Saturday, January 9, 2016

Certainty of Site C massive cost overrun is 86%

A repeat, first published December 17, 2014:

BC's Minister of Energy said in mid October that the $7.9 billion budget for Site C had been examined by top international experts and was assuredly "reliable." Two months later, Premier Clark revealed the dam budget had jumped to $8.5 billion. Days passed and when project approval was announced, the budget had jumped to $8.775 billion.

Once again, the British Columbia Liberals demonstrate practiced mendacity. They are consistent though since mega-projects of the past five years typically doubled between first announcement and completion but were invariably pronounced to be on-time and on-budget. The mantra will be used again for the Peace River project, and it will be echoed by the compliant proMedia, even if the dam costs $18 billion. Overages will be accepted,
because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns -- the ones we don't know we don't know.
A comprehensive study, published in Journal of the American Planning Association, was titled Underestimating Costs in Public Works Projects, Error or Lie? The front page sidebar states,
Based on a sample of 258 transportation infrastructure projects worth US$90 billion …it is found with overwhelming statistical significance that the cost estimates used to decide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying. The policy implications are clear: legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust cost estimates and cost-benefit analyses produced by project promoters and their analysts.
The Oxford University authors make the following observations,
  • Costs are underestimated in almost 9 out of 10 projects. For a randomly selected project, the likelihood of actual costs being larger than estimated costs is 86%.
  • Actual costs are on average 28% higher than estimated costs.
  • Estimated costs are biased, and the bias is caused by systematic underestimation.
  • Costs are not only underestimated much more often than they are overestimated or correct, costs that have been underestimated are also wrong by a substantially larger margin than costs that have been overestimated.
  • Underestimation of costs at the time of decision to build is the rule rather than the exception for transportation infrastructure projects. Frequent and substantial cost escalation is the result.
  • Underestimating the costs of a given project leads to a falsely high benefit-cost ratio for that project, which in turn leads to two problems. First, the project may be started despite the fact that it is not economically viable. Or, second, it may be started instead of another project that would have yielded higher returns had the actual costs of both projects been known. Both cases result in the inefficient use of resources and therefore in waste of taxpayers’ money.
The Sierra Club believes that latter point is significant,
British Columbians will be shelling out up-front, B.C. will be losing big time on the jobs front. Building geothermal plants to the same capacity would employ almost 1,900 people – compared to only 165 for Site C. And this doesn’t even take into account development of the agricultural sector in the valley.
According to The Common Sense Canadian,
The retired head of the Association of Major Power Users of BC, Dan Potts, estimates the proposed Site C Dam would lose $350 million a year for taxpayers and BC Hydro ratepayers. The 30-year pulp mill manager told media in Vancouver yesterday that the project, estimated to cost $8 Billion or more, is “fundamentally uneconomic” – based on its outmoded technology and power trading prices that are likely to remain far lower than the cost of electricity produced by Site C.
Prof. Bent Flyvbjerg was co-author of an article in the Harvard Business Review about the runaway cost of a project at a large American clothing company,
A $5 million project that leads to an almost $200 million loss is a classic “black swan.” The term was coined by our colleague Nassim Nicholas Taleb to describe high-impact events that are rare and unpredictable but in retrospect seem not so improbable. Indeed, what happened at Levi Strauss occurs all too often, and on a much larger scale…
Former Premier Glen Clark created a $200 million black swan intended for coastal waters. The cost of Christy Clark's rare bird will be measured in billions.


Read this article Lies my energy minister told me from December 12.

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29 comments:

  1. The gong show has just started. Goodbye BC Hydro.

    ReplyDelete
  2. But Norm 400 million people saw the 11 million dollar bc Bollywood show just before the election.Whats wrong with the numbers?oh yea all the other bc liberal projects that failed their budgets p3 etc.
    How can we sell you if the project number is too high.?you might say no and want geothermal ?instead.

