Doubts cast on value of Muskrat Falls project

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 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.

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.

Inquiry hearings are scheduled until August 2019.