Economic Review of Bipole lll and Keeyask Report Released

The economic review of Manitoba Hydro’s Bipole III and Keeyask projects was released today by Commissioner Brad Wall, containing 85 findings and 69 recommendations addressing a broad range of issues detailed in the Review Terms of Reference.

The report seeks to balance the need to review these project costs – and how they grew from the initial estimate of $9.7 billion to $13.4 billion before the dam was charged – with recommendations about measures to mitigate the risk of such cost overruns in the future. It also offers recommendations regarding Manitoba Hydro’s future and its relationship with the Public Utilities Board and the Government of Manitoba.

The report is based on the comprehensive review of documents and reports associated with the projects’ approval and construction process, including: internal Manitoba Hydro reports and submissions; Government of Manitoba documents; Cabinet documents, including Cabinet Committee agendas and minutes; and interviews or submissions from 68 separate organizations, stakeholders, past and present Manitoba Hydro executives, past and present elected officials, past and present Government officials, First Nation project partners and Aboriginal stakeholders. This review offers a unique perspective as it brings together the various reports and reviews previously performed, combined with Government and Manitoba Hydro internal documents, for the broadest scope of inquiry to date regarding Manitoba Hydro’s Bipole III and Keeyask projects.

The Review describes the genesis of the Keeyask and Bipole III projects deriving from the vision of Government that hydroelectricity is“ Manitoba’s oil” and therefore a source of transformational economic development driven by exports. However, Government became“ locked in” on the projects, leading to direct Government action to place constraints on the regulatory and approval processes for them.

Directed western routing of Bipole III added $400 million to the project with some evidence that staging the transmission line on the east side may have avoided up to $1 billion in additional costs. Potential options were excluded and this – combined with Government action to constrain the regulatory and approval processes – drove the projects to approval and construction start dates on inflexible timelines and with incomplete analysis.

Manitoba Hydro’s submissions during proceedings before the Public Utilities Board were characterized by rapidly shifting economic assumptions and emerging facts or options that were either ignored or explained away in the rush to approval. Some of these core assumptions were abandoned just months after approval was granted for the projects.

The report found that early Cabinet decisions to enter into export contracts – which required new generation and the spending of $1.2 billion prior to the approval of the Keeyask generation project – created a momentum for approval that constrained the decision-making space for the Public Utilities Board and made a recommendation for approval effectively a fait accompli.

Manitoba Hydro entered into a cost reimbursable contract with the General Civil Contractor that transferred risk during the construction phase of Keeyask from the contractor to Manitoba Hydro. Performance issues of the contractor led to increased cost without penalty helping to drive up the cost of Keeyask.

Following approval of the projects, the Review found that Government did not exercise any identifiable oversight nor consider the impacts of the projects on the financial circumstances of the province. The Review found no interaction, presentation, discussion, or document that showed that the input of the Treasury Board Secretariat or the Department of Finance was sought or heard in the planning or execution of the project plans.

The incomplete analysis of the projects, driven by Government endorsement, a construction contract that transferred construction risk to Manitoba Hydro and a lack of effective project oversight at the corporate level led to project delays and significant cost overruns, further impacting the economic case for the dam and its new transmission line.

The report contains a number of key findings and recommendations for Manitoba Hydro going forward including a mandate to focus on the core functions of providing electricity to Manitoba reliably and cost effectively. If there are divisions of the Crown Corporation that are counterproductive to its core mandate they should considered for wind down or disposition. An Integrated Resource Plan should be developed through a public process involving the PUB. Assessment of risk and fiscal implications should be embedded in Bill 35 as it applies to major capital projects with particular attention to the form of contracts such as the General Civil Contract seen in Keeyask.

As the largest commercial player in the Manitoba public sector, Manitoba Hydro should have a relationship with the Government as robust as a major line department. This would include a regular reporting relationship between the company, the Minister responsible, the Crown Corporations Secretariat and its Minister as well as the Legislative Assembly through the appropriate standing committee.

“The recent events in Texas underscore how important a reliable electrical infrastructure is. Manitobans are fortunate to have Manitoba Hydro and the provincial electrical system.” Wall said. “These projects will deliver new generation to the southern grid and in time there will be value. However, they were not needed when approved and have significantly eroded Manitoba Hydro’s financial health. Further deterioration related to the projects has been mitigated in subsequent years by active and effective management.”

Wall noted the importance of Government and Manitoba Hydro leadership continuing to strengthen the Crown corporation, ensuring it is focused on providing reliable power at an affordable and economically competitive cost.

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Notes:

1. The findings and recommendations are categorized by each of the 5 terms of reference in the attachment.
2. The budget for the Review was $1.8 million. The actual cost including consultants and expenses was $999,071.90 or 44% under budget.

Findings and Recommendations

1Selected Summary by Theme

TERMS OF REFERENCE

NT5