Reports on Hydro fiascos in Manitoba and B.C. expose the rot at Crown-owned utilities

4 March 2021

 

Transmission lines, Globe and Mail
Full text of this excellent piece by Konrad Yakabuski in the Globe and Mail, March 4, 2021
Misery loves company. And so it was that taxpayers in Manitoba and British Columbia found themselves commiserating last week with the release of separate reports detailing the mismanagement and dissimulation that has left them to foot the bill for uneconomic hydroelectric projects championed by provincial monopolies with dreams of empire.
The reports on Manitoba Hydro’s Keeyask dam and B.C. Hydro’s Site C generating station were eerily similar in how they enumerated the factors that led to massive cost overruns on both projects, beginning with complacent politicians and a lack of independent oversight at the government-owned utilities that had promoted them. The reports also read much like the findings of an earlier inquiry into the financially ruinous Muskrat Falls project in Newfoundland and Labrador.
In all three cases, provincial premiers allowed their better judgment to be clouded by a desire to build personal legacies in the form of gigantic dams that they perhaps hoped might one day be named after them. They allowed the heads of their respective Crown-owned electrical monopolies to indulge their own empire-building instincts to pursue those projects based on rosy assumptions concocted to dazzle unsuspecting taxpayers and avoid scrutiny.
Politicians of all stripes fell into this trap. In Manitoba, it was former New Democratic premier Gary Doer’s government that authorized construction of Keeyask dam and Bipole III transmission line, the costs of which have ballooned to $13.4-billion from an initial estimate of $9.7-billion, and led to a tripling of Manitoba Hydro’s debt in 15 years.
In 2008, Mr. Doer declared that “hydroelectricity is Manitoba’s oil,” suggesting his have-not province might get rich by exporting power to midwestern U.S. states hungry for clean energy. This was always a pipe dream, since continental electricity prices were already then beginning a steep descent because of a glut of cheap natural gas and the increasing attractiveness of alternative sources of renewable power. The oil-electricity analogy was also highly misleading. In 2019, for instance, Canada exported $87-billion worth of crude oil. Electricity exports totalled a mere $2.5-billion, mostly from Quebec.
As last week’s report from an independent review of Keeyask and Bipole III, led by former Saskatchewan premier Brad Wall, concluded: “The incomplete analysis of the projects, driven by government endorsement, a construction contract that deferred construction risk to Manitoba Hydro, and a lack of effective project oversight at the corporate level, led to project delays and significant cost overruns.”
As a former right-leaning premier of an oil-producing province, Mr. Wall may not have been the best choice to lead the review commissioned by Manitoba’s Progressive Conservative Premier Brian Pallister. But his exhaustive report, which runs more than 14,000 pages with appendices, should put to rest charges by Mr. Doer and others that this was just a partisan exercise.
In B.C., former provincial deputy finance minister Peter Milburn’s report on the Site C fiasco found a similar story of politicians rushing to sign off on a megaproject without due diligence. In this case, it was former Liberal premier Christy Clark’s government that gave the go-ahead to Site C in 2014, forgoing a prior independent review by the B.C. Utilities Commission.
Premier John Horgan’s New Democrats, which had opposed Site C in opposition, put in place a “project assurance board,” or PAB, that was supposed to keep tabs on B.C. Hydro. It also hired consultants Ernst & Young to provide an additional layer of oversight. But the PAB, Mr. Milburn found, was stacked with B.C. Hydro board members, while E&Y appears to have been systematically kept out of the loop by officials at the provincially owned utility.
“Ultimately, B.C. Hydro determined the amount and type of oversight they would receive from EY,” Mr. Milburn wrote. “This appears inconsistent with the concept of independent review and with B.C. Hydro’s commitment to government.”
Astonishingly, Mr. Horgan has chosen to make only cosmetic changes at B.C. Hydro in the wake of Mr. Milburn’s report and a jaw-dropping revision to Site C’s budget. The project is now slated to cost $16-billion, or almost twice the $8.7-billion it was estimated to cost in 2014, with no guarantee that further problems won’t still arise as B.C. Hydro seeks to reinforce Site C’s shaky – literally – foundations.
Mr. Doer and Ms. Clark may have thought they were following in the footsteps of the visionary premiers of the past – Manitoba’s Duff Roblin and B.C.’s W.A.C. Bennett – by developing their provinces’ hydroelectric potential. But those earlier mid-20th-century projects were pioneering feats that paid off because of the unbeatable natural attributes. Keeyask, Site C and Muskrat Falls were subpar in comparison.
That all three projects were allowed to proceed speaks to the rot within Canada’s Crown-owned electrical utilities. It is beyond high time someone cleaned house.

