2

Table of Contents

1. INTRODUCTION 3
2. STATEMENT OF QUALIFICATIONS 3
2.1 Education 3
2.2 Experience 3
2.3 Expert’’s Duty 4
3. EXECUTIVE SUMMARY 5
3.1 Soundness of Prior Decisions to Reject Site C 5
3.2 Large Dams Lead to Large Cost Overruns and Schedule Delays 6
3.3 BC Hydro Management: Implications for Cost and Schedule 7
4. CURRENT HYDRO PROJECTS IN CANADA: COSTS AND DELAYS 8
5. MANAGEMENT CONSIDERATIONS AT BC HYDRO 11
5.1 Cost Overruns 11
5.2 Schedule Delays 16
5.3 Site C Contracts 18
5.3.1 Main Civil Works contract 18
5.3.2 Generating Station and Spillway Work contract 20
5.3.3 Transmission 23
5.3.4 Major Contracts Summary 24
Appendix A Marc Eliesen —— Resume 26
Appendix B Bibliography 27

List of Tables

Table 1 —— Site C Project Capital Cost Budget 11

Table 2 —— Site C Project Capital Cost Estimate 2014 Compared to 2017 12

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1. INTRODUCTION
1. I was retained by Tim Thielmann, Sage Legal, on behalf of West Moberly First Nations to
prepare a report and provide my professional opinion on:

•• the decisions made prior to 2010 not to proceed with the Site C project, and the
soundness of the reasoning underlying these decisions;

•• the relevance of the development of mega-dams or other major projects similar to

Site C in other jurisdictions to the current and future state of affairs for Site C with
respect to cost and schedule; and

•• the effectiveness of senior management in preparing for and addressing critical

project management issues Site C has faced or now faces, and implications for
project cost and schedule.

2. STATEMENT OF QUALIFICATIONS

2.1 Education

2. I obtained a Bachelor of Commerce degree in Economics at Concordia University

(1958-1962) and have undertaken post graduate work in Economics at Carleton University
(1962-1964).

2.2 Experience

3. I am a senior executive within the energy sector with a lengthy and successful career in
senior executive positions in both the private and public sectors, including the following:

•• Independent Economic and Energy Consultant (1998-present)

•• Chairman and President, International Power Group Inc., a joint venture of

Asea Brown Boveri Inc., Westcoast Energy Inc. and BC Trade Development Group
(1994-1997)

•• President and Chief Executive Ofcer, British Columbia Hydro and Power
Authority (1992-1994)

•• Chairman and Chief Executive Ofcer, Ontario Hydro (1991-1992)

•• Deputy Minister, Ministry of Energy, Province of Ontario (1990-1991)

•• Chairman of the Board of Directors, Manitoba Hydro (1984-1988)

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•• Deputy Minister, Ministry of Energy and Mines, Manitoba (1982-1984)

•• Chairman and Chief Executive Ofcer, Manitoba Energy Authority (1982-

1988)

•• Deputy Minister to Premier of British Columbia, Planning Secretary to the

Cabinet (1974-1975)

•• Assistant Deputy Minister of Finance, Deputy Minister to Premier of Manitoba,

Planning Secretary to the Cabinet (1970-1974)

4. I have worked for seven governments in Canada, both federal and provincial, and have been
a Deputy Minister of Government for nine Ministers of the Crown. I have held a partnership
with the management consulting rm Peat Marwick Stevenson & Kellogg (KPMG), and held
the position of National Director of Government Services. I have been a corporate director of
many organizations and businesses, including Suncor Corporation, Manitoba Hydro, Ontario
Hydro and BC Hydro.

5. I was an expert intervenor in the British Columbia Utilities Commission Inquiry into Site C
(August to October 2017) and prepared two reports in support of the Commission’’s review,
as well as appeared before the Commission at its request as a technical expert. I was also an
expert intervenor at the National Energy Board Trans Mountain Expansion Project Review
(2013 - 2014).

6. I have been Economic and Financial Advisor to a number of Manitoba First Nations on the
proposed construction of the Keeyask and Conawapa GeneratingStations (2000-2010).

7. A copy of my curriculum vitae is attached as Appendix A.

2.3 Expert’’s Duty

8. I certify that I am aware of my duty as an expert witness to assist the court and not be an
advocate for any party. This duty prevails over any obligation that I may owe to any party,
including West Moberly First Nations on whose behalf I have been engaged.

9. I further certify that I have made this report in conformity with this duty and will, if called on
to give oral or written testimony, give that testimony in conformity with this duty.

10. In particular, in preparing this report, I acknowledge that it is my duty to:

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•• provide evidence that is fair, objective and non-partisan;

•• provide evidence that is only related to my area of expertise; and
•• provide such additional assistance as may reasonably be required to determine a matter at
issue.

11. My expert report is based on my personal experience and knowledge as the former President
and CEO of BC Hydro, as well as my other experience in the energy and utility sector. In
addition, except where otherwise stated or implied, I assume that the facts and opinions
provided in the documents that I rely on in my export report accurately reect the facts and
opinions as those authors understand them.

12. The scope of the review I conducted included:

i) the history of the proposed development of Site C by the Government of British

Columbia and the provincially crown owned BC Hydro;
ii) the construction of large mega-dams or other major hydro generating stations in
other jurisdictions with emphasis on recent large hydro development in Canada;
iii) the report by the BC Utilities Commission on its Site C Inquiry, and the
submissions made by BC Hydro, the Commission’’s consultants and other
participants of the inquiry.

