Both sus­pen­sion and can­cel­la­tion come with big costs and big­ger ‘ifs’


B.C. Hy­dro would face pay­outs of more than $1 bil­lion to can­cel or sus­pend the Site C project, ac­cord­ing to an in­de­pen­dent re­view for the B.C. Util­i­ties Com­mis­sion.

The Crown cor­po­ra­tion would also have to dis­count or write off the more than $2 bil­lion al­ready spent build­ing the gi­ant hy­dro­elec­tric dam on the Peace River, be­fore start­ing from scratch to seek al­ter­na­tives.

Those and other con­sid­er­a­tions loom large go­ing into next week as the util­i­ties com­mis­sion pre­pares to meet the Wed­nes­day dead­line for giv­ing pre­lim­i­nary an­swers to cabi­net about the eco­nomic vi­a­bil­ity and pos­si­ble dis­po­si­tion of Site C.

Given the fast-track na­ture of the ex­er­cise — the New Democrats al­lowed a mere six weeks to pro­duce the pre­lim­i­nary re­port — the com­mis­sion re­tained the ac­count­ing firm of De­loitte LLP to pro­vide an in­de­pen­dent win­dow on the Hy­dro project.

De­loitte, as noted here Fri­day, dis­cov­ered the project was at risk of fall­ing be­hind sched­ule by a year and of ex­haust­ing con­tin­gency funds and go­ing over bud­get.

The folks at De­loitte also turned their at­ten­tion to the cabi­net-posed op­tions of ei­ther sus­pend­ing the project un­til the need for the power was greater or ter­mi­nat­ing Site C al­to­gether.

The moth­balling sce­nario looked at a sus­pen­sion com­menc­ing Dec. 31 with a view to re­sum­ing con­struc­tion on Jan. 1, 2025. The seven-year shut­down would en­tail sig­nif­i­cant pay­outs to con­trac­tors and work­ers and to main­tain fa­cil­i­ties in a state where they could be used again come 2025. The site it­self would also have to be cleaned up and main­tained in keep­ing with ex­ist­ing en­vi­ron­men­tal per­mit­ting.

De­loitte es­ti­mates that sus­pen­sion would cost at least $1.4 bil­lion, with sev­eral as­ter­isks: “It does not in­clude po­ten­tial ad­di­tional costs (due to de­sign changes, mar­ket con­di­tions, etc.) which B.C. Hy­dro may in­cur af­ter re­sum­ing con­struc­tion in 2025. … Our es­ti­mate does not in­clude in­cre­men­tal in­ter­est costs in the event of a sus­pen­sion (or) in­fla­tion im­pacts.”

Some big “ifs” there. But the op­tion of putting the project on hold and re­sum­ing it at a later date does pro­vide cover for the NDP de­ci­sion to al­low con­struc­tion to pro­ceed pend­ing the out­come of the process with the util­i­ties com­mis­sion.

Site C crews are work­ing around the clock — days, nights and week­ends — ac­cord­ing to Hy­dro’s reg­u­lar up­dates, much to the con­ster­na­tion of those who want it killed straight away.

The De­loitte re­port also weighs the op­tion of shut­ting down the project per­ma­nently come Dec. 31, re­mov­ing the fa­cil­i­ties, set­tling up with con­trac­tors, and restor­ing the site to a rea­son­able sem­blance of the way it was when con­struc­tion be­gan in the sum­mer of 2015.

“The ob­jec­tive would be to re­turn the site to nat­u­ral con­di­tions ca­pa­ble of sup­port­ing nat­u­ral veg­e­ta­tion and wildlife,” says the re­port in ex­plain­ing why that would en­tail years of restora­tion and a decade of en­vi­ron­men­tal fol­lowup.

The es­ti­mated cost of the ter­mi­na­tion sce­nario is $1.2 bil­lion, which is not as ex­pen­sive as sus­pen­sion. But it also comes with some caveats, for it nei­ther in­cludes in­cre­men­tal in­ter­est costs, nor in­fla­tion im­pacts.

Plus there is the murky mat­ter of set­tling up with In­dige­nous peo­ple in the re­gion. B.C. Hy­dro has signed a broad range of agree­ments with a half-dozen First Na­tions, pro­vid­ing cash up front, work for band mem­bers and na­tive-owned com­pa­nies, land trans­fers and ad­di­tional ben­e­fits and pay­ments over pe­ri­ods of up to 70 years.

These were ne­go­ti­ated and ad­min­is­tered un­der strict con­fi­den­tial­ity, with few de­tails made public, in part to pro­tect Hy­dro’s ne­go­ti­at­ing po­si­tion with First Na­tions that have not yet set­tled.

De­loitte gained suf­fi­cient ac­cess to the terms to gen­er­ate high and low es­ti­mates for the pay­outs that would be as­so­ci­ated with ei­ther sus­pen­sion or ter­mi­na­tion.

But the break­downs are blanked out in the re­port to pre­serve con­fi­den­tial­ity, leav­ing the public to guess at the im­pli­ca­tions.

More­over De­loitte warns there may be ad­di­tional costs, aris­ing from le­gal ac­tion and/ or pro­por­tional pay­outs to hold­out First Na­tions whose tra­di­tional ter­ri­to­ries have been im­pacted by the work done to date.

As well there is the mat­ter of the amount spent to date on the project.

The “burn rate” on the Site C bud­get, to cite the lovely phrase used in the De­loitte re­port, is about $60 mil­lion a month or $2 mil­lion a day. By the Dec. 31 tar­get date for ei­ther sus­pen­sion or ter­mi­na­tion, Hy­dro will have spent in the or­der of $2.2 bil­lion with noth­ing to show for it in the way of an in­crease in its abil­ity to gen­er­ate elec­tric­ity.

In­clud­ing the write­off, the all-in cost of ter­mi­na­tion would be more like $3.5 bil­lion, leav­ing Hy­dro to seek al­ter­na­tives to meet fu­ture power de­mand, when­ever it arises.

There are al­ter­na­tives, de­tailed in a sep­a­rate re­port from De­loitte run­ning some 140 pages. But those are sub­ject to another range of un­cer­tain­ties, not least that each would have to un­dergo eco­nomic, en­vi­ron­men­tal, and po­lit­i­cal re­view, as well as con­sul­ta­tion and ac­com­mo­da­tion with af­fected First Na­tions, in a prov­ince where it is in­creas­ingly dif­fi­cult to build any­thing, any­where near any­body.

In any event, all that is up to the cabi­net.

Next Wed­nes­day’s pre­lim­i­nary re­port from the com­mis­sion will be fol­lowed by a round of public con­sul­ta­tions, then a fi­nal re­port to cabi­net due Nov. 1.

But the com­mis­sion has al­ready in­di­cated the fi­nal re­port will con­tain no rec­om­men­da­tions, only a range of es­ti­mates and pos­si­bil­i­ties that will leave it to the politi­cians to make the fi­nal call on the fate of Site C. Vpalmer@post­media.com Twit­ter.com/Vaugh­nPalmer

In­clud­ing the write­off, the all-in cost of ter­mi­na­tion would be more like $3.5 bil­lion, leav­ing Hy­dro to seek al­ter­na­tives to meet fu­ture power de­mand, when­ever it arises.


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