Muskrat Falls Project
Oversight Committee

Committee Report August 2015

 

Table of Contents
Introduction......................................................................................................................................2
Project Costs....................................................................................................................................4
 

I. Muskrat Falls Generation Facility.......................................................................6

 

II. Labrador Island Transmission Link....................................................................8

 

III. Labrador Transmission Assets.........................................................................9

Project Schedule Performance.......................................................................................................11
Muskrat Falls Project.....................................................................................................................12
 

Sub-Project: Muskrat Falls Generating Facility....................................................14

 

Sub-Project: Labrador-Island Transmission Link..................................................18

 

Sub-Project: Labrador Transmission Assets.........................................................20

Project Risks..................................................................................................................................24
Other Oversight Activities...............................................................................................................27
Next Report.....................................................................................................................................29
Appendix A: Project Budget Summary Expenditure Categories..........................................................30

Muskrat Falls Project Oversight Committee

1

 Introduction

The Muskrat Falls Oversight Committee was established by the Government of Newfoundland
and Labrador in March 2014 to strengthen the existing oversight of the Muskrat Falls Project
(the Project). The Committee’s mandate focuses on cost, schedule and risk management
for the construction phase of the Project. Reports of the Committee can be located at
www.gov.nl.ca/mfoversight.
The Committee’s last report for the quarter ended March 2015 highlighted several risks
to the Project budget and schedule including that two major contracts had not yet been
awarded and schedule and cost pressures were being experienced, particularly with respect
to the Powerhouse & Intake contract for the Muskrat Falls Generating Facility. During the
ensuing period, the Committee has been closely monitoring these risks and receiving regular
updates on the Project from Nalcor. Over this period, Nalcor has finalized costing of the two
outstanding contracts referenced above and identified additional cost pressures, including
labour and materials for access clearing based on experience gained in the field to date. As a
result, in September 2015, Nalcor revised the Project Budget from $6.99 billion to $7.65 billion1.
The Committee was scheduled to provide the update for the quarter ending June 2015.
However, as Nalcor was in the process of finalizing the revised budget, the Committee felt it
would be more relevant to incorporate the most current Project cost and schedule information.
As a result, this report includes, to the extent possible, information from April 2015 through
August 2015.

1 Total Project costs include construction costs of $7.65 billion plus interest and other financing costs of $1.4 billion that will be
incurred during construction, for an estimated total of $9.05 billion.

2

Muskrat Falls Project Oversight Committee

 Muskrat Falls Site – Progress on Spillway and Powerhouse – August 2015

Muskrat Falls Project Oversight Committee

3

 Project Costs
Committee Observations
• 
• 
• 
• 

Project capital budget has increased from $6.99 billion to $7.65 billion.
Incurred costs at August 2015: $3.26 billion.
Committed costs at August 2015: $5.97 billion.
Project Forecast Contingency budget at September 2015 has been revised
to $186.8 million.
•  Contract execution risk at the Muskrat Falls Generating Facility remains
high.

Table 1 provides information on the allocation of the adjustment in the Project budget from
$6.99 billion to $7.65 billion among the three sub-projects. This table also includes incurred
costs up to the end of August 2015, totaling $3.3 billion2. At the end of August 2015 the
committed costs3 totaled $5.97 billion.
Table 1

Project Cost Change as of September 2015 and Incurred cost as of August 2015

Muskrat Falls Project

Project Budget
June 2014

(in $ thousands)

Change

September 2015

($)

(%)

Incurred Costs
August 2015

Muskrat Falls Generation Facility

$3,371,988

$3,685,966

$313,978

9.3%

$1,726,356

Labrador-Island Transmission Link

$2,786,481

$3,089,378

$302,897

10.9%

$1,046,647

$831,945

$877,557

$45,612

5.5%

$488,277

$6,990,414

$7,652,901

$662,487

9.5%

$3,261,280

Labrador Transmission Assets
Total Project

Table 2 provides additional information on the revised Project Budget by expenditure category
for each of the sub-projects.

2   Incurred Costs represents the total estimated cumulative value of all goods and services provided to the Project up to the point in time
regardless of whether it was paid during the current period or will be paid at some future point in time.
3   Committed Costs: The estimated value of an obligation made by the Project for the provision of goods or services; represented by a
Financial Commitment. Committed costs are captured when a Financial Commitment is made and its value is based upon the original
estimate for that Financial Commitment. A Financial Commitment is a legal agreement between Nalcor Energy – Lower Churchill Project (NE-LCP) and a third party which authorizes NE-LCP to proceed with the award/instruction to the third party to provide goods and/
or services for an agreed price or in accordance with an agreed pricing structure. The value of the Financial Commitment is represented by the cumulative value of the original amount and any approved variation orders to the contracts or change orders to the purchase
order (which may or may not be a Project scope change).

4

Muskrat Falls Project Oversight Committee

 Table 2

Project Cost Change by Sub-Project as of September 2015

Muskrat Falls Generation Facility
NE-LCP Owners Team, Admin and EPCM Services

(in $ thousands)

Project Budget
June 2014

Change

September 2015

($)

(%)

$382,811

$408,723

$25,912

6.8%

Feasibility Engineering

$17,949

$17,949

($0)

0.0%

Environment & Regulatory Compliance

$24,312

$25,825

$1,513

6.2%

Aboriginal Affairs

$13,314

$13,314

$0

0.0%

$2,786,766

$3,121,813

$335,047

12.0%

$25,989

$25,239

($750)

-2.9%

$120,847

$73,102

($47,745)

-39.5%

$3,371,988

$3,685,966

$313,978

9.3%

Procurement and Construction
Commercial & Legal
Contingency
Total MFGen
Labrador-Island Transmission Link
NE-LCP Owners Team, Admin and EPCM Services