13. A list of the documents relied upon in forming my opinion is provided in Appendix B.

3. EXECUTIVE SUMMARY

3.1 Soundness of Prior Decisions to Reject Site C

14. As President, CEO and Member of the Board of Directors of BC Hydro from 1992 - 1994, I
have direct knowledge of prior decisions to reject Site C as well as expertise respecting the
issues surrounding the Site C project. I attest to the underlying soundness of the decisions
made by the British Columbia Utilities Commission in 1983, and the BC Hydro Board of
Directors in 1993, to not recommend proceeding with the project.

15. Until the decision made by the BC government in 2010 to proceed with constructing Site C,
I am unaware of any other proceeding whereby construction of the project was considered
by a decision making authority at any level of government.

16. In 1983, the British Columbia Utilities Commission (BCUC) reviewed BC Hydro’’s
application for an Energy Project Certicate and rejected the application on the basis that

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there was no urgent need for the project. Even if there were a need for Site C, the
Commission could not conclude that Site C was the preferred project. BCUC was also
concerned with the absence in the application of a reliable cost-benet assessment, and the
negative impact on ratepayers of building infrastructure capacity prematurely.

17. In 1993, the Site C project was again considered by the BC Hydro Board. The Board
unanimously determined that there was no business case for Site C and it was unlikely that
one would arise in the future. The social and environmental considerations surrounding the
project were signicant enough in their own right for the Board to decide that a permanent
removal of the project from the slate of potential energy projects in the future was
warranted.

18. On April 28, 2010, the provincial government introduced the Clean Energy Act (CEA).
Section 7(1) (d) of the Act explicitly exempts Site C from the requirements of the Utilities
Commission Act (UCA) sections 45 to 47 and 71.1

19. At no time between 1983 and August 2017 did BCUC, as an independent regulator, revisit an
evaluation of the need for the Site C project, its impact on ratepayers, or whether it would be
a preferred electricity project.

20. The 1993 BC Hydro Board decision to reject Site C has proven sound. There has yet to be an
independently conrmed business case that indicates construction of the project should have
commenced. The ndings of the BCUC Site C Inquiry Report, November 1, 2017, and the
current Provincial Government’’s conclusion that, ““Site C should never have been started……””2
because of the project’’s negative impact on ratepayers, and likely over-supply of electricity
for many years into the future, conrms the decision made by BC Hydro’’s Board almost
twenty-ve years ago.

3.2 Large Dams Lead to Large Cost Overruns and Schedule Delays
21. There are a number of pre-conditions that are responsible for the cost and schedule of major
hydro projects spiralling out of control in Canada. These include:

i) the provincial utility had not constructed a large generating station for decades;
ii) internal professional staff experience in the planning and construction of large
mega projects built by the utility have retired or moved on;

1 Clean Energy Act

2 Ofce of the Premier, News Release, December 11, 2017.

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iii) there is a lack of construction contractor experience with large hydro projects
being built in the northern regions of Canada;
iv) unexpected or unforeseen major geotechnical problems and challenges exist; and
v) the utilities have a history of exaggerating future electricity requirements for their
province and rely on recent forecasts to justify the need for new generating
stations.

22. These pre-conditions are relevant to Site C and are largely responsible for cost and schedule
overruns on the project to date. Given that Site C is only two years into a nine-year
construction schedule, the balance of factors point to increased costs and further delays
before the project is in-service. These factors are largely unmitigatable.

3.3 BC Hydro Management: Implications for Cost and Schedule

23. The necessary experience and due diligence rigour required for managing a major hydro
project such as Site C is decient among the executive at BC Hydro. This is in part due to
the fact that it has been more than thirty years since BC Hydro constructed a major
generating station. The knowledge and expertise required, which formerly resided in the
company, has retired or moved on.

24. Notwithstanding the lack of project management experience and expertise, BC Hydro
executive seem unable to learn from hands-on experience directly related to cost and
scheduling overruns that have materialized from the management of the the Site C project to
date. BC Hydro has approached the cost estimating for its other major contracts yet to be
tendered in a manner similar to the approach undertaken with the Main Civil Works contract.
As a result, similar cost overruns and delays with these contracts are more likely than BC
Hydro remaining within its cost and schedule as reected in its current $10.7 billion capital
cost.

25. It is my expert opinion that the overall budget estimation and cost control process of Site C’’s
budget, to date, by BC Hydro executives, has been mismanaged. BC Hydro’’s executive is
not capable of ensuring accurate estimation of costs or ensuring control over those costs.
Neither is BC Hydro’’s management able to anticipate when conditions will arise that will
have a material impact on budget amounts.

26. There are at least seven more years in Site C’’s schedule. Pre-existing conditions and
management failings at BC Hydro mean that Site C is likely to experience further delay and
greater cost than that contemplated in the December 2017 budget.

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27. It is my expert opinion that Site C will not meet its current in-service schedule of 2024, but
will be delayed until at least 2025 and its capital cost will reach a range of $12 billion or
more——an increase greater than 45 per cent from BC Hydro’’s August 2017 estimate of $8.3
billion and an increase greater than 12 per cent from its current budget of $10.7 billion.

