Is there courage to halt Bipole III?

By: Graham Lane
Posted: Winnipeg Sun, July 22, 2016

Pallister’s PC government wants to make the right moves with Manitoba Hydro. Its borrowings
dominates the province’s debt load, and it is headed skyward.

Consider the export electricity markets available to Hydro – south (America), east (Ontario), west
(Saskatchewan and Alberta). The U.S. takes whatever volume of power we send them, but at
terrible prices. Going east could look best – Ontario would like to develop the massive “Ring of
Fire” metal deposit north of Thunder Bay, Going west requires interest from two provinces with
ample natural gas and an inclination to support much lower-cost gas-fired electricity generation
plants with the spin-offs of provincial employment and resource development.

Three months ago the worst government in Manitoba’s history fell. When the NDP came into
power in 1999 Manitoba owed $10 billion, Hydro debt included. Fast-forward 17 years: the
Pallister government inherits a gross debt of $32 billion potentially headed for $60 billion. With
that debt and a structural budget deficit, no wonder there have been two credit downgrades this
year.

Manitoba’s finances are in terrible shape, even before uncovering questionable bookkeeping
and considering how to overcome union commitments designed to restrain quick cost-saving
remedial steps.

The NDP’s past deals includes ones impossible to break and expensive to adhere to. The nolayoff
collective agreements and unprofitable contracts to export power at bargain basement
prices are but two examples. Employee compensation drives the budgets of core government,
Crown corporations and agencies funded by government, and lengthy poorly-priced power sale
contracts.

The greatest problem is Manitoba Hydro. Ignoring major market changes and falling head-overheels
for everything green and indigenous, the NDP pressured Hydro into unneeded costly new
infrastructure and pushed it to spend $1 billion plus to buy northern First Nations agreements
offering risk-less gold-plated partnerships.

The expansion is difficult to stop. Bipole III is steadily snaking down from the north on a
circuitous lengthy and enormously costly route; hundreds of contracted workers are busy
constructing Bipole III and Keeyask; equipment has been bought and contractors are at work;
and, American utilities expect more below-cost power. Hydro now takes $500 million a year
more out of ratepayers’ pockets than before the expansion began. If completed, if not
courageously halted by the new government, ratepayers could end up paying a further $1.5
billion annually to keep Hydro solvent.

Hydro’s western prospects are limited by distance, cost and local preferences, seemingly
leaving the ‘Hail Mary’ pass for Hydro ratepayers being the federal government massively
subsidizing trans-Canada transmission and Ontario agreeing to take our power at full price,
Leaving aside the prospects of a massive federal subsidy, the Ontario government is years
away from building transport infrastructure to the Ring of Fire’s chromium deposit. Resource
prices are too low now and there would be delays consulting First Nations.

Then, there is NW Ontario’s over-supplied power market, a large electricity surplus due to paper
mill closures. Finally, the ore would be hauled to Sudbury for processing, so there would be no
smelter at the mine site.

With abounding excess power generation and low prospects south, west and east, would it not
be safer to take a loss now and wait for a ‘paying’ market before wasting anymore than
absolutely necessary?

Graham Lane chairs Manitoba Forward (manitobaforward.ca).

Lessons learned from Brexit

By: Graham Lane
Posted 7/15/2016

The immediate outcome from the United Kingdom’s vote to leave the European Union holds valuable lessons. Despite months of intense pre-vote debate, the immediate economic and political fallout that followed came as a shock. Why?

In Greek mythology, Pandora’s box was a jar best left unopened. On opening, she expected it held riches. Opened, out poured death and pestilence. Shock!

A slim majority of the 33 million voters preferred the U.K. leave the European Union, expecting the U.K. would gain from discarding the rules that bind member states of the European Union. However, the immediate fallout from the vote includes loss, confusion and fear. The pound fell like a stone; Scotland and Northern Ireland threaten to leave the UK (hoping to remain in the European Union); commercial property, bank stocks and consumer confidence plunged; planned investments in the U.K. deferred; and, political disarray ensued.