Project Budget
June 2014

Change

September 2015

($)

(%)

$225,814

$221,293

($4,521)

-2.0%

Feasibility Engineering

$21,252

$21,252

$0

0.0%

Environment & Regulatory Compliance

$22,306

$14,446

($7,860)

-35.2%

$2,244

$2,684

$440

19.6%

$2,426,095

$2,717,326

$291,231

12.0%

Commercial & Legal

$16,490

$16,490

$0

0.0%

Contingency

$72,280

$95,887

$23,607

32.7%

$2,786,481

$3,089,378

$302,897

10.9%

Aboriginal Affairs
Procurement and Construction

Total LIL
Labrador Transmission Assets
NE-LCP Owners Team, Admin and EPCM Services

Project Budget
June 2014

Change

September 2015

($)

(%)

$99,973

$144,958

$44,985

45.0%

Feasibility Engineering

$220

$220

$0

0.0%

Environment & Regulatory Compliance

$710

$811

$101

14.3%

Aboriginal Affairs

$188

$188

$0

0.2%

$696,322

$709,643

$13,321

1.9%

$3,141

$3,891

$750

23.9%

$31,391

$17,846

($13,545)

-43.2%

$831,945

$877,557

$45,612

5.5%

$6,990,414

$7,652,901

$662,487

9.5%

Procurement and Construction
Commercial & Legal
Contingency
Total LTA
Total Project

Muskrat Falls Project Oversight Committee

5

 Additional details of the cost increase for the revised budget by Sub-Project are provided below:

I. Muskrat Falls Generation Facility
Total budgeted costs for the Muskrat Falls Generation Facility have increased from $3.37 billion
to $3.69 billion, a difference of $314 million or 9.3 per cent from the June 2014 budget. This
cost increase is primarily attributable to the finalization of major outstanding contracts and
contractor performance.
Table 3

Muskrat Fall Generation Facility – Revised Project as of September 2015
Muskrat Falls Generation Facility
NE-LCP Owners Team, Admin and EPCM Services

(in $ thousands)

Project Budget
June 2014

Change

September 2015

($)

(%)

$382,811

$408,723

$25,912

6.8%

Feasibility Engineering

$17,949

$17,949

($0)

0.0%

Environment & Regulatory Compliance

$24,312

$25,825

$1,513

6.2%

Aboriginal Affairs

$13,314

$13,314

$0

0.0%

$2,786,766

$3,121,813

$335,047

12.0%

$25,989

$25,239

($750)

-2.9%

$120,847

$73,102

($47,745)

-39.5%

$3,371,988

$3,685,966

$313,978

9.3%

Procurement and Construction
Commercial & Legal
Contingency
Total MFGen

1. 

Finalization of Major Outstanding Contracts
In earlier reports, the Committee noted it was monitoring the progress of three major
contracts to be awarded for the Muskrat Falls Generating Facility as this was identified as
a risk to the contingency budget. These three contracts were valued at approximately five
per cent of the total June 2014 Project Budget. In its December Report, the Committee
noted that the contract for the North Spur Stabilization Works was awarded at a higher
value than originally budgeted. Since March 2015, one of the two remaining contracts
- the construction of the North and South Dams was finalized and similarly resulted in
those contract costs being significantly higher than original budget. Nalcor indicates
that this cost escalation is reflective of increased market pressures and may also apply
to the remaining contract, the supply and installation of the Mechanical and Electrical

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Muskrat Falls Project Oversight Committee

 auxiliaries, which is still under review. The cost increases associated with these two
major contracts and the third remaining contract is reflected in the increase in the budget
for Procurement and Construction category in Table 3.

2. 

Contractor Performance on the Muskrat Falls Generation Facility
In its March 2015 Report, the Committee noted continued slippage in schedule progress
at the Muskrat Falls Generating Facility, specifically the Powerhouse & Intake. The
Committee observed an increase in risk levels associated with contractor performance;
powerhouse concrete placement rates; and readiness for river diversion in 2016. Nalcor
continues to work with the contractor to implement the mitigation plan which involves
ramping up labor and production in an effort to get back on schedule. The additional
efforts at the Muskrat Falls Generation Facility are inducing additional cost pressures
on the project. However, Nalcor does have a provision in the contract with the main civil
contractor to mitigate exposure to labour cost increases.
In addition, to ensure continued production improvements and minimize risk of further
schedule slippage, Nalcor has increased the budget for additional project management
resources and centralized camp services for both contractor and project management
personnel. This is expected to increase project management costs under the category
NE-LCP Owners Team, Admin and EPCM Services in Table 3.

Muskrat Falls Project Oversight Committee

7

 II. Labrador Island Transmission Link
Total budgeted costs for the Labrador Island Transmission Link have increased from $2.79
billion to $3.09 billion, a difference of $302.9 million or 10.9 per cent.
Table 4

Labrador Island Transmission Link – Revised Project as of September 2015

Labrador-Island Transmission Link
NE-LCP Owners Team, Admin and EPCM Services

(in $ thousands)

Project Budget
June 2014

Change

September 2015

($)

(%)

$225,814

$221,293

($4,521)

-2.0%

Feasibility Engineering

$21,252

$21,252

$0

0.0%

Environment & Regulatory Compliance

$22,306

$14,446

($7,860)

