B.C. HYDRO HAS HISTORY OF SHOCKING OVERRUNS
There is plenty of blame to go around for ‘Fawlty Towers’ project fiasco
Energy Minister Michelle Mungall reacted strongly Wednesday afternoon to the news of a $100-million loss for B.C. Hydro in a contract dispute over construction of a major transmission line.
“I’m not happy,” Mungall told me outside the legislature chamber. “It’s a lot of money.” Money that could have been used for other, better purposes, she added.
She was referring to Hydro ending up on the losing side of an arbitration with the prime contractor on the Interior-Lower Mainland (ILM) transmission line, a 247-kilometre-long upgrade to the provincial power grid, stretching from Merritt to Coquitlam.
The project was troubled from the outset, including delays brought on by failure to properly consult First Nations and problems with substandard steel that led New Democrat Adrian Dix to dub it “Fawlty Towers.”
At one point, Hydro became so frustrated with the contractor, it took back control of a section of the line near Spuzzum and built that stretch itself.
The utility and the contractor, the Flatiron- Graham Joint Venture (FGJV ), remained at odds when the line was up and running in the fall of 2015, a year behind schedule and well over the initial cost estimate.
That led to the arbitration, which concluded with an award in favour of the contractor that Hydro pegs at $95 million to $105 million, including interest. The total is still subject to clarification and possible appeal.
The arbitrator found Hydro responsible for changes in the project and for issues related to access to private land and archeological sites along the route. FGJV was awarded additional contract payments for delays, disruptions in the construction schedule and loss of productivity.
By way of consolation, Hydro noted the final award fell well short of the full claim by the contractor, “ranging in value over time from $285 million to $360 million.”
Still, the decision was punishing enough. The line was initially costed at $602 million when first included in the provincial capital plan back in 2009. When completed in the fall of 2015, the cost was put at $723 million.
The arbitration award would push the all-in cost as high as $828 million, 38 per cent over that initial figure from 2009.
In reaction, the NDP minister of course noted that the overruns and mistakes had all occurred before the New Democrats took office.
She insisted the $100-million hit would not affect Hydro rates going forward because the utility made provisions for a loss on the arbitration.
Instead, her main concern was that Hydro focus on “the lessons to be learned from what went wrong ... so that this kind of thing doesn’t happen again.”
Echoing the minister’s words in an advisory filing to the B.C. Utilities Commission Wednesday was Hydro president Chris O’Riley.
“While the arbitration decision isn’t the outcome we were hoping for,” he wrote with characteristic understatement, “there are lessons learned we can take forward (and) several have already been implemented.”
Those included “potentially different contractual arrangements ... and management of interfaces between project activities and third parties.”
“B.C. Hydro has also made significant investments in systems and staff to improve contract management and understanding of contractor performance to allow better project management on all B.C. Hydro projects.”
Dare one hope those improvements were put on the fast track for that little old $11 billion-and -counting B.C. Hydro project known as Site C?
As for the ILM, though the arbitration award itself is confidential, Hydro promises more detail on lessons learned and final project costs in a completion report to be filed this summer.
Nor is this the first time that a major transmission line has gone wildly over budget. The Northwest Transmission line, costed at just $395 million when Christy Clark became premier, underwent multiple upward revisions, the last of which was announced just days after Clark was re-elected in 2013.
The final tab came in a $716 million, for an overrun of more than 80 per cent, in comparison to which the experience on the ILM almost looks like an exercise in cost control.
The Northwest Transmission Line overrun produced memorable explanations from then-energy minister Bill Bennett.
He said the initial costing was nothing more than a “guess,” framed to elicit a favourable cost-sharing arrangement with the federal government. “They wanted to try to squeeze some dollars out of the federal government on this so they had to have a price,” he confessed.
Ottawa, knowing a thing or two about how provinces play the cost-sharing game, capped its contribution at $130 million, leaving B.C. on the hook for the rest.
Bennett also had this explanation for over-runs on construction: “They’ve done 10 times more blasting than they expected to do.” Blasting ? In the mountains of B.C.? Who could have foreseen such a thing ?
When news broke of the overrun in June 2013, Bennett’s initial reaction was a lot like that of Mungall this week.
“We’re not pleased,” he told the legislature. “I will be meeting often, quickly, with B.C. Hydro to determine how this happens. Our government does not support this way of managing capital projects, and we will get to the bottom of it.”
He also said “this is not the first surprise that I’ve had from B.C. Hydro, and I am pretty sure it is not going to be the last one.”
For cabinet members in charge of B.C. Hydro, that may be the most important lesson of all. Over to you, Minister Mungall.
This is not the first surprise that I’ve had from B.C. Hydro, and I am pretty sure it is not going to be the last one.
BILL BENNETT, Liberal energy minister in 2013