Keeyask dam cost could reach $10.5 billion, report warns

An independent review of Manitoba Hydro's capital expenditure program warnstheKeeyaskhydroelectric dam couldcost the province billions more to complete than expected. It also blamestheCrown corporation's lack of construction management experienceand skills for failing to keep the multibillion-dollar project on track.

The report,writtenby Calgary consulting firmMGF Project Services,was commissioned by the Manitoba Public Utilities Board as part of the PUB hearings into Hydro's proposed rate increase. Itfound the Keeyaskdam could cost as much as $10.5 billiondue to the "contractor's poor productivity and increased indirect costs" associated with the project.

The 695-megawatt generating stationapproximately 725 kilometres north of Winnipeg on the Nelson Riverwas originally estimated to cost $6.5 billion and expected to be in service by November 2019.In September2016, Hydro raised its cost estimate to $7.8 billion.

Then in March, it went up to $8.7 billion.At the time, Hydro blamed rising expenses for foundation work for the additional increase.

The MGFreport pointed to "the General Civil Contract (GCC) and its performance as the largest single contributor to planned cost and schedule not being met."

"Manitoba Hydro staff are competent and professional, but they are not a construction manager with the experience and skills to direct the GCC. As such, its project management and control effectiveness is low," said the report.

In September, the Crown corporation said it needs to charge consumersmore for electricity to offset increasing costs associated with the Keeyaskdam and BipoleIII transmission line.

Hydro wants to charge 7.9 per cent more per year until 2023-24, and raise rates an additional 4.54 per cent the following year.If allowed, that would mean a $1,000 Hydro bill would reach almost $1,600 in 2023-24, and it would hit $1,650 the following year.

"When Manitoba Hydro embarked upon these projects, it had a duty to Manitoba consumers to manage those projects with appropriate diligenceand care," said Winnipeg lawyer Byron Williams,director of the Public Interest Law Centre representingthe Consumers Association of Canada, Manitoba branch which opposes the proposedrate increase.

"Manitoba Hydro made a commitment to Manitobansin 2014 that they would deal with rate pressures and adverse developments in a smooth way, in a way that did not impose rate shock upon Manitoba consumers. We expect them to live up to that."

Williams said while the report is not good, it doesn't justify gouging consumers.

"If you look at the big picture, interest rates are lower, some of Hydro's other projections for revenue are overly pessimistic ... it'll generally balance out," Williams said.

It's a 'worst-case scenario'

Hydro calls the reports findings a "a worst-case scenario" and not necessarily the projected outcome.

"There's nothing that we can identify at this point in time to suggest that the project will be delayed and cost, well essentially, cost ratepayers more," said Hydro spokesperson Bruce Owen.

Owen said in context, the report is mostly positive.

"It doesn't look good when you only read theKeeyask, but on every other project, theBipoleIII, theManitoba-MinnesotaTransmission Project, the converter stations forBipoleIII, the report is not criticalat all, it actuallysays we're doing a pretty good job."

Most of the information in the report has been known for "quite some time," andOwen said the Crown corporation intends to finish theKeeyaskdam within the $8.7 billion budget and in-service date of August 2021.

"Certainly we have said right from the beginning of this that there are risks inherent with a project of this size, given its location, given its remoteness, given the size of the project, they are all things that are going to impact it, weather included," he said.

As for some of the higher cost projections in the MGFreport, Owen said Crown corporation isn't sure how they arrived at those numbers and Hydro plans to debate them before the PUB in the coming year.