HAPPY VALLEY-GOOSE BAY, N.L. – An audit has found Newfoundland’s Nalcor Energy may have overstated the potential value of its Muskrat Falls hydro megaproject — and prematurely dismissed alternative electricity options for the province.
Accountants from Grant Thornton testified Friday at the inquiry into cost overruns of the $12.7-billion Labrador dam, presenting a report on the provincial Crown corporation’s early financial analysis and consideration of other options.
Their findings suggest Muskrat Falls was not necessarily the province’s most cost-effective energy option, contrary to what Nalcor and government officials said when the project was sanctioned.
“It is now abundantly clear that Nalcor understated the costs of the Muskrat Falls project so as to get the project sanctioned,” the Muskrat Falls Concerned Citizens’ Coalition, a citizens’ group with standing at the inquiry, said in a statement after the Grant Thornton report was released.
“We now know for certain that the project should never have been sanctioned.”
At the time, Nalcor was deliberating between an “interconnected island” electricity model that would connect Newfoundland to the mainland and an “isolated island” model that would not.
Accountants David Malamed and Scott Shaffer concluded that Nalcor may have understated the costs of the interconnected model and overstated the cost of the isolated model.
They found that Nalcor’s early estimates for the project excluded $500 million of strategic risk exposure, and could have used a more precise model when estimating its capital costs.
Experts consulted for Grant Thornton’s report said a different calculation model would have increased the project’s capital cost estimate by $767 million.
Nalcor initially forecast annual operating and maintenance costs at $34 million — an estimate that has since risen to $109 million.
The dam’s costs have doubled to $12.7 billion and the expected power is years behind schedule — worrying ratepayers in the small province of about 530,000 that the extra costs could come out of their pockets.
The 824 megawatt hydroelectric dam will eventually send power to Newfoundland and later Nova Scotia through subsea cables.
The report also found that Nalcor did not formally discuss importing power from Hydro-Quebec and dismissed the option of waiting until 2041 to import power from the Churchill Falls dam, when the long-standing contract with Hydro-Quebec expires.
Nalcor concluded there was “uncertainty” around the availability of power from Churchill Falls, but the Grant Thornton audit found this conclusion was inconsistent with available findings from the Nova Scotia Utility and Review Board.
The report said Nalcor “may have inappropriately eliminated” the two options, potentially impacting the eventual sanctioning decision.
“Further analysis of these options may have led to a different decision,” the report read.
While the audit only covered details on the sanctioning period from 2010 through 2012, its findings have confirmed some long-held suspicions of the megaproject’s critics.
In 2012, the province’s Public Utilities Board declined to endorse Muskrat Falls, citing a lack of updated information.
“Grant Thornton clearly tell us that had the Public Utilities Board been given the facts as uncovered by the auditors, it would likely have taken the position that the project wasn’t the cheapest alternative,” the Muskrat Falls citizens’ coalition said in its Friday statement.
Malamed and Shaffer wrapped up the first week of hearings into the lengthy inquiry.
The audit on the sanctioning phase of the project is the first of two reports Grant Thornton was hired to prepare for the inquiry.
The second audit, concerning the dam’s construction period, will be presented at a later hearing date.
Inquiry hearings are scheduled until August 2019.
– By Holly McKenzie-Sutter in St. John’s, N.L.