Leave voters didn’t expect the depth of the fallout, coming even before the U.K. gives formal notice to the EU. Still, despite the immediate financial and political turmoil, most leavers maintain their hope for a resurgent U.K., free of the ‘shackles’ of the EU. Divisions between leavers and remainders widen, risking the breakup of the U.K. and even further turmoil.

The jury is out as to whether ‘leave’ voters were misled, voting without an adequate understanding of potential negative consequences. A black swan event is a negative event, neither anticipated nor even on the radar screen. It is an event that comes out of the blue. The immediate shock outcome of the leave decision was no black swan. The risks of a ‘leave’ vote could and should have been well-discussed and fully appreciated well before the vote.

So, why did the leave option prevail? And, are there lessons to be gained from the U.K.’s ongoing and harrowing experience?

The factors that drove the ‘leave’ verdict were anger over uncontrolled immigration; lost manufacturing jobs blamed on globalization and free trade; EU’s massive and stifling costly bureaucracy; perhaps false confidence as to the U.K.’s future outside the EU; and, unfortunately, some racism. Neither the proponents of remaining in the EU nor devotees of the leave option addressed all those issues and risks ahead of the vote.

While misrepresentation by the leaders of the leave campaign has been asserted, criticism of the failure of the remain camp to deal with the substantive social issue, uncontrolled immigration, is equally valid. It is shameful that despite months if not years of pre-vote debate voters were never adequately briefed. Decisions of magnitude deserve better. The immediate fallout from a leave win was clearly predictable. What cannot be comfortably predicted is the long-term result.

What can we learn from this fresh saga? Is it don’t open Pandora’s box, leave curiosity at the doorstep? No, better to be very curious. Don’t rush into anything, seek sound understandings as to merits, negatives and risks. Ensure all issues and potential outcomes are quantified, raised and fully discussed before making critical choices.

As for the peoples of the U.K.: in the Greek fable, once Pandora’s jar was closed at the bottom there still remained hope.

Graham Lane chairs Manitoba Forward (manitobaforward.ca), seeking openness and transparency in public affairs.

Debt, the creeping killer

By: Graham Lane
Posted 7/07/2016

Unless governments and families restrain borrowing, we and our children and grandchildren will inevitably face a less comfortable future.

The chattering classes like government borrowing and support, if not praise, serial deficits such as the one slain by Paul Martin’s tough austerity budgets of the 1990s. Historically developed countries only amassed large debts during wars, gradually whittling them down in periods of peace. (The United Kingdom only paid off its Second World War debt owed to the U.S. in 2012.) Now we haven’t needed wars to build huge debts, and there appears to be no serious plan to ever get out of it.

Until our new federal Liberal government was elected, it was the provinces running large deficits. Including provincial Crown corporation borrowing, the biggest borrowers relative to their economies include Manitoba as well Ontario, Quebec, Alberta, and Newfoundland Labrador.

Ontario’s Premier Wynne exhibits no concern as Ontario’s debts climb into the stratosphere. While Alberta can blame lower oil and gas prices, Premier Notley’s government hasn’t made any effort to curb spending. Falling oil prices have also hit Newfoundland Labrador, but its the $12 billion hydroelectric debacle (Muskrat Falls) that could take it over the falls. Manitoba, with its own hydroelectric boondoggle, developed a structural deficit under the NDP, as Ontario did under its Liberal government.

Central banks are colluding to hold interest rates at historic lows, ostensibly to prop up growth. This has restrained, for now, what would be massive interest costs for governments, encouraging them to take on even more debt. By deliberately holding down interest rates, Canada’s central bank also depreciated the Canadian dollar, all in the hope of increasing exports. But there already are Canadian losers from the strategy: we end up paying more for imported goods as our debt soars, and new families are priced out of an over-heated housing market.

Does anyone truly believe rates will never rise? Then, interest costs on government and personal debt will rise sharply — squeezing out funding for public services, fuelling tax increases, and hurting families.