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  3. She's on a roll now! Why not revitalize the Moran Dam while she's at it? That could have the added benefit of ridding the Fraser of the nuisance salmon, leaving the coast wide open to Atlantic Salmon Farming.
    As much as I'd like to see economic benefits for the Province I can't help but feel a shiver of pleasure creep up my spine every time Chrispy shoots herself in the foot. I'll give you odds that by the time this issue wends its way through the courts, alternative energy sources (geothermal) will prove more economical and less disruptive. Too bad we'll have exhausted all our funds on a white elephant.

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  4. The BC Clean Energy Act says that BC Hydro has to be 93% clean, renewable hydro power.
    So it is not allowed to generate electricity by burning natural gas.
    Yet the BC Govt wants several LNG plants on the coast, which would be using electricity from BC Hydro.
    The LNG plants would emit tons of CO2 in the liquefaction process.
    The LNG would then be shipped to Asia, on CO2-emitting ships.
    There the LNG would be de-liquefied and burned, emitting CO2, partly to generate electricity.

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  5. Bill Bennett has just taken the number one spot from Rich Coleman, as the politician most likely to make my skin crawl.

    "Actual costs are 28% higher than estimated costs."
    Obviously they haven't heard of us.
    Hawgwash.

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  6. gong show for sure..........Minister Bennett is starting to build more alpine-lake-draining-out-of-province-owned-expensive IPP's at the very same time he is starting to build Site C....thanks to his total lack of respect for British Columbians, their heritage assets, their tax dollars........ it will be goodbye BC Hydro all right....and goodbye to any flowing rivers for that matter

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  7. So the government is going to spend $8.5 billion dollars to generate 1100 megawatts of electricity. They could spend $420 million and generate 500 megawatts simply by installing Revelstoke Dam's Unit 6 project. AND without flooding any property. Why? NO ONE has provided me with a rationale as to why Unit 6 is not under construction. I also find it interesting that the Site C Business Case study USED to say that Revelstoke's Unit 6 should have been installed before Site C was considered. That document has now been changed, and makes no reference to that statement whatsoever. I'm reviewing the most current Site C Business Case Study to determine what happened to that statement...

    https://www.bchydro.com/energy-in-bc/projects/revelstoke-unit-6.html

    ReplyDelete
    Replies
    1. Why make a few liberal friends rich when you can make hundreds rich from one project

      Delete
  8. All we can expect is cheer-leading from editors and columnists at the New York hedge fund Golden Tree media operation AKA Postmedia (Sun & Province), the fish-wrap chains owned by Liberal contributors David Black and Sam Grippo, the Shaw family mouthpieces (Corus & Global) and the once mighty, occasionally lively CBC.

    Thankfully, there is alternative media like this and other excellent blogs, The Tyee and Vancouver Observer, etc. They are shining a little light into the information darkness while the sell-outs in corporate media grow fat on the dinner circuit. (Bill Good will probably learn that the first round is thanks for loyal service but, without a platform, his usefulness is limited.)

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  9. I'm starting to lose count on how many jobs are Starting Here In British Columbia/Canada. Is Site C the second or third promised source for the 100,000 ghost worker army of the BC Liberals?

    At least we didn't have to pay for another ....or has Bill Bennett sought out the advice of another respected economist.... Noted economist Dr. Jack Mintz estimates that by 2020, 113,000 new jobs will be created as a result of this tax change. Adopting the HST will generate $11.5 billion in capital investment in B.C. over the coming decade, and make BC businesses more competitive. ...

    ReplyDelete
  10. If the decision makers were responsible for their financial blunders, there would be fewer errors. The Auditor General's office should be expanded to provide detailed and timely disclosure of current financial matters and have the power to remove managers who are not meeting budget targets. We don't need audit reports that are released when it is too late to make corrections and after wording is negotiated with government so that miscreants can be protected.

    There are ways of minimizing financial risks of large capital projects but it requires a willingness and a commitment from the people who are most responsible.

    How about requiring that ministries and public agencies take out third party bonds - completion guarantees - that would ensure taxpayers are not stuck with overages. That would result in independently vetted budgets by parties at risk so $400 million projects would not turn into $900 million projects.

