Residents of Newfoundland and Labrador are preparing for electricity rates to double in the next five years, adding an estimated $150 per month in power costs for the average homeowner, as a consequence of building the Muskrat Falls hydroelectric dam — and experts warn it could be a cautionary tale for British Columbia.
“Muskrat Falls was not the right choice for the power needs of this province,” public power company CEO Stan Marshall told the press last year, confirming the project is a “boondoggle.”
“It was a gamble and it’s gone against us.”
Meantime in British Columbia, debate continues over whether to continue building the 1,100 megawatt Site C hydro dam on the Peace River, estimated to cost $9 billion, at a time that power demand has been essentially flat for 10 years, despite population growth.
“There are a lot of parallels between British Columbia and Newfoundland,” David Vardy, former CEO of the Newfoundland Public Utilities Board, told DeSmog Canada. “There’s the same fixation with the megaproject.”
B.C. Premier Christy Clark has vowed to get the project past the “point of no return,” while provincial NDP leader John Horgan has promised to send the project for a review of costs and demand if elected in May.
Vardy, who led Newfoundland’s public utilities board from 1994 to 2001, has called for a public inquiry into the Muskrat Falls dam.
Review Panels Called For Further Study of Dam Economics
In an interview with DeSmog Canada, Vardy pointed to several similarities between Muskrat Falls and the Site C dam.
For starters, the joint federal-provincial environmental panel that reviewed Muskrat Falls concluded there was not sufficient evidence the dam was the best and least cost project for the province and called for an independent analysis.
“There were a lot of fundamental questions that were raised about the justification for the project,” Vardy said. “The joint panel warned against proceeding with this without doing a very in-depth review.”
In British Columbia, the Site C panel’s finding was nearly identical, calling for further study of capital costs and electricity demand — a recommendation that was ignored much to the chagrin of the panel’s chair Harry Swain.
“The thing that’s in common … is that we’re dealing with large crown corporations. And these crown corporations are very close to government. They are seen to be instruments of government policy,” Vardy said.
Experts have questioned whether BC Hydro and the Premier’s Office are too close for comfort.
Both Dams Skipped Full Review By Utilities Boards
Despite the panel recommending otherwise, the Newfoundland government didn’t send Muskrat Falls for a full review by its public utilities board. In B.C., the government also ignored the panel’s recommendation for a review by the B.C. Utilities Commission.
“In the normal course of events it would have gone to the public utilities board and they would have done an exhaustive analysis of all the options and they would have looked at costs,” Vardy said.
Former Newfoundland Premier Roger Grimes told DeSmog Canada that B.C. should still send Site C for a full review by the B.C. Utilities Commission.
“There’s no doubt: once you short-circuit the public review process, there’s something wrong,” Grimes said. “If it can’t withstand that kind of proper review in the proper public forum, history has shown us that there’s probably something wrong with it.”
Grimes said if it’s the right project, the B.C. government shouldn’t fear the outcome of a utilities commission review.
“If they have information that has them as the government so convinced that it’s the right thing to do, then any independent panel that looks at it should come to the same conclusion with the same information,” Grimes said.
In Newfoundland’s case, the government did seek the opinion of the Public Utilities Board, but the terms were limited to examining two options and alternatives couldn’t be considered. Still, the utilities board found the evidence presented was not complete or current enough to support the project. Newfoundland forged ahead anyway.
“The government commissioned a whole flurry of consulting studies,” Vardy said. “Consultants were charged to demonstrate that what the government wanted to do was the correct thing. There was no independent testing. There was no cross-examination. It was all contrived to create a business case for a project that made no sense from the beginning.”
— DeSmog Canada (@DeSmogCanada) August 18, 2017
Lack of Checks and Balances
Democracy only works with checks and balances, Vardy said.
“What we have is a strong crown corporation, which is overbearing and spends enormous amounts of money. It has infinite communications resources. It has infinite money for studies,” he said. “They’ve basically backend loaded the project so the people in 50 years time will still be paying off this project.”
In British Columbia, BC Hydro has tried to stifle critical media coverage and has conceded that residents will be paying for the Site C dam for 70 years — until 2094.
“By the time the Site C hydroelectric dam is paid off, fusion or some other energy advancement might already have made it obsolete,” Nelson Bennett wrote in Business in Vancouver.