-35.2%

$2,244

$2,684

$440

19.6%

$2,426,095

$2,717,326

$291,231

12.0%

Commercial & Legal

$16,490

$16,490

$0

0.0%

Contingency

$72,280

$95,887

$23,607

32.7%

$2,786,481

$3,089,378

$302,897

10.9%

Aboriginal Affairs
Procurement and Construction

Total LIL

In previous reports, the Committee noted that there had been drawdowns on contingency for
changes relating to steel towers, foundation types, and additional materials required for the
Labrador-Island Transmission Link. Nalcor reports that as work progressed for clearing rightof-way access roads, the geotechnical conditions encountered, particularly in Central Labrador,
were significantly more challenging than originally anticipated. Based on experience to date and
recent in-depth field experience of the ground conditions, Nalcor has confirmed that additional
labour and materials will be required to complete this work. Harsher than normal winter
conditions have also impacted labour productivity, resulting in projected additional labour hours
to complete the work.
In addition, given the geotechnical conditions encountered, Nalcor has enhanced the tower
and foundation design in certain areas to ensure reliability of this infrastructure. This change
in design, combined with investments towards road infrastructure (including bridges and
culverts) to provide long-term operational year-round access reliability in remote areas, will also
increase anticipated costs. A change in foreign exchange rates has also resulted in an increase
in contract costs for the contract for the Switchyard, transmission towers and conductor,
Converter and Synchronous condensers. Nalcor advises that the impact of the reduction in the
value of the Canadian dollar has been otherwise largely avoided. Although significant purchases

8

Muskrat Falls Project Oversight Committee

 are being made outside Canada, many of these contracts were either priced in Canadian dollars at
the date of execution, or the goods were delivered and payments made prior to the devaluation of
the Canadian dollar.
The anticipated cost escalation as outlined above is reflected in the increase in the budget for
Procurement and Construction and Contingency categories in Table 4.
The activities for the line installation for both the LITL and the LTA are very similar in nature with
many of the same sub-contractors. As a result, the Project Management associated with these
activities for these two sub-projects are shared. During the period, there was a reallocation
of Project management budget from the Labrador Island Transmission Link to the Labrador
Transmission Assets to more appropriately reflect the actual Project management costs being
experienced. However, at this same time, Nalcor has also increased Project Management resources
as a result of the increased efforts required due to the geotechnical conditions experienced. This
resulted in a net decrease to the Project Management budget, reflected under the category NE-LCP
Owners Team, Admin and EPCM Services.

III. Labrador Transmission Assets
Total budgeted costs for the Labrador Transmission Assets have increased from $831.95 million to
$877.56 million, a difference of $45.6 million or 5.5 per cent.
Table 5

Labrador Transmission Assets – Revised Project as of September 2015 (in $ thousands)

Labrador Transmission Assets
NE-LCP Owners Team, Admin and EPCM Services

Project Budget
June 2014

Change

September 2015

($)

(%)

$99,973

$144,958

$44,985

45.0%

Feasibility Engineering

$220

$220

$0

0.0%

Environment & Regulatory Compliance

$710

$811

$101

14.3%

Aboriginal Affairs

$188

$188

$0

0.2%

$696,322

$709,643

$13,321

1.9%

$3,141

$3,891

$750

23.9%

$31,391

$17,846

($13,545)

-43.2%

$831,945

$877,557

$45,612

5.5%

Procurement and Construction
Commercial & Legal
Contingency
Total LTA

Muskrat Falls Project Oversight Committee

9

 In previous reports, the Committee noted that there had been drawdowns on contingency for
changes relating to additional foundations and mechanical rock anchors for the transmission
line and backfill required for the foundations of some transmission towers for the Labrador
Transmission Assets. Nalcor advises that some design changes to the AC Line and switchyard
layout at Muskrat Falls and Churchill Falls are required to respond to geotechnical conditions
which will result in increased costs. Furthermore, Harsher than normal winter conditions have
also impacted labour productivity resulting in projected additional labour hours to complete
the work. The anticipated cost pressures as outlined above are reflected in the increase in the
budget for Procurement and Construction category in Table 5.
In addition, as reflected in Table 5, Nalcor has increased Project management resources for the
Labrador Transmission Assets. As referenced previously, the activities for the line installation
for both the Labrador-Island Transmission Links and the Labrador Transmission Assets are very
similar in nature with many of the same sub-contractors. As a result, the Project Management
associated with the line installation activities for these two sub-projects are shared. During
the period, there was a reallocation of Project management budget from the Labrador-Island
Transmission Link to the Labrador Transmission Assets to more appropriately reflect the actual
Project management costs being experienced. This increase is reported under the category
NE-LCP Owners Team, Admin and EPCM Services.
Additional information on the revised Project Budget can be found on Nalcor’s website at
http://muskratfalls.nalcorenergy.com/wp-content/uploads/2015/09/NR_Muskrat-Falls-ProjectUpdate_29Sept2015_final.pdf.

10

Muskrat Falls Project Oversight Committee

 Project Schedule Performance
Committee Observations
•  Schedule pressures continue to be experienced at the Muskrat Falls Generating Facility’s
 
 
 
 

Powerhouse & Intake.
•  Critical Path for River Diversion in 2016 remains on track.
•  Risk of schedule delays remains high due to powerhouse concrete placement.
•  Critical Path to first power for December 2017 is under review.
•  Project Milestone Dates for Muskrat Falls Generating Facility are currently under review.

At August 2015
•  Actual Construction Progress 33.5 per cent. Planned Progress 43.3 per cent. Variance of 9.8
per cent behind schedule.
  •  Progress on the Muskrat Falls Generating Facility continues to track slower than planned.
   –  Schedule has been corrected on the Spillway and Gates and is currently 3.4 per cent  
   ahead of plan.
   –  Schedule progress is 23.4 per cent behind plan for the Powerhouse & Intake.
   –  Mitigation actions continue to be implemented and production improvements must  
   be maintained to avoid further schedule slippage.
  •  Progress on the Labrador-Island Transmission Link is tracking 6.3 per cent behind plan.
   –  Schedule variance relates primarily to progress on the transmission line installation.
  •  Progress on the Labrador Transmission Assets is tracking 5.3 per cent behind plan.
   –  Schedule variance relates primarily to work at switchyards.

