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David McLaughlin was the campaign manager for Brian Pallister’s Progressive Conservatives for the 2016 election, and was a senior adviser on climate, energy and other political issues to the Manitoba government from August of 2016 to December of 2017. He was a Conservative chief of staff in the federal government and a provincial deputy minister.

This week’s mass resignation of the board of Manitoba Hydro is unprecedented but not calamitous. Despite its unusual nature, it actually comes down to a simple question of Crown corporation governance: Who speaks for the public?

Manitoba Hydro is both revered and reviled by Manitobans. It bears twin burdens of being the “Crown jewel” among the province’s public corporations, and its most indebted. These are hard to reconcile.

Hydro’s public debt is forecast to almost double over the next few years to $25-billion. That debt dramatically increased after a review of the utility’s finances by the new and now-departed board in the fall of 2016. Two major construction projects – the Keeyask dam and the Bipole III transmission line – were found to be both over budget and behind schedule, adding almost $2-billion in new debt in one year.

In its resignation letter of March 21, the board stated: “We quickly came to the realization that Manitoba Hydro was in a perilous financial position due primarily to imprudent decisions respecting the Bipole III transmission line and the Keeyask generating station.”

To the Progressive Conservative government of Premier Brian Pallister, this was neither surprising nor unwelcome. The previous NDP government had approved both projects without reference to the independent Public Utilities Board for review. And, if change had to come, it was important Manitobans knew the scale of the financial challenge.

So, what was to be done?

It was here that the board and government began to part company. The board’s solution was a classic private-sector conclusion: put capital at risk to improve the utility’s bottom line. In this case, it was “public” capital, from taxpayers via the government, to beef up Manitoba Hydro’s debt-to-equity ratio.

That would have improved Hydro’s balance sheet, but at the expense of the province’s own deficit, which would have grown to cover the requisite increase in borrowing and interest payments. Hardly an attractive option to a new government seeking to reduce the billion-plus-dollar deficit it inherited, not grow it.

Importantly, the government did approve a board recommendation to continue the Keeyask and Bipole III projects. This was at some political cost, as many of its supporters had been vocally against both for years. These core issues for any utility – generation and transmission – were not therefore compromised at any time by the board or the government.

Who should pay and by how much for redressing Hydro’s balance sheet, however, was in play. The board’s resignation letter makes clear that the members felt they had a fiduciary responsibility to address Manitoba Hydro’s financial interest. But the government, any government, has an equal and perhaps primordial fiduciary responsibility to the broader public interest.

Crown corporations are distinct legal entities established by government to pursue public policy and commercial objectives. The key phrase here is “public policy and commercial objectives.” These can clash. And often do.

A sound commercial objective may not meet a contemporary public policy or political objective. Examples include determining what is an acceptable level of debt to equity for a utility or what proportion of costs should be borne by ratepayers today versus tomorrow.

In 2010, the federal government set out “Guidance for Crown Corporations” on its Treasury Board website. It states this as an accountability structure: “While Crown corporations operate at arm’s length from the government, as public institutions, they are ultimately accountable to the government.”

What does this mean in practice? The government is “hands-off” and does not interfere in the daily operations of a Crown corporation but has to concur with the big, important decisions that bind the government, taxpayers and citizens to fundamental matters such as long-term financial obligations.

At its heart, this is the issue of the Manitoba Hydro board dispute.

The government balked at the board’s private commercial solution in its determination of the province’s public interest. It called, instead, for full rate hearings and financial disclosure before the Public Utilities Board. The Hydro board desired public acceptance for its commercial solution via government fiat; the government desired public acceptance via the utilities board, which is now occurring.

The recent recommendation of the board for a $70-million payment to the Manitoba Métis Federation with its attendant precedent implications for financial relations between government and Indigenous people raised a further accountability flag.

This conflict is not unusual. What is more unusual and salacious is, of course, a public reveal on the public interest. No one likes how the sausage is made. But that is hardly calamitous in a democracy.

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