Audit of the Administration of the Lower Churchill Projects Loan Guarantees
Presented to the Departmental Audit Committee (DAC)
January 15, 2020
Table of Contents
Executive Summary
Introduction
In June 2011, the Government of Canada committed to supporting major new clean energy projects of national and regional significance (i.e. with an interprovincial component). Among the supported initiatives was the Lower Churchill Hydroelectricity Projects, located in Newfoundland and Labrador, Nova Scotia and the federal offshore, which aimed to reduce greenhouse gas emissions from increased electricity demand and to offset emissions from other electricity sources.
The Lower Churchill Hydroelectricity Projects are comprised of the following three major components: the Muskrat Falls Generating Project and the Transmission Projects, led by Nalcor Energy; and the Maritime Link Project, led by Emera.
On November 30, 2012, it was announced that the federal government had reached an agreement with the governments of Newfoundland and Labrador and Nova Scotia, along with Nalcor Energy as well as Emera, and their affiliates, on the terms and conditions for a federal loan guarantee (FLG) to support the construction of the Hydroelectricity Projects and related costs. This represented the federal government’s promise, through Natural Resources Canada (NRCan), to guarantee $6.3 billion (B) of debt raised by the utility companies through the issuance of long-term bonds. The FLG was intended to encourage investment into the projects by reducing the financial risk incurred by lenders, thereby lowering overall costs to the Borrowers and improving the financial feasibility of the mega-projects. While the federal government assumed a portion of the financial risk related to guaranteeing the Projects’ loan, the construction and the management of the Projects is the responsibility of Nalcor Energy and Emera.
In November 2016, the federal government committed to provide an additional loan guarantee (FLG2) of $2.9 billion to further support the completion of the Muskrat Falls Generation Facility, and the Transmission Projects (Labrador-Island Link and the Labrador Transmission Assets). When the Projects were sanctioned, the estimated capital cost (not including interest and capitalized financing cost) was $6.2B and the commissioning date was December 2017; currently, the forecasted capital cost is at $10.1B with first power expected by February 2020, and commissioning by September 2020. Project costs are funded through Nalcor and Emera invested equity, as well as the guaranteed debt.
The Department of Finance was involved in the review and development of the terms and conditions for both the FLG and FLG2 as well as providing approval and authorization for the federal government to enter into the significant loan guarantees. As part of the FLG2 agreement, Canada receives a guarantee fee equal to 0.5% of the net amount of FLG2 debt outstanding on an annual basis. The total estimated amount of revenues related to the Guarantee fee in future years is $340.4 million (M). Furthermore, each of the Borrowers have pledged all of their assets, contracts, and shares as security for the guaranteed debt.
The Projects are subject to oversight and monitoring by the Independent Engineer, the Collateral Agent, and the Muskrat Falls Oversight Committee. NRCan also conducts monitoring activities in order to ensure compliance with the FLG agreements. The Renewable and Electrical Energy Division (REED), located within the Low Carbon Energy Sector, is responsible for the Department’s administration and monitoring of the loan guarantees, which is overseen by the Assistant Deputy Minister of Strategic Petroleum Policy and Investment Office.
The objective of the audit was to determine whether NRCan has effective controls in place to administer, monitor, and report on the Lower Churchill Projects (LCP) Loan Guarantees.
The audit of the Administration of the LCP Loan Guarantees was included in the 2018-2021 Risk-Based Audit Plan, approved by the Deputy Minister on April 12, 2018.
Strengths
Overall, NRCan has established controls to administer, monitor, and report on the LCP Loan Guarantees. Specifically, NRCan has controls in place to review project documentation on a periodic basis, and tracks the amount of outstanding debt. NRCan also monitors the project’s Debt Equity Ratio on a monthly basis, and has attended site visits conducted by the Independent Engineer (IE) regularly since the onset of the projects. In addition, key documents are prepared outlining the details of NRCan’s contingent liabilities account balance on a quarterly basis.
