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TRAVIS - Site C's 'independent' network

June 24, 2016 4:34 A.M.
Site C project rendering.



THE B.C. GOVERNMENT has placed two bets over the Site C project: one that BC Hydro can keep construction costs to $8.8 billion and two that it can find customers for the power. 

Left to cover the ante? Taxpayers.

Dermod Travis

The government is relying on two news releases and a host of backgrounders, animations, infographics, artist renderings and technical briefings it issued in December 2014 to have won over most of the public.

The first – 'Site C to provide more than 100 years of affordable, reliable clean power' – was released on Dec. 16 and the second – 'Growing demand for electricity' – two days later.

They're chock-full of feel-good terms such as affordable, due diligence, third-party reviews.

Short on names, though.

Scratch beneath the buzzwords and there are six key individuals behind all that due diligence.

Only one was identified at the time – Broken Arrow, Oklahoma-resident Mark P. Gilbert – a former director of economic forecasting with American Electric Power.

Gilbert – “an independent energy consultant with over 30 years of experience” – was hired to review the utility's “load forecast methodology.”

As a sideline, Gilbert is also the president of Denouement Properties, a small real estate investment company, where – in his own words – he does “everything from accounting and financing, construction, and customer interface.”

Denouement Properties buys, restores and sells distressed housing.

His consulting company – Mark P. Gilbert, LLC – was incorporated 36 days before BC Hydro's deadline for his report. He was paid $47,865.

Gilbert is cited in the government's Dec. 18 news release stating that: “BC Hydro utilizes several methodologies to produce peak forecast methods, all of which are among state-of-the-art methods.”

There's no readily apparent link to his 12-page report in the government's release.

Perhaps because of his concern over one aspect of BC Hydro’s peak demand forecast process and an important qualifier to his findings.

“The process will produce accurate forecasts about ten years out. However, the process of producing peak forecasts and sales forecasts are not linked as directly as they could be, and could impact the second ten years of the 20 year forecast.”

Something was also left out-of-scope: validating BC Hydro's numbers.

The report had an important qualifier: “While the information is believed to be accurate, in preparation of the report, Gilbert has not independently verified any of the underlying input numbers themselves.

“Accordingly, (he) makes no representation or warranty as to the accuracy, reliability, or completeness of the information.”

Two other major players were Frank Margitan and Gary Webster.

BC Hydro asked Margitan – a former senior vice-president of Kiewit & Sons – “to engage a panel of industry experts, to undertake an independent review of the direct cost estimate, and provide an opinion regarding its completeness, sufficiency and accuracy.”

Margitan was Kiewit's point man on the Sea-to-Sky Highway and Port Mann Highway 1 projects.

In the case of this panel, 'independent' is an interesting choice of words.

For the BC Hydro review, Margitan retained three individuals that “have 35 to 50 years of experience (each) in management and construction of major projects.”

He didn't go far to find two: David Imper and Carl Jonasson.

Together with Margitan they share a combined 80 years of construction experience at Kiewit.

While Margitan and Imper's Kiewit connection was noted in the panel's report, it's not in Jonasson's case, even though it's prominent on his LinkedIn account.

The third member was Bev Trautman.

The panel concluded that: “The direct cost estimate appears to be sufficiently complete and adequate to cover all anticipated costs associated” and “has sufficient allowances/contingency to cover any reasonable increase in cost resulting from design development or cost estimate uncertainty.”

BC Hydro puts the “contingency and project reserve” at more than $1 billion on the $8.8 billion project.

The Sea-to-Sky and Port Mann projects were first estimated at $2.1 billion. Final price tag? $4.1 billion.

In an unrelated development, Kiewit Infrastructure was recently named BC Hydro's preferred proponent for the WAC Bennett dam repairs.

Fearing that the public might be a tad cynical about anything coming out of BC Hydro in regards to Site C, it then turned to KPMG for a third-party review of the utility's estimates and Margitan's third-party review.

KPMG's two-page December letter is signed by Gary Webster, a partner at the accounting firm.

It's generously sprinkled with high praise.

Webster noted: “The expert panel of construction estimators that independently reviewed the major components of the estimate was again a level of diligence that increases the confidence of the estimate compared with other capital projects.”

“The level of detail of this panel review was comprehensive and was performed by reviewing backup information and interviewing the estimating team.”

Left out of his letter was the fact that for a good chunk of his 30 years in the construction industry he had more than a nodding relationship with Margitan.

Webster was the province's representative (boss of the bosses) on the Sea-to-Sky project and Margitan was Kiewit's point man.

When terms like 'independent external peer reviews' are bandied about, the public might be less skeptical if the peers were independent of each other too.

It smacks of the the old boys network in action.

Four of the Site C six are U.S. residents. Why's that relevant?

They don't have to pay the bill.

Dermod Travis is the executive director of IntegrityBC.


erik andersen says:
June 28, 2016 01:40pm

Aside from looking at Site C numbers folks should be giving some attention to BC hydro's financial record.
In fiscal year BCH total liabilities amounted to 4209,706,330 per MWhr of sold to domestic customers. By 2015 this total liability per MW hr sold was up to a staggering $462,480,220; an over 100% increase in reported total liabilities per MWhr sold. In that same period total GWhrs sold to domestic customers went from 52,440 to 51,213 with almost no variation in any of the between years.
If that was not shabby enough the total of uncollected expenses carried by BCH and called "regulatory assets" went from zero in 2005 to nearly $7 billion by 2015. We all owed that money to BCH a year ago.
Then to introduce the IPP contractual obligation BCH does not report but the BC Auditor General does , add another $50 plus billion. After all this amount gets paid to the independent contractors BCH will own nothing of these assets.


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