operation, the Provincial Government has had direct oversight of Nalcor.

“The Departments of Finance and Natural Resources work in close collaboration with Nalcor Energy and have regular meetings and exchanges of information; and cabinet is updated regularly by the CEO of Nalcor on its business operations.”

The statement from Dalley also said after Nalcor got a copy of the independent engineer’s report Friday afternoon, it was passed along to the provincial government — one day after The Telegram was told (Thursday) that the province did not have a copy of the report.

“Nalcor has advised that the Government of Canada’s independent engineer report was received late Friday afternoon. The Provincial Government will be reviewing that report, and any future reports, with Nalcor.”

 

 

 

Organizations: The Telegram, Department of Natural Resources, NDP Utilities and Review Board Nalcor Energy

Geographic location: Ottawa, Canada, Nova Scotia Newfoundland and Labrador

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Recent comments

  • Same Tourism ads, same hydro-crazy!
    February 25, 2014 - 02:51

    http://www.vice.com/en_ca/read/winnipeg-hydro-fresh-concerns

  • Jon Smith
    February 24, 2014 - 12:54

    Thank you FictionOrFact for your numbers. But the both Marshall and Dunderdale are on record as saying that the annual revenue from Muskrat for Government and Nalcor will a total/average of $450 M. (Dunderdale’s version was a few million in the early years escalating to $900 million in 2072. It calculates to about $ 25 Billion (some 55 years to pay off the asset (payoff date circa the year 2072-assumed to also include the facility operating cost which will not be peanuts). The oil costs at Holyrood have never been a prohibitive cost. To pay off Muskrat from saved oil makes as much sense as saying we are saving a billion dollars on the loan guarantee-why not say $ 2 billion. The supermarkets do that all the time (double the cost of a product and advertize for 50 % off).

    • Joe
      February 24, 2014 - 13:51

      And all from the ratepayer of Newfoundland and Labrador.

    • FictionOrFact
      February 24, 2014 - 15:39

      Jon, the direct fuel costs are only part of the story regarding the savings that will come from the Muskrat project. Regarding the numbers, once again, you are referencing revenues from Nalcor that will be available to government (to go towards whatever the Government of the day considers a priority - it's up to us to elect a government that will prioritize what the people want. Like it or lump it, this government was put in with a clear policy to develop Muskrat Falls - that's what we the electorate voted for and that is what the government has delivered). If you can, please point me to the source (article, news clipping, press release, PUB filing, etc?) that links the numbers you quote to what the ratepayer is expected to pay - and how that translates into "50% increse in rates" or the "highest rates in Canada" - I can't find any data to substantiate such a claim.

  • Linda
    February 24, 2014 - 12:37

    Question is, did we need the power in the first place, that the question. But I can tell you one thing, there to many cook's in this project. Its becoming a war of word's. Just like Newfoundlanders and Labradorians, to much talk. We the people should be calling for a stop on this project. started by cleaning the house, from Mr Martin down, open the book's . I get this bad feeling concerning project right from the beginning. Sad thing about its, people are going to see so much hard ship. because of a few.

    • Maurice E. Adams
      February 24, 2014 - 13:23

      NO.... We do not need the power. ....Even during this winter (Dec. 13/Jan. 14) our peak demand was more than 800 MW BELOW the island's maximum capacity and 300 MW BELOW the island NET capacity of 1,958MW (Nalcor just did not keep Holyrood and other turbines adequately maintained)..... Also, even with Muskrat, in the early years we are expected to use only about 20% of the so-called energy output of Muskrat Falls, rising to 40% by around or shortly before 2041. And the kicker is that 20% of Muskrat Falls is only about 25% of Holyrood's NET capacity and even if we used 40% of Muskrat, that would still be LESS THAN 2/3rds Holyrood's NET capacity (LESS THAN 1/2 its maximum)......... SO no matter which way you cut it ----- we DO NOT NEED THE POWER.----- To say nothing about the fact that is government spent 15% as much as the cost of Muskrat to install heat pumps in the island's residences, we could reduce electricity use by between 25-40% ---- Hence, a SUBSTANTIAL lowering, rather than raising our power rates (my power usage last year, mid- Jan to mid- Feb. was more than 38% more than over the same period this year --- after I installed a $4,600 heat pump in my 33 year old home) --- pay back -- 4 years.