Areas for Improvement
Opportunities exist for NRCan to enhance its monitoring and oversight processes by adopting a risk-based approach to site visits in monitoring the LCP Loan Guarantees; improving the timeliness and/or completeness of the existing document review process as well as the monitoring of the Debt Service Coverage Ratio and guarantee fees; and improving reporting and follow-up processes.
Internal Audit Conclusion and Opinion
Overall, NRCan has established the main control elements to administer, monitor, and report on the LCP Loan Guarantees. The audit identified some opportunities to enhance the effectiveness of NRCan’s monitoring and oversight processes.
Statement of Conformance
In my professional judgement as Chief Audit Executive, the audit conforms with the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing and the Government of Canada’s Policy on Internal Audit, as supported by the results of the Quality Assurance and Improvement Program.
Christian Asselin, CPA, CA, CMA, CFE
Chief Audit and Evaluation Executive
January 15, 2020
Acknowledgements
The audit team would like to thank those individuals who contributed to this project and, particularly employees who provided insights and comments as part of this audit.
Introduction
In June 2011, the Government of Canada committed to supporting major new clean energy projects of national and regional significance (i.e. with an interprovincial component). Among the supported initiatives was the Lower Churchill Hydroelectricity Projects, located in Newfoundland and Labrador, Nova Scotia and the federal offshore, which aimed to reduce greenhouse gas emissions from increased electricity demand and to offset emissions from other electricity sources. The Projects are comprised of the following three major components: the Muskrat Falls Generating Project and the Transmission Projects, led by Nalcor Energy; and the Maritime Link Project, led by Emera.
On November 30, 2012, it was announced that the federal government had reached an agreement with the governments of Newfoundland and Labrador and Nova Scotia, along with Nalcor Energy as well as Emera, and their affiliates, on the terms and conditions for a FLG to support the construction of the Hydroelectricity Projects and related costs. This represented the federal government’s promise, through NRCan, to guarantee $6.3B of debt raised through the issuance of long-term bonds by Financing Trust Companies related to Muskrat Falls/Labrador Transmission Assets (MF/LTA), Labrador-Island Link (LIL), and Maritime Link (ML). These bonds were issued on December 10, 2013 (MF/LTA) and April 15, 2014 (ML). The bonds were printed bearing an interest rate of up to 3.86% (MF/LTA and LIL) and 3.50% (ML) per annum payable semi-annually commencing on June 1, 2014. The maturity date varies, from June 1, 2029 to December 1, 2053.
In November 2016, the federal government committed to provide an additional loan guarantee (FLG2) of $2.9B to further support the completion of the Muskrat Falls Generation Facility (MF), and the Transmission Projects (LIL and LTA). When the Projects were sanctioned, the estimated capital cost for these projects (MF/LTA and LIL) was $6.2B (not including interest and capitalized financing cost) and the commissioning date was December 2017; currently, the forecasted capital cost is at $10.1B. Project costs are funded through Nalcor and Emera invested equity as well as the guaranteed debt. According to the information provided by Nalcor Energy, first power from the generation project is expected by February 2020, with commissioning by September 2020. The FLG2 debt was also raised through the issuance of additional long-term bonds. The bonds were printed bearing an interest rate of up to 2.86% per annum payable semi-annually commencing on June 1, 2017. The maturity dates vary, from December 1, 2020 to June 1, 2057.
The FLG and FLG2 were intended to encourage investment into the projects by reducing the financial risk incurred by lenders, thereby lowering overall costs to the Borrowers (Nalcor Energy and Emera) and improving the financial feasibility of the mega-projects. While the federal government assumed a portion of the financial risk related to guaranteeing the Projects’ loan, the construction and the management of the Projects is the responsibility of Nalcor Energy and Emera.
