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Brennan admits Hydro financial forecasts rejigged, denies adopting whistleblower recommendation


Manitoba Hydro CEO Bob Brennan dropped a barrage of bombshells on legislators Monday.

At the same jaw-dropping meeting Liberal Party leader Jon Gerrard revealed the first details of the Hydro whistleblower's controversial 2008 report to Brennan, while the Conservative's new Hydro critic Rick Borotsik mocked the consultant and her advice to Hydro prompting Brennan to (reluctantly) come to her defence.

And NDP Hydro Minister Rosann Wowchuk said the government is satisfied knowing that the whistleblower's complaint has languished for 15 months already, with no end in sight, because "the legislation is working."

Given the gush of important Hydro news, we've delayed our planned evisceration of CBC's The Fifth Estate to do what the Mainstream Media failed to do---report the news.
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Bob Brennan revealed the following to the Crown Corporations Committee:

* Hydro's revenues from U.S. sales are off this year almost $40 million because of the recession and Hydro expects them to be another $41 million lower next year.
* Hydro's 75:25 debt-to-equity ratio will deteriorate for the next 14 years before stabilizing and slowly improving to (a delusional) 50:50
* Hydro is already contemplating the possibility that prospective American customers won't pay the high prices Hydro has pencilled in for its future power sales and says in that case one or more of the planned new dams won't be built
* Hydro will announce in May which route they've chosen for the Bipole III power line from northern Manitoba, then begin consultations and negotiations to buy rights-of-way
* Hydro has adopted (without admitting it) the whistleblower's major recommendation on how to maximize profit from hydro sales
* Hydro scoffs at Mayor Sam Katz's lawsuit, for $10 million in uncollected city tax on hydro sales since 1999, because the statute of limitations has passed.
* Nevertheless, Hydro has asked the province to pass legislation clarifying Hydro's responsibility to collect the tax

And finally,
* In their rush to hire KPMG to refute the whistleblower's concerns with Hydro management of Manitoba's water resources, they signed an open-ended contract meaning they don't know how much money they're going to pay KPMG.

For the first time, through Liberal leader Gerrard, we've learned that a key point raised by the Hydro whistleblower was for Hydro to keep the water level in Lake Winnipeg, Hydro's reservoir, higher than it has in the past, but within the legislated limit.

A blustering Brennan first denied that Hydro had begun doing just that, but reluctantly conceded that it may, coincidentally, be doing just that.

Mr. Gerrard:
...what was being recommended, before this e-mail apparently, was that the Manitoba Hydro operate at a level of 712.5. And as she points out, in this e-mail, and provides some graphs, that in fact, the level of 712.5 is quite a dangerous level in terms of putting you at rather high risk if there's a drought.
...and that this recommendation for a 713.7‑foot level was a critical recommendation. Now, I mean, the interesting thing is that since this report, you know, I can see that the spring of 2009 and the current year, you're keeping very close to the 713.7 levels in the pre-flood over the pre-spring runoff period. So, clearly, you seem to have adopted the recommendations of the whistle-blower in this September 29th e-mail. Would you concede that?

Mr. Brennan: Definitely not. I don't think there's anywhere we've accepted anything. But I'm not the best one to talk about hydrology and hydraulics, but I–nothing's been brought to my attention that we thought was something we should implement.

Mr. Gerrard: And yet the interesting thing is that you're following exactly her recommendations in how you operate the lake levels in the period since then, and–

Floor Comment: I don't think we're operating to that at all.
Mr. Chairperson: Mr. Brennan.
Mr. Brennan: I think that's the way it worked out, if that, in fact, is the case.

Tory Hydro critic Rick Borotsik, however, thought the whistleblower deserved to be denigrated.

Noting that Hydro is selling slightly more power to the U.S. than last year, but is earning substantially less money, Borotsik demonstrated how little he knew about Manitoba Hydro and the former consultant.

Mr. Borotsik: So selling a lot of volume for very little return does not make for good business, at least, any of the business that I've known. Just because you sell volume doesn't necessarily mean that you're making money or making margins.
Mr. Brennan: Most businesses are subject to market prices and that's–so is Manitoba Hydro.
Mr. Borotsik: Unless they're fixed rates and people pay those fixed rates.

************
Mr. Borotsik: Was that part of the concerns that the consultant had with respect to the–perhaps, lost value to the power sales?
Mr. Brennan: If I remember correctly, the contractor wanted to not have fixed contracts. The contractor thought it'd be in our interest to just–well, just let the price float, and whatever it is it is, and by doing that there was a expectation that we'd have more revenue than we would under a fixed price.
Mr. Borotsik: She must have been very happy with your operation to date because, obviously, with the floating rates, she must have been happy with that.

