Sounding the Hydro alarm

Opinion

Hey there, time traveller!
This article was published 07/03/2024 (559 days ago), so information in it may no longer be current.

Shortly after the fall election, I met with Premier Wab Kinew and Minister Adrien Sala and proposed governance reforms at our largest Crown corporations.

I also asked that Manitoba Hydro’s mandate letter set a multi-year goal to become a top-performing utility in North America, measured by customer service, reliability, employee relations, productivity and investments to achieve a low carbon economy.

Six weeks later, the letter I received was a different one, along with the rest of the former Hydro board of directors, save one.

We were removed from the board.

Earlier last year I offered similar governance advice to the prior government. They were receptive but no action was taken. Governance reform was a political non-starter in an election year, especially if it involved higher board compensation to attract the best professional, non-partisan candidates.

If Manitoba Hydro were a Crown-owned golf course, I would be the first to leave it alone.

But the reality is vastly different and should be a serious concern to Manitobans. With invested capital of $34 billion, Hydro is by far the largest, and one of the most complex, commercial enterprises in our province. It is heading into a period of unprecedented opportunity and risk related to energy policies and decarbonization.

The situation is compounded by a thinning financial margin of error after Keeyask and Bipole III doubled Hydro’s debt load to $24 billion but added only 10 per cent more capacity.

They remind us that poor Hydro governance comes at a potential cost in the billions, dwarfing the tens of millions that could have been saved with an appropriately experienced board overseeing MPI’s Project Nova.

Unfortunately, the Crown mismanagement road in Manitoba is a long one.

The first Commission of Inquiry into Manitoba Hydro was in 1979 and examined a series of large investments, leading to the Long Spruce Generating Station.

The Tritschler Report concluded that massive overruns, and the misleading information used to justify these expenditures, were caused by the province as shareholder, the board as overseer, and management all lacking the requisite accountability, authority and professional competence to do their jobs.

In 2023, energy experts Dunsky & Associates reached the same conclusions about Manitoba’s current energy governance structure and practices, finding them to be outdated and ill-equipped to manage the risk and scope of the energy transition we are facing.

Tritschler acknowledged that what was done was done but hoped that we could “learn from history.” He and Dunsky would surely be disheartened, if not dumbfounded, to see that their sound recommendations have not only been ignored, but that the status quo is still embraced as the natural, inevitable state.

At root is the entrenched view that Hydro is first not a commercial entity, but an appendage of government and by extension an instrument of political power and expediency.

This ignores why Hydro was created as a Crown corporation and why the Hydro Act mandates the creation and authority of a board of directors.

No minister, premier or collection of bureaucrats has the requisite in-depth knowledge and expertise to oversee the direction of large-scale businesses like Hydro, operating within complicated and fast-changing industries. That is not a premise, it is a fact that should be written with chalk 40 times on a Broadway blackboard.

A Crown corporation structure addresses this by enabling an independent, highly skilled board with authority to oversee the corporation while being fully accountable to the government shareholder.

My appointment as chair was a step in this direction, not because of me personally but because of what I represented.

I had no connection to the PC Party or government. I did have 25 years’ experience as CEO of a large enterprise with business areas that overlapped Hydro’s. I was able to recruit three other independent board members with different perspectives but equally senior, large-scale enterprise backgrounds.

This matters, because credible Hydro board oversight is much more than managing the politics of a rate freeze or squaring the impossible “net zero by 2035” circle.

Effective governance is board members robustly engaging with management, having seen similar situations, and knowing what to ask and what advice to give, whether on complex forecasting and accounting matters, capital planning of close $1 billion annually, talent development and executive succession within an organization of 5,000 employees, multi-faceted Indigenous impact and partnership agreements, risk management including cybersecurity, or service levels to over 900,000 electricity and gas customers.

And even then, I would only describe our board as potentially competent because, at the compensation levels in place, we were unable to attract candidates with executive-level utility industry experience and who we needed to invest hundreds of hours to learn about the sector and Hydro specifically.

A close second governance principle is full, true, plain, and timely communication of all material information.

Today, this is violated to such a degree by government, through their manipulation of timing and facts, that if Hydro were a publicly traded company or even a social impact entity, known as a B Corp, it would be in gross violation of disclosure laws and practices.

It is unacceptable, for example, that the previous government withheld for two months the public release of Hydro’s 2023-24 first quarter results, including an updated, drought-impacted financial forecast, and then quietly posted it on the Hydro website just before election day.

Equally egregious is the current government’s false narrative about prior Indigenous engagement at Hydro, which was never restricted but was in fact the former CEO’s top performance goal, as set by the board, contributing to the completion of a major agreement with the Manitoba Métis Federation and a successful renegotiation of the financially challenged Keeyask First Nations partnership.

The list goes on, from interference in collective bargaining to perpetuating the belief, against all clear evidence to the contrary, that we have abundant, cheap power to attract multiple large users to our province.

And in a category, all to itself, is the seedy political tradition of throwing a Crown executive or board of directors under the bus, as seen most recently in the current minister of finance’s publicly undermining of the former CEO on private power generation options not previously rejected in face-to-face meetings with government.

The most frustrating aspect is that other jurisdictions have shifted to higher-performance Crown governance models and we were starting to make progress here in Manitoba.

Hydro One in Ontario, Hydro Québec and the city-owned utilities in Calgary and Edmonton are all Canadian examples. Board membership is not a light-duty, patronage reward — board composition is measured against disclosed competency requirements in line with comparable private utilities, there is public disclosure of CEO performance goals and government does not interfere in the reporting of results.

We should be long past the hypocrisy of solemnly describing Hydro as a our “crown jewel,” while encouraging mismanagement practices that accomplish the opposite, putting at needless peril the affordability of our electricity rates, the province’s fiscal health and most ironically, Hydro’s long-term sustainability as a crown-owned entity.

Edward Kennedy is the former chair of the board of directors of Manitoba Hydro.