The Department of Finance was involved in the review and development of the terms and conditions for both the FLG and FLG2 as well as providing approval and authorization for the federal government to enter into the significant loan guarantees. As part of the FLG2 agreement, Canada receives a guarantee fee equal to 0.5% of the net amount of FLG2 debt outstanding on an annual basis. The total estimated amount of revenues related to the Guarantee fee in future years is $340.4 million. Furthermore, each of the Borrowers have pledged all of their assets, contracts, and shares as security for the guaranteed debt.
As of October 31, 2019, $8.95B out of the $9.20B of guaranteed debt had been released. The amount of debt guaranteed by Canada is broken down as follows:
| Lower Churchill Hydroelectricity Projects | Loan Guarantees (in Billion of Dollars) | ||
|---|---|---|---|
| FLG (2012) | FLG2 (2017) | Total | |
| Muskrat Falls Generation Facility and Labrador Transmission Assets (MFLTA) | $2.60 | $1.85 | $4.45 |
| Labrador-Island Link (LIL) | $2.40 | $1.05 | $3.45 |
| Maritime Link Project (ML) | $1.30 | - | $1.30 |
| Total | $6.30 | $2.90 | $9.20 |
Source: Agreement Providing Key Terms and Conditions for the Federal Loan Guarantee by Her Majesty the Queen in Right of Canada for the Debt financing of the Lower Churchill River Projects, and the Agreement Providing the Key Terms and Conditions for the Additional Federal Loan Guarantee by Her Majesty the Queen in Right of Canada for the Debt financing of the Lower Churchill Projects.
The Loan Guarantees are subject to a degree of oversight and monitoring by:
- Natural Resources Canada: The Renewable and Electrical Energy Division (REED), located within the Low Carbon Energy Sector, is responsible for the Department’s administration and monitoring of the loan guarantees, which is overseen by the Assistant Deputy Minister of Strategic Petroleum Policy and Investment Office. This includes reviewing key documents submitted by the Borrowers (MFLTA, LIL, and ML), the CA, and the IE, as well as maintaining a record of funds requested and drawn from the guaranteed loans.
- The Independent Engineer (IE): The IE is engaged to provide independent technical advice and opinion on the engineering and construction plans, the projected costs and schedule for the projects. The IE was also engaged to provide independent technical oversight during the project construction and operation by providing additional assurances to relevant parties regarding the reasonableness and accuracy of the Borrowers’ statements. As per industry practice, the fees associated with the work of IE are paid for by the borrowing entities.
- The Collateral Agent (CA): The funds raised through the guaranteed debt are controlled by the federal government through a CA, the Toronto-Dominion Bank. The CA has been appointed as Canada’s representative to provide it with advice regarding issues that may arise in connection with the project financing, and to allow Canada a suitable degree of project oversight without directly managing the projects. Only the CA, with NRCan’s recommendation, has the ability to release the guaranteed funds for use by the Borrowers.
- Muskrat Falls Project Oversight Committee: The Committee is established by the Government of Newfoundland and Labrador in order strengthen and formalize existing oversight for the Muskrat Falls project. The Committee is comprised of representatives from several provincial government departments, as well as four independent members, and is supported by a working group with expertise in the areas of law, engineering, project management, accounting and auditing. The Committee convenes on a monthly basis, and develops both monthly and quarterly reports describing the project’s progress.
The audit of the Administration of the LCP Loan Guarantees was included in the 2018-2021 Risk-Based Audit Plan, approved by the Deputy Minister on April 12, 2018.
Audit Purpose, Objective, And Criteria
The objective of the audit was to determine whether NRCan has effective controls in place to administer, monitor, and report on the LCP Loan Guarantees.
The following audit criteria were assessed in order to conclude on the audit objective:
- NRCan has effectively administered and monitored the LCP Loan Guarantees; and
- NRCan has effective controls in place to ensure that the LCP Loan Guarantees are adequately presented in the contingent liabilities note to NRCan’s financial statements.
