Bureaucrat admits revelations at Muskrat Falls inquiry have shaken his trust in Nalcor

He served a critical liaison role between government and Nalcor as the Muskrat Falls project moved toward sanctioning, and says he had complete confidence in the work of the province's energy corporation.

But Charles Bown says his trust in Nalcor has been shaken by evidence and testimony given at the public inquiry that is now investigating the controversial hydroelectric project.

"As a result of this inquiry, you know there are going to be changes in, clearly, the way government does its business," Bown said Thursday during his second day on the witness stand.

Government and ratepayers on the hook

Bown was responding to questions from inquiry co-counsel Barry Learmonth about evidence that shows government was not informed by Nalcor of some information related to cost and schedule risks.

These risks, if they materialize, would add hundreds of millions to the capital cost of a project that was to be paid for by electricity ratepayers in Newfoundland and Labrador, with government committing to "backstop" any cost overruns.

Learmonth also highlighted the review of Muskrat Falls undertaken by Manitoba Hydro International (MHI) in the lead-up to sanctioning in 2012, and evidence that Nalcor had a lot of influence in the final product by removing "cautionary paragraphs" that pointed out potential concerns with the planning.

If you had been vigilant, you would have called up [Manitoba Hydro International] and said, 'What's going on here? Every time you send me a report there's more and more items removed, and I want to know why.- Barry Learmonth

Bown suggested some of the edits might have been made because Nalcor has addressed some of the concerns raised by MHI, but Learmonth chastised Bown for not doing more to find out why this was happening.

"If you had been vigilant, you would have called up Mr. (Paul) Wilson (of MHI) and said, 'What's going on here? Every time you send me a report there's more and more items removed, and I want to know why.' Did you do that?" asked Learmonth.

"I don't recall doing that," said Bown.

Waiting to hear from Ed Martin

Bown used words like shocked and surprised to describe his reaction to some evidence, and told Learmonth he will wait to hear from former Nalcor CEO Ed Martin next week to determine whether his trust was misplaced.

"Based on what you've seen now, do you still have the high level of trust in Nalcor?" Learmonth asked.

"I have some questions that still require some answers," Bown replied.

"From whom?" Learmonth asked.

"We'll wait (until) Mr. Martin testifies," Bown stated.

Based on presentations from senior executives like Martin, and from reading reports from external consultants like MHI, Bown said he had confidence that Nalcor was disclosing all the costs and risks to government.

"You trusted Nalcor and you trusted (Manitoba Hydro)." Learmonth said.

Bown's response was striking.

"I had complete respect in MHI. Still do."

"And Nalcor? Do you now?" Learmonth asked.

"We'll see at the end of this inquiry when all the information comes out," Bown said.

It was as close as Bown came to blaming Nalcor for the turmoil that has plagued Muskrat Falls since it was sanctioned six years ago at a capital cost of $6.2 billion.

Evidence shows Nalcor took numerous measures to keep the capital costs as low as possible, with critics seizing on this as evidence that estimates were low-balled in order to win approval for the project.

The cost has since soared to nearly $13 billion, with first power delayed by at least two years, and an expensive public inquiry led by Justice Richard LeBlanc is underway to try to find out what happened.

'A great degree of trust'

Like others in government, Bown did not know Nalcor excluded hundreds of millions in strategic risk from its cost estimates, against the advice of expert advisors.

The construction schedule announced in 2012 gave a date for first-power from Muskrat Falls of July 2017. Bown did not know of a report that determined the probability of achieving that target was practically impossible.

According to testimony from Nalcor vice-president Gilbert Bennett, a recommendation from the project team to include a schedule risk allowance in the cost estimate was rejected by Martin.

"To know that the schedule, which we had firmly believed was going to be first power in 2017, and that was driving all of our actions, everything with respect to the loan guarantee and the (Public Utilities Board) review and etcetera, to find out that it was P1, was a bit more than a shock," said Bown.

Ignoring advice of risk advisors

Bown was also not aware Nalcor adjusted its approach to cost estimates in 2010, adopting what's called a P50 probability rating, meaning there was a 50 per cent chance of costs being higher or lower.

Since Muskrat Falls is a publicly-funded project, risk advisors like Westney Consulting were recommending Nalcor use at least a P75, which would mean higher costs, but also a higher probability of accuracy.

There have been some matters that have become known to me reviewing the materials and then some testimony that requires some additional questioning and answering.- Charles Bown

"I would just say there have been some matters that have become known to me reviewing the materials and then some testimony that requires some additional questioning and answering," Bown stated.

At one point, Bown said he would likely have more to say about Nalcor, if he were not still a government employee.

When challenged as to why he didn't press Nalcor harder for information, Bown offered this explanation: "(Nalcor) was treated like it was inside of government and there was a great degree of trust."

As he's done with other government witnesses, Learmonth was critical of Bown's performance, at one point calling him a "passive bystander."

Bown denied this, and said, "When government made the decision it believed it was investing the taxpayers' money appropriately."

When pressed again about whether government did enough to protect the interest of taxpayers, Bown replied: "At the time there was a belief there was fulsome oversight" of  Nalcor activities.

"We relied on Nalcor that they were providing us with; if there was any bad news they would have shared it with us."

Ed Martin, meanwhile, is scheduled to testify Dec. 10-14, followed by former premier Kathy Dunderdale from Dec. 17-20.