  • Fred
    February 24, 2014 - 11:58

    That's a surprise!! This would be a great story for investigative reporting like W5 or the Fifth Estate. I can see the headlines now: Newfistan moves ahead with ill conceived Muskrat Falls project in Secrecy. Understandable why they (federal & provincial) governments are full steam ahead with the destruction of so much habitat and salmon rivers, how else could Newfistan supply power to its burgeoning population of 500, 000.

  • david
    February 24, 2014 - 11:00

    Banana Republics have brighter futures than Newfoundland....at least they have bananas.

  • Jon Smith
    February 24, 2014 - 10:43

    FictionOrFact, not sure what part I have incorrect. Premier Marshall is on record as saying that once Muskrat comes on stream, it will provide annual revenue of $450 million for the Government and Nalcor. The present revenue to government, nalcor and Newfoundland Power is about $900 million per year. The domestic rates we pay to cover the present $900 million are about 11 cents per kilowatt hour. The revenue required when Muskrat comes on is $900 million + $450 million = $1350 million per year. That would translate to domestic rates of 17.5 cents per kilowatt hour or about a 50 % spike on the rates. Is there a new math formula which would lead to a different answer?

    • FictionOrFact
      February 24, 2014 - 12:20

      Ratemaking is never as simple as one would think it is and I really don't know where you are getting your numbers. Here are some quick numbers from the annual reports: In 2012, Newfoundland Hydro collected $520 million from consumers (the largest being Newfoundland Power). Newfoundland Power collected $580 million from retepayers but paid $380 million to purchase power from Newfoundland Hydro. We can't double count the $380, so the total revenuse collected from end-use customers in the province was $140 million from industrial and rural customers (Hydro's customers net of Newfoundland Power) and $580 from NP's customers for a total revenue from all rate payers in NL of $720 million (not the $900 million that you refer to). When Muskrat comes online, there will be costs associated with the capital investments, and there will be savings associated with avoided fuel consumption ($182 million in 2012 alone) and avoided capital expenditures to upgrade and eventually replace Holyrood and to meet growing loads. As for the $450 million, I believe what you are referring to is the projected net income (profit) that is available as dividends from Nalcor to Government and that comes from Nalcor's consolidated earnings (Hydro, CF(L)Co, Muskrat Falls, Oil and Gas and Energy Marketing). You can't just blend net income and total revenue numbers to come up with a rate projection as you did in your note. The only comparator that is in the public domain that compares all the puts and takes is in the rate calculator on the Powerinour hands website. Hope this is helpful.

  • Maggy Carter
    February 24, 2014 - 09:39

    'The most studied project in the history of Canada' was the mantra of then premier Kathy Dunderdale and her many minions including government's pit bull terrier John Smith. A preposterous claim on its face of course, but particularly so given the results of the Manitoba Hydro International report which constituted the main external review of the project. External - but hardly independent and certainly not exhaustive. As underscored in its disclaimers, MHI did not start from scratch. It was predicated on the assumptions and data provided to it by NALCOR. Even then, MHI warned that any one of several different events could invalidate NALCOR's claim that Muskrat was the best option. If, for example, there are large cost overruns or if the price of oil declines, Muskrat could easily become the most expensive alternative. What MHI didn't do - simply because it wasn't asked to - was look at the future of Holyrood beyond the start-up of Muskrat. In order to make the case for Muskrat more attractive, NALCOR stated that Holyrood would be shut down. Not only will Holyrood not be shut down, inevitably ratepayers in this province will be hit still further with the billion dollar of replacing the existing generators. The Island only option will ultimately be shown to have been the cheapest option by far to bridge our power requirements to 2041. And then of course there's the issue of demand. We have all known for some time - even if Danny Williams doesn't accept the Conference Board's confirmation of it - is that our population is shrinking and that the domestic demand for electric power is declining with it. What we can't use - we can barely expect to give away. We have agreed to let Nova Scotia carry away as much of the power as they like for free provided only that they supply their own buckets. Anything Nova Scotia can't use or doesn't want we'll give to the well heeled, well connected mining companies in western Labrador. In their case, we'll even supply the buckets. In short, Muskrat is being built on a house of cards. The slightest wind from any direction is certain to bring it crashing down.

