Manitoba Hydro whistleblower can say: "I told you so"

When it comes to Manitoba Hydro, the Public Utilities Board has set off more distress signals than the Titanic, with less response.

Hydro has been in the news all week after the PUB granted the utility a two percent rate hike effective April 1st. Hydro says it needs the money to forestall large losses as a result of the warm winter just past.

The mainstream media has parroted this excuse. Nobody has pointed out the strange coincidence that a rate hike denied Hydro just in January by the PUB was reinstated, with an extra 1 percent top up, exactly one day after the chairman of the oversight body retired and a new chairman, appointed by the NDP government, took his place.

If this means what it appears to mean, it's bad news all around for Manitoba ratepayers since the MSM seems unwilling or unable to report the facts about Hydro.

The Winnipeg Free Press is reporting on its front page today that Mayor Sam Katz bought season tickets to the Winnipeg Blue Bombers with $2033.00 in taxpayers' money.

But the news that Manitoba Hydro spent $1.6 billion to build a new generating station that's exporting power to the United States at less than a third of what it costs to produce only made the bottom of an editorial on an inside page of Saturday's paper.

And that was reported in The Black Rod two weeks ago.

http://blackrod.blogspot.com/2012/03/sorry-state-of-manitobas-opposition.html

The PUB issued a report in January when denying the full rate hike that Hydro requested at the time, a report that contained a multitude of reasons why Hydro was scrambling for extra money -- a warm winter wasn't one of them.

"The Board is unable to approve the higher rate increases requested by MH because the Utility’s business plan is incomplete, lacks required detail and has not been tested through what has been promised as a “Needs For And Alternatives To” (NFAAT) review by an independent tribunal that will have full access to the economic and financial assumptions which underpin MH’s business plan."

In fact, said the PUB, Manitoba Hydro will have collected about $253 million more in the past five years than it expected to get. (That, you would think, would leave it with a healthy cushion for warm winter years like 2012, without a hike in rates.)

"MH’s financial position since the 2008 GRA is projected by MH to have improved by approximately $253 million for the fiscal years 2007/08 up to and including 2011/12. A major contribution to this improved financial position has been Board-approved rate increases which have generated over $788 million in accumulated additional revenue.

Since 2004/05, over $950 million in additional revenue has been realized by MH from Board-approved domestic rate increases (this represents over one-third of MH’s retained earnings)."

And

"The Board no longer considers IFF09-1 (Integrated Financial Forecast) as providing a ‘valid’ picture of MH’s financial position. If MH continues with its preferred development plans, the Board concludes ratepayers will undoubtedly pay higher future domestic rates than indicated in IFF09-1 or IFF10-2."

Here's some of what left the PUB concerned about Hydro's books:

* The addition of the new Wuskwatim generating station added $150 million a year to Manitoba Hydro's annual costs in interest and carrying charges on its $1.6 billion cost

* Hydro was spending $1 million to $2 million A DAY on prep work for its multi-multi-billion dollar construction plans over the coming decade "without having had its capital plans reviewed through an NFAAT (Need for, And Alternatives To) proceeding, and without the US transmission lines required to transmit MH’s electricity exports south of the border having been constructed or even been committed to, and without MH having obtained the required regulatory approvals in Canada."

* When (and if) Hydro builds its next planned generating plant to fulfill a contract with American buyers in 2016, that will add $500 million a year to the utility's annual costs, even though it, too, will likely send subsidized power to U.S. customers.

* Based on the restricted information on contracts with American buyers and economic trends it appears we'll be losing at least 3 cents a kilowatt hour on the power we'll be selling to them from the next two generating stations Hydro intends to build.

All these losses will have to be made up by rate increases on Manitoba customers. Manitoba ratepayers already pay twice as much for their power as we'll be selling Wuskwatim power to Minnesotans.

"...it is apparent that the export prices will not recover 100% of the costs incurred by MH to export that electricity. Therefore, it would fall to Manitoba’s domestic ratepayers to subsidize the export sales commitments made by MH." declared the PUB.

