Executive Council
Natural Resources
April 12, 2016

Making Responsible Decisions

Government Releases EY�s Interim Report on the Muskrat Falls Project

Today, the Honourable Siobhan Coady, Minister of Natural Resources, released the interim report from Ernst & Young LLP (EY), which focused on cost, schedule and associated risks for the Muskrat Falls Project. Also released today was the Muskrat Falls Oversight Committee�s report to the end of December 2015.

�As inheritors of the Muskrat Falls Project, we are committed to opening the books on the project as we have done through our engagement with EY and ensuring it is managed effectively. This large scale construction project is currently facing schedule and cost pressures, particularly in the powerhouse and intake. We are acting in the best interest of the taxpayers of this province and making decisions on this project by implementing EY�s recommendations and strengthening project governance.�
- The Honourable Dwight Ball, Premier of Newfoundland and Labrador

The interim report informs government about the current material risks and issues that are not reflected in the September 2015 forecast, and provides recommendations to improve project governance. The overall conclusion of the EY review is that the September 2015 forecast is not reasonable.

�We take EY�s recommendations seriously and it is our full intention to action them all including strengthening project governance and expanding oversight which we expect to have completed by the end of May. Schedule pressures and expected cost increases on the Muskrat Falls Project concern us all. The project is now being reforecast for cost and schedule. EY will assess the reasonableness of this revised forecast and will then present us with a final report following their review. We will ensure the project is managed effectively within budget from here on.�
- The Honourable Siobhan Coady, Minister of Natural Resources

The schedule and cost reforecast for the Labrador Island Transmission Link and Labrador Transmission Asset is expected to be completed by the end of May. One component, the powerhouse and intake as part of the Muskrat Falls Generation, is significantly behind schedule. Nalcor is in discussions with Astaldi, the contractor. The final cost and schedule reforecast will be available once these discussions have concluded.

Key findings and recommendations from EY�s interim report are included in the backgrounder below.

QUICK FACTS

• Today, the interim report from Ernst & Young LLP (EY) which focused on cost, schedule and associated risks for the Muskrat Falls Project was released and is available at www.gov.nl.ca/MFoversight/.
• Also released today was the Muskrat Falls Oversight Committee�s report to the end of December 2015 which is available at www.gov.nl.ca/MFoversight/.
• The Provincial Government intends to action all EY recommendations including strengthening project governance and expanding oversight which is expected to be completed by the end of May. The project is now being reforecast for cost and schedule. EY will assess the reasonableness of this revised forecast and will then present a final report following their review.
• The Muskrat Falls Project is a significant economic generator in the construction phase. There were 4,552 Newfoundland and Labrador residents working on the project at peak in 2015 and $1.14 billion in wages paid to Newfoundland and Labrador workers since the start of project construction. In addition, $1.04 billion has been spent with Newfoundland and Labrador-based businesses since the start of construction.

- 30 -

Media contacts:

Nancy O�Connor Director of Communications Office of the Premier 709-689-1825 nancyoconnor@gov.nl.ca

Diana Quinton Director of Communications Department of Natural Resources 709-729-5282, 631-8155 dianaquinton@gov.nl.ca

BACKGROUNDER
Highlights from the EY Interim Report

Key Findings:
The EY review concluded that the September 2015 forecast is not reasonable for the following principal reasons:

• The generation contract for civil construction is significantly behind schedule in the Powerhouse and Intake areas and consequences of this delay are expected to have material impacts on cost and schedule that are not reflected in the September 2015 forecast.
• There is a risk of a multiple month delay to complete the HVdc transmission line contract.
• The contingency amount to cover any cost increases is low for the current stage of completion of the project and does not reflect risks defined by Nalcor as strategic.
• There is a need to strengthen project governance and reporting to provide more effective oversight and constructive challenge to project performance and execution, key decisions and forecasting.

Recommendations:

• The project should revise its planning and forecasting processes to explicitly include the regular reporting of a fully risk-adjusted final forecast of cost and schedule.
• The project contingency should make appropriate allowances for all risks, including strategic, at a confidence level reflecting stakeholders� required cost certainty. EY recommends that consideration be given to the use of a more conservative confidence level for setting project contingency, based on a thorough risk assessment.
• The sufficiency of the project contingency should be reviewed quarterly to assess whether it appropriately covers all risks, taking account of the effectiveness of mitigation plans and the likelihood of risks crystallizing.
• There should be separation of the project contingency into an amount to be managed by the project team and an amount to be managed at a higher level of governance.
• Project governance and independent oversight should be re-evaluated by the Provincial Government and strengthened at the project, Nalcor board, and Provincial Government levels.
• Project reporting should be enhanced to support senior management focus on key risks and issues, to communicate more clearly how key risks are reflected in the forecast and to enable more effective Provincial Government oversight.

2016 04 12                             2:20 p.m.