The distortions caused by rock-bottom interest rates already damage the living standards and economic stability of retirees relying on low-rate guaranteed investment certificates and Canada Saving Bonds. Not much attention has been paid to the plight of those folks — resigned to live on reverse mortgages, cutting back plans for travel and a new car and often unable to help their adult children.

Canada is not an island, events elsewhere can generate massive economic swings. Interest rates could easily double or triple and still be below historical levels. Inflation can spike up from a benign range of 1-3% to double digits, and the Canadian dollar can fall further pushing further up the cost of imported goods.

While advanced countries have played nice with each other, arrangements can be broken in the flash of an eye. Overnight, the value of the British pound fell 10% after a referendum signalled the UK abandoning Europe, while London’s commercial real estate is already down 20%.

Unlike its notoriously fiscally inept NDP predecessors, the Pallister government is more likely to understand the potential severe consequences of rapidly ballooning debt. It must not fumble its strong mandate to right Manitoba’s finances.

Debt represents risk, best to control its growth before it controls you.

— Graham Lane chairs Manitoba Forward (manitobaforward.ca).

NDP leave Hydro mess for PCs

By: Graham Lane
Posted 6/29/2016

Manitobans mistake that Manitoba Hydro has worked for them. For the last 17 years it hasn’t. Under the NDP Hydro went from being the Province’s crown jewel to an albatross hung around the necks of ratepayers. As to selling it, no worries, there are no buyers.

The Manitoba Advantage — lowest electricity rates — survives only through creative accounting pushing out the implementation of further major rate hikes until an uneconomic expansion is finished. When Hydro’s accounting and rate-setting get ‘real’ and the house of cards comes tumbling down, then Manitobans will awaken and realize that the only winners from the unwise expansion were insiders, NDP politicians, suppliers of goods and services, American utilities, government’s core budget, and some First Nations — all showered by borrowed money that ratepayers will end up reimbursing.

Hydro initially operated with two objectives — reliable electricity at lowest cost; this before being burdened by new prime directives by the Doer-Selinger regime.

While the provincial government hasn’t invested a dime in the utility, Hydro annually provides it with massive dollops of money (last year, $356 million), the true supplier of that being ratepayers. The NDP prevented Hydro from considering a much cheaper natural gas plant instead of risky expensive new dams. A gas plant in southern Manitoba would cost 3% of Hydro’s capital expansion plan, providing in-province reliability security against drought, operating only when needed.

Besides, a gas plant would be a 25-year commitment, not one for 100 years in a uncertain fast-changing market. By building new dams and transmission instead, the NDP boosted the short-term provincial economy, provided thousands of short-term jobs, enriched manufacturers and suppliers, trumpeted its allegiance to the ‘green’ lobby and assisted northern First Nations: all through borrowing. Politics trumping good policy — all to help the NDP win elections.

Billions are being paid or committed from ratepayers’ current and future bills as Hydro borrows for its foolish expansion. And this follows billions for First Nations’ negotiations, mitigation, enticement, community development and even equity participation in new dams — seeking cooperation and votes. And, an unnecessary Bipole 3 is being built on a nonsensical route, wasting nearly half of its almost $5 billion cost. Hydro has already spent $7 billion on projects likely to cost, if finished, $30 billion — then requiring ongoing annual financing, operating and maintenance expenses.

Ratepayer rates, already up about 50%, will likely double again. Low-income households, including those in the north, heating their homes with electricity, will suffer the reality of energy poverty. Industrial growth could stall further while Hydro’s debt, guaranteed by the Province jumps, using up Manitoba’s credit flexibility.

The massive expansion, flawed from the beginning, became even more woefully and painfully wrong as market changes were ignored. After the election, Hydro finally proposed a practical energy efficiency plan that makes the building of Keeyask and Conawapa beyond just not being needed but a beacon of utter silliness. On top of its misadventures on new projects, Hydro now admits its pre-expansion infrastructure requires a $14 billion upgrade.

What a fine mess the NDP handed to the new PC government! They will need the wisdom of Solomon to find ways to hold down the eventual cost/loss to ratepayers and taxpayers.

— Graham Lane, formerly Chair of PUB, leads Manitoba Forward manitobaforward.ca.