    ReplyDelete
  11. British Columbia Government's Risk Management looks after Major Projects which INCLUDES BC Hydro. Has anyone seen a report on Site C by Risk Management? Have Reports provided on all other departments within Government proven T or F?

    BC Arts Council, BC Community Financial Services Corporation, BC Forest Museum Society, BC Games Society, BC Housing Management Commission, BC Hydro, BC Investment Management Corporation, BC Lottery Corporation, BC Pavilion Corporation, BC Securities Commission, BC Transportation Financing Authority, BC Transit, BC Transmission Corporation, BC Utilities Commission, College of Midwives of British Columbia, Columbia Basin Trust, Columbia Power Corporation, Community Living BC, Creston Valley Wildlife Management Area, Forestry Innovation Investment Ltd., Insurance Corporation of British Columbia, Office of the Public Guardian and Trustee, Oil and Gas Commission, Organized Crime Agency of BC, Partnerships British Columbia Inc., Provincial Capital Commission, Royal BC Museum

    ReplyDelete
  12. I just saw a little blurb on CTV news where Christy Clark refers to $600 million add on to the 7.5 billion estimate to the the site c dam as "a LITTLE extra" Well I think the taxpayers of BC are in RERAL f^%$$ing trouble when the leader of the province refers to 600 million as "a little extra"

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  13. Christy Clark is now saying that 600 million dollars is a "little bit". BC you are in real trouble when the Premier? refers to $600,000,000 as a "little bit"

    ReplyDelete

  14. 2020 14 c per kwh?

    https://www.bchydro.com/energy-in-bc/projects/revelstoke-unit-6.html

    http://www.bchydro.com/content/dam/BCHydro/customer-portal/documents/projects/revelstoke-unit-6/revelstoke-generating-station-unit-6-project-fact-sheet.pdf

    hmmm 500 mw 500 million dollars -Site 6 revelstoke 10 x cheaper per mW!
    hmmm 1100 mw 11 billion dollars !!!-Site C

    Like

    ReplyDelete
  15. Vanc Sun article from Nov. 2013:

    "That adds up to about a 45-per-cent (Hydro rate) increase over the next decade, when the increases

    are compounded."

    .......

    "NDP energy critic John Horgan also cited concerns about the fact the 10-year plan did not include any calculations for the proposed $7.9-billion Site C project."

    http://www.canada.com/vancouversun/news/westcoastnews/story.html?id=840ecfd8-8fa6-4812-8e7a-4b073ecda2e7

    ReplyDelete
  16. If I was a wagering man I'd bet the 2015 start is about 5 years too optimistic. It'll still be before the Courts.
    I'd also hazard a guess that the preconstruction hype and advertising costs will hit $500 million before there's a shovel in the ground, EXCEPT, my construction buddies tell me there is a $100 million tender call for site preconstruction works and camp preparation out right now. Anyone confirm this?

    ReplyDelete
    Replies
    1. A number of procurement processes have been underway for months. Until the last few days, Liberals have pretended that no decision had been made about building the dam. It demonstrates once again that BC Liberals feel no obligation to tell truths.

      BUSINESS AND JOB OPPORTUNITIES

      Delete
    2. Hopefully Site C, or the reservoir, won't be built in an Avalanche zone like that of Jumbo Glacier Day Lodge. We're not kidding about the avalanche comment. Mica Dam, upstream from Revelstoke, did cause serious concerns that the Downie Slide would eventually slip into the full height reservoir, thereby creating a tidal wave and knock out Mica's earth dam and causing havoc downstream eg. at the USA Border.

      Delete
    3. But Norm, didn't you hear Christy Clark on the news saying that taxpayers deserve the government to be honest to them about the costs of Site C?

      Delete
  17. Holy Smokes! I'll rephrase my wager! I'll bet they spend $500 million before they're forced to come to their senses and cancel the project.
    Don't they realize that our most valuable 'natural resource' we have is arable farmland? At the risk of repeating someone; you can't eat money or oil.