Although Brennan never had a good word to say about the consultant/whistleblower otherwise, he eventually realized the extent of Borotsik's ignorance and tried to present some context for the discussion about fixed or floating prices.

Mr. Brennan: What we want to do is sell as much as we can on prime time, when the prices are highest, and that's pretty well what we do.

****

Mr. Brennan: ... if we get low flows, it is really, really costly to Manitoba Hydro. If we have high flows, we do better and, of course, we have the market to deal with, as well, at this particular point. So the power we sell on the export market of which this is anything above the median we can't sell at a fixed price.
You know, you can't sell power at a fixed price if you don't have it, and so that's the stuff we sell on the export market in or up to about–or whatever the market price is, and there's a lot of energy there.

****
Mr. Brennan: By the way, you couldn't make that firm. If you made that firm, you'd have to find a way to buy that power or find it in some other source and that would cost you a bundle, but–
Mr. Borotsik: ...I still don't understand. Are the water flows that much lower that you're anticipating, an 88–a drop of about $22 million in net earnings, a drop of about $300 million from 2007-2008. Are the water flows the concern–that why you're having such low net earnings forecast?
Mr. Brennan: No, it's not water flows at all. It's all price, and it's market price for this interruptible power that I was mentioning to you earlier.
Mr. Borotsik: So you're suggesting prices are going to be remaining quite low for 2010-2011, 2011-2012. They're going to be substantially lower than what they've been in 2007-2008.
So you're suggesting it's price that's causing the net incomes to drop, net earnings to drop?
Mr. Brennan: Absolutely.

In answer to persistent questions about the decision to proceed with a westside Bipole III, Hydro Minister Wowchuk said the government's hands were forced by American environmental groups and their local allies, some eastside Indian reserves. They threatened to denounce Hydro power as not "green" enough to be sold to American customers if the power line was built through boreal forest east of Lake Winnipeg.

Rather than delay the line for years while fighting legal and P.R. battles, the government caved and chose to build on the west side even though it will cost a half billion dollars more.

But Wowchuk showed her true partisan colours when pressed on the abysmal job the Ombudsman is doing enforcing the Whistleblower Act. Former Tory Hydro critic Cliff Cullen did the questioning (Q&A edited to remove the time-wasting palaver):

Mr. Cullen: A question for the minister: This whistle-blower allegation has been brought forward to the Ombudsman. It's been probably 15 months at least now since this issue has been brought forward, and I guess it's a real test for the relatively new legislation we have...Does the minister view that 15 months is expeditious?
Ms. Wowchuk:. I'm not sure what length of time it will take to complete this. I don't know.

Mr. Cullen:... I'm just curious in what role the government's going to take into making sure that the public interest is being addressed.
Ms. Wowchuk: ...–the Ombudsman is an independent office and the government cannot interfere with the Ombudsman's office.

Mr. Cullen: Well, that's contrary, Madam Minister, to what you said a few months ago when you asked the Auditor General to undertake this on a very expeditious manner. Can you explain to me the contradiction?
Ms. Wowchuk: It's not a contradiction...

Mr. Cullen: ...now you're saying you're not going to talk to the Ombudsman to have it dealt with in an expeditious manner. There's a real double standard here, Madam Minister, and I'm just–I'm trying to get an understanding of why there is a double standard.
Ms. Wowchuk: I don't believe there's a double standard.

Just how seriously the government is taking its own Whistleblower legislation was demonstrated by Selkirk MLA Greg Dewar. (Heavy sarcasm alert.)

Mr. McFadyen: The member for Selkirk (Mr. Dewar) just mentioned that the Ombudsman's report will come out in November of 2011 right after the election. Is that the position of the government?
Ms. Wowchuk: Mr. Chairman, and you know we often have side conversations at this table and I show respect for my other colleagues by not repeating–

An Honourable Member: –he was yelling it across the table.

Ms. Wowchuk
: Yes, well, the member opposite, the Leader of the Opposition has no respect for members making comments around the table. I would have to say the–[interjection]–when the Ombudsman makes her report we will–it'll be–her report will be tabled...

Mr. Cullen: The intent of the legislation is–whistle-blower protection act–do you feel that the act is actually protecting the whistle-blower in these particular circumstances?
Ms. Wowchuk: I have no reason to feel that it's not protecting the whistle-blower. I think the legislation is working.

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