In only its earliest phases of construction, the Site C dam project has already spent more money than projected and missed key benchmarks, threatening to undermine Premier Christy Clark’s commitment to taxpayers to keep the project on budget and on time.
BC Hydro documents filed June 10 with the province’s independent public utility watchdog, the B.C. Utilities Commission (BCUC), show that that Site C expenditures totalled $314 million more at the end of March than was originally budgeted for that date.
The same documents, reviewed by DeSmog, also flag the potential for cost overruns if interest rates climb, taxes increase or the Canadian dollar continues to depreciate over the projected eight remaining years the dam is under construction.
More than $1.4 billion of Site C’s $8.8 billion price tag consists of interest payments, and twenty percent of its capital costs are based on foreign currency.
“The project is monitoring and evaluating some specific cost pressures and is conducting detailed budget reviews to identify opportunities for savings,” BC Hydro said in its quarterly progress report to the utilities commission, noting that Site C’s overall cost forecast remains “on track.”
Despite Hydro’s assertion that the project’s total price tag will not increase, the Crown corporation’s latest report is an early indication that the Site C dam may be headed the way of major hydroelectric projects worldwide, which have posted average cost overruns of 56 percent.
Former BC Hydro CEO Marc Eliesen said the higher than projected expenditures by March are not at all surprising, especially given that Site C is proceeding “without due diligence.” In 2010, the provincial government changed the law to exempt the BCUC from decision-making authority to determine if the project was in the best interests of British Columbians.
“We can expect nothing but escalating increases in the future if Site C is to go ahead,” Eliesen said in an interview with DeSmog. “This is scheduled to become a big white elephant.”
Eliesen predicts that Site C’s final price tag will be $11 to $12 billion. He points to last week’s announcement that the cost of Labrador’s Muskrat Falls hydroelectric dam has ballooned to $11.4 billion, from $7.4 billion in 2012, as an indication of what will happen with Site C.
As Newfoundland and Labrador consumers face huge hydro bill increases, the man in charge of Muskrat Falls, Nalcor Energy CEO Stan Marshall, admitted the project was too large and “not the right choice” but said it is too late to discontinue building.
“If [Site C] goes ahead this is exactly what B.C. ratepayers face,” said Eliesen. “They will be paying rates among the highest in the country.”
Notably, the Joint Review Panel that examined Site C for the federal and provincial governments said it could not conclude on the likely accuracy of Site C’s cost estimates because the panel did not have “the information, time, or resources.”
Premier Clark, who visited the Peace River region June 19, made no acknowledgement of higher than projected Site C spending or tardiness in meeting this year’s major benchmarks. Choosing her words carefully, the Premier said the government must ensure “we don’t go overtime, we don’t go over budget.”
BC Hydro attributes the spending variance to early expenditures for workers’ accommodation facilities and the main Civil Works contract, according to the quarterly report, which also notes that BC Hydro “has encountered challenges in the early stages of mobilization” of the main civil works contractor.
The $1.75 billion civil works contract, the largest single Site C contract, was awarded last December to a consortium called the Peace River Hydro Partners, which is responsible for building river diversion tunnels and constructing the 60-metre high dam across the Peace River. The consortium includes ACCIONA Infrastructure Canada Inc., a wholly owned subsidiary of a Spanish company, the Calgary-headquartered Petrowest Corporation and Korean-owned Samsung C&T Canada Ltd.
Hydro’s report to the BCUC also shows that Site C has fallen behind on four of seven key 2016 milestones, and is at risk of being late on a fifth.
The only two key milestones BC Hydro expected to meet from April to October 2016 involved the on-time construction of workers’ accommodation facilities, recently showcased to the media. Missed milestones, which fall one to eight months behind, involve site preparation, road work and excavations on the Peace River’s north bank, the latter of which is slated to be carried out by the Peace River Hydro Partners.
BC Hydro’s previous two quarterly reports to the BCUC listed all but two of 16 milestones as on track.
Hydro’s most recent report to the BCUC provides an intriguing snapshot of some of the other financial risks Site C faces as the government strives, in Clark’s words, to push the project “past the point of no return.”
Among the risks are unexpected geotechnical problems BC Hydro says it is monitoring to determine how they will affect the project’s future finances.
Key geotechnical surprises to date include unexpected shearing during construction, unexpected slope failure on the project’s north bank, larger than expected deterioration of shale bedrock exposed during construction and a phenomenon called rock rebound/swell.
To mitigate geotechnical risks, BC Hydro recommends transferring “some degree of ground condition risks to the Contractor,” Peace River Hydro Partners. The Crown corporation says it will have more information about geotechnical risks once the consortium commences its excavation of 32 million cubic metres of earth and rock.
Other noted risks to delivering the project on time and on budget include three on-going lawsuits against the dam by First Nations and outstanding permits requested from the federal government, under the Fisheries Act and Navigable Waters Act.
Hydro notes that up to 34 provincial permits are also needed, but tells the BCUC it is conducting weekly meetings with the Ministry of Forests, Lands and Natural Resource Operations (FLNRO) “to ensure that these future applications meet the scheduling needs of the project.”
DeSmog previously learned that FLNRO granted BC Hydro several exemptions from the B.C. Wildlife Act to keep Site C dam construction from falling behind expected timelines, a move that experts said was illegal.
The financial risk that is judged by Hydro to have risen the most this year involves the successful execution of Site C contracts, including the main civil works contract. “Contractors may be unable to execute successfully on scope of contract without resulting costs to BC Hydro,” BC Hydro notes.
As part of its response, BC Hydro has increased supervision to address the failure of some contractors to comply with conditions outlined in Site C’s environmental assessment certificate, an issue that has begun to dog the project.
In April, BC Hydro was issued a non-compliance order by the B.C. Environmental Assessment Office for failing to adhere to measures to control run-off water and sediment. That was followed by a warning letter to BC Hydro from the Canadian Environmental Assessment Agency in May after federal investigators discovered air monitors near Site C operations were not collecting any data.
On June 24, an Edmonton-based Site C contractor, Morgan Construction & Environmental Ltd., was issued two non-compliance orders by the B.C. Environmental Assessment Office, following months of verbal and written warnings.
Chris Parks, Senior Compliance and Enforcement Officer with the B.C. Environmental Assessment Office, wrote in the orders that Morgan had failed to implement measures to control and clean up leaks and spills of hydrocarbon material, and to segregate and dispose of waste material properly.
An inspection by Parks last December found that Morgan had deposited recyclables, food waste and hazardous waste containing hydrocarbons in a single bin marked “municipal waste.”
BC Hydro’s Site C spokesperson Dave Conway was travelling and not available for comment.
Image: Site C construction. Photo: Garth Lenz