Deloitte Complicit In Indefensible Brampton Hydrogen Bus CUTRIC Study – CleanTechnica

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In one of my articles related to the debacle that is Canada’s transit think tank CUTRIC’s guidance and modeling on bus fleet decarbonization, especially the Brampton fleet report that was off by about $1.5 billion on a $9 billion price tag, I shared the open letter to the Board I’d sent. It concluded with the following:

“CUTRIC is no McKinsey, Deloitte or Roland Berger, consultancies for hire with a broad portfolio. They can downplay this type of event. CUTRIC can’t.”

That said, it’s pretty embarrassing when a truly awful report is attributed to one of the bigger firms. They get all defensive and ugly questions are asked behind closed doors. Partners get asked why they made the firm look bad. Annual bonuses get impacted. It turns out that those questions need to be asked at Deloitte.

In the Brampton staff report Brampton Transit-2024-346 with a publication date of 2024-04-10, authored by Scott Gillner, Manager, Sustainability & Innovation, and approved by Heidi Dempster, General Manager of Transit for the city, there’s the following statement, which probably gave them some comfort in the process:

“As part of this study, Deloitte was engaged by CUTRIC to complete the full life cycle economic analysis component. This analysis considered 15-year and 18-year life cycle options, both with and without supplementary heating.”

Note the recurrence of Deloitte in both of those quotes. One of the Big Four accounting firms and global consultancies, Deloitte’s core value is:

“Serve with integrity
Deloitte has earned the trust of clients, regulators, and the public for 175 years. Upholding that trust is our single most important responsibility.”

That’s an interesting statement given the report they signed off on. As a reminder, one of the primary articles in the series on CUTRIC and their mind bogglingly bad guidance on hydrogen assessed the $9 billion price tag from the Brampton report. I co-authored that article with Michael Raynor, Harvard PhD of business administration, formerly a managing director of sustainability and thought leadership with Deloitte, and author and co-author of four books on strategy and innovation, including The Innovator’s Solution with Clayton Christensen.

Our professional assessment of the Brampton report, with our overlapping and global expertise in sustainability, transportation, strategy, and consulting, found $1.5 billion in swings favoring a battery-electric-only fleet, dwarfing the $10 million difference CUTRIC’s report with Deloitte claimed was material:

• $1.1 billion for modeling that pushed hydrogen bus acquisition out so far in time that discounting due to inflation reduced their costs by 40%
• $200 million extra for gray hydrogen costs that are in line with real world actuals for trucked in hydrogen
• $100 million less for replacement of batteries in battery-electric buses as batteries in real world fleets are lasting much longer than projected and costs in the 2030s will drop significantly
• $25 million extra in costs for hydrogen fuel cell replacements as they are lasting only 3 years in real world fleets
• $25 million extra for carbon pricing for gray hydrogen which was entirely excluded from the cost case by CUTRIC
• $10 million extra for hydrogen storage and refueling facilities as CUTRIC had low-balled that cost based on global data, ignoring the costs of the hydrogen liquification components they had included.

The remarkable thing about it was that the option with the largest number of buses and the highest costs was the hydrogen-only fleet, yet taking 400 of the hydrogen buses and replacing several hundred battery electric buses suddenly became the cheapest option.

The term “material” becomes particularly ironic here, as Deloitte is an accounting firm, and materiality is an accounting term. During audits — and my first job was a computer audit staff member with Thorne Riddell, which was merged into KPMG a few decades ago — materiality is a test applied to see if it’s worth looking at a number or line item compared to the total value in the books. $10 million isn’t a material difference on $9 billion, and while I no longer ascribe any competence to CUTRIC, the same can’t be said about Deloitte.

The damning results Raynor lays out — where the scenarios had no error bars and most of the variability would have laid on the hydrogen buses and ecosystem, hence substantially increasing their costs under appropriate fiscal projections — are also distinctly in Deloitte’s area of expertise.

As a further reminder, CUTRIC is the sole approved agency to receive 80% NRCan funding for reports on fleet decarbonization. This report, which apparently Deloitte did most of, received NRCan funding despite that.

“This $15.95M project was successfully delivered during COVID, with 70% ($11.15M) funded by Natural Resources Canada (NRCan). This project is being closed off with CUTRIC and NRCan in Q2/2024.”

Why 70% instead of 80% is likely to remain a mystery.

That’s CAN$16 million for a report that is so fatally flawed that Raynor and I consider it to have been gamed specifically to force hydrogen into the fleet, and ineptly at that.

There’s more, of course. As a further reminder, three of CUTRIC’s Board of Directors have direct conflicts of interest regarding hydrogen.

Enbridge is the biggest natural gas transmitter and distributor in Canada, and by one measure in North America. It is lobbying hard, as all gas utilities are, to have hydrogen replace natural gas, mostly hydrogen made from natural gas of course. Unless hydrogen buses are selected, Enbridge gets exactly zero from any fleet decarbonization, and if they are selected, it gains potentially hundreds of millions of revenue.