    • Brett
      February 24, 2014 - 11:19

      The population is shrinking but electricity demands are not shrinking. 100 years ago people had 100amp services. My current house has a 350amp service. A bit more than the 200 amp service in my old home. Which is now the standard. Heck - given all the people on electric heat instead of oil, you have to be using more electricity - and more so in the future. Heated floors? How are they done?

    • Blackstrap
      February 24, 2014 - 13:12

      Brett, did it ever occur to you that such luxuries as heated floors are unsustainable? Our excessive consumption levels and unrealistic consumer expectations will come crashing down when this era of cheap fossil fuel soon comes to a close... Forward thinking consumers are investing in energy efficiency and conservation, not perpetuating the extreme wastefulness of the past 50 years. When the true cost of Muskrat Falls is tallied, all but the richest among us will be cutting their expenses to the bone or moving away. One or the other...

  • Virginia Waters
    February 24, 2014 - 08:55

    The initial report by MWH Canada satisfied a condition precedent to the agreement between the province and the feds on the loan guarantee. With that guarantee formally concluded, it's anybody's guess what role the engineering firm plays from that point onward. It is not as though the feds can cancel the guarantee at any point. Theoretically I suppose they could exercise some obscure legal prerogative under the agreement to assume control of the project if it were going completely off the rails. From a practical point of view however, the continued involvement of MWH is only window dressing at this point - except that the window has been papered over to keep the prying eyes of the public out.

  • Jon Smith
    February 24, 2014 - 08:36

    • Quebec has the cheapest electricity in Canada and it is so because it increments its energy base with new energy projects by reasonable increments and for reasonable future time intervals (Romaine is about a 5 % or so increment to the system). Therefore the future outlook for electricity is for normal escalation in rates well into the future for Quebec. What Muskrat does is increases the capacity by about 50% in one giant leap and therefore heaps a 50% rate spike onto its customers which will then escalate at a similar rate to Quebec and other provinces (add $ 450 million annually on to the approx $ 900 million being paid to NL Hydro and Newfoundland Power now – equals 50%). The result is that we will pay the highest rates in Canada. Unfortunately, the premium cost of going around Quebec represents about 50 % of the power delivery cost ( that, by the way, is why there is no possibility to show that the present Muskrat plan could be the least cost alternative when compared to any other scenario (without spin and slight of hand). Note that Muskrat compares with Quebec’s Romaine at a unit energy cost of about 4 times higher. The bottom line is that we would have been better off waiting to go around Quebec, if we had to, with nearly-free energy from the Upper Churchill in 2041. Muskrat will accumulate a debt (lost opportunity that will rival the lost opportunity for the Upper Churchill 70 year contract life). The money could be better spent- So much for long term thinking.

