Nfld. & Labrador

Public inquiry revealing how Nalcor 'stumbled' onto Muskrat, says critic

A vocal critic of hydroelectric development in Labrador says the public inquiry into the controversial project is revealing how Nalcor 'stumbled' upon the Muskrat Falls options after others failed.

David Vardy says Nalcor hoped to transform the province through 'grandiose' megaproject, but that fell flat

David Vardy is a member of the Muskrat Falls Concerned Citizens Coalition. (Terry Roberts/CBC)

A vocal critic of hydroelectric development in Labrador says the public inquiry into the controversial project is revealing how Nalcor "stumbled" upon the Muskrat Falls option after others failed.

And David Vardy says the province of Newfoundland and Labrador will now have to pay the price.

"The grand picture here is that there's been a stumbling along the way," Vardy told reporters.

Vardy, a member of the Muskrat Falls Concerned Citizens Coalition and an economist, once served as the province's top civil servant.

He also served as chairman of Newfoundland and Labrador's public utilities board for seven years.

I think the people of Newfoundland have cause to be gravely concerned about the course of this whole saga that's unfolding before us here in the commission.- David Vardy

He made this comment Wednesday after Paul Harrington, project director for Muskrat Falls, concluded two-and-a-half days of testimony:

"I think the people of Newfoundland have cause to be gravely concerned about the course of this whole saga that's unfolding before us here in the commission."

Desperate to build a megaproject

Vardy is closely following the testimony, and his group has full standing at the inquiry.

It's clear from the evidence that Nalcor and the provincial government desperately wanted to build a hydro project on the Churchill River, and it took nearly five years and many millions before a plan was finally settled upon, he said.

"What we're seeing here is a project that began without a clear focus," Vardy said.

Paul Harrington is currently project director for electricity generation at Muskrat Falls, but served nearly a decade as overall project director. He testified for two-and-a-half days at the Muskrat Falls inquiry this week. (Terry Roberts/CBC)

Nalcor initially pursued a development of the larger Gull Island option, with the hope of selling electricity to Quebec, Ontario and elsewhere, and attracting the aluminum smelting industry to Labrador.

Vardy described this as "grandiose notions of megaprojects that would transform the province through export revenues or through industrialization in Labrador."

But by 2010, Gull Island floundered because of opposition in Quebec and an inability to provide power cheap enough to entice industry to Labrador.

'Disaster from the beginning'

So the focus shifted to the smaller Muskrat option, and the argument that it would be the least-cost option for Newfoundland's future electricity needs.

"The only thing that's constant throughout all of this is the Lower Churchill. We wanted to build a megaproject on the Lower Churchill," said Vardy, adding that other, less risky options were rejected before sufficient research could be completed.

And despite requests for proposals from outside the province, documents suggest former premier Danny Williams favoured the so-called go-it-alone approach as early as 2006, with Harrington referencing Williams' "strong preference" for this in one of his first reports.

That's exactly what happened. Muskrat was sanctioned in late 2012, with the provincial government agreeing to pay any cost overruns, and electricity consumers in the province having to cover the cost of building the project.

Vardy said Muskrat was a "disaster from the beginning."

We were building a project far bigger than anything we needed for a province of 500,000 people, with demographic projections showing a decline.- David Vardy

All-in costs have ballooned by more than $5 billion to nearly $13 billion (Vardy believes it will eventually go billions higher), and first power is not expected until 2019, two years behind schedule.

"We were building a project far bigger than anything we needed for a province of 500,000 people, with demographic projections showing a decline," Vardy said.

An onslaught of questions

Harrington, meanwhile, joined what's called the Lower Churchill Project in late 2005, and was hand-picked by former Nalcor CEO Ed Martin.

Former Nalcor Energy CEO Ed Martin remains steadfast that the Muskrat Falls project, despite a stinging audit, was the best option for Newfoundland and Labrador. (Terry Roberts/CBC)

He served as overall project director for about a decade, earning just under $1,700 daily as a contractor. His role changed in 2016 after incoming CEO Stan Marshall, Martin's replacement, restructured things and put Harrington in charge of electricity generation at Muskrat Falls. His day-rate has since increased to just under $2,000, though Vardy has no issue with Harrington's rate of pay.

"In my opinion that rate of pay is not unreasonable for a project leader of a $12.7 billion project. I don't think this is a big issue," Vardy said.

A group of oil men running a hydro project

Like many in the project's inner circle, Harrington's background is in oil and gas. Muskrat was the first time he was tapped to direct a major project, with the responsibility to ensure schedule and cost estimates were delivered on time and on budget.

The project director for Muskrat Falls, Paul Harrington, exits the witness stand at the public inquiry Wednesday following two-and-a-half days of testimony. (Terry Roberts/CBC)

Harrington faced a steady onslaught of questions about his experience and his role in the project, with considerable scrutiny on whether or not he did enough to highlight the risks, considering hydro projects are notorious for cost and schedule overruns.

But Harrington defended his work in the period leading up to project sanctioning, saying he followed industry practices and apprised Martin and Gilbert Bennett, another senior Nalcor executive, of the risks.

All I can do is identify what I believe to be the residual strategic risks.- Paul Harrington

"It's not my decision to decide that," Harrington said of the controversial decision to exclude any strategic risk allowance from the final cost estimates.

"All I can do is identify what I believe to be the residual strategic risks."

Vardy, meanwhile, said Harrington's testimony is further evidence that oversight and critical reviews were sorely lacking.

Vardy said a revelation that an independent review team was given just two weeks to scrutinize the project in 2012, several months prior to sanctioning, was "absurd."

"Things were too pre-determined. Not enough latitude there for a free-ranging inquiry," he said.

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