In this section, the Committee provides information on actual schedule progress compared to
planned schedule progress for the period ended August 2015. Readers are cautioned that Nalcor
is currently establishing new baselines for the Project schedule as the Project budget has been
adjusted and Milestone Dates are under review. As a result, the planned progress reference
measures will change when the new baseline is complete. The progress measures provided
here are in reference to the original planned schedule to August 2015.

Muskrat Falls Project Oversight Committee

11

 Planned Costs: $525.3 Million

Planned Costs: $751.1 Million

Total Budget: $2.786 Billion

Schedule of Progress
as of August 2015

Schedule of Progress
as of March 2015

Muskrat Falls Project
Actual Progress: 27.1%

Actual Progress: 20.5%

Planned Progress: 21.9%

Planned Progress: 33.4%

Incurred Costs

100%

Incurred Costs

This section provides
overview of theasplanned
schedule to August 2015, first on an overall
as of Decemberan
2014
of August 2015
Incurred Costs: $358.0 Million
Costs:
$304.1 by
Millioneach of the sub-projects.
Project basis,Incurred
and
then

Schedule
Nalcor monitors and reports schedule progress on all activities, both construction and
Planned Costs: $380.9 Million
Planned Costs: $336.9 Million
Total Budget: $831.9 Million
manufacturing. Construction activities include all those activities occurring at site locations
in the province. Manufacturing activities include those supply/install contracts that take place
Schedule
of Progress
Schedule
of Progress
outside the province (e.g.
the generators
are being
manufactured
in China).

as of March 2015

as of August 2015

Actual Progress: 38.4%

Actual Progress: 51.8%

1. Construction Activities

Construction activities are mainly monitored and reported on an ongoing installation/
construction progress basis, while manufacturing activities are generally monitored and
reported based on a Milestone and/or delivery date basis.
Planned Progress: 39.4%

Planned Progress: 57.1%

100%

Construction has continued to advance on the Muskrat Falls Project since March 2015. As
outlined in Figure 1 and detailed in Table 6, overall Project schedule progress at the end of
Incurred
Costs
Incurred Coststo a planned schedule progress of 43.3 per cent, a
August 2015 is 33.5 per
cent
as compared
as of March 2015
as of August 2015
variance of 9.8 per cent lower than planned [March 2015 Report variance was 6.2 per cent lower
Incurred Costs: $2.427 Billion
Incurred Costs: $2.143 Billion
than planned].
Figure 1

Muskrat Falls Project – Schedule of Progress at August 2015
Planned Costs: $2.118 Billion
(including March 2015 comparison)

Schedule of Progress
as of March 2015
Actual Progress: 25.2%

Planned Progress: 31.4%

12

Planned Costs: $2.584 Billion

Total Budget: $6.99 Billion

Schedule of Progress
as of August 2015
Actual Progress: 33.5%

Planned Progress: 43.3%

100%

Muskrat Falls Project Oversight Committee

 Schedule progress is distributed among the three sub-projects as outlined in Table 6. Progress
variance relates primarily to the Muskrat Falls Generating Facility which continues to track
behind schedule. Since March 2015, there has been slippage on both the Labrador-Island
Transmission Link and the Labrador Transmission Assets sub-projects. Further information
regarding the progress schedule is provided in the section below by sub-project.

Table 6

Planned Construction Schedule Progress vs. Actual Schedule Progress – August 2015
August 2015
Muskrat Falls Project:
Sub-Project
Muskrat Falls
Generating Facility
Labrador-Island
Transmission Link

Planned
Schedule
Progress

Actual Schedule
Progress

48.8%
33.4%

Variance

Variance
June
2015

Variance
March 2015

34.8%

-14.0%

-14.3%

-11.7%

27.1%

-6.3%

-5.5%

-1.4%

Labrador Transmission
Assets

57.1%

51.8%

-5.3%

-2.1%

1.0%

Total

43.3%

33.5%

-9.8%

-9.3%

-6.2%

Muskrat Falls Project Oversight Committee

13

 g

Sub-Project: Muskrat Falls Generating Facility

Muskrat Falls Generating Facility

Schedule
As of the end of August 2015, the actual construction progress for the generating facility was
Incurred Costs
Incurredprogress
Costs
34.8 per cent complete compared
to a planned
of 48.8 per cent complete, a variance
as
of
March
2015
as
of
August
2015
of 14.0 per cent behind the planned schedule [March 2015 Report variance was 11.7 per cent
Incurred Costs: $1.263 Billion
Incurred Costs: $1.377 Billion
behind the planned schedule].
Figure 2

Muskrat Falls Generating Facility – Schedule of Progress at August 2015
Planned Costs: $1.256 Billion

(including March 2015 comparison)

Schedule of Progress
as of March 2015
Actual Progress: 26.3%

Incurred Costs
as of March 2015
Incurred Costs: $575.7 Million

Total Budget: $3.371 Billion

Schedule of Progress
as of August 2015
Actual Progress: 34.8%

Planned Progress: 38.0%

14

Planned Costs: $1.452 Billion

Incurred Costs
as of August 2015
Incurred Costs: $692.4 Million

Planned Progress: 48.8%

100%

Muskrat Falls Project Oversight Committee

 This schedule variance is mainly attributable to three activities within the generating facility
sub-project:
• 
• 
• 

North Spur Stabilization
Powerhouse & Intake
Reservoir Preparation

The progress status of each of these activities is summarized in Table 7:
Table 7

August 2015 - Construction Activity for the Muskrat Falls Generating Facility
Planned Progress vs. Actual Progress

