Posted: 10/20/2018 4:00 AM

Winnipeg Free Press

https://www.winnipegfreepress.com/opinion/analysis/hydro-project-review-has-political-inclinations-498093221.html

Are things finally looking up for Manitoba Hydro?

Last summer’s drought conditions have given way to a soggy fall that may — emphasis on may — suggest a winter with robust snowfall, a condition that is essential to keep Manitoba’s rivers high and Hydro’s dam turbines churning out electricity.

Back in the corporate home office, a leadership vacuum is finally being filled.

The utility more or less has its board of directors back together after former chairman Sandy Riley and nearly all of the board resigned last year over a dispute with Premier Brian Pallister. Hydro is also looking for a new CEO after Kelvin Shepherd announced he was stepping down, but the succession planning seems to be unfolding in a thoughtful manner.

The good news continues this week with details that Hydro has reined in costs and construction delays at the Keeyask generating station.

In an email to the Free Press, Hydro communications director Scott Powell confirmed that productivity improvements this year have lowered the estimate of the total cost of the project and moved up the date the dam will start generating electricity.

In 2017, Hydro released a consultant’s study which estimated total costs for the dam could be as high as $10.5 billion, nearly $4 billion more than the original $6.5-billion price tag. Now, the utility believes it can keep costs to no more than $8.7 billion, while bringing the first turbine online by October 2020, nine months ahead of the earlier estimate.

"The project is over 60 per cent through construction, and while risks remain, we are working hard to mitigate those risks," Powell said.

Why, then, would the premier choose this week to announce he was spending $2.5 million of precious taxpayer dollars on a review of the economics of Keeyask and the related Bipole III transmission line?

The review, which Pallister promised last year, is to be conducted by former British Columbia premier Gordon Campbell, who has been dabbling in government consulting work since he left his post as high commissioner to the United Kingdom in 2016.

The announcement of the Campbell review is intriguing for many reasons, not least of which is the fact that, arguably, the economics of Keeyask and Bipole III have been deeply and thoroughly reviewed.

Hydro paid for two of its own detailed reviews of the capital projects, one in 2016, and Manitoba’s auditor general has also weighed in on Keeyask, releasing a report in 2016 on Hydro’s agreements with affected northern First Nations.

Keeyask was also subject to a detailed NFAT (Needs For and Alternatives To) assessment as part of the regulatory approval for dam construction.

And throughout the planning, design and implementation stages of Keeyask and Bipole III, the Public Utilities Board (PUB) and an array of third-party interveners have poked, prodded and drilled deep into the economics of both projects. This included a detailed examination by an outside consultant contracted by the PUB specifically to provide "an independent review of Manitoba Hydro’s capital expenditure program."

And what conclusions have been drawn from all this scrutiny?

Largely, that the former NDP government rushed its approval and ignored changing energy market conditions that undermined the viability of both projects. Although questions still remain about whether Hydro needs another major north-south transmission line to guarantee uninterrupted power supply to the south and export markets, the verdict is already in on the macroeconomics of both projects.

They were hastily conceived, expensive, risky and — given continuing low prices for electricity on the export markets — may never pay for themselves.

So, again, why this review, and why now?

Part of the answer is political. One of the strongest cards Pallister has to play in the last two years of his current mandate is reminding voters just how bad the NDP was at managing its finances. And there is no better example of financial incompetence than the Hydro capital projects.

The Campbell report is expected to be delivered by December 2019. Bank on the idea that the government will take a few weeks, or even a few months, to review it and devise a strategy for release. That will mean the conclusions in this report will start making headlines in the first quarter of 2020, which is right at the start of the unofficial campaign for the October 2020 provincial election.

Reminding voters of NDP incompetence right before asking for another four years to "fix" the province’s finances, as Pallister loves to say, is a pretty tight political strategy. In fact, the only potential downside is if Campbell’s report is so thin or redundant that it exposes the Pallister government to allegations that it wasted money ordering the review in the first place.

At first blush, the choice of Campbell does not, on its own, create a lot of confidence in this process.

Campbell does not appear to have any clear expertise in hydro-related issues. In the government news release announcing the study, Campbell is described as CEO of Hawksmuir International Partners. A detailed background search determined this firm has no website, and has not been publicly associated with any similar projects.

His only previous consulting gig seems to be the high-profile review of Ontario finances he did earlier this year for newly elected Ontario Premier Doug Ford.

As a result of his limited range of experience, you can bet most of the $2.5 million he has been given will be spent on hiring subject-matter experts to review the planning, design and construction of Keeyask generating station and the Bipole III transmission line.

That means there is a high likelihood he will retain the exact same type of expert, if not the very same experts, hired by Hydro, the PUB and interveners.

There is no doubt that someone who has served more than a decade as a first minister of one of Canada’s larger provinces understands government financial statements and accounting principles. But Hydro capital projects are a whole different ball game, and it will be interesting to see whether Campbell can uncover anything new and alarming in the wake of a long history of alarming reviews of Hydro capital projects.

The NDP messed up big time on Hydro, leaving the utility awash in debt and vulnerable to additional cost overruns with the two remaining capital projects. The NDP should expect to carry baggage from those transgressions for at least one more election cycle.

However, at some point there should be a limit to Pallister’s use of Hydro as a political bludgeon. At least, until he can establish a longer, better track record of managing Hydro’s affairs.