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Inquiry slams Nalcor's C$12.7B Muskrat Falls hydro project as misguided

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Inquiry slams Nalcor's C$12.7B Muskrat Falls hydro project as misguided

Nalcor Energy and its owner, the government of Newfoundland and Labrador, allowed the giant Muskrat Falls (Lower Churchill Project) to proceed based on faulty, misleading or withheld information, leading to the massive cost overruns that threaten the profitability of the nearly complete project.

A provincial Commission of Inquiry, led by Justice Richard Leblanc, found that the province "failed in its duty to ensure that the best interests of the province's residents were safeguarded" as it allowed the project to move ahead. Leblanc's investigation determined that the government had predetermined the project's fate and did not adequately consider information that could have led to the project being shelved before construction started.

The government "failed in its responsibility to objectively assess and oversee the decisions and actions of Nalcor," said the report, which was released to the public March 10. "Before project sanction, it would have been very easy for Nalcor and [the government] to have educated themselves on the history of cost overruns and schedule delays for megaprojects and their failure to do this is indefensible. Surprisingly, [the government] failed to conduct a thorough assessment or review of the potential impact of undertaking a megaproject such as the Muskrat Falls Project, and of its potential cost overruns, on the future financial position of the province."

Muskrat Falls was originally slated to cost C$6.2 billion. The project's cost is now pegged at C$12.7 billion, including financing costs, and represents approximately 30% of the sparsely populated province's total debt. The 824-MW project, which is more than two years behind scheduled completion, was designed to provide power to Newfoundland and Canada's Atlantic provinces through a network of land and undersea high-voltage, direct-current transmission lines operated by Emera Inc., which is based in Halifax, Nova Scotia. Surplus power from Muskrat Falls, which is also known as the Lower Churchill Project, was also expected to be exported to the U.S. Northeast.

The project was initiated by the right-leaning Progressive Conservative party that Dwight Ball's Liberals replaced in 2015. Ball is stepping down as premier later in 2020. He said the findings of the inquiry, which comprise six volumes and more than 1,000 pages, will be submitted to police and provincial officials for possible further action. He was particularly critical of the previous government's decision to remove oversight of the project from the Public Utilities Board, or PUB, an arm's-length provincial regulator.

The report "states that taking the Public Utilities Board out in 2012 was a mistake by that government," Ball said at a March 10 news conference. "They didn't give the PUB a chance to protect ratepayers in this province. If the Public Utilities Board had been involved from the very beginning, there is a very good chance we wouldn't be here today."

The project was eventually referred to the commission in a so-called Reference Question, but the information provided to the regulator hampered that process, the report said.

"Nalcor's actions, inaction and general conduct frustrated and undermined the PUB's efforts to discharge its important responsibilities in a timely and efficient manner," the report said. The company refused to provide the regulator with up-to-date cost and schedule information which "eliminated any real possibility that the PUB would be able to answer the Reference Question."

Beyond referring the report to authorities for further review, Ball did not offer insight into what steps the province would take next.

"We are saddled with the burden of Muskrat Falls and will be for generations to come," Ball said at the news conference.