Auditor General, Absence Missed

Blog, Energy, Frontier Centre

Publius Publius

Among the oversight bodies that monitor the provincial government’s actions, likely only the Office of the Auditor General has the independence, staff, scope and authority to obtain the necessary information to be able to review and publicly comment on the wisdom of the expansion-related actions and plans of Manitoba Hydro.

And, while there is a pressing and urgent need for a comprehensive review of Hydro’s  development-related plans and actions, including a thorough audit of certain (see below) transactions, the Auditor General is ‘standing on the sidelines’. The government has not objected, as the Auditor General’s absence is particularly helpful to a government that joins Hydro in resisting even the release of material information to its own Public Utilities Board.

The plans, being implemented assisted by liberal ‘doses’ of ratepayer money (financed through borrowing), have already had Hydro spend more than a billion dollars. If the plans are fully implemented, the ‘investment’ (as Hydro and government define their plan) could end up costing in excess of $20 billion (and that before interest).

The level of dollars to be spent exceed any previous provincial project, and risk an eventual tripling of electricity rates, energy poverty for lower-income households and, if industry results negatively to rising electricity rates and industrial demand (and employment) falls, a provincial credit downgrade. Credit downgrades drive borrowing costs up, reducing the government’s spending room for health, education and social welfare.

Commitments have (or are in the process of being made) to American utilities, First Nations, and new Hydro employees, contractors and manufacturers. Expenditures made cannot be ‘rolled back’. Even if further expenditures on the plan stopped, the write-off of spent but deferred costs (expenditures classified in Hydro’s books as an ‘asset’), plus any winding-down penalties that may be required, would affect ratepayers for decades.

The government is directing an adventure in trade, one that represents the largest ‘gamble’ in the Province’s history. The risks are so numerous that ‘reason’ cries out for intervention.

Yet, while both opposition parties, the Utility’s rate regulator, former government ministers, former senior Hydro executives and engineers, a former advisor to the Utility (the now famous or infamous whistleblower – still pursuing Hydro through a New York District Court), the Canadian Taxpayers’ Federation, editorials by Manitoba’s major newspapers, energy experts, lobbyists and others have ‘sounded the alarm’ (calling for an independent and expert review of Hydro’s plans before any more money is spent or commitments made), neither have the calls been answered nor has the Auditor General ‘stepped up to the ‘plate’.

The Auditor General would perform a valuable public service by announcing and commencing a thorough investigation and ‘value for money’ audit of Hydro’s plans and actions.

The Auditor General would best focus on six dimensions of the overall ‘affair’:

  1. Identify and assess the appropriateness of Hydro’s expenditures as they relate to First Nations – Hydro has expended hundreds of millions of dollars to gain First Nation cooperation, expenditures that would best be reviewed for appropriateness and effectiveness.
  2. The building of Wuskwatim and Hydro’s ‘partnership’ with NCN –  the projections that supported the Clean Environment Commission’s 2004 approval of the project were materially unsound. As well, despite MH bankrolling NCN’s participation and aiding Its projected gains from the project by not allocating full costs to the partnership, the partnership – now showing losses not net income – is now being re-negotiated (to avoid an embarrassing withdrawal by NCN?).
  3. The implications for rates associated with Hydro’s overall plans.
  4. identifying and evaluating known development options, which could reduce risk and the magnitude of future rate increases.
  5. Actions taken by Hydro through the 2002-2004 drought period towards mitigating its losses on export contracts – the whistleblower has alleged both major mistakes and fraud.
  6. The composition and effectiveness of Hydro’s Board of Directors – weak on electricity industry knowledge and experience and appointed by government without a competition.

With the ‘stakes’ and dollars already spent so high and the allegations so serious,  why hasn’t the Auditor General acted before now?

She has suggested the potential for a perception of a conflict of interest as the reason.

Prior to taking up the post of Auditor General (for the second time (she was the Auditor General before Jon Singleton, returning to the post after his tenure ended), Ms Bellringer was on the Board of Directors of Manitoba Hydro and its Audit Committee. Coincidentally, during Ms Bellringer’s time with Hydro not only was the Utility’s development plans developed but the the now-whistleblower was at work engaged by Manitoba Hydro on risk matters.

It is also possible that Ms Bellringer also rook note of her tangential connection to KPMG, Hydro’s external auditor. Her spouse is a retired former Managing Partner of KPMG.

KPMG was also the recipient of an un-tendered contract to review the whistleblower’s allegations, the overall contract approximated $4 million. The work of the external auditors of Manitoba’s Crown Corporations, including Hydro, are overseen by the Auditor General.

The above circumstances may have made Ms Bellringer uncomfortable, not because she considered herself to have a conflict of interest but out of her concern that others may perceive she has a conflict.

In any case, she recused herself from reviewing Hydro.

The absence of a review of Hydro by the Auditor General’s Office has left ratepayers and taxpayers with a problem. With no other body having the scope, independence, resources and staff to conduct a thorough review, the government and monopoly utility will continue on its path and ‘bet the farm’.

The very questionable actions of Hydro may never be investigated, an outcome not in the public interest.

Ms Bellringer should put aside her worries about perception, leave the sidelines’ and, directly or through a sub-contract, review Hydro’s plans and actions before, if possible, the situation gets worse.