Auditor general recommends more comprehensive risk assessment in future major capital projects for NB Power05 December 2013
FREDERICTON (GNB) – NB Power did not adequately address the risks posed by the refurbishment of the Point Lepreau Generating Station even though it has a rigourous oversight process in place, according to the latest annual report of the auditor general.
The report, released in the legislative assembly today, reflects audited financial statements for the fiscal year ending March 31, 2013.
Although NB Power addressed many risks associated with this project, said auditor general Kim MacPherson, "other risks were not adequately addressed through the decision-making process."
The refurbishment is one of the largest capital projects undertaken in New Brunswick. Final approval by the provincial government was announced on July 29, 2005.
"The decision-making process took four-and-a-half years from 2001 to 2005," she said. "As late as the spring of 2005, there was still substantial uncertainty about what should be done to meet future provincial electricity needs."
MacPherson made a comprehensive, multi-part recommendation relating to decision-making for future major capital projects undertaken by NB Power.
NB Power has indicated it "values and supports the recommendations…and will be implementing them as part of the work initiated through the establishment of a new corporate project management office."
MacPherson's report was the first of a two phased review of the project. Phase I had two objectives:
● to describe key aspects of NB Power's planning and execution of the project; and
● to present summary level financial information of amounts making up the $1.4-billion capital asset account and the $1-billion deferral account related to the refurbishment, for a total of $2.4 billion.
"NB Power intends to recover the $2.4 billion, net of any recoveries, over the next 27 years through provincial electricity rates," she said.
The refurbishment was substantially complete by May 2012 and considered commercially viable by NB Power in November of that year. This was 37 months later than the planned September 2009 completion date and $1 billion more than anticipated.
NB Power indicated this was largely as a result of accidental damage to calandria tube sheet bore holes, which resulted in the 380 tubes having to be installed twice. Litigation against the project's insurance underwriters to recover a significant portion of losses associated with the delay is pending.
Phase II will form part of the 2014 report of the auditor general.
"During the next year, we plan to continue with our examination of the refurbishment," MacPherson said. "In particular, we will complete more detailed analyses and testing of key components of costs of the project and assess their reasonableness. The information presented in this chapter will be used as a base."
Today's report contains two volumes. Volume I focuses on matters arising from the annual financial audit of the provincial government and Crown agencies. Volume II reports the results of Value for Money projects completed during 2013. Both volumes are on the Office of the Auditor General website.
● Office of the Auditor General