Globe editorial: The Site C dam has been a disaster in the making for decades. Should B.C. pull the plug?

3 January 2021

Globe and Mail editorial, January 3, 2020

The report must have landed on British Columbia Premier John Horgan’s desk with a thud. It was not a welcome Christmas present.

The report in question is an independent assessment of the troubled Site C hydroelectric dam under construction on the Peace River in the province’s northeast. It was scheduled to hit the Premier’s desk in the days before Christmas, and could be made public as soon as this week.

It will be grim. How grim is the question.

Last summer, BC Hydro revealed Site C was in big trouble. A shaky foundation on the river’s right bank threatened the stability of the dam, and costs were spiralling. The $10.7-billion project was already over budget, with about half the money spent. Mr. Horgan ordered an independent review and said halting Site C for good was possible.

“If the science tells us and the economics tells us that it’s the wrong way to proceed, we will take appropriate action,” the Premier said.

If this sort of story sounds familiar – big dam, big promises and big problems – that’s because the saga of Site C has many prequels in the world of hydroelectric megaprojects. Backers exaggerate the benefits and minimize the challenges; then construction starts and predictable surprises pop up like weeds. What started life as a reasonable idea is suddenly twice as expensive – and no longer so reasonable.

In Newfoundland and Labrador, the Muskrat Falls dam is, at $13.1-billion, more than double its original budget. It has pushed the province to the financial brink. Ottawa, which had guaranteed $7.9-billion of project debt, stepped in again in mid-December and deferred $844-million in payments. Power is finally supposed to flow late next year.

The feds are also aiming to make Muskrat Falls viable – or are they throwing good money after bad? – by backing the so-called Atlantic Loop, a network to carry the electric power to Atlantic Canada.

For B.C., there is still time to turn back at Site C, as difficult and financially gutting a choice as that may be. Killing the project now means $6-billion-plus spent for zero power. But it may make sense, if pushing forward means a final bill at upwards of $15-billion.

There is bipartisan blame for this mess, which is decades in the making. There are two large dams on the Peace River, one completed in 1968 and the second in 1980. They have supplied plentiful and affordable power to the province. The plan had always been for a third dam. In 1967, a spot near the Alberta border, Site E, was seen as the best location. The terrain was firm, but it was rejected because of cost.

Instead, a decade later, the seemingly cheaper but geologically troublesome Site C was chosen.

In the 2000s, building Site C became a priority of the BC Liberals. It was exempted from an independent review and construction started – with a budget of $8.8-billion – in 2015. Former premier Christy Clark promised to get the work beyond the point of no return. In 2017, the NDP formed government. They had opposed Site C but Mr. Horgan decided to push forward. Mike Harcourt, a former NDP premier, in 2017 called Site C a “clear, unmitigated disaster.” And that was when only $2-billion had been spent.

More warnings came behind closed doors, before finally spilling out last summer.

Mr. Horgan’s first big decision as Premier in 2017 was whether to continue construction at Site C. The first big decision of his second term will once again be Site C.

Is the project already so far along that stopping it makes no sense?

In October, the C.D. Howe Institute released an analysis from two hydro experts, which concluded that the case for Site C is “getting weaker.” At $10.7-billion, it is only “marginally economic.” Cancellation, the report said, should be on the table if costs jump. At $15-billion, it makes more sense to shutter Site C, absorb the costs, and invest in wind power and battery storage, the report said. Wind power plus battery storage would also allow for smaller projects, rather than one huge one.

Site C was always a problematic place to build a large dam. Numerous decision makers over the years pushed ahead anyway.

Now, Mr. Horgan has to eyeball the sums and consider the conclusions in that report on his desk – and decide whether prudence means pressing forward, or turning back.