    • FictionOrFact
      February 24, 2014 - 09:48

      I have to disagree Jon. Quebec is the cheapest because it recognized the advantages of hydroelectric generation years ago and developed absolutely massive projects that, at the time, were debated in the same manner that we are debating Muskrat Falls today. Also, Quebec's rates do not increase at a "normal" rate, in fact they hardly increase at all in comparison to thermal jurisdictions - Stable rates will also be our future once we get off thermal. Muskrat Falls adds a large block of hydro and removes a large block of thermal (Holyrood). Don't know where the 50% rate spike comes from? - nothing in the public domain would suggest anything close to that. Nor have I seen anything to suggest that NL will have the highest rates in Canada - these are baseless assertions that do not add to an informed debate. Waiting until 2041 is interesting, but that's another 25 years of thermal that we will have to pay for and have nothing to show for it - even if we only break even with Muskrat Falls (the actual data points to significant savings) at least we'll have something to show for it (a hydro plant that is essentially paid for - fully paid for in 30 years) rather than a big stack of bills showing what we paid to oil companies.

  • Flourlake
    February 24, 2014 - 06:56

    What are they hiding? Has the federal government been misled to get the loan guarantee? Open the books.

  • JM
    February 24, 2014 - 06:37

    People need to remember the only due diligence that was required for the Feds, the Province, or Nalcor was that they had a guaranteed source of revenue for the project. Bill 61 imposed this monopoly, and by doing so shackled 3 generation of Newfoundlanders to some of the most expensive power in North America. The Feds only needed that assurance. The FLG did not cost them real money. To the contrary they will receive revenue from the construction of the facilities, and the eventual sale of the power. The Feds did not need to do proper due diligence. The financial assessment done by NR Can as part of the CEAA hearings showed that. In the event that we the people of Newfoundland and Labrador can not pay for the power, then the Province of Newfoundland has provided an indemnity to the Feds in the event of failure. So we are paying for it, one way or the other. The Banks did not need to do due diligence, because the Feds provided a loan guarantee. The Province, as Nalcor’s biggest cheer leader, did not need to do their own careful assessment. They had Nalcor say the project was just “swell”. MHI confirmed it was the lowest cost option, but they were not allowed to look at the Maritime Link, or the power exports. People need to remember that every 800 million spent on Muskrat Falls, lines to Lab West, or lines to the Avalon will add about 10% to their light bill. 8 Billion in total CAPEX will roughly double their electricity bill. That seems to be where we are heading… Due diligence will come when people start paying.

    • Maurice E. Adams
      February 24, 2014 - 08:09

      I think it is fair to point out that MHI's comment about MF being least-cost was little more than a confirmation that Nalcor's math checked out. ..........MHI's assessment was limited to comparing two pre-selected Nalcor options and was largely restricted to a CPW and 50-year time frame that biased the result in favour of MF........ The least-cost comparison was and is little more than a sham ---PERIOD ---- and MHI went along with it.

  • John Smith
    February 24, 2014 - 06:31

    ...LOL the crack reporters at the Telegram keeping us all safe from the muskrat boogey man....what would they have to write about if not for this project? Give me a break....

    • Meow
      February 24, 2014 - 07:41

      The Muskrat Falls Boogey man? You are aware that a new thermal generating power plant is being built on the avalon peninsula to be ready by 2020 for the decommissioning of Holyrood, right? Muskrat Falls will provide significantly less power than what you think it will provide and will not be able to adequately service Newfoundland and Labrador. We could have just built the thermal plant (it will be using natural gas which is sooo cheap, and is the reason the states will not be buying electricity from us like the NL government assured us they would) and saved ourselves about 4.5 billion dollars. What's even better is we won't know who even owns the power generated from MF's. But I am sure you knew that. The courts will rule in August 2015 if Quebec Hydro owns the watershed management rights and if they do, we will have to buy the electricity MF generates from them. But hey, as long as you think Muskrat Falls is a good value for our money, continue with the jabs.

    • W Bagg
      February 24, 2014 - 08:09

      unfortunately, there is lots of material

    • joebennett
      February 24, 2014 - 08:10

      To John Smith : I guess this means you don't mind having your power double. You must be on the 8th. floor or have a gold-plated pension plan. I know sure as hell that I cannot afford it like the majority of us.