Cascading and compounding mistakes may be leading BC to an $8-billion loss.
ON A TROUBLED PROJECT, there is a tendency for every sequential decision to narrow the options and increase the costs of the next one. Path dependency, once it has set in, makes out-of-the-box thinking harder and harder since it requires the proponent to say, “I was wrong.” This is one reason why democracies, with their habit of changing ruling parties every so often, are often economical. Quite radical decisions to staunch bleeding can be easily taken when there is a failed predecessor to blame.
Poor John Horgan! He paused—and plunged forward. When he took office in the spring of 2017, he brought with him the hopes of many, which he had encouraged, that the Site C project would be cancelled. Fearful that his predecessor had indeed already gone past the point of no return financially, as she had promised, he asked the BC Utilities Commission for advice.
BC Premier John Horgan made a number of costly errors
He did so without purging the BC Hydro Board of incompetent Liberal placemen who had no business on the board of a large utility. Its management of dreamers (“We’re dam builders!”) hadn’t built a dam since the 1980s and had no one on staff who had, but were still transfixed by Wacky Bennett’s vision of a BC with cheap power and flooded valleys. The new government also failed to purge the provincial bureaucracy, whose relevant senior jobs were filled by men (obviously) consumed by the same theology. One of them was asked to draft terms of reference for the Utilities Commission. First mistake. These folks were not Horgan’s friends.
The Commission, with a short deadline and a restricted mandate, answered the questions asked, with evidence that came principally from the proponent BC Hydro. Despite some manful attempts to smuggle a few home truths into the text, such as around over-capacity and flat demand, the government allowed the Commission’s analysis to be savaged by the provincial bureaucracy. Second mistake. Premier Horgan and his Cabinet should have asked for the views of external critics as well.
In consequence, the Premier wound up accepting, with a degree of public reluctance, a decision that flew in the face of basic textbook advice about the fallacy of sunk costs. He decided that explaining a $3-billion dead loss to an electorate conditioned to expect profligacy from a left-wing government—a minority government at that, dependent on three Green Party votes for its continuance in office—was too high a risk, and opted to continue construction. Third and fundamental error. The opportunity to blame the Liberals winked out.
Continuing construction required reposing trust in the general contractor, a Spanish firm that won the contract with an underbid and a local partner firm that shortly collapsed. Horgan, newly cautious, might have asked why none of the great Canadian dam constructors decided to bid, but apparently didn’t. Fluor and Bechtel, large and experienced US firms in the same time zone, passed. Low bid won. The subsequent history of poor quality control by a firm without relevant experience (the 800 MW they claimed to have built was in some 50 projects, none of which were in countries with cold winters) meant change orders—change orders that upped the price and ate more time.
Even as his options narrowed, the Premier was wary of BC Hydro’s blithe promises about cost controls and engineering competence. He appointed a Project Assurance Board to continuously monitor BC Hydro’s promises, and a Technical Advisory Board of engineers and scientists. But—fourth mistake—he allowed the inmates to appoint the wardens and, suspecting the make-up of these boards would not withstand public scrutiny, acquiesced in a degree of secrecy of North Korean quality. The membership was unknown, though a director of BC Hydro and former chief engineer on the Site C project chaired the Assurance Board. Their expert advisers were unnamed. Their reports were classified.
Horgan’s new Assurers were mostly the people who had designed the project in the first place, or were technically incompetent BC Hydro Board members. There were no genuine outsiders— people without past, present, or anticipated future financial connections to BC Hydro. BC Hydro’s reliance on its own staff for technical and economic advice, or on that of engineering firms in receipt of large fees and hoping for more, or on provincial officials still starry-eyed by the Bennett dream, continued unabated.
By late 2017 it became apparent even to outsiders that something was rotten in Denmark. Vern Ruskin, 94, a retired BC Hydro chief engineer from the glory days of half a century past, had been warning all and sundry that there were unexamined geotechnical and dam safety problems with the novel dam design and the crumbly rock below. He recommended engaging world-class experts for an independent review. Nothing was done. In 2019, the drillers of the diversion tunnels on the left bank encountered unexpected high-pressure water in unconsolidated gravels which required unplanned money and time to fix. Grout sellers rejoiced.
