Topic:"Cost Deferral" in M12550

Review of C0051815 - RTU Replacements Program - Phase 6 (NSEB M12550) NSPI Responses to NSEB Information Requests 1 (a) Please provide a comparison of the original Capital Cost Detailed Estimate as filed in 2 (e) Please explain why the AFU...

AI summary The document outlines the NSPI's responses to NSEB information requests regarding the RTU Replacements Program - Phase 6, focusing on the comparison of capital cost estimates and the calculation of AFUDC. The responses include references to attachments and explanations of how AFUDC is calculated based on monthly spending.

8 3.2.1.2 Quantification & Measurement 1 Project management frameworks emphasize quantitative performance metrics as essential for validating process improvements. NSPI's reliance on qualitative assessments (e.g., "greater predictability,...

AI summary NSPI's use of qualitative assessments limits the ability to demonstrate measurable productivity gains and cost efficiencies from standardization efforts. Financial data from prior Program Phases show mixed results, with significant variances and an increase in contingency allowances, despite claims of improved estimating methodology.

- dedicated resource model to a shared resource model. Similarly, the adjustment in Civil Construction costs - reflects a transition from generic assumptions to site-specific realities. These adjustments indicate that initial - Project cos...

AI summary The text discusses adjustments in project cost estimates, transitioning from generic assumptions to site-specific realities, indicating that initial estimates were higher than necessary and that adjustments were made early in the project due to cautious initial estimates rather than learning from prior phases.

4.1 Delivery Model Justification - NSPI's Capital Expenditure Justification Criteria (" CEJC ") mandates the "Evaluation of alternative means of acquiring technologies including design and build (NSPI owned)... or contract to others," and...

AI summary NSPI's Capital Expenditure Justification Criteria (CEJC) require evaluating alternative delivery models using financial metrics like NPV, but no such analysis was performed for Phases 1 to 6 of the Program. NSPI instead relied on qualitative justifications and internal resource availability, despite capacity constraints driving the decision to use external contractors.

Table 11: Historical RTU Program Costs and Contingency Allocations (Phases 1-6)[53](#page-25-1) CI Approved Actual Cost Contingency Number Phase Amount ($) ($) Variance ($) Contingency ($) (%) 38142 - $512,974 $410,229 -$102,745 $6,000 1%...

AI summary The data in Table 11 shows that contingency allocations for RTU Program Phases 1-6 have shifted from 0-2% to a flat 10% for Phases 4, 5, and 6, despite varying risk levels. NSPI does not assign monetary values to identified threats or use probabilistic modeling to calculate risk reserves, suggesting the 10% contingency is a static policy allowance rather than a risk-based reserve.

4.2.1 Conclusions – Estimate Basis and Risk Quantification - While NSPI's estimate classification (Class 3) aligns with the level of engineering definition (via its representative IFC packages), the valuation of that estimate and its conti...

AI summary The document discusses NSPI's estimate classification (Class 3) and its reliance on heuristic judgment rather than empirical data. It highlights the lack of historical productivity metrics and the absence of a data-driven approach for the 10% contingency applied to Phase 6 costs, which excludes internal administrative overhead and capitalized interest.

5.3.1 Conclusions – Indirect Cost Allocation & Transparency - NSPI adheres to NSEB-approved accounting policies for Administrative Overhead and AFUDC. The specific - exclusion of 50% of overtime labour from overhead application and the gra...

AI summary NSPI follows NSEB-approved accounting policies for Administrative Overhead and AFUDC. The exclusion of 50% of overtime labour and detailed separation of travel expenses show a prudent approach to cost allocation, making indirect cost mechanisms reasonable. Focus should be on direct labour management rather than overhead methodologies.

7 Table 19: Assessment of Cost Reasonableness Conclusions Report Section Question Midgard Commentary 5.1 Are the substantial increases in labour requirements per RTU substantiated by objective evidence of expanded scope, infrastructure com...

