September Recap: What We Heard from the Muskrat Falls Inquiry

Forecasts predicted that demand for electricity on the island of Newfoundland will soon  exceed our province’s ability to meet that demand. This makes sense in the context of #DarkNL, and news stories that we can expect blackouts this coming winter.

A simple, quick, but questionable way to increase our ability to meet growing demand for electricity would’ve been to refurbish the dirty old Holyrood Power Station. It currently provides 15-30% of the Island’s electricity (depending on demand that month), but burns up to 18,000 barrels of oil per day during the winter to do so. It’s outmoded (especially with carbon tax coming down the line), increasingly costly, and environmentally unjustifiable to pour money into it as a band-aid solution, if we’re eventually just going to replace it? The hunt began for a new source of electricity for Newfoundland. Muskrat Falls was deemed by Nalcor to be the best choice. The question is: were they right?

Over the course of more than 100 days of hearings, the inquiry is aiming to collect and share the full, 2-sided story of the project’s origin and development to date, to determine if Muskrat Falls was indeed the best option for powering the province. The inquiry will also delve into other questions, like what’s gone right and wrong and why. The inquiry will be broken into 3 phases. The first phase is underway, and is focusing on the events leading up to the sanctioning of the project. Phase 2 will begin in 2019, and will focus on the construction of the project.

First to speak was Oxford University’s Bent Flyvbjerg, whom Oxford dubs “the most cited scholar in the world on megaproject management.” He and Alexander Budzier were asked to co-author a report that examined 274 hydro dam projects worldwide, to put the Muskrat Falls project in perspective. Flyvbjerg’s conclusion was that it is common for hydro projects such as Muskrat Falls to be over the early estimated cost of the project. Well over. The report found that the average cost overrun for mega hydro projects is 96% (median 32%), and called them second only to nuclear projects for risk. He did not comment on the degree of over-runs at Muskrat Falls specifically, but said optimism and political bias were the main culprits in the project’s cost over-runs.

Day 2 was about the project’s impact on the people of Labrador. The Innu and Inuit communities, among others, similarly jointly expressed concerns about the project’s effects on traditional country food in the area, especially in Lake Melville. Speakers spoke of the history of travel, hunting, and trapping along the river. The Innu community in particular spoke about the Churchill River as an important means of transportation and portage site. It was said that the handling of project ignored the connection of the people of Labrador to this area, which it clearly did. There was a reiteration of concerns about methylmercury harming fish, birds, seal, and other wild game people rely on for sustenance. And it was noted the Nunatsiavut government has a settled land claim and the Labrador-Inuit Settlement Area reaches into the eastern side of Lake Melville.

Historian Jason Churchill is a specialist in our province’s long history of hydro projects in Labrador. He is well versed in the troubled waters of projects along the Churchill River, dating back to Smallwood’s days. Basically, being trapped between Quebec and an ocean, Labrador is rich in hydro-electric potential but is geographically isolated from energy markets it could sell all that power to. All attempts to get energy out of Labrador and into Eastern Canadian or American markets have been quashed, because Quebec would never allow a transmission line through its territory, without claiming that electricity as their own property. This stance dates back to the hotly contested Upper Churchill deal of the last century, where the bulk of the 5,400 megawatts generated in Upper Churchill is sold to Hydro-Quebec at marginal rates … and they re-sell it at a huge profit. That contract won’t expire until 2041. It’s Quebec’s to enjoy until then.

Days 4 through 6 introduced two forensic audit specialists from Grant Thorton, David Malamed & Scott Shaffer, to present their report.  They asserted that Nalcor failed to talk with Hydro Quebec about the option of importing power into NL from Quebec. Or more technically, that considering the option “did not proceed beyond Phase One screening.” The audit also critiqued Nalcor for prematurely excluding the option of just doing what we were doing for power until the Upper Churchill contract with Hydro Quebec expires in 2041, at which time we could — I guess — use it as our source of power.

Both observations were subsequently shown to be misleading in implying Nalcor had done anything wrong. The auditors themselves didn’t imply those formal talks with Quebec should have happened. And in cross-examination, it was made clear the option of continuing to use the Holyrood station until 2041 would have been environmentally wrong, and rather costly. Especially with Carbon Pricing coming down the pipes.

Where the auditors presented better fodder was in their observation that Nalcor failed to consider any potential decrease in demand from industrial customers, and relied on economic forecasts from the province’s Department of Finance. One direct quote was “operating and maintenance costs were forecast to be $34 million annually … these costs are now forecast by Nalcor to be $109 million annually.” This ties in to a critique of the use of a “P50 probability factor” in cost estimations. Just like it sounds, a P50 assumes a 50% chance of cost overruns, whereas a P80 would assume a 20% chance of over-runs. A questioning period revealed that similar projects, like one of Manitoba Hydro’s, used a P50, so, Nalcor did too. Some say “fair enough,” some say P50 estimates should only be used by companies with far more mega energy project experience under their belts than Nalcor had.

Next up, a handful of employees from Nalcor & NL Hydro were questioned on the forecasts and assumptions used in declaring Muskrat Falls was the best idea. Paul Stratton was one of them. He is the senior market analyst who developed the load forecasts, from 2017-2067, that ultimately suggested we needed a new source of electricity. He explained how he came up with the forecast figures, and he explained why he still stands by them. Transcripts and documents from this session are not yet uploaded, so, not much more to say here.