Seismicity related to nearby gas well fracking was well beyond predictions, both in frequency and strength. All demands for external review were brushed aside by BC Hydro. The government took no action. Fifth mistake.
The history of doubling down as costs rose was now habitual.
By January 2020 the problems could no longer be hidden even by the tame Project Assurance Board. BC Hydro and its owner squirmed as the news kept getting worse through the first half of the year. On July 31, a Friday, on the eve of a long summer weekend, BC Hydro at last confessed via press release that “unexpected” geotechnical problems had arisen under the concrete powerhouse and spillways they had just completed on the right bank. The current $10.7 billion cost estimate was out the window, and the schedule would have to be recalculated after more remedial engineering. They would report back later in the fall. In the meantime, the Premier said, he would appoint Peter Milburn, a retired engineer and former deputy minister of finance, to investigate and report back.
The immediate joke in Fort St John was that the 1.5 million ton powerhouse had already slid two or three inches toward Alberta. Unique in the world, its design called for a concrete powerhouse at right angles to an earthfill dam.
View of the spillway headworks, stilling basin, intakes, penstocks and powerhouse in June 2020 (BC Hydro photo)
Elsewhere suspicion sprang up that there would be an election in October.
Mr Milburn‘s terms of reference were not released. However, despite the focus on dam safety, he had no independent expert assistance and was at the mercy of BC Hydro, its contractors, and the hapless Project Assurance and Technical Advisory Boards, which had obviously failed. Error six.
In January 2021, Milburn’s report (and, presumably, the long-promised BC Hydro response to their confessions of July 2020) were reportedly on the Cabinet table—which august body discovered that Milburn could not provide a definitive answer to the go/no go question because he had not been provided with the resources to find out and had no capacity independently to review the doubtless voluminous reports of BC Hydro and its contractors. The Premier announced that two renowned international experts would be hired to review the file again; meanwhile construction would continue.
What can the experts say? They cannot say the project is without risk; their professional reputations depend on having enough weasel words in their report so that if anything does go wrong they can say they warned the government. If they are really mean, they will not say it’s unsafe, either, thus leaving the Premier twisting slowly in a Peace River breeze, forced to make a fateful decision without unequivocal professional advice. If they say it’s not really safe the Premier will be forced to do, at great political and financial cost, what he should have done four years ago.
About $6.5 billion has now been spent, with more under contract, and a large but unconfessed sum has been lost in related lawsuits by First Nations, with more to come. On an unrelated matter, the inept managers of BC Hydro will have lost $1.15 billion by March 31 on interest rate hedges on their massive debt that have gone sour, some of it Site C-related. The gang that couldn’t shoot straight thought they could beat Goldman Sachs.
With the rockfill berm and upstream cofferdam complete, the Peace River flows through Site C’s twin diversion tunnels at centre-left (October 2020)
British Columbians are now well down that slippery slope that many had feared ever since the joint federal-provincial environmental review panel reported in 2014. Each step has made the next less avoidable. A project that was sold to Premier Campbell at $3.5 billion had grown to $6.9 billion by 2014, was shortly increased to $7.9 billion once the environment review was safely forgotten, and now sits somewhere well north of $10.7 billion. Estimates—not BC Hydro’s—are that the total could be between $12.5 and $14 billion, assuming the geological conditions will allow safe completion at all.
The price of kicking the can down the road has increased at every step. The dead-weight loss during the terms of the present government has at least doubled, to a probable total of more than $8 billion: $6.5 billion spent and a good bit more for liquidated damages and minimal land reparation.
The options facing the Premier and his government are increasingly unpalatable. Each choice is narrower, and the cost higher. The reputation of a government which soared on its handling of COVID-19 is being eroded by its embarrassing and increasingly public handling of the largest public works project in provincial history. If Premier Horgan chooses to finish the dam, the next election will coincide with the completion of the project—and the entry of Site C’s enormous cost to a rate base already stressed by having too much capacity. It’s far too late to blame things on their predecessors. The current government now “owns” the project in every sense. Mr Horgan must be praying that the latest reviews give him an excuse to cancel the project while blaming somebody else.
Harry Swain chaired the Joint Review Panel on Site C in 2013-14 and is a former deputy minister of Industry Canada. He lives in Victoria.