4. CURRENT HYDRO PROJECTS IN CANADA: COSTS AND DELAYS

28. Major hydro infrastructure projects experience staggering construction overruns and
implementation delays. This is a world-wide phenomenon. In a series of studies on mega-
construction projects, Oxford University researchers have shown that large hydro projects
built in 65 countries were, on average, 90 per cent higher (in real dollars) than forecast at the
time the project was approved.3

29. The cost and timing experience related to Site C reveals that the project is experiencing
signicant cost overruns and schedule delay. Given the relatively short time horizon over
which information is available it might be argued that Site C could experience a return to
reliable costing and no further interruption in its schedule. However, such a position is
unwise when cost and schedule experience of major projects in Canada, that are much further
along in their development, is reviewed.

30. The two most recent examples of major cost and scheduling problems with large hydro
projects such as Site C, are Muskrat Falls in Newfoundland and Labrador and Keeyask in
Manitoba.

31. I was a nancial and economic advisor to First Nations for the Keeyask project and a recently
postponed project, Conawapa, rejected by the Manitoba Public Utilities Commission for
reasons related to need, cost and schedule. Therefore, I have direct knowledge of the issues
as they relate to experience in Manitoba.

32. There are a number of pre-conditions that are responsible for major cost overruns and
schedule delays of both Muskrat Falls and Keeyask which are similar in nature to the pre-
conditions that exist with Site C. These are:

i) the provincial utility had not constructed a large generating station for decades;
ii) internal professional staff experience in the planning and construction of large
mega projects built by the utility have retired or moved on;

3Saïd Business School, University of Oxford, New research from Oxford University reveals severe cost
and schedule overruns for large hydro-electric dams.

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iii) there is a lack of construction contractor experience with large hydro projects
being built in the northern regions of Canada;
iv) unexpected or unforeseen major geotechnical problems and challenges exist; and
v) the utilities have a history of exaggerating future electricity requirements for their
province and rely on recent forecasts to justify the need for new generating
stations.4

33. It is common practice in assessing likely future events to assess pre-existing conditions. The
pre-existing conditions with BC Hydro’’s Site C are such that they send warning signals that
material delay and cost overruns for the remaining seven years of construction activity are
not only very likely, but almost certain.

34. The budget overruns and project delays for both Muskrat Falls and Keeyask were not
publicly acknowledged until after three to four years of construction activity, although they
became apparent much earlier. The reason the cost overruns and project delays with Site C
have become known earlier in the process is due to the BCUC Site C Inquiry.

35. Senior management for Muskrat Falls and Keeyask——which are further along than Site C——
have warned that more cost increases and schedule delays could take place before the
projects are complete. In contrast BC Hydro is publicly stating that no further increases will
take place, contradicting expected experience with projects such as Site C. BC Hydro’’s claim
should not be relied upon under the circumstances.

36. BC Hydro has not constructed a large hydro project for many decades. The most recent major
hydro dam constructed in BC was the Revelstoke dam completed in 1984. The vast majority
of staff with utility expertise in hydro project construction management have retired or no
longer work for the company. Consequently there is a lack of professional and management
expertise at BC Hydro with respect to large scale hydro construction projects.

37. Before the turn of the century, potential hydro resources owned by provincial utilities in
Canada were in a continuous state of generating station construction and as a result had built
up knowledgable and experienced in-house construction divisions for such mega hydro
projects. In addition, solid and dependable working relationships had been established with
external engineering companies for ongoing support and assistance. These two important
corporate culture and departmental infrastructure conditions no longer exist in these utilities.

4BCUC Inquiry Respecting Site C, An Evaluation of the Need for the Site C Project, Marc Eliesen,
August 16, 2017

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38. The 695 MW Keeyask Generating Station is a partnership between Manitoba Hydro and four
northern Manitoba First Nations. Keeyask was originally estimated to cost $6.5 billion with a
six-year construction schedule for an in-service date of November 2019. Three years into
construction it was announced that the budget would increase to $7.8 billion, along with a
more than two year completion delay. The most recent projections put project costs at $8.7
billion (an increase of 34 percent over the original estimate) with an in-service date of 2021.5

39. Keeyask costs have risen signicantly. This is primarily because of unanticipated
geotechnical issues complicating structural work related to the bedrock under the project.
Geotechnical issues relate to the engineering behaviour of earth material and the foundations
necessary to support the generating station and the dam. Although signicant pre-
construction investigative work is undertaken to determine the nature of the geotechnical
area, until construction there is no certainty as to what will actually be required. Geotechnical
requirements are extremely challenging in the context of Site C and this work is yet to be
complete.

40. The construction of the 824 MW Muskrat Falls Generating Station in Newfoundland and
Labrador commenced in 2013 at an estimated cost of $7.4 billion with an in-service date of
2018. The current cost estimate is $12.7 billion (an increase of 72 percent) with in-service
delayed two years to 2020. Nalcor Hydro (the provincial crown corporation) CEO, Stan
Marshall, has described the project as ““……a boondoggle. It should have never been built……I
don't know what the motivation was. I don't know what happened and who made the
decisions. Unfortunately I have seen a lot of evidence …… which suggests to me that
intentionally or otherwise, the costs were signicantly underestimated.””6

41. Nalcor has conrmed that current project costs will result in an increase in domestic
residential rates to 23.3 cents per kilowatt hour——almost double current rates.7

5 Manitoba Hydro, Control Budget for Keeyask Generating Station revised, March 7, 2017.
6CBC News, Labrador’’s Muskrat Falls Price tag now 12.7 billion, worse than 1969 Quebec deal, CEO
says, June 23, 2017.
7 Ibid.