Audit Considerations
A risk-based approach was used in establishing the objectives, scope, and approach for this audit engagement. The following areas were identified as the key inherent risks that could impact the effective management of the LCP Loan Guarantees provided by NRCan, as well as the compliance with the LCP Loan Guarantees and finance agreements:
- Adequacy of the governance structure in place to support the administration of the loan guarantees;
- Monitoring controls in place to support NRCan’s management in the oversight of the Loan Guarantees; and
- Effectiveness of the key controls in place to ensure the reporting adequacy of the contingent liabilities note to NRCan’s financial statements related to the LCP Loan Guarantees.
Scope
The scope of the audit focused on REED’s oversight activities related to the LCP Loan Guarantees, starting from onset of the LCP until June 30, 2019.
The audit did not include an assessment of the decision making process that led to the formation of the loan guarantee agreements nor did it include a viability assessment of the project. This audit does not constitute an audit of the LCP, but an audit of the administration of the Loan Guarantee related to LCP. The audit also does not provide assurance on the contingent liabilities note in NRCan’s financial statements nor on the cost of the LCP.
Approach and Methodology
The approach and methodology followed the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing (IIA Standards) and the Treasury Board (TB) Policy on Internal Audit. Theses standards require that the audit be planned and performed in such a way as to obtain reasonable assurance that audit objectives are achieved. The audit included tests considered necessary to provide such assurance. Internal auditors performed the audit with independence and objectivity as defined by the IIA Standards.
The audit included the following key tasks:
- Interviews with key personnel;
- Testing of a sample of site visits and guarantee debt drawdowns; and
- Review of relevant documentation, including business processes narratives, and contractual agreements.
The criteria were developed primarily from the key controls set out in the TB’s Core Management Controls. The criteria guided the fieldwork and formed the basis for the overall audit conclusion.
The conduct phase of this audit was substantially completed in October 2019.
Findings and Recommendations
Administration, Monitoring, and Financial Reporting
Summary Finding
Overall, the audit team found that NRCan has established controls to administer, monitor, and report on the LCP Loan Guarantees, and to disclose the LCP Loan Guarantees in the notes to NRCan’s financial statements.
Opportunities exist for NRCan to enhance its monitoring and oversight processes by adopting a risk-based approach in determining when to attend site visits; following up on site-visit observations; and monitoring key financial ratios. Opportunities also exist to ensure the timely remittance of the guarantee fees and the review of relevant project documents; as well as to formalize reporting to senior management on the progress, results and issues related to LCP.
Supporting Observations
Administration and Monitoring
The LCP Loan Guarantees were intended to encourage investment into the projects by reducing the financial risk incurred by lenders, thereby lowering overall costs to the Borrowers and improving the financial feasibility of the mega-projects. While the federal government assumed a portion of the financial risk related to guaranteeing the Projects’ loan, the construction and the management of the Projects is the responsibility of Nalcor Energy and Emera.
The loan guarantees are subject to oversight and monitoring by the Government of Canada. These monitoring activities include: the review of financial and non-financial documents to provide an overview of the progress and status of the Projects; the tracking of the debt to maintain an updated record of the amount of the guaranteed loans that have been released to each project entity to date; the monitoring of the project’s key financial ratios to ensure continuous compliance with the agreements; and appropriate indebtedness level of the Borrowers.
The monitoring activities also include attendance to site visits conducted by the IE. These site visits provided additional assurance on the overall advancement of the project. Site visit reports, outlining the results and findings of the activity, are developed and distributed by the IE, whose role was to provide independent technical advice and opinion on the engineering and construction plans, the projected costs and schedule for the projects. The IE was also engaged to provide independent technical oversight during the project construction and operation by providing additional assurances to relevant parties regarding the reasonableness and accuracy of the Borrowers’ statements. A dispute resolution mechanism also exists in the case of significant difference of opinions between the IE and Nalcor.
