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Winnipeg Free Press - PRINT EDITION
Whistleblower fallout cost Hydro $4.3 million
Consultants, lawyers took expensive toll
Manitoba Hydro has paid out $4.3 million to deal with the fallout of a whistleblower's report that alleged the Crown corporation would go bankrupt or suffer blackouts because of its export-sales practices.
The information was tabled as evidence at a continuing Public Utilities Board hearing into Manitoba Hydro's general rate application.
The bulk of that money -- $3.7 million -- was paid to consulting firm KPMG and to local law office Aikins, MacAulay & Thorvaldson for a sweeping internal review of how Hydro manages its risk as it heads into a decade of dam-building to sell more power to the United States.
Hydro spokesman Glenn Schneider said Hydro paid the remaining money to ICF International, which conducted a second review into how Hydro calculates its price for firm export contracts and spot sales. ICF concluded Hydro's calculations were sound.
He said it also covers the cost of a third report the PUB ordered, by two McMaster University economists into Hydro's operations. Like KPMG and ICF, it also repudiated the whistleblower's allegations.
The consultant started working for Hydro in April 2004 to help it process the sale of surplus power to the new Midwest market. That evolved to a larger consulting role in 2006 to review Hydro's risk and to recommend policies and procedures for a future risk-management system. Hydro said her contract was ended after she refused to take direction, ignored the original assignment and wouldn't offer details on her methods.
Hydro supplied the information about its legal and KPMG report expenses to the PUB during testimony on why its operating, maintenance and administration (OM&A) costs are over-budget for the 2010-11 budget year.
Hydro's chief financial officer Vince Warden has testified before the PUB the biggest reason for the OM&A cost being over-budget is Hydro has brought in new accounting procedures.
For example, the 2011 OM&A expenses were originally forecast to be $380 million, but is now at $398 million, Warden testified.
Warden has also said the U.S. recession has taken a bite out of Hydro's profits and net income as power demand is now lower. Hydro forecasts income will jump to $292 million by 2019-20 as new export contracts kick in.
To trim operating costs, Hydro has restricted travel outside the province, brought in a temporary hiring freeze, attempted to reduce overtime costs and extended the use of computers by another year. The industry norm is to replace computers every three years -- it's now five at Hydro.
Because of these and other measures, operating costs for 2010-11 to date are approximately $5 million below budget.
The main focus of the PUB hearing in on Hydro's request for a 2.9 per cent rate increase for 2011. The public regulator already approved an interim 2010 rate hike of 2.8 per cent.
If the new rate is approved, residential customers will pay between 40 cents and $20 more in 2011, depending on how much power they use. The higher rates, which are forecast to go up to 3.5 per cent in 2012-13, will put about $68.5 million into Hydro's pockets.
Republished from the Winnipeg Free Press print edition January 28, 2011 A6
History
Updated on Friday, January 28, 2011 at 9:54 AM CST: Corrects spelling of law office Aikins, MacAulay & Thorvaldson.
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