Grimes has said the legacy of Muskrat Falls will haunt Newfoundlanders for generations.
“This is the biggest mistake that Danny [Williams] ever made, by far, and will haunt all of us, unfortunately, for the rest of my life, my daughter’s life, my granddaughter’s life even,” Grimes told CBC.
Questions About Power Demand
Stan Marshall, the incoming CEO of Newfoundland’s public power utility, Nalcor, announced last year that load growth estimates had been vastly exaggerated and the cost of the project had escalated to $11.7 billion, from $6.2 billion in 2010.
BC Hydro argues that B.C. will need new power to meet the needs of a growing population. This is where the provinces diverge as Newfoundland is not projecting any population growth.
However, B.C.’s power demand has stayed flat for the past 10 years despite a growing population, due in part to the shutdown of several industrial pulp mills, which are large consumers of electricity. Efficiency improvements for things like appliances and light bulbs also decrease demand.
“Hydro’s demand forecasts are persistently and systematically wrong,” Swain wrote in an affidavit to a federal court last year. “There is no reason to believe that much new power, if any, will be required in the next 20 to 30 years.”
In the 2012 load forecast used for decision-making by the B.C. government, BC Hydro predicted nine per cent growth in power demand over the next four years. It dropped by one per cent.
However, if B.C. electrifies its economy, including transportation, to fight climate change, B.C. will need more electricity, argues Mark Jaccard, former head of the B.C. Utilities Commission and professor in the School of Resource and Environmental Management at Simon Fraser University.
That said, it’s important for demand forecasts to be reviewed by the utilities commission, Jaccard told DeSmog Canada.
“We ran into this where the politicians will lean on people in Hydro to give a different forecast because it will justify whatever they wanted to do,” Jaccard said of his time at the helm of the utilities commission between 1992 and 1997. “It’s always tricky when the utility is publicly owned.”
“If we’re going to act on climate, we need a lot of electricity. But we don’t need the Site C dam to get that electricity. We could get it other ways too,” he said.
Out of Sight, Out of Mind
Another thing Muskrat Falls and Site C have in common is that they’re located in remote areas with very small populations.
“On the island, in St. John’s, it’s been kinda out of sight, out of mind,” Vardy said. “Until such time as people see it show up in their electricity bills, most people are fairly oblivious to these impacts.”
Power rates in Newfoundland are now projected to rise from 11.5 cents per kWh to 21.5 cents per kWh when the dam comes online in 2020.
“It’s a very precarious situation where the interest on the public debt is now costing more than what we’re spending on our schools,” Vardy said.
Newfoundland is relying on exporting excess power at spot market prices, which are a fraction of the cost of producing the power — also part of the plan in B.C.
“Ninety per cent plus of the burden is placed on consumers in this province. That is the core problem,” Vardy said about Newfoundland.
Rate increases in B.C. will depend on the final cost of constructing the Site C dam, domestic demand for power and the ability of B.C. to export excess power.
‘Blinded By the Sunk Costs’
Muskrat Falls is now beyond the point of being stopped, according to Vardy. But he argued for years that it could have been stopped, even though it had begun construction.
“You can’t do anything about sunk costs. You’ve got to weigh the future costs of stopping against the future costs of continuing. They kept being blinded by the sunk costs,” Vardy said.
Vardy’s advice to British Columbia is to “go back to the public utilities board and take this thing apart and see if it makes any sense.”
“If there’s no business case, it should be stopped because it’s going to be a burden on future generations.”
In particular, Vardy warned there needs to be a process in place to stop construction if costs escalate.
“That’s exactly what should have happened here. We should have said: ‘Things have changed. Circumstances have changed.’ ”
An Oxford University study in 2014 found that large dams suffer average cost overruns of 96 per cent and delays of 44 per cent.
Commenting on Premier Christy Clark’s vow to get Site C “past the point of no return,” Vardy said: “That’s not good public policy. What you want to do is do the right thing. If it doesn’t make sense to do the project, then it should be stopped.”
He pointed to the problem of politicians getting too attached to projects.
“They’re looking at this as a legacy project and they’re focused on their own egos and their hubris. And this is what happened here. And it sounds like the same thing is happening in British Columbia.”