Planned

Actual

Variance

June
2015
Variance

Activity

A

B

B–A

C

North Spur Stabilization

41.6%

16.6%

-25.0%

-25.8%

-21.2%

Powerhouse & Intake

41.9%

18.5%

-23.4%

-22.9%

-18.3%

Reservoir Preparation

71.5%

60.8%

-10.7%

-6.2%

0.6%

August 2015 Cumulative %

Construction Activity

March
2015
Variance

North Spur Stabilization
As outlined in the Committee’s September 2014 report, the planned date for the North Spur
Works Ready for Diversion Milestone was revised from November 2015 to September 2016.
Nalcor advises that the slippage recorded in the current schedule with respect to the North Spur

Muskrat Falls Site – Progress on North Spur – August 2015

Muskrat Falls Project Oversight Committee

15

 Stabilization Works, is not reflective of the revised plan date for this work activity. As a result,
as noted in previous reports, Nalcor advises that the progress will continue to track behind
current plan for this scope of work until a new baseline of the work schedule is set based on this
revised execution strategy. This re-baselining of the schedule for the North Spur Stabilization
Works is expected to be completed in November 2015. Nalcor advises that stabilization work is
progressing well at the North Spur and the geotechnical conditions encountered to-date, are as
expected.

Powerhouse & Intake
The progress on the Powerhouse & Intake continues to fall behind the original contractor’s
schedule. As of the end of August 2015, the actual construction progress for the Powerhouse &
Intake was 18.5 per cent complete compared to a planned progress of 41.9 per cent complete,
a variance of 23.4 per cent behind the planned schedule [the March 2015 variance was 18.3 per
cent behind planned schedule].
Nalcor advises they are working diligently with the civil contractor to improve concrete
placement rates and achieve increased and sustained production rates. The Project’s critical
path required priority on the Spillway & Gates in order to achieve river diversion in 2016. The
spillway and transition dams concrete placement is on target to achieve this milestone, with
the mechanical outfitting of the gates on stop logs next on the critical path. There are ongoing
discussions with the civil contractor to determine timelines for the completion of the remaining
work in the Powerhouse & Intakes.

Progress on the Powerhouse at the Muskrat Falls Site – August 2015

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Muskrat Falls Project Oversight Committee

 The Committee notes that the Integrated Project Schedule indicates that the tracking milestone
on the critical path to first power for December 2017 is currently under review by Nalcor, along
with other Project Milestone Dates for the Muskrat Falls Generating Facility.
The Independent Engineer states in the recent site visit report that “… fully meeting the current
overall schedule for the powerhouse and intakes will be a significant challenge, not impossible,
but likely not probable.”

Reservoir Preparation
The Committee has observed a notable change in the progress on the Reservoir Preparation
since the March 2015 report. As of the end of August 2015, the actual construction progress
for the Reservoir Preparation was 60.8 per cent complete compared to a planned progress of
71.5 per cent complete, a variance of 10.7 per cent behind the planned schedule [the March
2015 variance was 0.6 per cent ahead of the planned schedule]. Nalcor indicates that there
is considerable float in the reservoir preparation work, it is not on the critical path and will
not impact river diversion. As a result, the contractor resources have been reassigned to
the clearing work on the Labrador Island Transmission Link which is closer to a critical path
milestone. The current forecast date for the reservoir clearing is under review.

Spillway & Gates
The Committee notes that for the period April to August 2015, considerable progress has
been reported for the Spillway & Gates sub-project. As of the end of August 2015, the actual
construction progress for the Spillway & Gates was 58.0 per cent complete compared to a
planned progress of 54.6 per cent complete, a variance of 3.4 per cent ahead of the planned
schedule [March 2015 Report variance was 9.0 per cent behind the planned schedule]. Nalcor
has advised that Spillway concrete work will be significantly complete in 2015 and is on target to
achieve River Diversion in 2016.

Muskrat Falls Project Oversight Committee

17

 Sub-Project: Labrador-Island Transmission Link

Transmission Line Segments
Segment 1:
Muskrat Falls to Southern Labrador
Segment 2:
Southern Labrador to Forteau
Segment 3:
Shoal Cove to End of Northern Peninsula
Segment 4:
End of Northern Peninsula to Port Blandford
Segment 5:
Port Blandford to Soldiers Pond

•

Port Blandford

The route for the Labrador-Island Transmission Link by Segment

Schedule
As of August 2015, the actual construction progress for the Labrador-Island Transmission
Link was 27.1 per cent complete compared to a planned progress of 33.4 per cent complete, a
variance of 6.3 per cent behind planned schedule [March 2015 Report variance was 1.4 per cent
behind planned schedule].

18

Muskrat Falls Project Oversight Committee

 Incurred Costs
as of March 2015
Incurred Costs: $575.7 Million

Incurred Costs
as of August 2015
Incurred Costs: $692.4 Million

Figure 3

Labrador-Island
Transmission
Schedule of Progress at August 2015
Planned Costs:Link
$751.1 –
Million
Planned Costs: $525.3 Million

Total Budget: $2.786 Billion

(including March 2015 comparison)

Schedule of Progress
as of March 2015

Schedule of Progress
as of August 2015
Actual Progress: 27.1%

Actual Progress: 20.5%

Planned Progress: 21.9%

Planned Progress: 33.4%

100%

Nalcor advised
thatCosts
the increased slippage
in schedule performance is mainly due to challenging
Incurred Costs
Incurred
geotechnical
conditions
in Central Labrador affecting clearing,
as of Augustparticularly
2015
as of December
2014 being experienced,
access, and
works.
The
Incurred
Costs: spring
$358.0 Millionthaw also caused severe conditions at the work
Incurredtower
Costs: $304.1foundations
Million
sites, resulting in the temporary lay-off of employees while awaiting improvement.