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Posted January 29, 2021 Cascading and compounding mistakes may be leading BC to an $8-billion loss. Go to story
Cascading and compounding mistakes may be leading BC to an $8-billion loss. ON A TROUBLED PROJECT, there is a tendency for every sequential decision to narrow the options and increase the costs of the next one. Path dependency, once it has set in, makes out-of-the-box thinking harder and harder since it requires the proponent to say, “I was wrong.” This is one reason why democracies, with their habit of changing ruling parties every so often, are often economical. Quite radical decisions to staunch bleeding can be easily taken when there is a failed predecessor to blame. Poor John Horgan! He paused—and plunged forward. When he took office in the spring of 2017, he brought with him the hopes of many, which he had encouraged, that the Site C project would be cancelled. Fearful that his predecessor had indeed already gone past the point of no return financially, as she had promised, he asked the BC Utilities Commission for advice. BC Premier John Horgan made a number of costly errors He did so without purging the BC Hydro Board of incompetent Liberal placemen who had no business on the board of a large utility. Its management of dreamers (“We’re dam builders!”) hadn’t built a dam since the 1980s and had no one on staff who had, but were still transfixed by Wacky Bennett’s vision of a BC with cheap power and flooded valleys. The new government also failed to purge the provincial bureaucracy, whose relevant senior jobs were filled by men (obviously) consumed by the same theology. One of them was asked to draft terms of reference for the Utilities Commission. First mistake. These folks were not Horgan’s friends. The Commission, with a short deadline and a restricted mandate, answered the questions asked, with evidence that came principally from the proponent BC Hydro. Despite some manful attempts to smuggle a few home truths into the text, such as around over-capacity and flat demand, the government allowed the Commission’s analysis to be savaged by the provincial bureaucracy. Second mistake. Premier Horgan and his Cabinet should have asked for the views of external critics as well. In consequence, the Premier wound up accepting, with a degree of public reluctance, a decision that flew in the face of basic textbook advice about the fallacy of sunk costs. He decided that explaining a $3-billion dead loss to an electorate conditioned to expect profligacy from a left-wing government—a minority government at that, dependent on three Green Party votes for its continuance in office—was too high a risk, and opted to continue construction. Third and fundamental error. The opportunity to blame the Liberals winked out. Continuing construction required reposing trust in the general contractor, a Spanish firm that won the contract with an underbid and a local partner firm that shortly collapsed. Horgan, newly cautious, might have asked why none of the great Canadian dam constructors decided to bid, but apparently didn’t. Fluor and Bechtel, large and experienced US firms in the same time zone, passed. Low bid won. The subsequent history of poor quality control by a firm without relevant experience (the 800 MW they claimed to have built was in some 50 projects, none of which were in countries with cold winters) meant change orders—change orders that upped the price and ate more time. Even as his options narrowed, the Premier was wary of BC Hydro’s blithe promises about cost controls and engineering competence. He appointed a Project Assurance Board to continuously monitor BC Hydro’s promises, and a Technical Advisory Board of engineers and scientists. But—fourth mistake—he allowed the inmates to appoint the wardens and, suspecting the make-up of these boards would not withstand public scrutiny, acquiesced in a degree of secrecy of North Korean quality. The membership was unknown, though a director of BC Hydro and former chief engineer on the Site C project chaired the Assurance Board. Their expert advisers were unnamed. Their reports were classified. Horgan’s new Assurers were mostly the people who had designed the project in the first place, or were technically incompetent BC Hydro Board members. There were no genuine outsiders— people without past, present, or anticipated future financial connections to BC Hydro. BC Hydro’s reliance on its own staff for technical and economic advice, or on that of engineering firms in receipt of large fees and hoping for more, or on provincial officials still starry-eyed by the Bennett dream, continued unabated. By late 2017 it became apparent even to outsiders that something was rotten in Denmark. Vern Ruskin, 94, a retired BC Hydro chief engineer from the glory days of half a century past, had been warning all and sundry that there were unexamined geotechnical and dam safety problems with the novel dam design and the crumbly rock below. He recommended engaging world-class experts for an independent review. Nothing was done. In 2019, the drillers of the diversion tunnels on the left bank encountered unexpected high-pressure water in unconsolidated gravels which required unplanned money and time to fix. Grout sellers rejoiced. Seismicity