Hydro facing $193-million IT overhaul

Manitoba Hydro is overhauling its core IT network — and it comes with a $193-million price tag.

The system underpinning a majority of Hydro’s business processes — including finance, human resources and supply-chain operations — won’t be supported by its parent company after 2027.

That leaves Hydro’s day-to-day operations and cybersecurity at risk, the Crown corporation told the Public Utilities Board last year.

Last week, Hydro released a request for proposals to help upgrade the legacy system.

“It’s at its end of life,” said Allan Danroth, the utility’s president. “It’s been something that’s been contemplated by our IT department for a very, very long time, and it was something… I felt we needed to do.”

Entities of Manitoba Hydro’s size generally operate using software from SAP or Oracle, Danroth explained. Manitoba Hydro chose SAP as its provider in the 1990s.

The new software will be less siloed, will help with analyzing data and should eventually lead to fixes in offshoots such as accounting and customer-interface systems, Danroth said, adding the project’s first phase focuses on core, non-customer-facing functions.

Hydro aims to complete the switchover by the end of 2026. SAP is projected to be one of the Crown corporation’s top operating expenses over the next two years.

A November presentation to the Public Utilities Board pegs the cost at $193 million in 2025-26 through 2027-28.

Hydro asked the PUB for approval for a deferral account to “smooth the impact on revenue requirement.”

Meanwhile, Hydro has tracked severe drought for much of the past four years. It’s expecting a consolidated net loss of roughly $463 million for the current fiscal year. Approximately one-third of Hydro’s revenue goes to debt servicing.

Last year, Manitoba Public Insurance scrapped its own IT system overhaul, dubbed Project Nova. The cost had jumped 50 per cent, to $435 million.

About $165 million had been spent before the project’s end. Manitoba’s auditor general has been tasked with investigating Nova’s rollout.

Nova was a custom project, Danroth noted.

“Our situation is different,” he said. “We’re taking a standard piece of software off the shelf. We’re installing it. We’re going to change the way we do certain things.”

The new system will affect roughly 65 per cent of Hydro’s operations.

Cost overruns of system overhauls are often inevitable, said Malcolm Bird, a University of Winnipeg political science professor.

“I’m praying for Hydro,” he said. “It’s really complex to migrate, to update IT systems and to move from one platform to another.

“You would only embark on this project if you have to.”

Hydro is prioritizing “out of the box” functionality, limiting the project’s scope and allowing significant time for testing, said Peter Chura, a Hydro spokesperson.

Customers shouldn’t see a difference in public-facing services; changes are happening behind the scenes, Chura wrote in a statement.

“While this is absolutely a necessary upgrade, I do have some concerns around AI creep putting good provincial jobs at risk,” said Niall Harney, a senior researcher with the Canadian Centre for Policy Alternatives’s Manitoba chapter. “I would want for there to be as much worker training and skills upgrading as possible.”

Danroth said he doesn’t foresee any job losses tied to the system change.

Hydro’s request for proposals closes Wednesday. It’ll tender work when change isn’t tied to Germany-based SAP, Danroth said.

“We have confidence in the leadership at Hydro that this an important investment,” said Finance Minister Adrien Sala, whose responsibilities include overseeing Manitoba Hydro.

The utility faces “ballooning debt,” noted Tory MLA Konrad Narth (La Vérendrye).

Even with a rate hike, “we’re still not given any reasonable reassurance that that is going to get the corporation into a place where it’s feasible to build any additional capacity,” he said.

The Crown corporation’s operating and administrative expenses have jumped by $221 million — or 38 per cent — from 2021-22 to 2025-26. Inflation and a “need to increase work efforts” in areas of the company are cited as reasons for the increase in a PUB filing.

Cloud computing through SAP has contributed to the cost increase. Hydro expects its operating and administrative expenses to jump $107 million, or 14 per cent, over three years (to 2027-28).

Hydro started planning to replace its SAP software in 2024; a chief executive changeover put the project on hold.

gabrielle.piche@winnipegfreepress.com