Planned Costs: $380.9 Million

Planned Costs: $336.9 Million

Schedule of Progress
as of March 2015

Schedule of Progress
as of August 2015
Actual Progress: 51.8%

Actual Progress: 38.4%

Planned Progress: 57.1%

Planned Progress: 39.4%

Incurred Costs
as of March 2015
Incurred Costs: $2.143 Billion

Planned Costs: $2.118 Billion

Total Budget: $831.9 Million

100%

Incurred Costs
as of August 2015
Incurred Costs: $2.427 Billion

Planned Costs: $2.584 Billion

Total Budget: $6.99 Billion

Schedule of Progress
Schedule of Progress
of March
2015
as of August 2015 Transmission Link) – August 2015
Progress on theasHVdc
Transmission
Line (Labrador-Island
Actual Progress: 25.2%

Actual Progress: 33.5%

Muskrat Falls Project Oversight Committee
Planned Progress: 31.4%

Planned Progress: 43.3%

19
100%

 Incurred Costs: $1.263 Billion

Incurred Costs: $1.377 Billion

Planned Costs: $1.256 Billion

Planned Costs: $1.452 Billion

Total Budget: $3.371 Billion

Sub-Project:
Transmission
Assets
ScheduleLabrador
of Progress
Schedule of Progress
as of March 2015

as of August 2015
Actual Progress: 34.8%

Actual Progress: 26.3%

Planned Progress: 38.0%

Incurred Costs
as of March 2015
Incurred Costs: $575.7 Million

Planned Costs: $525.3 Million

Schedule of Progress
as of March 2015
Actual Progress: 20.5%

Planned Progress: 48.8%

100%

Incurred Costs
as of August 2015
Incurred Costs: $692.4 Million

Planned Costs: $751.1 Million

Total Budget: $2.786 Billion

Schedule of Progress
as of August 2015
Actual Progress: 27.1%

Figure showing the route for the transmission line for the Labrador Transmission Assets

Planned Progress: 21.9%

Planned Progress: 33.4%

100%

Schedule
As of the end of August
Incurred2015,
Costs the actual construction
Incurred Costs progress for the Labrador Transmission
Assets was 51.8
cent 2014
complete as compared
to2015
a planned progress of 57.1 per cent
as per
of December
as of August
Incurred Costs:of
$304.1
Million
Incurred
Costs: $358.0schedule
Million
complete, a variance
5.3
per cent behind
planned
[March 2015 Report variance was
1.0 per cent behind planned schedule].
Figure 4

Labrador Transmission
Assets – Schedule
of Costs:
Progress
at August 2015
Planned Costs: $336.9 Million
Planned
$380.9 Million

Total Budget: $831.9 Million

(including March 2015 comparison)

Schedule of Progress
as of March 2015
Actual Progress: 38.4%

Planned Progress: 39.4%

20

Incurred Costs
as of March 2015

Incurred Costs
as of August 2015

Schedule of Progress
as of August 2015
Actual Progress: 51.8%

Planned Progress: 57.1%

100%

Muskrat Falls Project Oversight Committee

 Nalcor advised that there was some slippage in schedule performance, due to the geotechnical
conditions encountered at the switchyards at both Churchill Falls and at Muskrat Falls which
required design modifications and delayed start of civil work. The temporary layoff during
the spring thaw also affected progress on the Labrador Transmission Assets. However,
performance is expected to allow catch up to forecast.

Progress on the HVac Transmission Line (Labrador Transmission Assets) – August 2015

2. Manufacturing Activities
The six material manufacturing supply and install contracts awarded to date are as follows:
• 
Turbines and Generators;
• 
Powerhouse Hydro-Mechanical Equipment;
• 
HVdc Converters and Transition Compounds;
• 
Submarine Cable for the Strait of Belle Isle crossing;
• 
AC Substations; and
• 
Synchronous Condensers for the Soldiers Pond Switchyard.
A summary of progress on these manufacturing activities as of the most recent Manufacturing
report available is outlined as follows:

Muskrat Falls Project Oversight Committee

21

 The Turbine and Generators contract continues to track behind the original contract schedule
based on July 2015 contractor report – 35.39 per cent complete as compared to a planned
progress of 48.59 per cent, representing a variance of 13.2 per cent (10.01 per cent in March
2015). Nalcor advises that this is within the contract schedule variance tolerances and the
equipment remains on track to meet the planned delivery dates. In its Draw Certificate dated
August 27, 2015, the Independent Engineer continues to note that there is considerable float
between the site need date in the Integrated Project Schedule and the contract schedule, and
that there is currently no cause for concern.
The contractor’s report for the Powerhouse Hydro-Mechanical Equipment for the month of
June 2015 indicates the project progress is at 24.67 per cent complete as compared to a planned
progress of 39.12 per cent. Nalcor advises that this is within the contract schedule variance
tolerances and the equipment remains on track to meet the planned delivery.
The contractor’s report for the HVdc Converters and Transition Compounds for the
month of May 2015 indicates that actual project progress is 12.1 per cent against a baseline
planned progress of 18.9 per cent. The report indicates that part of this slippage is due to the
re-aligning of the engineering phase, with the priority given to the Civil Works deliverables and
procurement. Nalcor advises that this is within the contract schedule variance tolerances and
the equipment remains on track to meet the planned delivery.
For the period ended August 2015, the Submarine Cable for the Strait of Belle Isle crossing
is tracking slightly behind schedule with cumulative progress of 53.74 per cent complete as
compared to a planned progress of 57.66 per cent.
The contractor’s report for the AC Substations for May 2015 indicates that overall progress is
ahead of the base line schedule by 0.3 percent with actual progress of 12.1 per cent complete
compared to a planned progress of 11.8 per cent. The report notes that despite delays in
engineering progress, the overall progress of the project exceeds the planned progress due to
the progress made in procurement.
The contractor’s report for the Synchronous Condensers for the month of June 2015
indicates the project progress is at 15.8 per cent complete as compared to a planned progress
of 27.2 per cent. Nalcor advises that this is within the contract schedule variance tolerances and
the equipment remains on track to meet the planned delivery. Notwithstanding, the contractor
is studying the issues that have potentially caused the delay and is organizing a workshop with
their subcontractors and Nalcor to troubleshoot and devise work plans to correct any schedule
variances.