related to nearby gas well fracking was well beyond predictions, both in frequency and strength. All demands for external review were brushed aside by BC Hydro. The government took no action. Fifth mistake. The history of doubling down as costs rose was now habitual. By January 2020 the problems could no longer be hidden even by the tame Project Assurance Board. BC Hydro and its owner squirmed as the news kept getting worse through the first half of the year. On July 31, a Friday, on the eve of a long summer weekend, BC Hydro at last confessed via press release that “unexpected” geotechnical problems had arisen under the concrete powerhouse and spillways they had just completed on the right bank. The current $10.7 billion cost estimate was out the window, and the schedule would have to be recalculated after more remedial engineering. They would report back later in the fall. In the meantime, the Premier said, he would appoint Peter Milburn, a retired engineer and former deputy minister of finance, to investigate and report back. The immediate joke in Fort St John was that the 1.5 million ton powerhouse had already slid two or three inches toward Alberta. Unique in the world, its design called for a concrete powerhouse at right angles to an earthfill dam. View of the spillway headworks, stilling basin, intakes, penstocks and powerhouse in June 2020 (BC Hydro photo) Elsewhere suspicion sprang up that there would be an election in October. Mr Milburn‘s terms of reference were not released. However, despite the focus on dam safety, he had no independent expert assistance and was at the mercy of BC Hydro, its contractors, and the hapless Project Assurance and Technical Advisory Boards, which had obviously failed. Error six. In January 2021, Milburn’s report (and, presumably, the long-promised BC Hydro response to their confessions of July 2020) were reportedly on the Cabinet table—which august body discovered that Milburn could not provide a definitive answer to the go/no go question because he had not been provided with the resources to find out and had no capacity independently to review the doubtless voluminous reports of BC Hydro and its contractors. The Premier announced that two renowned international experts would be hired to review the file again; meanwhile construction would continue. What can the experts say? They cannot say the project is without risk; their professional reputations depend on having enough weasel words in their report so that if anything does go wrong they can say they warned the government. If they are really mean, they will not say it’s unsafe, either, thus leaving the Premier twisting slowly in a Peace River breeze, forced to make a fateful decision without unequivocal professional advice. If they say it’s not really safe the Premier will be forced to do, at great political and financial cost, what he should have done four years ago. About $6.5 billion has now been spent, with more under contract, and a large but unconfessed sum has been lost in related lawsuits by First Nations, with more to come. On an unrelated matter, the inept managers of BC Hydro will have lost $1.15 billion by March 31 on interest rate hedges on their massive debt that have gone sour, some of it Site C-related. The gang that couldn’t shoot straight thought they could beat Goldman Sachs. With the rockfill berm and upstream cofferdam complete, the Peace River flows through Site C’s twin diversion tunnels at centre-left (October 2020) British Columbians are now well down that slippery slope that many had feared ever since the joint federal-provincial environmental review panel reported in 2014. Each step has made the next less avoidable. A project that was sold to Premier Campbell at $3.5 billion had grown to $6.9 billion by 2014, was shortly increased to $7.9 billion once the environment review was safely forgotten, and now sits somewhere well north of $10.7 billion. Estimates—not BC Hydro’s—are that the total could be between $12.5 and $14 billion, assuming the geological conditions will allow safe completion at all. The price of kicking the can down the road has increased at every step. The dead-weight loss during the terms of the present government has at least doubled, to a probable total of more than $8 billion: $6.5 billion spent and a good bit more for liquidated damages and minimal land reparation. The options facing the Premier and his government are increasingly unpalatable. Each choice is narrower, and the cost higher. The reputation of a government which soared on its handling of COVID-19 is being eroded by its embarrassing and increasingly public handling of the largest public works project in provincial history. If Premier Horgan chooses to finish the dam, the next election will coincide with the completion of the project—and the entry of Site C’s enormous cost to a rate base already stressed by having too much capacity. It’s far too late to blame things on their predecessors. The current government now “owns” the project in every sense. Mr Horgan must be praying that the latest reviews give him an excuse to cancel the project while blaming somebody else. Harry Swain chaired the Joint Review Panel on Site C in 2013-14 and is a former deputy minister of Industry Canada. He lives in Victoria.