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5. MANAGEMENT CONSIDERATIONS AT BC HYDRO

5.1 Cost Overruns

42. Since the announcement by the BC government in April 2010 that Site C would be
considered for construction, project cost estimates have increased from $6.6 billion to $10.7
billion——an increase of $4.1 billion or 62 per cent. Design changes have contributed to the
cost increase along with unanticipated costs related to geotechnical considerations,
environmental requirements, and economic factors such as cost ination.

43. Table 1, below provides a comparison of total capital cost budgets from 2010 to December
2017.

Table 1

Site C Project Capital Cost Budget

Year Budget
(billion)

2010 $6.6

2011 $7.9

2014 $8.8

2017 October $9.0

2017 December $10.7

44. Table 2 below, compares the FID budget announced December 2014 with the revised capital
budget announced three years later on December 11, 2017.8

8 Site C Technical Brieng, Don Wright, Deputy Minister to the Premier, December 11, 2017.

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Table 2
Site C Project Capital Cost Estimate
2014 Compared to 2017

Cost 2014 (millions) 2017 (millions)

Direct Cost $4,940 $5,839

Indirect and Overhead $1,194 $2,010

Contingency $794 $858

Interest before completion $1,407 $1,285

Total Before Risk Reserve $8,335 $9,992

Risk Reserve $440 $708

Total $8,775 $10,700

45. When BC Hydro submitted its 886-page evidentiary information to BCUC on August 30,
2017, it declared that, ““BC Hydro expects to complete Site C on time and on budget, and we
have the appropriate level of schedule and cost contingency.””9

46. BC Hydro’’s evidence also stated that, ““The expected total cost of the Project is $8.335 billion
and we do not expect to use the additional $440 million project reserve established and held
by the B.C. Government.””10 That is, BC Hydro was adhering to the FID budget approved by
the provincial government in 2014 of $8.775 billion, but claiming that the risk reserve
established by Cabinet when the budget was approved was not necessary and would not be
relied upon so that the project could come in at $8.335 billion.

47. BC Hydro included in its August 30, 2017 ling with the Commission a section titled ““Site C
is On Time and On Budget””. Detailed information on the factors BC Hydro believed were
responsible for this claim that the budget would come it at $8.335 billion, were discussed. BC
Hydro stated that, ““The Project is on time and on budget, through proactive management of
geotechnical and construction risks to schedule and budget.””11

9 BCUC Inquiry Respecting Site C, BC Hydro Submission, F1-1, August 30, 2017, page 2.
10 Ibid., page 2.
11 Ibid., page 24.

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48. Five weeks later on October 4, 2017, Chris O’’Riley, President and Chief Operating Ofcer of
BC Hydro, informed the Commission that, ““BC Hydro has encountered some geotechnical
and construction challenges on the project and the risk to the river diversion timeline has now
materialized……we have now determined that we will not be able to meet the current timeline
for river diversion in 2019……Not meeting the current river diversion timeline has created new
pressures on the project's budget……expected to increase its cost by 7.3 per cent or $610
million, for a total forecast project cost of $8.945 billion.””12

49. It is my expert opinion that BC Hydro knew, or should have known, when the August 30th
report was submitted to the BCUC, that the costs for the project were going to be higher than
disclosed. If BC Hydro knew the costs were reasonably likely to be higher than disclosed,
they violated their obligation to the Commission to be fully transparent and support the
Commission’’s inquiry. If BC Hydro honestly did not know at the time the August 30 ling
took place, that costs would escalate, then BC Hydro was not competently managing its
project as it claimed.

50. After claiming to the Commission on August 30th that Site C was on time and on budget,
with no threat to the $440 million Treasury Board reserve, only thirty-ve days later BC
Hydro informed the Commission that the project was a year delayed and the Treasury Board
reserve not only tapped, but exceeded by $170 million.

51. In his October 4, 2017 letter, Mr. O’’Riley relied upon the inability of BC Hydro to meet the
river diversion in 2019 as the reason for an increase in the project budget of $610 million,
taking the budget to $9 billion (rounded).

52. On October 14, 2017, Mr. O’’Riley appeared before the Commission. He again stated that,
““As a result of the disappointing news about missing the 2019 diversion milestone, we have
postponed diversion to 2020……it will increase the cost for the project forecast to be 610
million.””13 This suggested that the budget had been revised to $9 billion and that BC Hydro
did not anticipate any further upward pressure on the budget.

53. However, Mr. O’’Riley foreshadowed the potential for future budget increases unrelated to
the cost of the missed river diversion date when he told the commission that, ““Given we've
missed the 2019 diversion milestone, we will require a budget revision for the project, and

12 BCUC Inquiry Respecting Site C, BC Hydro Submission, F1-7, October 4, 2017, page 3.
13
BCUC Inquiry Respecting Site C, Technical Input Proceedings Vancouver, BC Hydro, Chris O’’Riley,
October 14, 2017, page 1599, lines 12-18.

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we anticipate this process occurring in November, and involving our board and the provincial
government.””14

54. Mr. O’’Riley statement lacked full disclosure for two reasons. The rst is that in the same
presentation to the BCUC, Mr. O’’Riley stated that the BC Hydro Board had already been
made aware of, and presumably approved, the additional cost of $610 million to the budget
due to the missed river diversion date. Mr. O’’Riley informed the BCUC that ““on Friday,
September 29, we advised our Board and on Wednesday October 4th we advised the
Commission through our IR responses””15 of the missed river diversion milestone and the
increase in budget of $610 million.