Ballard Power is also on the Board of CUTRIC. It only makes money if its fuel cells for hydrogen are in buses that are sold to Canadian transit agencies. Well, making money is not exactly the right word for it, as they’ve lost an average of $55 million a year every year since 2000, a total of $1.3 billion. They’ve never turned a profit. It’s unclear if Deloitte does or audits Ballard’s books, but how they stay afloat decade after decade while being a failed business remains a mystery. My working assumption is that many of their investors are intentionally buying tax breaks on capital losses as part of their tax strategy, something definitely within Deloitte’s area of competence.

Finally, there’s New Flyer Inc, the Winnipeg-based bus company. It sells inferior, expensive battery electric buses and even more expensive hydrogen buses. I think that strategy is a recipe for corporate failure, but expect they’ll continue to be bailed out by governments. New Flyer’s 2023 refinancing plan included a fair amount of help from the Manitoba Development Corporation and Export Development Canada after all, and their full bus manufacturing facility in Winnipeg is going to be completed with $38 million of provincial and federal money.

New Flyer is the only manufacturer of hydrogen buses in Canada. When hydrogen buses are chosen by a transit agency as recommended by CUTRIC, New Flyer is guaranteed to sell them all of them, while it has to compete with better, cheaper battery electric buses from the likes of China’s BYD.

In other words, three Board seats in CUTRIC are occupied by representatives of firms which stand to gain tens or hundreds of millions more if CUTRIC recommends hydrogen buses to a transit agency, and two of them get nothing if only battery electric buses are selected. One of them, New Flyer, has to actually compete with better firms for battery electric bus business.

The conflicts of interest are very much a Deloitte concern, as are the apparently blatant efforts to avoid competitive procurement. When clear conflicts of interest exist solely within an organization, especially in a not-for-profit organization receiving federal funds, a firm like Deloitte is expected to approach the situation with heightened scrutiny, following professional, regulatory, and ethical frameworks to ensure the conflict is properly managed or addressed.

That apparently didn’t occur with this contract. Instead, CUTRIC engaged Deloitte to presumably spend most of the $16 million dollars that only CUTRIC is eligible for 80% subsidies for, and Deloitte found results that distinctly benefit the organizations with conflicts of interest on CUTRIC’s Board.

It appears that the person who should have been ensuring Deloitte’s name wasn’t attached to an indefensible study linked to massive and obvious conflicts of interest is Elizabeth Baker, partner in Deloitte’s Supply Chain & Network Operations practice and the national fleet electrification leader. Having worked for a major consultancy, I can’t see how any signature except hers would be on the contract for Brampton’s fleet decarbonization.

I sympathize. I can’t count the number of deal strategy conversations I had in a 500,000 resource strong organization that revolved around trying to create a sole source procurement, and that was for a technology firm that did billion dollar deals. A CAN$16 million deal for a non-technical audit and consulting firm is a huge deal, and I’m sure Baker had her back slapped a bunch of times. Too bad it’s an incredibly bad deal with repercussions.

It’s obvious to me after the past few weeks why CUTRIC can’t do the work it’s the only organization approved to do by NRCan. Insiders in the industry and former employees have shared with me that Petrunic hires juniors she thinks she can bully and fires them when they ask reasonable questions about this kind of report. It’s a toxic work environment. That explains an early observation of mine that there are more members of the Board of Directors than employees.

Jonathan Wilkinson, the Minister of Energy and Natural Resources (NRCan), should be ripping up the agreement with CUTRIC. The organization is clearly not competent to do the job it was selected to do based on an apparently intentionally rushed procurement process, and is in deep conflict of interest regarding its results. Globally, hydrogen bus fleet trials have ended in failure, and while battery electric buses get better and cheaper every year — at least the ones not made by New Flyer, which is wasting a lot of time, money, and talent on hydrogen, which is driving up the costs of all of their products while driving down the quality of their battery electric buses — hydrogen buses haven’t gotten better, nor has hydrogen refueling.

This is especially important as NRCan will fund “zero emission” buses for up to 50% of their purchase cost. NRCan’s definition is broken, only being bus to wheel, not well to wheel. This allows hydrogen buses despite their actual Ontario CO2e emissions being close to diesel when hydrogen distribution and leakage is counted and despite higher overall capital costs. After all, it turns out that hydrogen is a potent greenhouse gas, one with a global warming potential 37 times that of carbon dioxide over 20 years, and 13 times over 100 years.

Billions of dollars are going to be wasted unless this gets fixed, delivering nothing but far too much money to Enbridge for expensive hydrogen, Ballard for unreliable and expensive fuel cells and New Flyer for expensive and unreliable buses. Canadian municipalities and their citizens will suffer.