A defiant Ed Martin defends risky approach taken in lead-up to Muskrat Falls

A defiant and sometimes scowling Ed Martin defended his actions as the so-called gatekeeper for Muskrat Falls during his second day of testimony Tuesday at the inquiry investigating the controversial hydroelectric project.

Inquiry co-counsel Kate O'Brien zeroed in on the risk appetite adopted by the former Nalcor CEO as he stewarded Muskrat toward sanctioning in late 2012, and to what degree he informed the lone shareholder for the project, the provincial government, of those risks.

While there were no fireworks, the atmosphere in the hearing room was noticeably frosty, with plenty of tense exchanges between the two, and both showing signs of frustration at times.

As he did on Monday, Martin proved to be a prickly witness, sometimes refusing to give a yes or no answer, at times talking over O'Brien, and also revealing some insights into his personality with comments like this: "When I run a negotiation, I run a negotiation."

At one point he delivered some stinging criticism of O'Brien and fellow co-counsel Barry Learmonth.

Watching the way the questioning has gone … what I feel is a hypothesis has been created and questioning designed to prove that hypothesis.- Ed Martin

"Watching the way the questioning has gone, and what I feel is a hypothesis has been created and questioning designed to prove that hypothesis, that's my view. I'm sitting back now saying I'm going to take more time to answer these questions. I'm going to give the perspective. Now I'm being much more contextual, and careful, and specific," Martin said.

O'Brien did not respond to Martin's comment, and continued her questioning.

Martin refused to admit he made any mistakes on a project that has seen its costs soar by more than $5 billion, the date of first-power delayed by at least two years, and his successor, Stan Marshall, at one point referring to the project as a boondoggle.

That's despite being challenged on a wide range of issues by O'Brien, and several examples of contradictory evidence being entered since public hearings began in mid-September.

A p-factor debate

Two of the predominant issues at the inquiry have been the approach to setting capital cost estimates for the project, using the now-familiar p-factor formula, and the exclusion of any strategic reserve allowance from the capital costs.

An independent risk analysis also rated the chances of Nalcor delivering first-power in mid-2017 at between one and three per cent, though Nalcor did not include any schedule allowance to cover what appeared to be an obvious and costly delay.

Martin was ready with an answer each time he was challenged on these issues, offering sometimes complex and long-winded explanations, with O'Brien sometimes repeating her question multiple times in search of a clear answer.

If there was one moment when Martin appeared to admit any questionable activity, it came during questions about the 2010 negotiations with Nova Scotia's Emera over a partnership on the project and the Maritime Link subsea cable across the Cabot Strait.

There has been evidence that Martin deliberately lowered the cost estimate in order to help Emera get approval for the Maritime Link, and after some intense probing, Martin did not entirely deny that Tuesday.

"Was there a discussion of removing escalation, contingency to bring the number down?" O'Brien asked.

"I can't remember the detail of that, but there certainly could have been," Martin replied. "I really wasn't fussed on how we got to the number."

Muskrat funded by ratepayers

Nalcor, meanwhile, adopted a risky P-50 approach to cost estimates, which in simple terms means there was a 50 per cent chance that costs would either be higher or lower than the $6.2 billion estimate given to the public.

That's despite advice from external advisors that it use a more cautious approach of at least a P-75, which would drive the cost estimate to roughly $7.5 billion in order to ensure a higher degree of accuracy.

Some experts also testified that as a Crown corporation, building a project to be financed by electricity ratepayers, Nalcor should have even considered a probability factor as high as 90.

O'Brien pressed hard on this issue early in the day, and Martin acknowledged he took this approach without informing or explaining the risks to government.

"I went on my own experience," Martin said matter-of-factly.

"It was my view that that was the appropriate p-factor to use for that analysis, and to carry on through into the project."

Even some of Martin's project team members considered this approach to be aggressive, but Martin refused to offer any regrets.

Politicians and bureaucrats have testified that Martin expressed confidence in the cost estimate, but that he did not explain the level of risk used to set the estimates, or what a more cautious approach might mean for those estimates.

"They understood from you this was an all-in number, this was a good solid number," said O'Brien.

"I was confident in the number. I made that clear to them," said Martin.

What's more, a risk expert recommended that Nalcor include a $500 million strategic risk allowance in its estimates to cover off any unforeseen costs, but Martin said it was never his intention to include this amount.

We did budget for it by establishing an agreement … that [the government] would fund additional equity to cover things that were unforeseen.- Ed Martin

"We did budget for it by establishing an agreement with the government that they would fund additional equity to cover things that were unforeseen," Martin explained.

When challenged on whether he gave the province an estimate on how high those overruns might be, Martin said it was hard to target a specific number because the risks were unknown.

"It would have been clear I wasn't thinking billions," Martin said.

O'Brien said based on the evidence, it would appear that rating the cost estimates at a P-50 level would be a stretch, and that the probability of cost overruns were much higher than 50 per cent.

Martin gave a terse, "No."

O'Brien is expected to conclude her questioning of Martin Wednesday morning, at which time other lawyers at the inquiry will get a chance to cross-examine the witness.