55. The second reason the foreshadowed budget revision was inadequate is because Mr. O’’Riley
knew, or should have known, at the time that there were other material factors putting
upward pressure on the budget. These pressures are particularly evident in the delay in the
process related to the Generating Station and Spillway work——the second largest component
of the project——discussed in greater detail in Section 6.3.2 of this report where it is shown
that by September 30, 2017, BC Hydro knew contract costs were escalating.

56. Instead, Mr. O’’Riley assured the BCUC that other large increases on the Site C capital cost
would not take place in the future. ““Construction challenges are not unusual on large multi-
year infrastructure projects and they were not unexpected on Site C. We knew going into this
project that there risks to the project and we made sure we had the resources and
contingencies to manage the project. This is why we had one year of ow (sic) to address the
risk of a diversion delay. There are additional cost risks on the project. We still have one
major contract to procure the generating station and spillway contract, and we have about
seven years of construction to go. However, nothing has occurred that would suggest to us
we are facing the type of large overruns that have been speculated by some participants in
this process, and in the Deloitte report.””16 (Emphasis added).

57. Less than two months later, BC Premier Horgan announced that Site C capital costs had
escalated again, this time by almost $2 billion from BC Hydro’’s October estimate of $8.945
billion to $10.7 billion——or by 20 per cent.

14 Ibid., page 1600, line 24 to page 1601, line 2.

15 Ibid, Page 1602, line 16-25.
16BCUC Inquiry Respecting Site C, Technical Input Proceedings Vancouver, BC Hydro, Chris O’’Riley,
October 14, 2017, page 1605, lines 11-25.

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58. A paucity of information has been provided as to what has driven the additional $2 billion in
project costs. The only information publicly provided in this regard was included in brieng
material prepared by the BC government when it announced its decision to proceed with the
project. It was conrmed in this material that the cost related to the missed river diversion
continues to be $610 million while ““future contracts projected to be higher than budgeted
amounts.””17

59. Clearly, the budget revision exercise that took place in November determined that the
additional $2 billion in cost was warranted, while on October 14, 2017, Mr. O’’Riley told the
Commission there would be no further budget increases. Either BC Hydro knew, or should
have known, about the looming budget increases related to future contracts.

60. In summary, in less than three and a half months, Site C costs increased from $8.335 billion
to $10.7 billion——an increase of almost 30 per cent. There still remains seven years of
scheduled construction to complete the project. BC Hydro claims to have been caught
unaware by the material increases in its costs.

61. It is my expert opinion that the overall budget estimation and cost control process of Site C’’s
budget, to date, by BC Hydro executives, has been mismanaged. BC Hydro’’s executive is not
capable of ensuring accurate estimation of costs or ensuring control over those costs. Neither
is BC Hydro’’s management able to anticipate when conditions will arise that will have a
material impact on budget amounts.

62. The soundness of this expert opinion respecting a lack of project management capability is
underscored by both BCUC and the Provincial Government.

63. BCUC determined in its nal report tabled on November 1, 2017 that it could not accept BC
Hydro’’s budget of $9 billion. The Commission increased the likely capital cost of the Project
to about $10 billion. Within six weeks, BCUC’’s estimate became outdated.

64. The Provincial Government has concern over BC Hydro management’’s ability to deliver on
its revised $10.7 billion budget, as, notwithstanding a decision to allow BC Hydro to proceed
with Site C, a ““new Project Assurance Board –– made up of BC Hydro, independent experts
and government representatives
–– will provide enhanced oversight to future contract

17 Site C Technical Brieng, Don Wright, Deputy Minister to the Premier, December 11, 2017, page 16.

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procurement and management, project deliverables, environmental integrity, and quality

assurance –– all within the mandate of delivering the project on time and budget.””18

65. BCUC found that ““For Site C, the inputs and assumptions that have the greatest impact on
rates are the Site C total costs and the magnitude of the load.””19 The Commission determined
that a $10 billion capital cost was a ““reasonable point estimate to use in making its other
ndings required under the OIC.”” 20

66. BCUC found that, ““BC Hydro’’s mid load forecast to be excessively optimistic and considers
it more appropriate to use the low load forecast in making our applicable determinations as
required by the OIC. In addition, the Panel is of the view that there are risks that could result
in demand being less than the low case.””21

5.2 Schedule Delays

67. In my second submission to the BCUC Site C Inquiry, I extensively documented that BC
Hydro relied on two construction schedules to control, monitor and report progress on the
Site C project. The rst schedule BC Hydro was privately working towards relied upon
activities that would deliver a 2023 in-service date, while the second was the publicly
announced and provincially government approved in-service date schedule of 2024.22

68. This situation was conrmed by the BCUC panel and its consultant’’s Deloitte.23

69. BC Hydro presented a BC Hydro Final Investment Decision (FID) budget to the provincial
government in December 2014. The capital cost it submitted was $7.96 billion with a 2023
in-service date.