The audit team sought to determine whether the Department effectively exercised its administration and monitoring rights as they relate to the LCP Loan Guarantees. Specifically, the audit team expected REED to keep an accurate record of the amount of outstanding debt, to monitor the project’s key financial ratios and to ensure continuous compliance with the agreements, to effectively exercise their right to perform site visits and inspections, and to have controls in place to ensure the proper remittance of the guarantee fees. The audit team also expected the Department to have controls in place to ensure that the LCP Loan Guarantees are adequately disclosed in NRCan’s contingent liabilities note to the financial statements.
Review of Key Financial and Non-Financial Documents
The project agreements require a number of documents to be provided by the Borrowers before NRCan approves any release of guaranteed debt. Among others, these documents include the funding request details and the current state of construction. In addition, NRCan receives the CA’s recommendation for the drawdown, as well as the IE’s certificate confirming his review of the construction report and the Borrowers’ funding requests. The audit team found that REED keeps a record of its receipt and review of these documents by completing a drawdown checklist on a monthly basis. The audit team reviewed a sample of nine-debt drawdowns, and found that a drawdown checklist was prepared for each of them and that the related supporting documents were on file and reviewed by REED.
Additional information is also submitted to REED on a quarterly and annual basis by the Borrowers. REED keeps a record of its receipt and review of these documents through an administration checklist, which serves as the quarterly/annual tracker equivalent to the monthly drawdown checklist used for monthly reporting purposes. Reports regarding the project and stakeholders’ progress are provided to NRCan in accordance with the relevant project agreements. The audit team reviewed the 2018 administration checklists for MFLTA, LIL, and ML to assess whether each listed document was received and reviewed by REED in a timely manner. The audit found that the 2018 administration checklist was completed for MFLTA and LIL; however, the 2018 administration checklist for ML was not completed by REED at the time of the audit. In addition, although the quarterly financial statements of MFLTA and LIL were received on time, the audit team noted that they were not always reviewed in a timely manner by REED. For instance, the quarterly financial statements received for the first, second and third quarters of 2018 for LIL and MFLTA were reviewed by REED in May 2019.
Tracking of Guaranteed Debt
The audit team found that REED maintains an internal debt tracker spreadsheet (the tracker) to monitor the amount of funds released to the Borrowers, and that it maintains a current record of the guaranteed debt that has been released for each project. The tracker is updated on a regular basis by REED to reflect each month’s debt drawdown. The audit team found that the tracker maintains a record of the amount of outstanding debt released for each of the three projects.
The project agreements define certain limitations on the amount of debt that can be drawn at any given time. For example, the Borrowers must invest a sufficient amount of equity into the projects in proportion to the amount of debt they request. This is represented by the Debt-to-Equity Ratio (DER). The audit team assessed whether REED monitored these ratios on a regular basis in order to ensure the Borrowers’ compliance with the terms and conditions of the FLGs. The audit team found that REED monitors the DER on a monthly basis, through the tracker. The audit team reviewed a sample of drawdown periods, and found that the DER was within the acceptable range as stipulated within the terms and conditions of the FLGs for each selected project and period.
Borrowers must also maintain an acceptable retrospective and prospective Debt Service Coverage Ratio (DSCR) during the operation period, which measures their ability to pay financing costs of the debt at a particular point in time. The Borrowers are required to produce a compliance certificate confirming that the retrospective and prospective DSCR level is being maintained as per the requirements of the Projects agreements on a quarterly basis. REED indicated that it relies on the certifications provided by the Borrowers. There is an opportunity to enhance REED’s monitoring of the retrospective and prospective DSCR by undertaking a validation process every quarter.
Site Visits and Inspections
As per the project agreements, Canada and the IE are entitled to attend between one to three site visits per calendar year for MFLTA, LIL and ML. The site visits are a monitoring mechanism that provides Canada with additional assurance on the overall progress of the projects, and with the opportunity to be informed of any significant delays or concerns that warrant attention. The project agreements also allow Canada and the IE to perform inspections of the Borrowers’ books and records from the onset of the project.