22

Muskrat Falls Project Oversight Committee

 Long–term Schedule
Nalcor is currently establishing new baselines for the Project schedule; therefore, as outlined
in Table 8, the majority of the Milestone Dates have either been revised or are currently under
review.

Table 8

Milestone Schedule
Muskrat Falls Generating Facility

Planned Date
March 2015

Actual/Forecast
August 2015

Status

Project Sanction

December 2012

December 2012

Complete

North Spur Works Ready for Diversion

September 2016

September 2016

Under review

River Diversion Complete

November 2016

November 2016

Under review

Reservoir Impoundment Complete

November 2017

November 2017

Under review

Powerhouse Unit 1 Commissioned - Ready for Operation

December 2017

December 2017

Under review

First Power from Muskrat Falls

December 2017

December 2017

Under review

Powerhouse Unit 2 Commissioned - Ready for Operation

February 2018

February 2018

Under review

Powerhouse Unit 3 Commissioned - Ready for Operation

April 2018

April 2018

Under review

Powerhouse Unit 4 Commissioned - Ready for Operation

May 2018

May 2018

Under review

Full Power from Muskrat Falls

May 2018

May 2018

Under review

Commissioning Complete - Commissioning Certificate Issued

June 2018

June 2018

Under review

Labrador-Island Transmission Link

Planned Date
March 2015

Actual/Forecast
August 2015

Status

Project Sanction

December 2012

December 2012

Complete

SOBI Cable Systems Ready

October 2016

October 2016

No change

MF Switchyard and Converter Station Ready for Operation

February 2017

July 2017

Revised

HVdc Transmission Line Construction Complete and Connected

June 2017

July 2017

Revised

Soldier’s Pond Switchyard & Converter Stn. Ready for Operation

October 2017

July 2017

Revised

Ready for Power Transmission

October 2017

September 2017

Revised

Soldier’s Pond Synchronous Condenser Ready for Operation

November 2017

June 2017

Revised

Commissioning Complete - Commissioning Certificate Issued

June 2018

June 2018

Under review

Labrador Transmission Assets

Planned Date
March 2015

Actual/Forecast
August 2015

Status

Project Sanction

December 2012

December 2012

Complete

Hvac Transmission Line Construction Complete

June 2016

September 2016

Revised

Churchill Falls Switchyard Ready to Energize

May 2017

May 2017

No change

Muskrat Falls Switchyard Ready to Energize

May 2017

May 2017

No change

Ready for Power Transmission

May 2017

May 2017

No change

Commissioning Complete - Commissioning Certificate Issued

June 2018

June 2018

Under review

Muskrat Falls Project Oversight Committee

23

 Project Risks

Given the size and complexity of the Project, it is important that any risks continue to be
proactively identified and monitored and that mitigation measures are implemented as
appropriate. The Committee continues to review Nalcor’s monthly risk report and meets
regularly with Nalcor officials to discuss major project risks and mitigation strategies.
Based on the Committee’s review of the risk report for the period ending June 2015, the
Committee focused on providing updates with respect to the following risks:

1   Risk of Project Schedule Delays

2   Risk of Cost Escalation for Muskrat Falls Generation Facility

24

Muskrat Falls Project Oversight Committee

 1   Risk for Project schedule delays
 

While there has been significant improvement in concrete placement rates over the
summer period and risk levels for certain areas – including the North Spur and River
Diversion in 2016 – have decreased in the risk report since March 2015, the risk for
schedule delays due to powerhouse concrete placement remains high. Contractor
performance in the Powerhouse & Intake remains a key area of focus for the contractor
and Nalcor.

 

River diversion in 2016 is a critical milestone and is directly related to the civil
construction associated with the Muskrat Falls Generating Facility, more specifically with
the work on the Spillway and Gates. The Committee notes that to avoid Project schedule
delays significant production improvements in concrete placement and schedule
performance at the powerhouse will continue to be required in the short term, with those
projected improvements consistently aligned with the established targets in the future.
As previously referenced, the Milestone Dates relating to the Muskrat Falls Generating
Facility remain under review at this time.

 

The Committee questioned Nalcor as to its assessment of risk for not achieving River
Diversion in 2016. Nalcor advised that while there are always risks associated with a
project of this magnitude, the Nalcor Project Team is working diligently to manage these
risks that it can directly control. As discussed in the previous section on the status of
the Spillway and Gates, the River Diversion in 2016 is the next major activity on the
Project Critical path. In order to achieve this event, work on the North Spur work must
be complete, the Spillway concrete works and mechanical outfitting have to be advanced
enough to control the gates and the river closure work must be progressed to cut off the
natural flow path of the river. Nalcor indicates that all of these activities are currently on
target.

2   Risk of Cost Escalation for Muskrat Falls Generation Facility
Nalcor advises that the remaining cost risks for the Project are much reduced. As the
Project has advanced and construction is well underway on all components, potential
high risk activities which impacted project costs have been achieved and the Capital
budget has been adjusted where required. All major contracts have been awarded or are
through advanced evaluation which includes the majority of contract costs. The majority
of materials have been ordered and costs are committed.