70. The BC government changed the costs and timing for the project.

18 Ofce of the Premier, Site C Quick Facts and Mitigation Elements, December 11, 2017.
19 BCUC Inquiry Respecting Site C, Commission Final Report, A-24, November 1, 2017, page 9.
20 Ibid., page 122.
21 Ibid., page 77.
22BCUC Inquiry Respecting Site C, Further Evaluation of the Need for the Site C Project, Marc Eliesen,
F13-2, October 11, 2017.
23 BCUC Inquiry Respecting Site C, Commission Final Report, A-24, November 1, 2017, page 96

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71. The government added $375 million to the project cost of $7.96 billion to bring it to $8.335
billion reecting an adjustment for PST of $200 million and ination and interest cost. The
budget was increased by a further $440 million reserve account to be held by Treasury Board
to accommodate events outside of BC Hydro’’s control. Thus the total budgeted cost rose
from $7.96 billion to $8.775 billion. The government altered the in-service date by extending
it to 2024.

72. BC Hydro accepted the increased budget allowance but failed to adhere to the 2024 in-
service date which gave rise to part of the increase in costs. BC Hydro did not adjust its
schedule to reect a 2024 in-service date, but continued to award contracts reecting a 2023
in-service date. Since the announcement of the Provincial FID in December 2014, the BC
public believed BC Hydro was working to a 2024 in-service date, while BC Hydro continued
to work to a 2023 in-service date. That is, BC Hydro was working with two sets of budgets
and two schedules——its private set and the set that was publicly made available with the
Provincial FID in 2014.

73. I have numerous years of experience working in utilities while major projects are
constructed, such as Manitoba Hydro’’s Limestone Generating Station. I have never
experienced, nor have I heard about, a situation where there are two sets of budgets and two
schedules.

74. BC Hydro informed the BCUC on October 4, 2017, that it ““has encountered some
geotechnical and construction challenges on the project and the risk to the river diversion has
now materialized……we have now determined that we will not be able to meet the current
timeline for river diversion in 2019.””24

75. When project milestones are missed, such as the planned river diversion, upon which
contracts have been let, the cost to complete rises signicantly. Since BC Hydro has always
worked towards an in-service date of 2023, the failure to meet river diversion in 2019 has a
signicantly higher cost that if the target it was working toward for river diversion had been
2020.

76. It would be one thing if the schedule was a 2024 in-service date with a potential for an earlier
diversion time line, but when the entire project is predicated on what is now a missed
milestone, contractors have signicant leverage. Claims mount and costs rise.

24 BCUC Inquiry Respecting Site C, BC Hydro Submission, F1-7, October 4, 2017, page 1.

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77. As noted by the BCUC Site C Inquiry Report, ““……BC Hydro was working towards an in-
service date of 2023, and with regards to that in-service date, the project is one year behind
BC Hydro’’s PMB (Performance Measurement Budget) schedule……Further the Panel nds
there are signicant risks that could prevent the project from remaining on schedule for a
November 2024 in-service date.25

5.3 Site C Contracts

78. BC Hydro has divided the construction activities related to the Site C Project into sub-
projects, including Worker Accommodation, Early Works, Main Civil Works, Highway 29
realignment, Transmission, Turbines and Generators, and Generating Station and Spillways.

79. The main contracts to be awarded are Main Civil Works (MCW), Generating and Spillways
(GSS) and Transmission.

5.3.1 Main Civil Works contract

80. The MCW contract is normally the largest contract to be tendered for any Hydro Generating
Station project. The scope of this contract for Site C includes the construction of an earth ll
dam, two diversion tunnels, and roller-compacted concrete foundation of the generating
station and spillways.

81. The MCW contract has been publicly announced at $1.75 billion. It was awarded to Peace
River Hydro Partners (PRHP), a consortium of Alberta based Petrowest Corporation (now in
receivership), Spain’’s Acciona Infrastructure Canada Inc., and South Korea’’s Samsung C&T
Canada Ltd.

82. The BCUC preliminary report on the Site C inquiry commented that ““BC Hydro
underestimated the cost of the main civil works contract which caused cost contingency to be
committed when the contract was awarded.””26

83. The Commission’’s consultants, Deloitte, reported that ““PRHP may have signicantly
underbid the Project by [redacted] to [redacted. This may explain the claims that PRHP has

25 BCUC Inquiry Respecting Site C, Commission Final Report, A-24, November 1, 2017, page 108
26 BCUC Inquiry Respecting Site C, Commission Preliminary Report, A-13, September 20, 2017, page 29

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submitted to the Project to date to recuperate some of its loses. Deloitte believes PRHP may
continue this trend as long as it cannot recover the losses.””27

84. In my preliminary report to the BCUC I noted that Petrowest Corporation, one of the JV
partners of PRHP had gone into receivership. I raised that question as to how BC Hydro
qualied Petrowest since a month after the contract was awarded the media reported that
Petrowest was operating on ““borrowed time from its lenders.”” 28 BC Hydro did not provide an
explanation as to how it was unable to determine Petrowest’’s compromised nancial position
when it awarded the contract.

85. BC Hydro’’s approach to qualifying contractors is an important issue particularly since

corporate non-performance can have signicant consequences for a major project, the
implications of which cascade throughout the project time line and cost. The negative
experience with Petrowest, and its effect on project costs and schedules, is evidence that BC
Hydro has been derelict in its due diligence duties with respect to contractor vetting.

86. It is my expert opinion that the nancial failure of Petrowest not only has created a period of
instability that has contributed to PRHP’’s inability to meet its planned work schedule in the
short term, but that it will also continue to have a negative impact on project cost and budget
at least through the medium-term.

