SITE C TROUBLES BEGAN WITH TENSION CRACKS
Project at risk of facing further snarls, B.C. Utilities Commission review finds
From the day in mid-February that a huge tension crack opened on the north bank of the Peace River, upstream from the anchor point for the Site C dam, the controversial hydroelectric project has been in trouble.
The initial 400-metre behemoth and a second 250-metre crack that opened in May were the main contributors to B.C. Hydro falling a full year behind schedule on plans to divert the river and to go $600 million and counting over budget.
Nor is that the end of troubles associated with the unstable river bank, according to the final report of the B.C. Utilities Commission review, released Wednesday.
Hydro has engaged in a round of finger pointing over the resulting costs and delays with Peace River Hydro Partners, the main civil works contractor on the project.
In late summer, the partners filed a claim for a $327-million top up to the contract and a further 435day delay in the construction schedule. Hydro rejected the claim, but is still working on a plan to make up lost time and contain costs.
But as the four commissioners on the review panel noted in one of the most withering passages of their 300-page report:
“The panel is concerned that B.C. Hydro has not provided sufficient explanation regarding how it will work with PRHP to address the current challenges. Asserting that the approach ‘could include’ design modifications and other responses does not inspire confidence.”
Nor were some other things that turned up in the course of the 12-week-long review calculated to inspire confidence.
Brought in to vet Hydro’s budget and construction schedule, Deloitte LLP reported back that the utility had already run through three-quarters of the contingency budget for the main civil works contract, with only one-quarter of the work completed.
Following up on that observation, the commission panel challenged Hydro about possible overruns on work to come, most notably the budgeted $1.255-billion contract for the generating station and spillways.
Overruns are likely on that contract and others, Hydro conceded, while insisting that all would be covered from other parts of the contingency budget for Site C.
At commission prompting, Hydro also supplied a list of a dozen outstanding risks that could materialize over the remainder of the construction schedule.
One of the risks is related to the planned relocation of provincial Highway 29 on the north bank of the river, which has been delayed on orders of the New Democrats to allow more consultations with a local First Nation and residents in the path of the new route.
Hydro confessed that problems could arise from “significant settlement of the highway causeways approaching several new bridges due to unstable layer of shale bedrock” and/or the chance that the resulting “design does not meet Ministry of Transportation and Infrastructure safety requirements.”
Far from being an unlikely scenario, Hydro further estimated there was a 60 per cent chance that one or both factors would materialize, close enough to a sure thing.
The transportation ministry insists there is still time to relocate the highway before it is flooded by the rising waters behind the dam. But Hydro seems less confident about the workaround than when the New Democrats announced it back in July.
As for construction of the dam itself, the key consideration is still the target date for diversion of the river, which must happen in a low water window in the month of September.
The current target is 2020, a year later than the original. But Hydro argues that even with that delay, it can still meet the target for completing Site C in November 2024. Not so the commission: “The likelihood is that one or more of these (aforementioned) risks will occur. B.C. Hydro has schedule contingency built into each of its main contracts. However, the one-year schedule contingency built into the plan has now been consumed as a result of the delay to the river diversion. Any delays in these post-river diversion activities beyond the contingency built into specific contract schedules risks delaying the project beyond November 2024.”
In particular, “the panel does not share B.C. Hydro’s confidence that the river diversion will be achieved by September, 2020. Should the river diversion not be achieved until 2021, the Site C project would be delayed for another full year until November, 2025.”
Using Hydro’s own math, the additional one-year delay would add another $600 million to the budget, including direct and indirect construction costs, inflation and interest.
“Site C has already exceeded its budget, only two years into a nine-year schedule,” continues the commission in another unflattering assessment of Hydro’s project management. “Given the nature of this type of project and what has occurred to date, total costs may be in excess of $10 billion and there are significant risks that could lead to further budget overruns.”
Coupled with the commission’s findings that Hydro systematically overestimated future electricity demand and underestimated the value of alternative sources of power, the commission’s report added up to a very bad day for B.C. Hydro.
One can readily understand why, over the years, friendly governments have tried to insulate the Crown corporation from full-blown scrutiny by the utilities watchdog.
To its credit, the commission applied the same level of scrutiny to the option of cancelling Site C and replacing it with alternative power projects.
But that is a topic for another day.
Given the nature of this type of project and what has occurred to date, total costs may be in excess of $10 billion and there are significant risks.