16 April 2014

How not to bolster public confidence: the umpteenth Nalcor edition #nlpoli

The folks at Nalcor held a media briefing at 11:00 AM on Tuesday.  it was supposed to be about the release of the independent engineer’s review of Muskrat Falls done as part of the federal loan guarantee.

You may recall this was part of some great confusion a few months ago when the provincial energy department answered an access to information request by saying they didn’t have a copy of the report only to have it emerge that Nalcor had had the report since the previous November and briefed at least a couple of cabinet ministers on it in the meantime.

That led to a bizarro series of telephone conversations between energy minister Derek Dalley and the Telegram’s James McLeod that just added to the sense that Dalley  - among others – had no idea what was going on in the world. Later on the provincial government announced they were creating yet another form of Nalcor oversight regime all built around informing the public. That turned out to be a whole lot of nothing at all and, to cap it off, Nalcor missed its commitment to issue a financial update at the end of the last fiscal year. (March 31)

Not a very good way to bolster public confidence in a company after the Nalcor-induced blackouts in January.

Somewhere in the confusion about whether or not the provincial government knew if the independent engineer’s report was fit to eat,  someone at Nalcor or the provincial government promised to try and make the report public.

Tuesday was the day.

So the reporters showed up.

They got a news release that had a link at the bottom so people could get the report.

Problem:  the report wasn’t there.  In fact, it didn’t turn up on the Muskrat falls project website for about two and a half hours after it was supposed to be released.

The reporters who showed up for the media briefing with Nalcor boss Ed Martin and megaproject cost over-run boss Gil Bennett didn’t get copies of the report either.  Well, not until the whole briefing and question time were over.

That’s when the gang at Nalcor handed out the copies of the report everyone came there to read.

That sort of deliberately-orchestrated farce doesn’t do anything to inspire confidence in Nalcor’s supposed commitment to openness about the project taxpayers are going to take a financial bath for.

No sir.

Old News Confirmed

In the jigs and reels of the latest Nalcor farce,   Martin did admit what everyone already knows.  First,  the project is running even more over budget than announced before.  SRBP pegged it at $7.2 billion last December:  that works out to an extra billion.

We should likely expect it to be closer to $7.5 or $7.7 billion for the dam and line to the island at the rate Nalcor is going.  A year-long delay in first power could at about $300 million to the cost, according to one estimate.  What this project costs off $8.0  won;t be much at this point and we should brace ourselves for a project that hits $10 billion before it is done.

The latest problem in trying to figure out the costs, according to Ed Martin,  is that they are trying to find out who can head out in the wilds of Labrador and pour a cubic metre of concrete for the dam at the cheapest rate. This idea of haggling to get the cheapest concrete is not really something that inspires confidence either:  it’s a bit like going into a chemical weapons attack wearing a survival suit made by the lowest bidder.

Boss Martin kept talking about how Nalcor was aggressively doing this or that about costs.  The independent engineer implied they were aggressive too:  aggressively underestimating the likely cost over-run on a big project in the middle of the northern woods.  Others would assume a 10% margin.  Nalcor was working on six percent.  Aggressive in that case seemed like a polite independent engineer way of saying “let me know how that works out for you, schmuck.”

In any event, you could easily see Boss Martin and his aggressive team aggressively watching costs on cement so closely that they’d wind up signing a deal with someone who promised the moon but would cut corners or – even worse – deliberately low-ball to get the contract and then would stick taxpayers for all sorts of unexpected extra costs. Nalcor has made so many strategic mistakes on this project that buying concrete that fell off the back of a truck wouldn’t be so much of a stretch.

The second admission is one that’s been around for some time as well.  Nalcor won’t be able to meet the target date of first power by 2017. 

So there you have it:  the project is going over-budget and behind schedule. Not a shocker but still depressing.

But wait.

There’s more.

Nalcor’s Secrecy Obsession

Nalcor censored the engineer’s report to remove information that they considered commercially sensitive.

The secret information included any references to specific costs, cost-estimates,  and the like.  The people in the industry and the ones bidding the contracts know how much money is involved.  The people footing the bill can’t know how much they will be paying because – according to the folks at Nalcor – that’s not in the public interest.

Nalcor also censored a table in the report that showed Nalcor’s  forecast in 2012/2013 of how much electricity the plant will generate.  This is basic information. It’s also been the subject of huge controversy that included Ed Martin making more than a few misleading claims only to admit, in a round-about way, that the critics had the water management issue right all along.

Asked about the power estimates in the House of Assembly, energy minister Derek Dalley claimed the secrecy had something to do with supply and demand.

The issue around the power, Mr. Speaker, quite frankly is around supply and demand and specific numbers. There is a concern as we go forward that will have a negative impact on contracts, awarding of contracts, and value of contracts if it is made public. We do commit, when we are in a better position to do so, we will make it public.

Again, this does not sound good.  Dalley is more vague than even he is known to be but we can read a fair bit into this based on his rather clumsy evasion.

We know that the power output of the plant doesn’t affect the cost per cubic metre of concrete for example. It doesn’t affect the cost of transmission lines, or anything else related to the construction.

Having lots of power wouldn’t be a problem for anyone.

Power output doesn’t mean much to the markets that Dalley mentioned in his second reply to Dwight Ball’s question about power outputs:  “we are going to sell that power through Emera, to the link and get it out into the North American markets.” 

Power output doesn’t mean much to those markets because they are already awash in electricity that costs one tenth of what Martin and Bennett are sticking to the taxpayers of this province. The North American markets are so full of power that even Hydro-Quebec is having a hard time making money at it any more.

If Nalcor had markets for the Lower Churchill power, they wouldn’t be forcing local taxpayers to foot the whole bill plus profits for companies like Emera and anyone else who has money in the project.  So the actual power output from Muskrat Falls doesn’t matter to markets that don’t exist.

The only way that the power output numbers could be bad is if there is far less of it than the government previously told everyone. 

That would bother the people who gave Nalcor money to build the dam and line.  Less power means they might have a harder time getting paid.  This project is built entirely on the very small market inside Newfoundland and Labrador.  Less power might well mean Nalcor will have to force taxpayers to cough up even more money than they will already to pay off the loans plus profit. If the provincial economy hit a big snag,  things could get ugly quickly, what with that massive $8.0 billion debt borne solely by the half million taxpayers in the province.

So yeah,  less power from Muskrat Falls would be a problem. 

If Muskrat Falls can’t make enough electricity,  Nalcor would be forced to import more electricity to meet domestic demand.  That would leave Nalcor – and therefore local taxpayers – vulnerable to the folks who have power to sell. 

That would be a big problem.

You can see why Nalcor would want to keep that information secret, just like they want to keep the ever-escalating costs secret from the people who are paying for this whole thing.

All this really doesn’t inspire confidence in Nalcor.

But if you think this is bad, just wait until the public utilities board hearings into the January blackouts get going.