AI summary The document assesses the reasonableness of costs for a project, with Midgard commenting that while NSPI's complexity drivers are valid, the substantial increase in labor requirements per RTU is not fully substantiated. A 30% reduction in labor hours is recommended. Equipment and material costs are deemed reasonable due to competitive procurement, and indirect cost components are calculated using transparent methodologies.

5 Table 20: Summary of Conclusions Report Section Question Midgard Commentary 4.1 Did NSPI demonstrate that its reliance on internal resources was more cost-effective than external alternatives? NSPI acknowledges that no formal make versus...

AI summary NSPI did not conduct a formal make-versus-buy analysis for Phase 6, and core technical work was assigned internally without market testing. The Phase 6 capital cost estimate is classification-compliant but lacks empirical calibration, with contingency allowances based on judgment rather than quantitative risk analysis.

- d) Midgard does not consider the Phase 6 RTU replacement projects strictly routine in nature. The evidentiary record demonstrates variability across the portfolio, with site complexities ranging from straightforward replacements to contr...

AI summary Midgard argues that the Phase 6 RTU replacement projects are not routine, with varying site complexities, labor dependencies, and execution risks. These factors make cost estimation and risk management more challenging compared to standardized projects like transformer additions. The absence of a quantitative risk matrix is highlighted as a limitation in assessing cost reasonableness.

17 2.4 Classification and Contingency Allowance 18 19 The Midgard Evidence provided the following conclusion regarding the NS Power estimate 20 classification and contingency allocation: 21 22 NSPI's Phase 6 estimate is classification‑comp...

AI summary The Midgard Evidence concludes that NSPI's Phase 6 estimate is classification-compliant but not empirically calibrated, with the base unit rates and 10% contingency being judgment-based. Contingency allowances have trended upward in recent phases, despite NSPI acknowledging the use of such funds.

12 Exhibit N-3, Midgard Evidence, February 18, 2026, page 19, lines 5-10. 1 Although on its surface, the application of contingency may seem unnecessary given utilization of 2 funds were largely not required in prior phases, the timing bet...

AI summary The document discusses NS Power's use of contingency funds and labor estimates for a project. While NS Power argues that contingency is appropriate due to potential risks, Midgard recommends reducing the labor budget by 30%. NS Power disagrees, citing unresolved disputes and the limitations of RFW documentation.

re decreased, NS Power would be forced to complete a substandard job in order to ensure the project remained within budget. Respectfully, such an approach would not comply with good utility practices. Regardless of the established budget,...

AI summary The Board supports NS Power's obligations to complete projects safely and timely, even if under budget, and acknowledges the company's ability to file an ATO for cost overruns. The Consumer Advocate highlights the importance of NS Power adhering to its obligations, while the Board notes that past RTU performance was generally acceptable, though concerns arose due to insufficient support for increasing labour hours.

- b) For each variance identified in Part (a), please explain whether the change is attributable to: - i. A change in measurement Unit (e.g., from Days to PD); - ii. A change in Quantity (with quantification of the delta); - iii. A change...

AI summary The document requests detailed explanations regarding variances in cost estimates, breakdowns of specific costs such as vehicle overhead, and the calculation methodology for AFUDC in capital cost estimates. It also asks for comparisons between original and updated estimates and clarification on assumptions related to AFUDC.

ficant labor cost variances, identifying how differences in equipment scope, site conditions, installation methodology, or commissioning/testing requirements contributed to the labor estimate changes. At Attachment 1 of the letter filed by...

AI summary The document discusses labor cost variances in a capital project, including internal and contractor labor administrative overhead (AO) costs, and requests detailed breakdowns of these costs. It also references an updated Capital Project Cost Estimate and compares methodologies used in different estimates.

re decreased, NS Power would be forced to complete a substandard job in order to ensure the project remained within budget. Respectfully, such an approach would not comply with good utility practices. Regardless of the established budget,...

AI summary The Board agrees with the Consumer Advocate's analysis that NS Power must complete projects safely and timely, even if it results in under-budget completion or cost overruns. The Board acknowledges NS Power's past performance with RTUs but highlights concerns about the lack of support for increasing labour hours.