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Muskrat Falls inquiry won’t save Newfoundlanders from a $12.7-billion sinkhole

Seven years ago this month, when then Newfoundland premier Danny Williams announced the province would go ahead with the now cursed Muskrat Falls hydroelectric project on the Lower Churchill River in Labrador, he proclaimed the moment "would go down in history as the day that finally eclipses that day back in 1969 when the Upper Churchill agreement was signed."

He's turned out to be right, just not in the way Newfoundlanders had imagined.

Instead of providing an antidote to the bitterness engendered by an Upper Churchill contract that overwhelmingly favours Quebec, Muskrat Falls has become an albatross that threatens the province's very solvency. Most Newfoundlanders now rue the day Mr. Williams approved it.

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A public inquiry launched this week by current Premier Dwight Ball will examine how this was allowed to happen. While the inquiry promises to rub salt in the wounds by exposing the faulty assumptions, political considerations and inadequate checks and balances that led to the project's approval, it is a necessary exercise that will provide lessons for all Canadians.

That's because there is a similar story to tell in almost every province. Whether it involves provincially-owned hydroelectric behemoths in British Columbia, Manitoba or Quebec, or the Crown-owned nuclear-dominated Ontario Power Generation, politically-driven energy policies across Canada have saddled ratepayers and taxpayers with billions of dollars in extra debt.

The inquiry into the 824-megawatt Muskrat Falls project by Justice Richard LeBlanc of the Supreme Court of Newfoundland comes too late to save the province from a $12.7-billion sinkhole that will see consumers in Newfoundland pay more than 100 times for their electricity what Hydro-Québec now pays for power from the 5400 MW Upper Churchill development.

Though the inquiry, which must table its final report by the end of 2019, will not be able to make findings of criminal or civil responsibility for the Muskrat Falls fiasco, it promises to shed light on a recurring pattern in provincial energy policy-making across Canada. In too many instances, politicians and the Crown-owned energy entities they control have hidden or lowballed the risks inherent to their megaprojects. And they've gotten away with it by exempting these projects from a preapproval review by provincial energy regulators.

It's only after construction contracts are awarded, shovels are in the ground and thousands of workers are hired that the economic folly of these projects becomes apparent to all. Costs spiral upward – twofold so far in the case of Muskrat Falls. There are eerie parallels in British Columbia's $9-billion Site C hydro project and the $8.7-billion Keeyask dam in Manitoba. OPG's $12.8-billion refurbishment of the Darlington nuclear facility risks following the same path.

The Muskrat Falls inquiry will examine whether the Progressive Conservative governments of Mr. Williams and his successors Kathy Dunderdale and Paul Davis had all the information necessary to make the right calls along the way, or whether they were kept in the dark by management at Nalcor, the provincial energy company overseeing the hydro project. Justice LeBlanc will be able to review all cabinet records, subpoena Nalcor files and former executives and order a forensic audit of the project. While Indigenous groups opposed to the project will have standing, the inquiry will not specifically examine their environmental concerns.

In June, Mr. Ball, a Liberal elected in 2015, released a 2013 report prepared for Nalcor by SNC-Lavalin that warned the Crown corporation of major risks and cost overruns that Nalcor is now accused of burying. Montreal-based SNC-Lavalin had been awarded the contract for engineering, procurement and construction management at Muskrat Falls. The firm had long lobbied for the project, arguing joint development of the Lower Churchill's hydro potential by Newfoundland and Quebec would enable the provinces to bury the hatchet over Churchill Falls.

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That, of course, never happened. The lopsidedness of the original Churchill Falls contract and Quebec's refusal to renegotiate it prompted Newfoundland to go it alone on Muskrat Falls, a project far too large for such a tiny province. Newfoundland and Quebec, meanwhile, are headed to the Supreme Court of Canada next month to settle a dispute over water rights on the Churchill River that threatens Muskrat Falls's ability to generate as much power as Newfoundland claims it will.

Newfoundland's hopes for energy export contracts for Muskrat Falls power, through an underwater transmission link to Nova Scotia and from there on to the United States, are unlikely to ever materialize – or at least not at prices that would come close to covering the project's costs.

It's a Shakespearean tragedy, in a Newfoundland accent.

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About the Author

Columnist Konrad Yakabuski writes on politics, policy and business for The Globe and Mail’s Comment section and Report on Business. More

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