The audit team found that during the construction phase of the projects, site visits were conducted by the IE team at the frequency permitted by the agreements, and that REED attended two site visits per year for each project, and a third ML site visit in 2016. In addition, the IE is also required to conduct site visits during the operational phase to monitor the operation and maintenance of the project assets. These site visits can also help identify potential issues that could negatively affect the LCP’s ability to generate revenue, which in turn, could increase the risk related to the loan guarantee. REED indicated that its attendance of site visits during operational phase will be determined on a case-by-case basis. However, the audit team found that there was no formal process in place to assess and document the risk that would inform the approach for determining when to attend site visits for both the construction and operational phases.
The audit team selected a sample of ten site visits and found that IE reports were completed, and included the visit's purpose, a summary of the work conducted, as well as observations noted during the visit. However, the audit team found that REED has no formal process in place to follow-up on the status of key findings and recommendations that stem from the IE site visits. Management indicated that it ultimately relies on the IE to track and follow-up on any outstanding items or issues stemming from the site visits, and that results of site visits are discussed during monthly conference calls between the IE, Nalcor Energy, NRCan, the Provinces, and legal/financial representatives. A record of their outcomes is not maintained. In addition, management advised that key risks were reported to senior management when required. The audit team found that REED provided quarterly briefings to senior management on project status (e.g. progress, risks, IE site visits) prior to the issuance of FLG2, as well as additional briefings when significant events occurred (i.e. cost overruns or delays). Following the issuance of FLG2, briefings to senior management on significant events continued; however, the audit team found that the quarterly reporting process was discontinued.
Cost Overrun Escrow Account & Equity Prefunding Reserve Account
As outlined within the Project Finance Agreements, the Borrowers were required to sufficiently fund a Cost Overrun Escrow Account (COREA) controlled by the CA. The purpose of the COREA was to ensure that an appropriate accumulation of funds be available at all times to cover any cost overruns that may arise throughout the life of the projects. With the introduction of the second federal loan guarantee, regular payments into the COREA were converted into payments made to the New Annual Equity Prefunding Payments for MF/LTA only, and a new COREA was established for any future cost overruns. These payments are to be made on an annual basis until the end of 2019 into the Equity Prefunding Reserve Account, which is also maintained by the CA. The equity prefunding and COREA payments are meant to ensure that the Borrowers have sufficient available capital to invest into the project, including funding significant cost overruns.
The audit team found that as part of the monthly drawdown mechanism, the Borrowers provide REED with a Statement of Account indicating the current balance in both the COREA and Equity Prefunding Reserve, and a report that includes both accounts’ beginning and ending balances for the given month.
In addition, the CA confirms its receipt of these account balances every month. Each of the documents section are received and reviewed by REED, as part of its monthly debt drawdown procedures. The scope of the audit did not include an assessment of the accuracy of the amounts included in the COREA/Equity Prefunding Reserve accounts confirmed by the CA.
Guarantee Fee
The Borrowers are required to pay Canada an annual guarantee fee of 0.5% of the additional debt outstanding. This guarantee fee is due on the Interest Payment Date in May of each year until the debt issued against FLG2 has been repaid in full. The audit team found that the appropriate amount for guarantee fees have been remitted to the Department; however, one of the payments was received two business days late. In order to ensure effective monitoring of the payments, the process related to the receipt of guarantee fees will need to be reviewed.
Financial Reporting
The LCP Loan Guarantees are presented in the contingent liabilities note to NRCan’s financial statements. A contingent liability is defined as a possible obligation arising from the normal course of operations with an unknown ultimate disposition. The audit team assessed the controls in place at NRCan to determine whether the LCP Loan Guarantees are adequately presented in the notes to NRCan’s financial statements.
