Re: Submissions of the Muskrat Falls Concerned Citizens Coalition regarding a request for suggestions of potential topics for Phase III of the Inquiry.Read Now
February 22, 2019
Commission of Inquiry Respecting the Muskrat Falls Project
5th Floor, Suite 502, Beothuk Building
20 Crosbie Place, St. John’s, NL A1B 3Y8
Re: Submissions of the Muskrat Falls Concerned Citizens Coalition regarding a request for suggestions of potential topics for Phase III of the Inquiry.
Thank you for the opportunity to provide suggestions on potential topics and witnesses for Phase 3 of the Inquiry.
The following are our suggestions:
THE NORTH SPUR
At paragraph 41 of the Commissioner’s decision on the Terms of Reference he states that “I must consider whether appropriate or proper consideration was given and actions taken regarding potential risk to the environment, human safety and property relating to the stability of the North Spur and methyl mercury contamination.”
We have provided you with a copy of a report prepared by Dr. Stieg Bernander and Dr. Lennart Elfgren in response to a peer review of their earlier work on the North Spur.
We had hoped that they would have been called during the second phase given the Commissioner’s statement above.
They submitted their report to the Minister of Natural Resources on October 2, 2018 and recommended that an independent review panel be appointed to review the stability of the North Spur. There has been no response from the Minister.
We ask that you set aside time during phase 3 to hear their concerns. Given that the reservoir will be filled this Fall it is important that their concerns be given a public airing at the Inquiry. Perhaps members of the Nalcor appointed peer review committee could be called to respond.
At paragraph 44 of the Commissioner’s decision on government oversight he notes that as part of the oversight of government he will examine “the governance models employed” by both government and Nalcor.
This issue is also canvassed in paragraph 48 of the decision where the Commissioner refers to “governance and transparency issues related to public accountability.”
It is evident that there was considerable deference shown to Nalcor by senior government officials.
The Inquiry has engaged expert opinion on the governance of crown corporations but not on public administration.
We suggest that an expert in public administration be engaged to provide an opinion on best practices in public administration with particular reference to the relationship between the public service and crown corporations who propose major public works projects.
Both Mr. Vardy and Mr. Penney have had extensive public service experience at the highest level and would be happy to participate in a round table with the author of such an expert report.
BALANCING RATEPAYERS’ INTERESTS WITH THOSE OF TAXPAYERS
At paragraph 49 of his decision the Commissioner notes that section 5(e) of the Terms of Reference require him to “consider the need to balance the ratepayers’ interests with those of taxpayers in carrying out a large-scale publicly-funded project. He goes on to state that he takes “this to mean that the Commission must look to how to balance or apportion the financial costs of an electrical generation project like Muskrat Falls as between power consumers and all of the Provinces’ taxpayers.”
We recognize that following the calling of the Inquiry the government has referred a series of questions to the Public Utilities Board on rate mitigation.
However, the questions are all related to what measures can be taken to ameliorate the costs to the ratepayers but do not address what will likely be required from taxpayers. That will only be known once the PUB gives estimates on what revenues can come from the initiatives it suggests.
While we recognize that it will not be possible for the Commissioner to determine what that figure will be, given that the final report from the PUB will not be available to the Commission before it is due to submit its report, it is clear from the Reference question that it was anticipated that there would be a requirement for a contribution from the taxpayer, notwithstanding public comments to the contrary from the Premier last Fall.
As part of the answer to the reference question we believe it is important to understand what the fiscal capacity of the Province is to take on some of the financial burden of Muskrat Falls and what impact the project will have on the Province.
We ask that the Commission appoint an independent financial expert to quantify the “balance” described in section 5(e) of the Terms of Reference by measuring the allocation of costs and risks among the various parties to the Muskrat Falls project, namely the ratepayers of this province, its taxpayers, Emera Energy and the federal government, based on the agreements and arrangements at the time of project sanction and how the balance has now changed. This assessment should include the risks associated with the completion guarantee and with any indemnification or guarantees for which the province may be responsible as a result of the federal loan guarantee.
In undertaking this examination, we ask that the annual costs of the project, otherwise known as “revenue requirements”, be placed on a consistent and comparable footing, using the traditional “cost of service methodology” and not on the “escalating supply price” methodology which Nalcor has used to defer a large share of the cost of equity capital from early to later years. The expert should measure the costs and risks imposed upon the province through the use of the “escalating supply price” methodology for generation assets and compare it with those which would exist if the cost of service methodology which Nalcor has used for the Labrador Island Link were applied to the entire project.
Both Nalcor and the government of Newfoundland and Labrador treated the project as self-supporting. The expert report should measure the likely revenues from rates and assess the prospect that the project will be self-supporting. Finally, we ask that this review provide an assessment as to how the project impacts on the overall financial position of the province and its credit ratings, particularly if the project is not self-supporting.
Fortunately, we have had reports from our Auditor General and the Parliamentary Budget Officer on the state of our public finances and our long-term financial sustainability and we suggest that they be invited to present their findings to the Inquiry during Phase 3 along with the report of the independent financial expert whose work is described in the previous paragraphs.
Finally, we have heard evidence presented during Phase II which confirms that the Government did not undertake a Risk Assessment of the Muskrat Falls project on the provincial treasury. A focus of discussion during Phase III ought to place a spotlight on Risk and the necessity for governments to undertake risk analyses in relation to decisions to invest in large-scale projects, whether hydro, oil and gas or others, taking into consideration our (limited) fiscal capacity, population size and demographic trends.
Trusting the above to be satisfactory.
Yours very truly,
BUDDEN & ASSOCIATES,
WILLIAM A.F. HISCOCK