BC Hydro executives have mismanaged the Site C dam’s overall budget and cost control process, and they are “not capable” of accurate estimates or controlling costs on the $10.7 billion project, according to an affidavit filed this week by former BC Hydro CEO Marc Eliesen.

“The necessary experience and due diligence rigour required for managing a major hydro project such as Site C is deficient among the executive at BC Hydro,” says Eliesen in the affidavit, noting that it has been more than 30 years since BC Hydro constructed a major generating station.

“The knowledge and expertise required, which formerly resided in the company, has retired or moved on.”

The 30-page affidavit, filed in B.C. Supreme Court as part of a new legal case against Site C by two Treaty 8 First Nations, reads like a Site C dam financial WhoDunnit.

The question that comes to mind is: what did BC Hydro know and when did it know it?

Unpacking Site C’s escalating cost overruns in nail-biting detail, Eliesen quotes from statements that BC Hydro made to the B.C. Utilities Commission (BCUC) on August 30 that Site C was “on time and on budget,” and would cost $8.335 billion.

Just thirty-five days later, the affidavit notes that Chris O’Riley, BC Hydro’s president and chief operating officer, informed the BCUC that BC Hydro had encountered some “geological and construction challenges” and the project’s cost had climbed by $610 million — due to a one-year delay in meeting a scheduled diversion of the Peace River to build the dam structure.

At the same time, O’Riley informed the commission that Site C’s $440 million Treasury Board reserve had been exceeded by $170 million. That placed Site C’s revised price tag at close to $9 billion, only two years into a nine or ten-year construction project.

“It is my expert opinion that BC Hydro knew, or should have known, when the August 30th report was submitted to the BCUC, that the costs for the project were going to be higher than disclosed,” Eliesen says in his affidavit.

“If BC Hydro knew the costs were reasonably likely to be higher than disclosed, they violated their obligation to the commission to be fully transparent and support the commission’s inquiry. If BC Hydro honestly did not know at the time the August 30 filing took place that costs would escalate, then BC Hydro was not competently managing its project as it claimed.”

ICYMI: Site C Over Budget, Behind Schedule and Could Be Replaced by Alternatives: BCUC Report

A ‘paucity’ of information about $2 billion price jump

Eliesen, who is also the former chair and CEO of Ontario Hydro and the Manitoba Energy Authority, points out that O’Riley subsequently told the BCUC that “nothing has occurred that would suggest to us that we are facing the type of large overruns” speculated in a September 2017 report by Deloitte LLP, one of Canada’s leading auditing firms.

Deloitte concluded that Site C’s price tag could exceed $10 billion and might reach as high as $12.5 billion.

Yet less than two months after O’Riley’s statement, Premier John Horgan announced that Site C’s capital costs had escalated by another $2 billion, or 20 per cent.

Horgan set Site C’s new price tag at $10.7 billion when he said in December that the project would proceed, claiming it was past “the point of no return,” an assertion disputed by project financing experts.

“A paucity of information has been provided as to what has driven the additional $2 billion in project costs,” notes Eliesen.

“Clearly, the budget revision exercise that took place in November determined that the additional $2 billion in cost was warranted, while on October 14, 2017, Mr. O’Riley told the Commission that there would be no further budget increases.”

“Either BC Hydro knew, or should have known, about the looming budget increases related to future contracts.”

The average compensation for the top four executives at BC Hydro was $453,350 in 2015-2016.

This 30-page affidavit, filed in B.C. Supreme Court as part of a new legal case against Site C by two Treaty 8 First Nations, reads like a Site C dam financial WhoDunnit. https://t.co/5rM9jnmvsU

— DeSmog Canada (@DeSmogCanada) February 3, 2018

Trouble afoot with major Site C civil works contracts?

Five pages of Eliesen’s affidavit focus on major Site C contracts and on what BC Hydro knew about the performance ability of two of the corporations it hired or anticipated hiring.

