A theory about the Hydro land deal

News broke this past week that Manitoba Hydro disputed the independently appraised value of the land that the City of Winnipeg needs to purchase from Hydro for the new Rapid Transit corridor (or rather, the completion of the existing corridor). The appraisal pegged the value at $4.6 million. Hydro says it’s worth $34 million. They compromised at $20.4 million.

The news that the cost of this project has jumped by $16 million overnight has caused some councilors and citizens, weary of over budget and poorly managed boondoggles, to choke. This is beginning to look like another Police HQ disaster in the making, but I have a theory as to why Hydro is pushing to capture more money for this land …

As I discussed in a previous blog post, there is another Hydro-related cost associated with this project: a row of transmission towers needs to be relocated to make room for the transitway.

You can read that blog post if you wish, but to save you the trouble I will summarize: According to a person I spoke with at Manitoba Hydro, the estimated cost of this work is $25 million, but the City of Winnipeg is only being charged $7.25 million — an amount which is $3 million more than the city budgeted, but still $18 million less than the projected cost to Hydro.

The ostensible explanation for this gap was that Hydro was going to take advantage of this move to upgrade “aging infrastructure” and therefore some of the costs of making way for BRT are mitigated by removing the need to replace these towers at some point in the future.

However, this “aging infrastructure” argument doesn’t fly. Transmission towers of this nature have a life expectancy of around 100 years, and Manitoba Hydro had no plans to replace any towers of this type in their Long-Term Development Plan. This caused me to speculate in that previous blog post “For this reason I believe Manitoba Hydro will try to pin as much of the $25 million cost on the City as possible, even though they initially estimated the cost to the City at less than one fifth that amount.

Here we are, one year later, agreeing to pay Hydro an extra $16 million for land acquisition — an amount almost equal to their shortfall on the transmission tower relocation ($18 million).

So that’s my theory: Hydro is trying to make themselves whole, as they say. They lowballed the initial cost estimates to the city for the tower relocation, and are trying to recover that on the land acquisition.

Whether or not this theory is correct, it is worth noting that this is the second time that Manitoba Hydro-related costs of BRT have escalated.

*****

One last, fun tidbit from the 2013 BRT alignment study (emphasis mine):

5.2 TRANSIT CORRIDOR LAND ACQUISITION COSTS
The total land requirements documented above represent both public and private land holdings required for development of Stage 2 of the Southwest Rapid Transit Corridor. The study team assumed public lands to be incorporated into the alignments at zero cost. Based on preliminary discussions with the study team, CN (Concept 1A/B, and 2), Manitoba Hydro (Concept 1A/1B) and U of M (Old Southwood Golf Course) lands were assumed at nominal (and possibly zero) cost for construction of the transitway.

 

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