87. There are serious and ongoing difculties between BC Hydro management and the remaining
PRHP management, with ongoing disagreements on MCW activities impacting construction
costs and schedule.

88. BC Hydro and PRHP undertook a joint-constructibility review to develop options to recover
schedule and maintain the 2019 river diversion milestone which was unsuccessful. The
parties are in dispute over the ““causes of the delays.””29

89. BC Hydro disclosed to BCUC that the, ““……contractor has alleged……that there is global
instability within the left bank works that it anticipates has caused a delay of approximately 1

27BCUC Inquiry Respecting Site C, Deloitte LLP independent report——Site C Construction Report, A-8,
page 38.
28
Financial Post, Petrowest Corp is operating on borrowed time from its lenders as EBIDA cut in half,
December 30, 2015.
29BCUC Inquiry Respecting Site C, Response to BCUC IR 3.20.0, F1-8, October 4, 2017, Question 2.3,
page 2 of 2.

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year to its operations on the left bank. The contractor has alleged that the geotechnical
conditions observed in the left bank differ from those disclosed by BC Hydro. BC Hydro
disputes the Contractor’’s allegations and has directed the Contractor to take all required steps
to recover schedule pending the resolution of the dispute and on account of the Contractor’’s
Delay (sic). BC Hydro has notied the Contractor that it considers the Contractor to have
failed to apply appropriate factors of safety and appropriately sequence and monitor its work
when operating on the left bank, including when constructing its temporary haul roads.””30

90. It is not uncommon for contractors to seek additional payment for changes to work, found
conditions or construction delays. However, the number and severity of these claims and the
stark differences in views between BC Hydro and PRHP reect a dysfunctional relationship
that is not conducive to construction of a large hydro dam. In my expert opinion, the
acrimonious relationship between BC Hydro and PRHP has lead, and will continue to lead to
signicant costs increases and schedule impacts.

5.3.2 Generating Station and Spillway Work contract

91. The second largest budget item is the work required for the construction of the powerhouse,
penstocks, spillways and power intakes for the generating station. This is identied as the
Generating Station and Spillway Work (GSS).

92. The GSS related activity includes four separate contracts. These are the Generating Station
and Spillworks Civil Works, Hydro-Mechanical Equipment, Powertrain Balance of Plant
Equipment Supply, and Completion (Powertrain Balance of Plant Equipment Installation).31

93. Tendering process conditions with the GSS Civil Works contract (the rst and largest of the
four separate GSS contracts) have developed that lead to budget overruns. These have been
documented by BC Hydro in its Quarterly Reports to the BCUC.

94. A Request for Proposals (RFP) for the GSS Civil Works was rst issued in September 2016
with nal award expected in July 2017. BC Hydro reported in its Quarterly Progress Report
No. 5, that, ““The Generating Station and Spillway Request for Proposals was issued to

30BCUC Inquiry Respecting Site C, Round 2 Information Responses, F1-10, October 5, 2017, Question
2.7.0, page 5 of 6.
31 BC Hydro Estimate to complete by scal control budget.

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proponents in September 2016, with the initial draft contract. All four proponents attended a
site inspection in September 2016.””32

95. In its Quarterly Progress Report No 6, BC Hydro indicated that one of the GSS Civil Works
contract bidders had withdrawn leaving three remaining bidders and that the July date had
been delayed three months to October 2017. Delay in procuring the contract adds to pricing
pressures.33

96. In its Quarterly Progress Report No 7, BC Hydro indicated that awarding the GSS civil
works contract would be further delayed to December 2017 with a Limited Notice to
Proceed.34 It was indicated that although the procurement was delayed, construction
milestones were unchanged.

97. In its Quarterly Progress Report No. 8, BC Hydro explained that, ““Most procurement
activities continue to move ahead and are on track. However, award of the Generating Station
& Spillways related contracts are delayed due to updates to the contract in response to
proponent feedback and changes to the construction schedule.””35

98. In its most recent Quarterly Progress Report No. 9, that covers June - September 2017, BC
Hydro states that, ““The complete Generating Station & Spillways Civil Works Request for
Proposals with nal draft contract was issued on September 1, 2017. A revised schedule was
issued to the proponents on October 14, 2017 with extended in-service-dates. At the request
of the proponents, the Request for Proposals close date was extended to November 16,
2017.””36

99. BC Hydro announced on January 6, 2018, that the AECON-Flatiron-Dragados-EBC

Partnership (AFDE Partnership) had been selected as the preferred contractor for the
Generating and Spillway Civil Work contract (GSS Civil Work).

32 BC Hydro, PUBLIC Quarterly Progress Report No. 5 –– July to September 2016 (Report), page 2
33BC Hydro, PUBLIC Quarterly Progress Report No. 6 –– October to December 2016 (Report)page 3 and
32.
34 BC Hydro, PUBLIC Quarterly Progress Report No. 7 –– January to March 2017 (Report), page 30.
35 BC Hydro, PUBLIC Quarterly Progress Report No. 8 –– April to June 2017 (Report), page 4.
36 BC Hydro, PUBLIC Quarterly Progress Report No. 9 - July to September 2017, page 13.

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100.AFDE Partnership is a joint venture owned 30 per cent by the AECON Group Inc., 27.5 per
cent by Flatiron Constructors Canada LTD., 27.5 per cent by Dragados Canada Inc., and 15
per cent by EBC Inc.