Muskrat Falls Project Oversight Committee

25

 There is some remaining potential risk associated with the awarded contracts which
have a reimbursable or time and material content and as well as risk for potential claims.
The remaining project cost risks are associated with contractor performance, which can
be impacted by many factors and is a major part of the Nalcor project management
team’s attention. Other remaining risks include weather; geotechnical conditions; and
commissioning, startup and integration.
Nalcor noted that the Contingency of $186.8 million is designed to cover these potential
risks and has been estimated in accordance with the low range advised by the Association
for the Advancement of Cost Engineering International (AACEI) standard.
Nalcor further advises that the AACEI standard for the hydropower industry states that the
accuracy of the capital cost at this stage of a project is between -3 to +3 per cent. Nalcor
has used 4 per cent on the remaining scope of the project. Nalcor advises that it sets
aggressive contingency amounts in order to drive costs as low as possible.
The Committee notes that significant schedule pressures with respect to the Muskrat Falls
Generating Facility remain. The performance of the civil contractor for the Muskrat Falls
Generating Facility, while recently improved remains an ongoing area of focus given the
schedule slippage already incurred. It will be critical for the civil contractor to sustain the
production improvements to avoid further schedule slippage and may require additional
efforts from certain Project contractors. This could impact costs beyond the Project
execution risk contingency that has been established.

26

Muskrat Falls Project Oversight Committee

 Other Oversight Activities

The Committee provides the following update with respect to additional oversight activities.

Independent Engineer
From March 13 to 16, 2015 the Independent Engineer accompanied Nalcor representatives
on a factory visit to the Andritz facility in Chengdu, China where the turbines and generators
are being manufactured. Based on the site visit the Independent Engineer concluded that the
workmanship of the manufacturing work was very good and the most up-to-date technologies
and tools were being used during the manufacturing process. The Independent Engineer also
noted that in general good safety procedures were being observed during manufacturing.
Subsequently, on March 19, 2015 the Independent Engineer also accompanied Nalcor
representatives on a site visit to the Nexans facility in Futtsu, Japan. The purpose of this visit
was to verify the status of work and review the quality of processes for the manufacturing
of the submarine cables for the Strait of Belle Isle cable crossing as well as the High-Voltage
underground cables. The Independent Engineer found the manufacturing workmanship to
be very good and observed that the manufacturing process thus far has been carried out in
compliance with very high standards of safety, quality and environmental criteria. The Engineer
also reported that the work under this contract appears to be on schedule.
The official reports on both site visits were released in August 2015 and can be found on the
Committee’s website at: www.gov.nl.ca/mfoversight/engineer/ or, on Nalcor’s website at:
https://muskratfalls.nalcorenergy.com/newsroom/reports/
The Independent Engineer also made a site visit to the Muskrat Falls site during July 6 to 9,
2015. Committee representatives accompanied the Independent Engineer on this site visit. The
Independent Engineer’s report on the site visit was issued to Nalcor on September 11, 2015. The
report concludes:
“Overall, the project is managed and progressing well. However, fully meeting
the current overall schedule for the powerhouse and intakes will be a significant
challenge, not impossible, but likely not probable. The IE also notes that such
scheduling challenges are typical for most large hydroelectric projects.”

Muskrat Falls Project Oversight Committee

27

 Nalcor’s External Auditor

On August 13, 2015 Nalcor released its 2015 Q2 Financial Report which included unaudited
consolidated interim financial statements for the three and six months ended June 30, 2015
along with the associated Management Discussion and Analysis. Nalcor’s Internal Audit
Committee has reviewed this report. The document can be found on Nalcor’s website at:
http://www.nalcorenergy.com/uploads/file/Nalcor%20Energy%202015%20Q2%20Financial%20
Report.pdf
The Report indicates that capital expenditures for the project for Q2 2015 were $509.7 million
and $830.1 million year-to-date. This represents an increase of $231.6 million for the quarter and
$364.2 million year-to-date compared to the same period in 2014. The Q2 capital expenditures
included $199.7 million for Muskrat Falls Generating Facility, $93.7 million for Labrador
Transmission Assets and $178.1 million for the Labrador-Island Transmission Link.
The unaudited financial statements also reported on capital costs incurred on the Maritime
Link, which is owned and financed by a subsidiary of Emera Inc. Capital expenditures for the
Maritime Link for Q2 2015 were $94 million, bringing the total expenditure for that project to
date to $526 million.

Other Assurance Reviews
In fulfilling its mandate, throughout the construction period the Committee will examine issues
such as whether management processes and controls are well designed and followed. The
Committee provides the following update:

1. Project Controls for Cost and Schedule
As noted in previous Committee Reports, Ernst & Young, LLP (EY), in its role as consultant
to the Committee, has been engaged to undertake a review of the Project Controls for Cost
and Schedule. EY has completed execution of this work and has provided a draft report to
the Committee. A copy of the report has been shared with Nalcor for final validation. The
Committee will post the EY report to the Committee website once finalized.

28

Muskrat Falls Project Oversight Committee

 Next Report

The Committee will continue its oversight of the construction of the Project
in accordance with its mandate and the Oversight Framework.

Muskrat Falls Project Oversight Committee

29

 Appendix A
Project Budget Summary Expenditure Categories

The summary expenditure categories are described as follows:
NE-LCP Owners Team, Admin and EPCM Services: includes the labor, facilities and
overhead costs of the LCP Project team as well as costs of SNC Lavalin.
Feasibility Engineering: includes the cost of early stage engineering activities which are now
complete.
Environmental & Regulatory Compliance: includes costs associated with environmental
assessment, permits, licenses and similar such costs.
Aboriginal Affairs: includes costs associated with activities in the aboriginal communities
along with obligations under the Impact and Benefits Agreement.
Procurement & Construction: includes costs associated with the major construction activities
and the award of contracts.
Commercial & Legal: includes costs associated with insurance, legal and other commercial
activities.
Contingency: provision for additional expenditure, if required.

30

Muskrat Falls Project Oversight Committee

 Muskrat Falls Oversight Committee 

PO. Box 8700

St. John's, NL 

A1B 4J6