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New Hydro whistleblower report, rebuttal

KPMG review calls allegations unfounded

By: Mary Agnes Welch

Posted: 07/29/2010 1:00 AM | Comments: 0

The two rival reports on Manitoba Hydro’s operations are on the Public Utility Board’s website. (TREVOR HAGAN / WINNIPEG FREE PRESS ARCHIVES) Photo Store

Manitoba Hydro is selling power to American customers too cheaply, exporting more than it can produce and at risk of losing hundreds of millions of dollars, the Manitoba Hydro whistleblower alleges in a new report.

But another newly released rival report by global consulting firm KPMG found no merit in the whistleblower's allegations.

KPMG said there is "no material risk" Manitoba Hydro would go bankrupt or suffer blackouts because of its export-sales practices. There is also no evidence Hydro lost $1 billion because of faulty modelling, export contracts or drought management, which were among the whistleblower's original concerns.

"Overall, in the context of its hydroelectric power operations, we are satisfied that Manitoba Hydro is following sound practices in its use of forecasting models, long-term power-sale contracting, risk governance and power risk management," wrote KMPG.

The Public Utilities Board posted the duelling reports on its website Wednesday, part of the ongoing saga pitting the New York-based risk-management consultant against Manitoba's Crown power company.

The whistleblower's new report is not part of the original batch she submitted to Manitoba Hydro before she was let go, the same reports that touched off the controversy last fall and the same ones the PUB asked for in an order earlier this year.

Instead, the whistleblower chose to summarize her top 285 concerns about the way Hydro prices and sells power, manages risk and plans for drought.

It's not clear how that approach sits with the PUB.

The regulator has hired its own experts to review the whistleblower's reports, speak with her and give the PUB an independent assessment of the allegations for "assurance and comfort," said PUB executive director Gerry Gaudreau.

Many of the whistleblower's 285 concerns are wide-ranging, highly technical and somewhat confusing.

She said Hydro's power traders are using faulty models to gauge export prices and water supply and have committed to such hefty long-term contracts with American buyers that Manitoba will be short by as much as 800 megawatts by 2022.

"They are man-made, market-driven mistakes in operational mis-pricing of long-term power contracts," she wrote. "Hydro is overselling its available energy and therefore burdened with extraordinary import financial exposure to support the firm commitments in long-term contracts."

But KPMG, hired last fall to double-check the whistleblower's allegations, said many of the whistleblower's concerns were based on misinterpretations of the modelling data.

The documents, especially the KPMG report, are heavily censored, mostly by the whistleblower. Entire pages are blacked out for fear they will reveal the whistleblower's trade secrets. Hydro has also blacked out a handful of figures.

In the next several weeks, it's expected all parties will wrangle over the redactions and the PUB will release a new version of the reports with fewer edits.

The reports will then be central to a review of Hydro's entire operation during a PUB hearing this fall.

The hearing has been pushed back several times and is now slated for November, though it's likely to get pushed back again.

maryagnes.welch@freepress.mb.ca

Republished from the Winnipeg Free Press print edition July 29, 2010 A6

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