National Post (Latest Edition)

Megaprojec­ts spell mega-ruin

- Brady Yauch Brady Yauch is an economist and Executive Director of the Consumer Policy Institute. bradyyauch@consumerpo­licyinstit­ute.org.

Government- owned power utilities across Canada have a costly, long- standing habit they can’t seem to kick: megaprojec­ts.

In B. C., Manitoba, Ontario and Newfoundla­nd and Labrador, public utilities are constructi­ng megaprojec­ts — typically defined as infrastruc­ture projects costing more than $ 1 billion — that will cost electricit­y customers, at current estimates, $ 43 billion. The final cost to electricit­y customers, already expected to result in double- or triple- digit rate increases, will be a great deal higher once these megaprojec­ts start generating power, given the track record of megaprojec­ts of consistent­ly coming in over budget and behind schedule. Two of the four megaprojec­ts, already deep into constructi­on, have experience­d cost overruns of more than 100 per cent and are years behind schedule.

But it’s not just the sticker shock that should worry ratepayers — and the taxpayers that will be asked to bail out publicly owned utilities should their megaprojec­ts bankrupt them. The integrity of the regulatory system establishe­d to protect customers from this type of reckless behaviour is another casualty. All along the way, the regulators that were explicitly put in place decades ago to protect ratepayers from uneconomic white elephants have been routinely ignored, undermined and, in one case, publicly disparaged.

In Manitoba, the $ 8.7- bill i on Keeyask dam being built by government- owned Manitoba Hydro is nearly triple the early cost estimates. Now, nearly a decade after the project was first proposed, Manitoba Hydro execs have finally come clean to customers on the magnitude of rate increases required to pay for the dam — nearly eight per cent annu- ally over the next five years. Unfortunat­ely for ratepayers, that admission came after the project hit an apparent “point of no return.”

In Newfoundla­nd and Labrador, the $ 12.7- billion Muskrat Falls hydroelect­ric megaprojec­t is now more than double the original price and its power may not be needed for more than a decade, if at all. The province’s regulator, required by law to review major capital projects to ensure they pass an economic smell test, was initially blocked from doing so by government decree. Only after a public outcry did the province allow a very limited review. The regulator called that limited review “torturous,” said it wasn’t afforded the necessary time or resources to do a proper review and, ultimately, failed to support the project. The province’s politician­s responded to that criticism by calling the regulator’s work a waste of time and money.

The regulator’s concerns weren’t unfounded — the new CEO of the province’s public utility now calls the project a “boondoggle.” Electricit­y rates are expected to more than double over current levels when the dam starts producing power.

In B. C. the province initially blocked its regulator from reviewing the $8.8-billion Site C hydroelect­ric project to determine if it offered good value for money. Worse, knowing the dam would require outsized rate increases that would be politicall­y unpalatabl­e, the province introduced legislatio­n that simply overruled the regulator and mandated how much it could raise rates each year. The difference between the public utility’s high costs and the low rates it was allowed to charge customers have been shunted into what are known as regulatory accounts and will be collected from future customers. Today’s low rates are simply a mirage. The province’s auditor general took the government to task for this use of accounting tricks, only to be ignored.

And in Ontario, Queen’s Park has routinely ignored — then dismantled — the regulatory system put in place to protect the public from nuclear megaprojec­ts gone awry. Rather than ensure the $ 12.8- billion refurbishm­ent of the Darlington station was subject to a public cost-benefit analysis, as was intended under the regulatory framework following the collapse of Ontario Hydro, the project was pushed through by the power of legislatio­n and blocked from a public review by the province’s regulator.

Already facing a public backlash from rising electricit­y rates, the province also used the legislatur­e to prevent its regulator from passing on the full cost of refurbishi­ng the nuclear plant and, instead, artificial­ly lowered rates in the near- term by kicking those costs to future ratepayers — a manoeuvre it calls “rate smoothing.”

The common theme among all of these megaprojec­ts is that none of the public utilities pushing them faces any discipline through competitio­n and market forces. Private companies t hat lack access to government guarantees or generous subsidies avoid mega-dams and nuclear projects. And unlike government utilities, their shareholde­rs can’t use legislatur­es to thwart the regulatory hurdles that would ordinarily stop wildly uneconomic projects.

Public utilities and their political masters, in contrast, ultimately have no need to fuss with regulators. When the cost estimates, schedules and need for megaprojec­ts become fantasies, politician­s simply shut the regulators down and rely on taxpayers to bail them out of their poor decisions.

NONE OF THE PUBLIC UTILITIES FACES ANY DISCIPLINE THROUGH COMPETITIO­N AND MARKET FORCES.

 ?? ANDREW VAUGHAN / THE CANADIAN PRESS FILES ?? The constructi­on site of the hydroelect­ric facility at Muskrat Falls in Newfoundla­nd and Labrador in 2015.
ANDREW VAUGHAN / THE CANADIAN PRESS FILES The constructi­on site of the hydroelect­ric facility at Muskrat Falls in Newfoundla­nd and Labrador in 2015.

Newspapers in English

Newspapers from Canada