How megaprojects bankrupt public power utilities and leave regulators in the dark: report

Government-owned power utilities across Canada are pushing ahead with multi-billion dollar megaprojects, while undermining the regulators put in place to protect consumers from such reckless behaviour, according to a new analysis from the Consumer Policy Institute.

Power utilities in Manitoba, Newfoundland and Labrador, B.C. and Ontario are being pushed to the financial brink as a result of a series of megaprojects. The cost to electricity consumers – and taxpayers that will be forced to bail the utilities out if the megaprojects go bust – is $43 billion and counting for just four projects, according to a new analysis from the Consumer Policy Institute.

The megaprojects will produce, in some cases, triple-digit rate increases for electricity customers at a time of shrinking or little demand growth. In an attempt to shield consumers from the real cost of megaprojects – and shield themselves from public criticism over soaring hydro rates – provincial governments have resorted to using a combination of accounting sleights of hand, a massive deferral of costs to future customers and the backstop of provincial and federal taxpayers.

Provincial governments repeatedly ignored legislation explicitly put in place to protect ratepayers and taxpayers alike from this type of reckless spending. As detailed in the report, political leaders either ignored, shutdown or publicly disparaged the regulators tasked with finding out whether megaprojects offer good value for money. In the process, provincial governments have contravened their own laws requiring regulators to determine whether expensive capital megaprojects are in the best interest of ratepayers.

“It’s clear that megaprojects are not financially viable – they can only be built when governments push them through without regard for cost,” says Brady Yauch, economist and Executive Director of Consumer Policy Institute and author of the report. “Only by pushing aside all of the checks and balances that were put in place to explicitly protect consumers from the cost and environmental fallout of megaprojects do they go ahead. Under any reasonable analysis, they aren’t economic or viable.”

  • In Manitoba, the public utility has repeatedly undersold the cost of the $8.7 billion Keeyask dam – which is now nearly triple the first full-cost estimate – and oversold its benefits. It also repeatedly ignored the regulator’s concerns over the growing price tag. The utility now expects the dam to be a money-loser until at least the mid 2030s and will require nearly double-digit annual rate increases for the next five years. The utility’s new management has called the public utility a “ticking time bomb.”
  • In Newfoundland and Labrador, the province’s regulator was blocked by legislation from performing a thorough cost-benefit analysis of the now $12.7-billion Muskrat Falls hydroelectric megaproject, which is more than double the original price tag. The province eventually allowed a very limited review, only to disparage the regulator’s work after it said the scope of the review was too narrow, information was lacking and it couldn’t support the project. The utility’s own CEO now refers to the project as a “boondoggle.”
  • In British Columbia, the province removed the regulator’s power to review the $8.8-billion Site C hydroelectric project to decide its need or financial prudence. The province also capped the level of annual rate increases at an artificially low level – leaving future electricity customers to pick up the tab.
  • In Ontario, the province ignored and then dismantled the regulatory system put in place following the collapse of Ontario Hydro. That regulation was designed to protect customers from the economic and financial fallout of a public utility going all-in on a nuclear megaproject. Now, Ontario’s $12.8 billion refurbishment of the Darlington nuclear plant is proceeding, even though Queen’s Park explicitly blocked it from undergoing a public review by the provincial regulator and used the legislature to artificially lower rates in the near term, only to push those costs to future customers.

Download the full report here.

For any media inquiries, please contact:

Brady Yauch 
Economist and Executive Director 
Consumer Policy Institute 
(416) 964-9223 ext 236 
bradyyauch@consumerpolicyinstitute.org 
http://cpi.probeinternational.org

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2 thoughts on “How megaprojects bankrupt public power utilities and leave regulators in the dark: report

  1. Thank you for a succinct illustration of why this project is folly in many ways. You articulated my misgivings about it precisely. I believe that the actual costs borne out will be much greater than the 9 billion that Hydro claims it will be. The independent audit and review should have been done before the project was begun and the previous government actions were out of line forcing this on the public. Now my fear is it’s too late to stop it and we’ll all pay for the Liberal’s gambit

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