Hydro’s court challenge a senseless power play

Hey there, time traveller!
This article was published 13/08/2018 (2755 days ago), so information in it may no longer be current.

Take a landmark decision on a rate application, add in copious amounts of crankiness from the provincial energy utility, and what are you left with?

A date at the Manitoba Court of Appeal, of course.

Hardly anyone was surprised when Manitoba Hydro announced last week it would launch a legal challenge to the most recent Public Utilities Board (PUB) rate decision. Leadership at the Crown utility had been sporting a profound frown since last May, when the PUB denied its request for a nearly eight per cent rate hike, while ordering discounted electricity rates for First Nations.

In its news release, Hydro said it was forced to ask the appellate court to intervene because “the PUB exceeded its jurisdictional authority” in ordering the utility to implement a special rate class for First Nations customers. Given that the PUB had never before ordered Hydro to set a lower rate class for a specific group of people, the legal battle should be pretty interesting.

However, while rates for First Nations has dominated news coverage of Hydro’s court challenge, there is another issue at stake that could be as important, or even more so.

Also at issue in the court challenge is the PUB’s demand that Hydro retain an outside consultant to review and advise the utility on “asset management,” utility jargon for policies and practices that ensure Hydro is spending money on day-to-day operations in the most cost-effective way possible.

It’s important to note that Hydro has two sides to its operation. There is the side that oversees the construction of mega projects such as Bipole III and the Keeyask generation station. And then there is the side that oversees the management of day-to-day matters, which include the operation and maintenance of generating stations, transmission lines and other physical assets.

Although the PUB also has concerns about the capacity of Hydro to manage huge capital projects, its order is aimed specifically at bringing in a consultant to help the utility with day-to-day operations.

Hydro is steadfastly opposed to this order, arguing that like the new First Nations’ rate class, it is outside the PUB’s jurisdiction.

“We also believe that the PUB lacks the legislative authority to order Manitoba Hydro to spend customer funds to hire a consultant to review asset-management decisions,” Hydro president and CEO Kelvin Shepherd said in a news release.

When you look at all of the context of this issue, this is an exceedingly odd position for Hydro and Shepherd to take, for two main reasons.

First, Hydro is already covering the cost of paying numerous consultants to review its operations, albeit indirectly.

As is the case with many government regulators, all of the costs associated with Hydro’s rate application are charged to the utility. That includes the cost of outside experts and consultants retained by the PUB and interveners.

Byron Williams is a lawyer with the Public Interest Law Centre who has represented Winnipeg Harvest and the Consumers’ Association of Canada. Williams said his clients — Winnipeg Harvest and the Consumers’ Association of Canada — hired Toronto-based power-engineering consultant METSCO to review Hydro’s last rate application and its asset-management practices to ensure they “reflect best industry practices” and that “assets are kept in an optimal working order at the lowest possible cost.”

Williams said it cost about $100,000 to retain METSCO, a tab that was charged to Hydro once the rate-application process was finished.

“Our costs are ultimately paid by Hydro,” Williams confirmed. “I don’t know why it’s a big deal to get them to hire their own firm.”

Contacted on Sunday, a Hydro spokesman added that Hydro did in fact hire a consultant to “improve our corporate-wide asset-management program” at the urging of the PUB in a previous rate application. Thus, the PUB’s new order amounts to “hiring a consultant to look over another consultant’s work.”

Although that may be true, that brings us to the second reason why Hydro’s position is so unusual: even with the assistance of outside consultants, by all current measurements, Hydro still needs help with asset management.

Williams noted that during the past decade, the PUB has issued several orders to Hydro to improve its asset-management policies and practices. And, while Hydro has made some progress, there are concerns the utility is not doing a good job of tracking operational spending.

In the METSCO report produced for Hydro’s most recent general rate application, the consultant found that despite making some strides to improve its overall operational management, “the most critical capabilities that signal asset-management process competence are not yet in place.”

“Hydro is really good at keeping the lights on,” Williams said. “But, it’s pretty clear they’re not doing it in the most cost-effective manner.”

When you add it together, Hydro’s decision to launch a legal challenge of the PUB orders becomes just another example of a Crown corporation that appears to be desperately in need of consistent leadership.

For two years, the utility has been fighting a futile war with the PUB. Hydro has repeatedly gone to the board seeking rate increases of nearly eight per cent annually to help cover the increased risk from debt amassed from an overly ambitious capital expansion plan. And repeatedly, the PUB has rejected Hydro’s demands with a stern rebuke of its entire case.

Earlier this year, a power struggle between Premier Brian Pallister and Sanford Riley, the Winnipeg businessman appointed by Pallister to be chairman of the Manitoba Hydro Electric Board, resulted in a mass resignation of directors. It took several months to fill all of the vacated positions.

And then, last month, Shepherd announced he was stepping down as CEO. A national search for a replacement is underway.

Shepherd argued the PUB does not have the legislative authority to force Hydro to spend “customer funds” on hiring an outside consultant to help with asset management. Perhaps Shepherd should consider whether it’s wise to spend those same customer funds on a legal challenge of the PUB’s order.

Hydro has proven over and over again that it falls well short of being described as a well-oiled machine. While an outside consultant cannot, on its own, solve all of Hydro’s problems, it’s certainly a step in the right direction.

And, as such, paying a consultant seems to make more sense than taking the PUB to court.

dan.lett@freepress.mb.ca