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Hydro warned of bankruptcy

Consultant fired after alerting CEO to costly problems

Hey there, time traveller!
This article was published 19/10/2009 (2831 days ago), so information in it may no longer be current.

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."

Bob Brennan: allegations unsubstantiated


Bob Brennan: allegations unsubstantiated

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."


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.


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