The affidavit highlights troubling information that Eliesen says could help push Site C’s cost to what will “likely” be $12 billion or more. He also says the project will also likely be delayed by at least another year, putting it at least two years behind schedule.

Eliesen singles out BC Hydro’s recent handling of the second largest Site C contract — a civil works contract to build the dam’s generating station and spillways — as one cause for financial concern.

As a result of the unintentional release of redacted parts of the Deloitte report, it was revealed that BC Hydro estimated the second civil works contract would cost about $1.255 billion — a sum Eliesen says is “much too low.”

He said it is his expert opinion that the contract will exceed $2 billion, a 50 to 70 percent increase over BC Hydro’s August 2017 estimate.

Eliesen also notes that BC Hydro recently experienced “major contract problems” with Flatiron Contractors Canada Ltd., one of four corporations in the partnership BC Hydro has selected as its preferred contractor for that civil works contract. Flatiron has a 27.5 per cent share in the joint venture.

The affidavit points out that Flatiron, in a joint venture with Graham Construction Ltd., was awarded the contract for the Interior to Lower Mainland Transmission Line, a project that Eliesen says was “significantly over budget and delayed.”

As explained by the previous Liberal government, the “serious delays were triggered by faulty steel towers, problems with [the] contractor’s environmental management and protection plans and turnover with its contractors,” states the affidavit, noting that BC Hydro characterized the problem as a “failure to perform.”

BC Hydro has not disclosed the final costs of the transmission line, and arbitration related to the project continues.

“It is surprising that BC Hydro’s due diligence would still qualify Flatiron” to be part of the joint venture for Site C’s civil works contract, Eliesen says in the affidavit.

And then there was the question of Petrowest

Eliesen also questions why BC Hydro qualified Calgary-based Petrowest Corporation to be part of the Peace River Hydro Partnership (PRHP), the recipient of Site C’s largest civil works contract.

He notes that only a month after the $1.75 billion contract was awarded the media reported that Petrowest was operating on “borrowed time from its lenders.”

Petrowest went into receivership last August.

BC Hydro, Eliesen notes, “did not provide an explanation as to how it was unable to determine Petrowest’s compromised financial position when it awarded the contract.”

“It is my expert opinion that the financial failure of Petrowest not only has created a period of instability that has contributed to PRHP’s inability to meet its planned work schedule in the short term, but that it will also continue to have a negative impact on project cost and budget at least through the medium term.”

Eliesen also records that “serious and ongoing difficulties” between BC Hydro management and the remaining Peace River Hydro Partnership management have impacted Site C’s cost and schedule.

Geotechnical conditions are one area of disagreement, with the PRHP alleging that conditions in an area that has already experienced several “tension cracks” — landslides — differ from those disclosed by BC Hydro. BC Hydro disputes that claim.

Eliesen says it is not uncommon for contractors to seek additional payment for things such as unforeseen conditions or construction delays.

But “the number and severity of these claims” and the “stark differences” in views between BC Hydro and the Peace River Hydro Partnership “reflect a dysfunctional relationship that is not conducive to construction of a large hydro dam,” his affidavit states.

Among other issues, the affidavit also notes that BC Hydro was working with two sets of Site C budgets and schedules: its private set and the set that was made publicly available in December 2014 when former premier Christy Clark announced final approval for the dam, then an $8.8 billion project (including the Treasury Board reserve.)

Eliesen, who has multiple years of experience working in utilities while major projects were constructed, including Manitoba’s Limestone Generating Station, said in his affidavit that, “I have never experienced, nor have I heard about, a situation where there are two sets of budgets and two schedules.”

West Moberly First Nations and Prophet River First Nation are seeking an injunction to stop work on Site C until their legal case can be heard.

In January, the two Treaty 8 First Nations filed notices of civil action, claiming that Site C and two existing dams on the Peace River infringe on rights guaranteed to them in Treaty 8.

The nations have requested that the court declare approvals for Site C issued by the B.C. and federal governments to be “unconstitutional.”

