Despite stinging audit, Ed Martin steadfast about Muskrat Falls decision
Says contingencies in place to deal with cost overruns
A biting audit into the decision to sanction Muskrat Falls is being viewed by critics of the project as vindication for their vocal opposition.
But the man who was CEO of Nalcor Energy at the time of sanction remains convinced the project was justified.
"I believe still that obviously it's the right option," Ed Martin told CBC on Friday, after a forensic audit that questioned whether Muskrat Falls was the least-cost option for the province's electricity needs was released at the Muskrat Falls inquiry.
The audit says Nalcor may have underestimated the costs of building Muskrat Falls, and perhaps overstated the cost of maintaining the status quo without the mega project until vast quantities of power from the Upper Churchill generating station becomes available in 2041.
Since it was sanctioned in 2012, capital costs have soared from $6.2 billion to $10.1 billion. With financing included, the all-in costs have grown to $12.7 billion.
Because of those rising costs and schedule delays, along with persistent public outcry about the project, a public inquiry was announced last fall.
The inquiry is examining the decision to sanction Muskrat Falls, the decision to exempt the project from oversight by the province's energy regulator and the massive cost overruns since construction began in 2013.
The inquiry opened Monday with public hearings in Happy Valley-Goose Bay, and heard from an international expert who said hydro dams are some of the riskiest major projects, with the exception of nuclear power plants.
Muskrat Falls still wins out, says Martin
The week of testimony concluded on Friday with the release of the Grant Thornton audit, which suggested more realistic estimates, and greater examination of other options, may have led to a different outcome than Muskrat Falls.
"If the entire matter had to go to the Public Utilities Board, all this would have unfolded and we wouldn't be in the financial mess we're in today," said Dennis Browne, the province's appointed consumer advocate.
David Vardy of the Muskrat Falls Concerned Citizens Coalition also welcomed the results.
"If the PUB had the information that Grant Thornton now has, chances are the PUB would have reached a fairly firm, definitive recommendation, that the better choice was not to go ahead with Muskrat Falls but rather to build according to demand."
But Martin disagrees.
"If you adjust oil price and capital cost, Muskrat Falls continues to either win the day either slightly or a great deal depending on how you mix it," Martin said.
He told CBC News that $3 billion in excess energy sales and a return on equity of $10 billion from Muskrat Falls over a 50-year period were not factored into the audit.
Martin said these revenues were always seen as a way to address the "strategic risk" of Muskrat Falls, but would not be available had the province stuck with the status quo — an isolated island grid, separated from Labrador.
An aging Holyrood facility and volatile oil prices
Martin said a comparative analysis of the risks associated with maintaining the isolated Newfoundland grid and not connecting with Labrador must also be considered.
We've done that for a series of reasons. Keep the project team's feet to the fire. Keep the contractors' feet to the fire.- Ed Martin
The Holyrood thermal generating station is "at risk," and the volatility of oil prices "could have a huge impact on the isolated side," he said.
Martin also defended the decision to use a 50 per cent probability factor that overruns would occur, a decision Grant Thornton auditors say was unreasonable, and lowered the cost estimates by nearly $800-million.
Martin says that benchmark is common in major project construction in Canada.
"We've done that for a series of reasons. Keep the project team's feet to the fire. Keep the contractors' feet to the fire."
The audit was also critical of Nalcor for not pursuing the possibility of purchasing power from Hydro-Quebec, but Martin said that didn't make sense.
He said Hydro-Quebec routinely has a "winter shortage" of between 1,000 and 1,500 megawatts of power, and he said Hydro-Quebec was not about to sell power to Newfoundland and Labrador for rates below what it was receiving in the U.S. market.
"They didn't have the capacity" to supply power, Martin explained.
So, did the audit force Martin to second-guess any of his decisions?
No chance, he said.
In fact, Martin believes the number of positive findings in the audit about Muskrat Falls were "double" the negatives and he plans to highlight them when he appears before the inquiry.
"People need to hear what I have to say next week," he said.