Inquiry commissioner says Muskrat risk appetite 'not the best approach'

In his first real public criticism of the Muskrat Falls project, commissioner Richard Leblanc said Thursday that Nalcor'srisky approach to setting cost estimates "may not be the best choice" for a multibillion-dollar projectbeing paid for by electricity ratepayers and the government of Newfoundland and Labrador.

And he did it with the premier who sanctioned the controversial hydro project, Kathy Dunderdale, sitting just feet away from him in the witness chair.

"Recognizing we have a small population, recognizing the financial position of the province, even back in 2010 or 2012, I'm going to suggest to you that proceeding on the basis that the number might be 50 per cent right or 50 per cent wrong may not be the best choice to make when you're dealing with a $6.2-billion project," he said.

LeBlanc'scomment was in relation to a decision by government-owned Nalcor to build its cost estimate on a probability factor of 50, meaning there was an equal chance of costs going over or under the estimate.

According to evidence, this was against the advice of a risk advisor who recommended a more cautious approach which would have meant a much higher estimate in order to ensure greater confidence in the number.

A milestone moment

Dunderdale, at the end of four days of testimony at the inquiry, agreed with LeBlancwhen he asked her what might be learned from Muskrat Falls.

"Hindsight is a wonderful thing, commissioner, and I wouldn'tconsider going less than a P75 or a P90," she said.

According to a forensic audit, a probability factor of 75 would have increased the cost estimate to $7.5 billion, and a P90would have increased it to more than $8 billion, though the chances of cost overruns would have been much less.

It was a notable moment, coming at a milestone for the inquiry.

Thursday marked the conclusion of 62 days of testimony, with an equal number of witnesses giving evidence about the decision to sanction Muskrat Falls six years ago.

The witness list included a broad cast of politicians, bureaucrats, Nalcoremployees and contractors, international experts, and representatives from various Indigenous groups in Labrador.

Dunderdalewas either natural resources minister or premier during much of the planning and prosecution of the project, and was considered a key witness.

But she gave very few surprises throughout her marathon testimony, refusing to criticize Nalcorand its former CEO, Ed Martin, or those in government she served with. And she continues to believe Muskrat Falls, despite some $4 billion in cost overruns and a schedule delay of at least two years, was the right project.

"I don't know why we find ourselves in the circumstances we're in. But I'm glad to be here and give my testimony because I want to know what went wrong. Did we miss something? Right now where I am, I don't believe we missed something," she said.

Limiting the options

Meanwhile, LeBlanc'sremark about the risk appetite at Nalcor wasn't his only eye-opening comment.

He also questioned the decision to only compare Muskrat Falls with the isolated island power gridwhen trying to determine the least-cost option for Newfoundland's future electricity needs, and whether such a scenario was in keeping with the Electrical Power Control Act, which requires government to provide power at the lowest possible cost, consistent with reliable service.

I don't know why we find ourselves in the circumstances we're in. But I'm glad to be here and give my testimony because I want to know what went wrong. Did we miss something? Right now where I am, I don't believe we missed something.- Kathy Dunderdale

The comparison was over a 50-year timeframe, and showed a preference for Muskrat of more than $2 billion.

But LeBlancsaid the option of waiting until the province's contract with Hydro-Quebec for power generated at the Upper Churchill to expire in 2041 should have been scrutinized more closely.

Under the terms of the controversial contract, all but a small amount of the more than 5,400 megawatts generated at Churchill Falls must be sold to Hydro-Quebec at bargain-basement prices. The agreement has long been a sore spot in this province.

"Now whether they are a part owner of Churchill Falls or not, power was available," LeBlanc said of Hydro-Quebec and its 35 per cent ownership stake in the Churchill Falls (Labrador) Corp., which operates the Upper Churchill generating station.

LeBlanc went further, saying since the cost for the two options Muskrat and the isolated island grid were based on a 50-year comparative analysis, "We ended up not looking at the least-cost for the ratepayer of the province."

Dunderdale, however, said waiting for 2041 was too risky because there's no certainty power will be available, and it would mean maintaining a fragile isolated system for many more years.

'The patient is dead'

Meanwhile, consumer advocate Dennis Browne delivered some blistering criticism of Dunderdale'sgovernment, Nalcor and the 824-megawatt Muskrat project after testimony concluded, saying "the patient is dead" in relation to the ability of electricity users in the province to pay for Muskrat Falls.

Under the terms of a federal loan guarantee, ratepayers are on the hook for the entire cost of Muskrat, despite the fact only 40 per cent is needed to supply the island's needs.

Another 20 per cent is committed to Nova Scotia's Emeraas part of a deal that saw it construct the subseaMaritime Link beneath the Cabot Strait, while the remaining 40 per cent is considered excess power that Nalcor hopes to sell on the export market.

"What happened here was an unholy alliance between the Crown corporation and the government to the detriment of the public interest," Browne said.

He believes evidence that emerged at the inquiry proves Nalcorwas calling the shots and exercised "undue influence" over government.

"We have Muskrat Falls up there, it is not the lowest-possible-cost power, and we're hearing now there's no reliable service. So we probably have neither," Browne said.

Phase 2 of the inquiry, which will investigate the cost and schedule overruns, will begin Feb. 18, with public hearings continuing until next summer.

LeBlanc will deliver his report by Dec. 31, 2019.

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