At the Muskrat Falls Inquiry Tuesday afternoon, business professor Guy Holburn was asked if a robust, regulatory review could be a counterbalance to the kind of “optimism bias” the inquiry has heard is common to energy megaprojects.
“Yes, I think that’s absolutely right,” he said, responding to lawyer Geoff Budden, representing the Concerned Citizens Coalition.
The professor from the Ivey Business School at the University of Western Ontario told the inquiry the exemption of the Muskrat Falls project from a full, Public Utilities Board (PUB) review and oversight was not best practice.
He was certified as an expert witness in regulation and governance in the energy sector.
Holburn said consultant reports — such as reports from Manitoba Hydro International, Navigant, Ziff and others cited by the government in response to questions on pre-project review — are input for consideration of an energy project, but not substitutes for a regulator’s review.
The review ordered by the provincial government from the PUB in 2011, comparing the “isolated island” option for power with the “interconnected” (Muskrat Falls) option, was restricted to an either-or. It was limited in time and left the provincial government, “not as informed as it could have been at the time of sanction about the costs and risks of the Muskrat Falls project relative to other alternatives,” as stated in Holburn’s written report.
Regulatory oversight and review make it less likely decisions will carry significant negative, economic consequences, he noted.
“Regulatory agencies in Alberta, Ontario and Nova Scotia have played central roles in evaluating, approving, monitoring and reviewing large electricity infrastructure projects such as Western Alberta Transmission Line, Darlington nuclear power plant refurbishment, and Maritime Link. To date, these projects have largely been completed on budget and on schedule,” he stated, looking at regulatory oversight of projects valued at more than $1 billion in other provinces. “By contrast, in Manitoba, where the Public Utilities Board has had a much more restricted role in evaluating and overseeing the Keeyask generation project, the project is significantly over budget, three years behind schedule, and the focus of political controversy.”
Holburn noted the PUB here did not endorse the Muskrat Falls project as the least-cost option for meeting power demands. He also noted the provincial-federal Joint Review Panel (JRP) formed for the project’s environmental assessment did not endorse the business case.
His report to the inquiry suggested the PUB would have had new information on load growth by 2013, potentially strengthening concern that “there is not an immediate need for the large incremental supply associated with the Interconnected option (Muskrat Falls) and that Island electricity needs could be met in the short to medium term with available renewable sources on the Island and/or additional thermal generation.”
In July 2013, the Nova Scotia Utilities and Review Board (UARB) approved the Maritime Link.
“It is likely that the PUB would have wanted to conduct its own investigation after the UARB’s approval in November 2013 in order to understand the implications for the Muskrat Falls project,” he stated.
The cost estimates in October 2012 were almost 20 per cent higher than the estimates the PUB was working with, “which would probably have reduced the attractiveness of the interconnected option” if analyzed in an unrestricted review, he noted.
And if a review reached into 2014, it “would have coincided with the dramatic collapse in global oil prices” and, since oil price affected the present worth evaluations of the “isolated” and “interconnected” power options, made the timing “potentially consequential.”
Holburn said it is ultimately not possible to know with certainty how any of the factors he identified, or combination of them, would have affected the final sanction decision.
Lawyer Harold Smith, representing former Narcor Energy CEO Ed Martin, said Holburn was imagining the review with the benefit of hindsight.
Nalcor Energy lawyer Dan Simmons asked about any difference in thinking, in a case where the proponent is a Crown corporation.
Holburn said there has been a “little bit of a shift” over the last 20 years whereby government-owned utilities are operating on a commercial basis, with the expectation from provincial governments they will deliver value to the province as shareholder, in terms of growth, or greater efficiency, affecting decisions.
Holburn did acknowledge he did not do a complete accounting of potential costs involved in having a more extensive review, particularly in pushing the timeline.
Erin Best, representing former premier Kathy Dunderdale, pointed to legislated deadlines for changing Nova Scotia’s energy mix, to reduced reliance on coal power, and Nova Scotia hypothetically abandoning the Maritime Link project in favour of power purchased and imported from Quebec, ultimately costing local ratepayers.