The federal and provincial governments are due to decide by Oct. 22 whether to grant environmental approval for BC Hydro's proposed Site C dam. Even if the certificates are landed, the final hurdle remains whether Premier Christy Clark's cabinet will approve the financing for the $7.9-billion project, currently the biggest infrastructure project on the books in the country.
Just weeks away from that decision, the price tag for Site C remains in doubt.
BC Hydro and, by extension, the provincial government, earned a significant rebuke over the cost estimates last spring from the joint environmental review panel that looked at the Site C dam.
In its final report, the panel concluded BC Hydro had not made the case for Site C. It did find that the province will need more power, and that the Site C dam appears to be the most economical solution with the smallest output of greenhouse-gas emissions. But BC Hydro's assurances about its "robust, peer-reviewed" forecasts – primarily a report from the accounting firm KPMG – did not impress the panel's members.
During the hearing, the panel challenged BC Hydro on the budget, asking the Crown to "provide a summary of KPMG's credentials to review an engineering undertaking such as capital costs and explain why a credible independent engineer was not utilized rather than an accounting firm."
Without a satisfactory response, the panel's final report left the issue under a cloud.
"The panel cannot conclude on the likely accuracy of project cost estimates … If it is decided that the project should proceed, a first step should be the referral of project costs and hence unit energy costs and revenue requirements to the B.C. Utilities Commission for detailed examination."
The province, impatient to get on with the project it had promised to build, refused to submit to a hearing by the independent regulator. Energy and Mines Minister Bill Bennett instead would rely on the KPMG review, which was based on numbers produced by BC Hydro four years ago.
Now, with the final investment decision due in November, Mr. Bennett says the accounting firm has been asked by BC Hydro to double-check its math.
"They have KPMG going over their models and how they arrived at costs," he said in an interview.
BC Hydro officials say the accountants are just refreshing the numbers, but it is not clear that KPMG has been given greater latitude to conduct what would pass for due diligence in the private sector.
KPMG submitted its initial review in May, 2011. At the time, the accounting firm noted that it relied on the documentation that was made available to it by BC Hydro. KPMG did not verify the commercial risks. It did not offer an opinion on whether the financial projections were realistic. It did not assess whether BC Hydro's assumptions were complete. "In some instances, no source document was provided to support these … numbers" in the financial model, the firm's review said.
After all those caveats, KPMG affirmed that the model that produced the $7.9-billion estimate was reasonable and appropriate.
BC Hydro insists that its numbers are solid: The project team worked with contractors who have recent experience in hydroelectric construction. That isn't the same as having an outside engineering firm or the utilities regulator sift through the assumptions. For a project of this magnitude, it is strange there has been no desire to gain the confidence that an in-depth, independent analysis could bring.
Mr. Bennett will carry the can if the project costs do run out of control. He may not have to make the call, of course, if the two levels of government do not provide environmental certificates. And, in light of the problems identified in the panel's report about negative impacts to wildlife and to First Nations' rights, that is not a given. But if the project moves forward, "I know I'm headed to a place where I have to say I have confidence in the numbers and I'm almost there," Mr. Bennett said.
The B.C. cabinet has promised to make its final investment decision in November. The updated numbers from KPMG are also due in November, leaving no time for any further second-guessing.