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Hydro warned of bankruptcy

Consultant fired after alerting CEO to costly problems

By: Mary Agnes Welch

20/10/2009 1:00 AM | Comments: 54

Bob Brennan: allegations unsubstantiated

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Bob Brennan: allegations unsubstantiated (RUTH BONNEVILLE WINNIPEG FREE ARCHIVES)

A whistleblower who warned of bankruptcy and blackouts at Manitoba Hydro says she was fired less than 24 hours after alerting Hydro CEO Bob Brennan to mismanagement she says cost the power company $1 billion.

"It's just the nature of risk-management work that you are sometimes at odds or loggerheads with the business findings of the front office," she said. "Instead of communicating, we're having our risk discussions in the local newspaper. It's an appalling demonstration of corporate public relations."

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The whistleblower is a New York-based risk-management consultant, who has been in the field for more than 15 years.

She has worked for large and small utilities and Fortune 500 companies and she served as the chief risk officer for a major East Coast utility company.

She has a masters in applied maths and theoretical physics from the University of Cambridge in England.

The consultant spoke to the Free Press on condition her name and the name of her firm not be used. And, due to non-disclosure agreements signed with Hydro, she would not speak in detail about any of her findings or the exact nature of her mismanagement concerns.

"I am bound by and want to be respectful of those confidentiality provisions," she said.

But she confirmed reports, prepared over several years, outlined in detail how Hydro has miscalculated how much energy is available for Manitobans and for export.

That miscalculation, she believes, could one day lead to blackouts.

Mismanagement may also have cost Hydro more than $1 billion in the last several years, including the $436 million lost in 2003-2004 during a drought, the reports claimed.

Those losses, and the rate increases that followed, did not need to happen, she believes.

And future financial forecasts may be flawed, suggesting Hydro could face bankruptcy as it proceeds with a dam and transmission building plan that will boost the company's long-term debt to $19.4 billion by 2028, according to the PUB.

But Hydro's Brennan said the consultant was simply unable to substantiate her allegations and explain exactly what happened to the $1 billion, exactly why there might be a blackout and how the company ought to fix the problems.

Brennan said he values independent assessments of the company's risk and hasn't tried to quell dissent.

"I'm telling you, I want that, but I want someone who can back it up. I don't want Manitoba to lose money," he said. "We couldn't get answers as to what is the real issue here. You can say you are going to lose all kinds of money, but what exactly are we doing wrong? We have to know that so we can change it."

He rejected the idea the company has lost $1 billion on exports over the last several years.

"There is no billion dollars. There's not a hope," he said. "There's just not."

The matter has been exasperating for Brennan, who said it's difficult to ask another expert to verify the whistleblower's findings because she won't waive the confidentiality clause and allow another consultant to review her work.

And, he said, it's frustrating to have spent $500,000 -- "a fortune," said Brennan -- on a consultant and not have tangible risk results.

"After spending all that money I didn't think we got very much of value," he said. "It's like building a $500,000 house and still living in the basement."

But the consultant said she offered multiple reports, some more than 200 pages long, detailing her findings and offered Brennan a line-by-line explanation of errors in his financial forecasts. Those offers were rebuffed, she said, and she was told not to put anything else in writing.

"Regardless of what I found or didn't find, it's highly unusual for the CEO to not engage in one civilized business discussion about it," she said. "I've always delivered first-class, high-quality financial advice and his behaviour demonstrated that he stonewalled me and it could be symptomatic of a management experience where if you deliver results that contradict management, you get stonewalled."

maryagnes.welch@freepress.mb.ca

Chronology of a whistleblower

2004: The consultant starts working with Hydro on a part-time basis on projects related to Hydro's entrance into the Midwest Independent Transmission System Operator, a major power market.

2006: The consultant comes on board full-time doing detailed earnings-at-risk quantifications related to exports and drought, work that included specialized software implementation. Initial red flags are raised about some of Hydro's operations and finances.

Early 2008: The consultant works on a sequence of five to seven reports meant to explore more deeply some of the troubles that had surfaced earlier. In January, a day-long meeting is held with senior Hydro executives to outline the issues.

September 2008: In what the whistleblower refers to as the "Armageddon email," an advance summary of one of those reports is sent to Brennan. It includes many of the allegations in the final whistleblower complaint. The next day, the consultant is fired and no further studies are done to detail the evidence of the findings.

December 2008: The consultant files a whistleblower complaint under Manitoba's new Public Interest Disclosure Act with the Manitoba Ombudsman. It then gets referred to the auditor general's office.

Republished from the Winnipeg Free Press print edition October 20, 2009 A3

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54 Commentscomment icon

Lets see now, a valid study was made yet Manitobans have paid $500,000 for a report that is unavailable to them. That's a real problem I think.

Is this why we pay hundreds every month to a company that jacks up rates every quarter? So that they can sell energy, from dams that ruin aboriginal traditional lands, to the states? I find that appalling.

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is it just me or do you also see guys like Madoff, Clinton, Nixon et al when you see Brennan in this pic and he's got his hand in your other pocket while he's explaining someone else is fibbing to you and has ulterior motives because "their" hand has been in your pocket already?

Would be nice to say get rid of these clowns but then again, they've got those Golden Parachutes and probably secondary/backup chutes filled with Silver just in case. Guys like Madoff got 150 years, some of our fine upstanding citizens in government or other agencies should get the same instead of the royal sendoffs they usually get...

-always thought it was fishy that Doer left this quickly and maybe Mr. Harper knows it'll sour the taste of Manitobans for the next election when it comes to the NDP so thanks Gary, you sunk the NDP in advance.....

There is no protection for Whistle-blowers.
When a CEO or other highly positioned person near retirement feels threatened HE will automatically blame-shift.
The whistle blower seems like a highly intelligent Woman and Brennan got caught!
I could blow a few local whistles and so could plenty of other small business owners in Winnipeg; but what is the point !!!
We will be the tattle tales and the unlicenced businesses will continue to thrive.
There is no solution because everyone seems to be looking out for themselves...even if they are using taxpayers dollars !!!1

One more reason to get the heck out of Manitoba, before the government in this province sucks each and every resident dry.

HHMMM...first Crocus, now this.
Another example of how dangerous it is to tell the truth and not get fired. This person is taking a risk just by coming forward again, but this time, in a more public manner.

I urge the proper authorities who oversee these matters to proceed. Ask anyone who lost money in Crocus how much they would have appreciated hearing from a whistleblower!!!

I smell something in the air......and it ain't good! As much as I have always liked Gary Doer, I also question whether his departure is in any way linked to this and the fall out that will likely arise?

It bothers me that 500,000 was spent and no detail was provided to just what the problem was. Much of forecasting future debt is quite dependent on available markets. You can throw all sorts of possibilities in to the mix, but throwing in probabilities gets quite uncertain. As for the purchase of City Hydro and having to build the new office--was it a good deal? Where has most of the debt load came from?

@Trainer - you obvisouly do not get sarcasm. But I standf by my comment that consultants can be yes men. I have worked on both sides of the consulting work and many times if the finds do not align with the executive's vision/plan the report is buried or asked to be modified

Interesting this story is coming out now. For who was the Minister responsible for the Administration of the Hydro Act until very recently? None other than our new Premier...

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