In announcing
an inquiry into some aspects of Muskrat Falls on Monday, the Premier
muddled up some numbers that suggest the confusion at the heart of Monday’s big
news. He said that the inquiry will explain how a project that was
originally supposed to cost $5.0 billion at the wound up costing $13 billion or
more.
Then he announced the terms of
reference for an inquiry that focused on the pro forma exercise
called “sanction” that happened when the project was supposed to cost $6.2
billion. The $5.0 billion figure is from November 2010. That’s when
many of the crucial decisions took place but, as far as the terms of reference
go, its outside the bounds of the inquiry.
Justice Richard LeBlanc also won’t look at the political
decisions behind the project, the relationship between Nalcor and the Premier’s
Office, the governance of the corporation, or any of the other major elements
of what became Muskrat Falls. All of those aspects would explain the political
foundation of the project the Premier mentioned in his news conference but none
of them are covered by the inquiry terms. Instead, the inquiry will focus
on the internal management decisions at Nalcor after 2012.
The specific subjects of the inquiry are listed in Section
4, which contains four sub-sections labeled a through d. Let’s run through each
of them.
Energy Demand and Sanction
Section 4 (a) directs the commissioner to inquire into “the
consideration by Nalcor of options to address the electricity needs of
Newfoundland and Labrador’s Island interconnected system customers that
informed Nalcor’s decision to recommend that the government sanction the
Muskrat Falls Project.
One supporter of the project famously said there were
“multiple, interlocking business cases” for it. What Nalcor, the
government and its supporters actually offered multiple, interchangeable
rationalizations.
In November
2010, the key argument for the project was breaking the stranglehold
Quebec supposedly held on electricity development in Labrador. The
project would ship power to markets through Nova Scotia. The mention of
Muskrat as the least-cost source of electricity for the island is found in
paragraph nine of what is essentially a 10-paragraph news release plus a list
of highlights.
Right off the bat, Nalcor didn’t present the alternatives at
the time of project sanction, which is the starting point for the
inquiry. That happened in 2010, although it didn’t really because there
is no evidence Nalcor ever examined alternatives to Muskrat Falls. The only
mention of alternatives has been to the isolated island scenario, which means
Nalcor never evaluated all options anyway.
In 2006 Nalcor did evaluate alternatives to the whole Lower
Churchill project but that was for a different concept: the LCP was
supposed to be about power for export only, with local needs as a secondary
consideration. That’s an important detail because another key aspect of
the 2010 announcement was that this was the original LCP, but with the tiny dam
built first.
There’s also no order in council in which the provincial
government approved a proposal from Nalcor. There’s only OC2012-130 that
lets Nalcor use Crown land:
Under the authority of section 7(2)(a) of the Lands
Act, the Lieutenant Governor in Council is pleased to authorize the Minister of
Environment and Conservation to issue a licence to occupy Crown land to Nalcor
Energy for an area not to exceed 4.3 hectares within the fifteen metre
shoreline reservation at Muskrat Falls, Newfoundland and Labrador, for the
purpose of hydroelectric generation, subject to the terms and conditions
normally applicable to the issuance of such licences.
It’s dated December 4, 2012, well before the infamous
filibuster and the actual formal ceremony announcing “sanction.”
This section will also not touch on the decision to double
electricity rates and the rationale for paying for the project, all of which
was political and all of which was decided in 2010.
Key Points to Retain:
- Without an amendment, the inquiry can’t look at decisions taken prior to December 2012 since the terms specifically identify Nalcor’s proposal for sanction as the focus. That happened in December 2012.
- here’s no indication Nalcor presented any project justifications in 2012.
- There’s also no order-in-council in which cabinet “sanctioned” Muskrat Falls. It isn’t clear, therefore, what the commissioner will be doing to meet the first term of the inquiry.
- The inquiry won’t look at the political decision to force domestic users to pay 100% of the cost plus profit (doubling rates), which was taken in 2010, not 2012.
Section 4 (b) is about “why there are significant
differences between the estimated costs of the Muskrat Falls Project at the
time of sanction and the costs by Nalcor during project execution, to the time
of the inquiry.”
Key Points to Retain
- This will be the guts of the inquiry.
- It will be technical.
- None of it is political.
Hello, 1998
Section 4 (c) is about “whether the determination that
the Muskrat Falls Project should be exempt from oversight by the Board of
Commissioners of Public Utilities was justified and reasonable and what was the
effect of this exemption, if any, on the development, costs and operation of
the Muskrat Falls Project.”
This one is weird, as if the person who wrote the term had
no idea what end was up. The decision to exempt the LCP from the public
utilities board was taken in 1998 because the project was entirely for
export. The PUB was entirely about domestic rates. In the original
scheme there’d have been almost no cost to pass on to consumers.
In 2010, cabinet did not have to decide anything about
exemption since it was done long before it took office.
So given the amount of time the Premier spent blaming the
former Conservative government for the mess he and his colleagues have cleaned
up (not really – ed.), giving the inquiry the power to call Brian Tobin
to the stand is just nutty.
Key Point to Recall
- The exemption order predates the Conservatives return to power in 2003.
Oversight Committee Mania
Section 4 (d) is about “whether the government was fully
informed and was made aware of any risks or problems anticipated with the
Muskrat Falls Project, so that the government had sufficient and accurate
information upon which to appropriately decide to sanction the project and
whether the government employed appropriate measures to oversee the project
particularly as it relates to the matters set out in paragraphs (a) to (c),
focusing on governance arrangements and decision-making processes associated with
the project.”
The adequacy of governance structures is a political
question - or one about internal government operations - but this term is
written to focus on what Nalcor told people in government at the time of
sanction in 2012. In effect the wording precludes any discussion of the
long-standing relationships involved in decision-making by and about Nalcor and
focuses on whether or not Nalcor told government enough.
Since it doesn’t look like the key decision for government
was in 2012, this one might wind up being a lot more fun than
informative. A clever lawyer – like Jerome! - should have a field
day with this bit. As well, since the term is written to focus on what Nalcor
did, the fact the government made a certain decision gives the politicians
an automatic excuse, if they want to take it.
That’s really part of the problem with the whole inquiry
terms of reference. It is structured on the assumption Nalcor brought
this forward in the same way it pursued Cat Arm or one of the other projects.
Nothing could be further from the truth. This one has been primarily
about politics since 2003 and arguably as far back as 1998.
With a faulty
set of assumptions underpinning it, this circumscribed inquiry can’t possibly find any
meaningful answers to how we got into this mess in the first place.
That last sentence is the big take-away.
-srbp-
SRBP has followed the Lower Churchill project more closely
than anyone outside government. There are both short posts and detailed
ones covering the entire thing since 2003 up to 2017. There’s a tab at
the top linking to some of the posts and others are easily accessible by using
the search function.