    ReplyDelete
  18. John, things are already starting to hum in Dawson Creek and Fort St. John. Rental housing being built, shopping malls and bare acreage being bought up. Bosa and other lower mainland developers are picking off the good pieces now. Even if things don't fly, I'm sure they will have ample warning and bail with tidy profits to share with the liberals.
    Hawgwash

    ReplyDelete
  19. oh, well voters put her into office and they may well again in 2017. They get what they deserve (or vote for).

    Its just too bad the lieberals need so much money they continue to mine for $17M each year in the pockets of children who live at 50% below the poverty line. So you gotta wonder, if they don't have $17M for those kids, how are they going to come up with the cost of building that dam dam.

    Lets hope the courts hold up the building of the dam.

    If people are dumb enough to think this will create jobs for those living in B.C. they will need to give their heads a shake. The contract to build a dam of this size will go to an overseas corporation, who with the new trade agreements and changes to immigration laws, will be able to bring in foreign workers. Jobs for those living in B.C.? give your head a shake. We just get to pay for it all. Now can we say Detroit North?

    ReplyDelete
    Replies
    1. In the list of priorities that concern government, public interest lies far down the list.

      Yes, we facilitate temporary foreign workers who spend minimum amounts locally and send the maximum overseas and multinational companies that use Hollywood Accounting to avoid paying taxes in Canada.

      PROFIT SHIFTING

      "The U.S. has the world’s highest corporate tax rate. In theory, that means its companies hand over more than one-third of their profits to Uncle Sam to pay for things like national defense, patent protection and public education. In reality? They don’t. There are many tactics corporations use to lower their taxes, few more powerful than booking their income in other countries. Complicated cross-border transactions cost the U.S. government $30 billion to $90 billion a year."

      Delete
  20. its raining money over at BCLC?
    how many went to paragon?

    BC students seen at BC foodbanks
    What BC Liberals fear the most.?
    Loss of the narrative.?

    Promote Virk to IT cabinet position
    and all is not well.

    Revelstoke site 6 ,for 420 million dollars, to make 500 mw electricity would make too much sense.

    Hold on
    We just bought some IPP energy hit the BC Hydro dam bypass switch!

    ReplyDelete
    Replies
    1. https://www.youtube.com/watch?v=U6mGU0W_2tU

      Delete
    2. After reading the linked video, read Rafe Mair at The Common Sense Canadian, Hydro’s Overflowing Dams, Huge Losses Due to Private Power

      "This is neither a complicated nor a long story – but it’s a tragic vindication for a hell of a lot of people who have been telling the story, ignored at best, more often vilified.

      "Look at page 1 of the story in the Vancouver Sun, May 11 under the heading “HYDRO AWASH IN PRIVATE POWER”, where you’ll see that BC Hydro is spilling water over its dams and missing a chance to make a huge profit and is, instead, sustaining a crippling loss all by reason of corrupt bargains it’s been forced to make with private companies.

      "Ask yourself how Hydro could lose money in one of the wettest years in history, when their reservoirs are chock-a-block full?

      "It’s because of the gross negligence of the Campbell/Clark government – supported by the mainstream media (which has refused to do its job and investigate the private power plan – a plan which compels Hydro to buy private power at double+ the market price.)

      "Yes, folks, the chickens I’ve been writing about for years have indeed come home to roost – BC Hydro is buying private power while spilling its own water over the dams. Your power company, instead of using the water in its reservoirs to make power for British Columbians, lets it spill away, unused, while it pours money into grasping private hands at immense profits to them and immense losses to us.

      "Moreover, BC Hydro – such is the surplus of power in the US – could be buying Bonneville Dam power for a song and flipping it into a neat profit."

      Delete
  21. NDP snoozes as usual
    The only opposition is the public?

    ReplyDelete
  22. http://www.alaskahighwaynews.ca/opinion/letters/an-open-letter-to-the-premier-s-new-advisor-1.2166537

    ReplyDelete

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