Tim Thielmann, a Victoria lawyer who is part of the new legal team assembled by the First Nations, said the nations hope their request for an injunction will be heard in the early spring.

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BC Hydro’s new CEO Chris O’Riley has written a letter to the B.C. Utilities Commission stating that the crown corporation will not meet the timeline for river diversion for the Site C dam, which will add $610 million to the project’s price tag.

“BC Hydro has encountered some geotechnical and construction challenges on the project and the risk to the river diversion timeline has now materialized,” O’Riley wrote.

“Based on the recent completion of a constructability review and an executive meeting with our Main Civil Works contractor on September 27, 2017, we have now determined that we will not be able to meet the current timeline for river diversion in 2019.”

The letter was in response to questions set out in the BCUC’s preliminary report issued on Sept. 20th.

ICYMI: What That 205-Page BCUC Report on the Site C Dam Actually Said

“Not meeting the current river diversion timeline has created new pressures on the project’s budget. We estimate that this development in the project is expected to increase its cost by 7.3 per cent or $610 million, for a total forecast project cost of $8.945 billion,” reads the letter.

BC Hydro had identified risks to the river diversion timeline in its August 30 filing with the B.C. Utilities Commission. An independent audit by Deloitte also identified the risk.

"BC Hydro are finally being a bit more transparent. It’s what we had expected for some time that this project has been mismanaged," said former BC Hydro CEO Marc Eliesen.

BREAKING: Site C Dam $600 Million Over Budget, Will Miss River Diversion Timeline, Says BC Hydro CEO https://t.co/ExEm9pgmu6 #SiteC #bcpoli

— DeSmog Canada (@DeSmogCanada) October 5, 2017

The Site C dam is the most expensive public project in B.C. history and, if completed, will flood more than 100 kilometres of river valley, destroying farmland and First Nations spiritual sites.

“Today’s filing provides an opportunity for us to share new information with the commission and the public,” O’Riley wrote in his letter. “Like all large, complex projects, Site C faces risks and uncertainties.”

The letter also notes that while the delay will set some activities back a year, there was a one-year float built into the schedule and BC Hydro is “confident we can still deliver this project ton time by November 2024.”

But Eliesen says that’s not a credible claim.

“There’s no way they’re going to meet the 2024 deadline. Keep in mind we’ve only completed two years of a nine-year project. We’ve got seven years to go with all of the problems and challenges and geo-technical issues,” Eliesen told DeSmog Canada.

The BC Hydro letter also notes that “due to the project’s complexity, we expect to continue to face risks in other areas, including our second largest procurement (i.e. the Generating Station and Spillway) that remains open and the highway realignment.”

Eliesen estimates the final price tag on Site C will escalate to $12 billion if the project is not terminated.

ICYMI: Revealed: Inside the B.C. Government's Site C Spin Machine

ICYMI: EXCLUSIVE: B.C. Government Broke Law to Expedite Site C Dam Construction, Legal Experts Say

“It is following almost the identical track that the other two major hydro projects in Canada — Keeyask in Manitoba and Muskrat Falls — have followed.”

Those two projects have been struck by major cost overruns and delays.

Despite the challenges Site C is facing, the letter states that BC Hydro’s analysis “continues to confirm that completing Site C as planned is still the most cost-effective option for our customers.”

“We remain committed to Site C and are confident in our ability to deliver the project,” the letter reads.

Eliesen finds that conclusion “totally bizarre” and credits the “very good work” of the Deloitte consultants for forcing BC Hydro to admit the project is over budget and behind schedule.

“To try to complete this project at this time is throwing good money at bad,” he said. “All of the evidence that’s coming out from this inquiry is that we don’t need the power.”

DeSmog Canada first reported on June 30, 2016, that the Site C dam was behind schedule and over budget. Documents obtained via Freedom of Information legislation later revealed a co-ordinated attempt by BC Hydro and the Premier's Office to discredit the story.

Image: Site C dam construction June 2016. Photo: Garth Lenz|DeSmog Canada

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