101.The GSS Civil Work contract has yet to be negotiated with work expected to commence in
Spring 2018.

102.BC Hydro has recently experienced major contract problems with one of the companies of
the GSS Civil Work joint-venture, Flatiron Contractors Canada Ltd. The company when in a
joint-venture with Graham Construction Ltd was awarded the contract for the Interior to
Lower Mainland Transmission Line which ended up signicantly over budget and delayed.
The former BC Minister of Energy stated that ““serious delays”” were triggered by faulty steel
towers, problems with contractor’’s environmental management and protection plans and
turnover with its contractors. BC Hydro was forced to take over construction of one of the
most technical portions of the line, with ““BC Hydro characterizing (the problem) as a failure
to perform.””37

103.BC Hydro has not disclosed the nal costs of the Interior to Lower Mainland Transmission
Line as it continues arbitration related to it. It is surprising that BC Hydro’’s due diligence
would still qualify Flatiron as part of the GSS Civil Work joint-venture.

104.There was an unintentional release of a report prepared by the BCUC Commission’’s

consultant Deloitte during the recent inquiry. As a result, it is publicly known through various
media outlets that the GSS activity aggregated for all four portions was estimated by BC
Hydro, as recently as August 2017, to cost $1.255 billion.

105.In my expert opinion, the public estimate for the GSS related work is much too low. The
negotiations between BC Hydro and the partnership for the GSS Civil Work portion is
expected at the end of February. It will not be surprising when the value of the GSS Civil
Work portion is released upon completion of the negotiations, that the price is over $2 billion
——a 50 to 70 per cent increase over BC Hydro’’s estimate for all four segments of August
2017.

106.There have been representations made by the Provincial government that BC Hydro’’s
estimate for untendered contracts has been increased as part of the upward revision of total

37Globe and Mail, March 25, 2017, Conicts mar BC Hydro Transmission Line, completion still
unknown.

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project costs to $10.7 billion. However, what is not clear is how much of the upward revision
is related to the GSS Civil Work contract and whether, after negotiation it will be sufcient.

107.The increase of the GSS Civil Work contract from FID in 2014, to negotiated contract
anticipated for February 2018, by a material amount, is another example of BC Hydro’’s
inability to properly forecast cost related to major contracts.

5.3.3 Transmission
108. The transmission scope of work is the third largest major contract for the construction of
Site C and relates to the construction of transmission lines SL5 and SL6. BC Hydro has
stated that requests for proposals for that contract went out in September 2017.

109.BC Hydro’’s recent experience with the construction of large scale transmission lines raises
considerable concern regarding the company’’s due diligence and project management
capabilities respecting transmission construction. These include:

i) Northwest Transmission Line was constructed to supply electricity to mines and other
developments in the northwest part of the province. Its original budget was $395
million, while the project came in at $716 million——81 percent over budget.

ii) Interior to Lower Mainland Transmission Project constructed to deliver new generating
capacity from upgrades at BC Hydro’’s Mica and Revelstoke dams. Its original budget
was $600 million but came in at $743 million——24 percent over budget. (The nal cost
will likely be higher pending the BC Hydro/Flatiron arbitration).

iii) Dawson Creek/Chetwynd Line in the northeast was originally budgeted at $255 million
and came in at $296 million——16 percent over budget.

iv) Iskut Extension Line primarily to provide electricity to Imperial Metal’’s Red Chris
Mine was originally budgeted at $130 million and came in at $209 million——61 percent
over budget.38

38
BCUC Inquiry Respecting Site C, An Evaluation of the Need for the Site C Project, Marc Eliesen,
August 16, 2017, page 8.

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110.Regarding the proposed Site C Transmission contract BC Hydro has noted that, ““There are a
limited number of contractors in Canada with the capability and capacity to bid on the 500 kv
transmission and high voltage substation work.””39

111.BC Hydro also acknowledges that ““Going forward, most of the risk retained by BC Hydro
will be in establishing access and clearing prior to commencement of construction of the
foundations for the transmission line towers. The transmission line is 75 kilometers (sic) long
and the environmental compliance and geotechnical issues cannot be completely known in
advance of the construction.””40

112.To date, BC Hydro has been cited for a number of instances of non-compliance with the
Provincial Environmental Assessment Ofce under the terms of its environmental permits
associated with the 344 kilometre Northwest Transmission Line and the 244 kilometre
Interior to Lower Mainland Transmission Line.

113.The extensive instances of non-compliance include a lack of environmental monitoring and

oversight, a stop-order to prevent damage to waterways, a lack of sediment and erosion
control, and smouldering burn piles during a re prohibition.41

5.3.4 Major Contracts Summary

114.There is a deciency in the necessary experience and due diligence among the executive and
Board of Directors at BC Hydro required for managing Site C.

115.BC Hydro’’s mismanagement of the project cost and schedule, and its inability to anticipate
or address critical management issues related to MCW has resulted in major cost increases
and schedule delay. Given the acknowledged disagreements between the MCW contractor
and BC Hydro does not provide a healthy cost environment for the future years of
construction activity.

39BCUC Inquiry Respecting Site C, Round 2 Information Responses, F1-10, October 5, 2017, Question
2.10.0, page 2 of 3.
40 Ibid.
41Environmental Assessment Ofce, Northwest Transmission Line Compliance Inspection Reports and
Interior-Lower Mainland Transmission Line Inspection Reports

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