"Even though MH forecasts domestic rate increases in the ‘decade of investment’ that are in excess of expected inflation, it appears the projected rate increases are considerably too low to support the required subsidization."

"A significant aspect of the scope of MH’s General Rate Application was the review of MH’s risks and risk management. The Board has long requested MH to provide an indepth and independent study of MH’s risks (see Order 32/09). The study was to be a thorough and quantified risk analysis that included probabilities of all identified operational and business risks. Unfortunately, and disappointingly, MH failed to provide a comprehensive quantified risk analysis. Instead, MH unilaterally changed the terms of reference to instruct an external consultant to prepare a report, and opted for a legal strategy to try and rebut the findings of a former risk consultant previously retained by MH but subsequently terminated. However, even without the expected comprehensive risk analysis, the Board was able to gain a better understanding of the Utility’s risk.".

You can see that Manitoba Hydro continues to thumb its nose at the Public Utilities Board, knowing as it does that it has the complete support of Premier Greg Selinger, who, wouldn't you know it, just appointed a compliant new chairman.

The frightening mismanagement of Manitoba Hydro was foreshadowed by the former Hydro consultant who made a formal complaint to the Ombudsman's office under the NDP's vaunted Whistleblower Act.

The PUB refers to her as New York Consultant. We've nicknamed her Miss Whistle.

And by either name, she was prominent in the January PUB report when the former chairman was still in charge, not that you would know it by reading the Winnipeg Free Press.

Legislature reporter Bruce Owen dismissed NYC in a blog post he made on January 18.

Does the PUB matter?
By: Bruce Owen
Posted: 01/18/2012 3:18 PM | Comments: 16 (including replies)

snip.

Over the past two years that scrutiny has included at my count three separate, independent reviews of Hydro and elements of its development plan, each looking at whether Hydro has all its ducks in a row. There were four reviews if you include a New York consultant who now, for the most part, has been written off as not credible.

Uh, Bruce. Maybe you should have read the PUB report before embarassing yourself.

It turns out that Manitoba Hydro spent $4 Million trying to discredit Miss Whistle, and the only person they convinced was Bruce Owen.

Here's how the Manitoba Public Utilities Board summed up her influence:

"NYC Allegations
The process of achieving an independent review of the NYC’s allegations was very
convoluted. The Board looks at this exercise as being largely unsatisfactory. However, it is somewhat disconcerting to find Risk Advisory, ICF and KPMG flagging potential areas of improvement for MH that in many cases mirrored areas that the NYC was critical of, and where in some instances the NYC accused MH of mismanagement. KPMG confirmed (on cross examination)that the NYC had not missed identifying any of the major risk issues faced by MH."

The PUB hired a couple of academics to assess Miss Whistle's allegations against Manitoba Hydro, but by their own account the meetings went badly.

She had, by then, come to distrust dealings with anybody from Manitoba after the Ombudsman ignored her complaint for months, then tried to pawn it off to the Auditor who got caught in a conflict-of-interest (by The Black Rod), then tried to shuffle it off to the PUB, which doesn't offer the same confidentiality protections as under the Whistleblower Act, then met with two men with little expertise in her field who were too interested in her company's proprietary information for her comfort.

The pair, identified by the Public Utilities Board as KM (Dr.Atif Kubursi and Dr. Lonnie Magee) said they were unable to confirm her specific allegations of mismanagement but:

" With respect to general issues of risk identified by NYC, areas for improvement were identified in detail in the KM report and elaborated on by KM in testimony.
Included in recommendations are subject areas of model governance, model
utility and relevance, model output and predicted accuracy, water flow analysis,
drought risk, and risk governance and management in the MH middle office."

Miss Whistle and the PUB have together raised a barrage of red flags over Manitoba Hydro's management and the risk to ratepayers.

The provincial government seems determined to overlook facts in favour of political interference based on ideology.