In accordance with the Government of Canada’s Directive on Accounting Standards, the reporting of detailed contingent liability information is required for financial oversight purposes at the end of each quarter. As such, NRCan’s Corporate Reporting Unit (CRU) within the Corporate Management and Services Sector, prepares two key documents outlining the details of NRCan’s contingent liabilities account balance on a quarterly basis: Plate I-11 and Plate I-12. Key financial information to support the preparation of the Plates, including details of relevant drawdowns as recommended by the CA, is shared with the CRU by REED. The finalized Plates keep an updated record of the amount of outstanding loan guarantee for the Lower Churchill Projects for the current period, and are used to populate the note related to loan guarantees in the Department’s financial statements. The audit team found that the I-11 & I-12 plates are prepared and certified in a timely manner, and that the amounts reflected in the Plates are consistent with the internal debt tracker.
It is worth noting that the controls in place to administer and monitor the loan guarantees, such as the monthly drawdown checklist, the internal debt tracker, the monitoring of the debt ratios, the site visits and IE reports, and the annual administration checklist, also contribute to ensuring the accuracy of the note to NRCan’s financial statements related to the loan guarantees. Therefore, the opportunities for improvement previously noted could potentially affect the accuracy of the Department’s financial information.
Risk and Impact
Not effectively exercising Canada’s monitoring and oversight rights as they relate to the LCP Loan Guarantees could impair the Department’s ability to detect and react to emerging situations, and affect the reliability of the Department’s financial information.
Recommendations
R.1 It is recommended that the Assistant Deputy Minister of Strategic Petroleum Policy and Investment Office, (in his leadership role pertaining to the LCP loan guarantees) ensures that REED:
- Review the completeness and timeliness of the current document review process; and the DSCR monitoring.
- Formalize a risk-based approach to determining when to attend site visits, and the process to follow-up on significant observations resulting from these site visits.
- Review the process related to the receipt of guarantee fees.
R.2 It is recommended that the Assistant Deputy Minister of Strategic Petroleum Policy and Investment Office (in his leadership role pertaining to the LCP loan guarantees), ensures that in addition to regular briefings on strategic issues, a new quarterly process for briefing that focuses on project progress, risks, and site visits is instituted.
Management Response and Action Plan
Management agrees with Recommendation #1
- REED will establish an internal timeframe to complete its review of two months from the time quarterly and annual deliverables are received. With respect to the DSCR, REED will continue to conduct validation of the retrospective DSCR on a quarterly basis, drawing information from financial statements and regulatory documentation. REED will then use the retrospective DSCR to assess the reasonableness of the prospective DSCR and undertake more detailed investigations, if required. In addition, REED will compare reported prospective DSCR figures with the retrospective DSCR figures reported one year later.
- The timing of site visits are determined by the IE, in consultation with the project entities and NRCan. In advance of each site visit, REED officials will formalize a risk-based approach by undertaking a written risk assessment to determine whether federal participation is appropriate. REED will establish a register to track and follow up on significant observations made by the IE.
- REED officials will verify that the guarantee fee has been paid on the business day following the due date.
Furthermore, REED will draft a standard operating procedure document that outlines the various project monitoring activities that are to be undertaken during the post-commissioning period for the life of the loan guarantee.
Position responsible : Senior Director, REED, LCES
Timing: The standard operating procedures document is to be completed by April 1, 2021. Other activities would begin April 1, 2020, and are to be conducted on a continuous basis during the life of the federal loan guarantees.
Management agrees with Recommendation #2
In addition to ongoing briefings on strategic issues, REED will establish a new quarterly reporting process to ensure that the DM is briefed at least once each quarter during the construction period on project progress, risks and site visits. During the operations period, REED will prepare an annual briefing note for the DM on project operations, risks and site visits (or more often if the situation merits it).
Position responsible : Senior Director, REED, LCES
Timing: Starting April 1, 2020, on a continuous basis during the life of the federal loan guarantees.
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