Tories need to keep Manitoba advantage

By: Graham Lane

Published: Winnipeg Sun, September 30, 2016

If a private firm makes a poor investment, shareholders suffer, management goes, customers
flee to competitors, and, lenders (banks and bondholders) take a “haircut” (loss) while looking
for someone to sue. What should happen when a monopoly Crown corporation blows it?
Manitoba Hydro is owned by the government, which also controls the utility’s rate-setter.
Rate-setters can say NO to a utility that has made a bad investment and wants to saddle
ratepayers with it. Manitoba’s Public Utilities Board did exactly that when Centra Gas was
privately owned and lost money from speculating on future natural gas prices.

Hydro has been on a speculative spending spree that will saddle Manitoba with a debt of at
least $25 billion – about $54,000 per household. Most of what was constructed with the
money wasn’t needed. Energy to be exported to the USA from these ‘assets’ will likely be sold
at a loss for decades to come. Since the expansion began Hydro has upped rates by close to
50%, and plans to double current rates. The people responsible for this historic boondoggle
are gone: some before (Doer, Brennan, Schroeder), some with the provincial election results
(Selinger, past Hydro board).

Having long-cautioned Hydro about its expansion and been ignored, PUB has grounds to reject
future rate increases related to the uneconomic gamble. PUB rejected a rate hike proposed
by Centra Gas when that utility had a private owner. Centra had gambled and lost betting on
natural gas prices. PUB forced the owners to eat the loss. If PUB took that route with Hydro,
the utility would have to go back to its shareholder (the government) and seek a needed
massive equity injection to satisfy its bond holders. The write-down and needed capital
injection is around $7 billion.

Picking up the tab would be an expensive but important lesson for government. The NDP
government directed, pushed and brought about Hydro’s expansion blunder, ignoring advice
and market changes. As government levies taxes and fees on Hydro of about $400 million
annually (and growing), it could recoup its injection within 15 years.

With that burden taken off Hydro, rate increases could be held to no more than the inflation
rate. Manitoba’s Advantage – low electricity prices – could continue, benefiting particularly
low-income households, rural and northern areas heated by electricity, industry, and the
provincial economy.

Anyone who invests in the stock market knows that owning a company comes with risk. If a
company underperforms, losses arise. Manitobans face a legacy of losses left by the NDP,
including Hydro’s problems. Without either massive rate increases or an injection of cash from
the new PC government, Hydro will not be able to pay its debts. Who guaranteed the debt:
the government. Who is the shareholder: the government.

The new Government and PUB are left the task of deciding if this massive debt should be
borne through more increases in electricity rates on innocent ratepayers or by an injection of
money from the Province. If ratepayers pick up the tab, poor people will be hurt the most,
but also all those heating electrically, commercial firms and industry. If rates rise sharply, it
would be a huge disincentive to invest in our province with the Manitoba Advantage gone.

Graham Lane leads Manitoba Forward (manitobaforward.ca).

Elected on false pretenses

By: Graham Lane
Published: Winnipeg Sun, September 23, 2016

Mayor Bowman won the mayor’s seat by positioning himself as not another big spending
NDPer, He ran as a fiscal conservative, pledging not to increase property taxes by more than
the inflation rate. As with the subsequent provincial election, the electorate sought change and
rejected left-wing tax and spend politics.

Now in the captain’s seat, Bowman displays the traits the electorate voted against. His first two
years in office has seen property tax revenues increased by three times inflation. Depressingly,
more of the same seems to be in the cards, unless councilors get courage and vote against the
easy-out of constantly boosting taxes.

Mayor Bowman has been disrobed as a stark-naked spend and tax politician. His aggressive
effort, now deferred, to ram through a new development levy on new residential and
commercial builds is a simple tax grab for $34 million, to add $18,000 to the cost of typical new
housing. The new levy would give all residential housing sales a similar bump up, punishing
young people, new immigrants and other first-house families.

Bowman didn’t like the first consulting report on his proposed new levy. Its verdict was new
developments are already paying their own way: a new tax wasn’t justified. That report was
supported by calculations, in short with appropriate data. What did Bowman do? In what could
ultimately be a career-ending move he bought another report from a different consultancy. It
provided Bowman what he wanted. – – a green light for his latest new levy.

Mayor Bowman presides over a City that has had two successive half-a-million payouts to
former chief administrative officers, uncontrolled overtime management allowing a police
constable to pocket $250,000 for a year’s pay, and a continuation of a questionable practice
allowing overtime earnings to significantly boost retirement pensions.

Bowman, in classic NDP mode, is again scouring for new revenues instead of managing costs.
He needs to focus on controlling spiraling labor costs in upcoming union negotiations.
Compensation represents the largest component of budget costs by far. And, an example, the
police budget exploded 36.4% between 2010 and 2014.

The mayor also continues an accounting game City hall has perpetuated on taxpayers for years
– ‘robbing’ from water and sewer revenues to falsely hold down the rate of increase in property
taxes. Bowman and his councilor mates should get real: throw out the new development tax
idea, stop playing games with water and sewer revenues, and get busy bringing down
expectations for collective bargaining and next year’s property tax increase.

Tackling the spending problem ultimately will require changes to the City of Winnipeg Act. There
lies opportunities to save big by junking the City’s classic, highly-layered low-performance
operating model with its overstaffing, keystone cop overtime management, and incredibly
expensive pension plan – all need a long-overdue over-haul. Council, led by an inexperienced
and ill-advised mayor should start figuring ways to bring City costs down.

Ultimately, basic reforms will require the involvement of the Pallister Government. It controls the
City of Winnipeg Act and can bring in needed performance reform. Meanwhile, Premier Pallister
should ensure Bowman’s new tax doesn’t see the light of day. Bowman’s last minute deferral of
his highly questionable proposal was wise.

Graham Lane leads Manitoba Forward (manitobaforward.ca).

Changes needed to boost jobs

By: Graham Lane
Posted: Winnipeg Sun, September 16, 2016

Manitoba has been shedding jobs. And, last year saw net migration out to other provinces hit 7,000. Being in the largest downturn in the oil patch since the 1970s National Energy Program, the argument that Manitobans are leaving for Fort McMurray isn’t the problem.

Yet, despite consistent damaging out-migration, Manitoba’s population continues to grow through immigration. We welcome those coming from other countries. Even before Manitoba became a province (1870) our population and economic growth was driven by newcomers. But, how long before the immigrants’ children look to other provinces for work? Unfortunately the path we have been on is not economically sustainable.

Bad news on the job front – job losses in mining, forestry and at the port of Churchill. Is this government’s fault? No, but when international companies make hard decisions on downsizing they don’t choose places of high taxes and burdensome regulations. Recently that place has been Manitoba.

Fortunately the reverse is also true. When companies look to invest and grow they prefer jurisdictions open for business. Yorkton Saskatchewan has seen an explosion of development driven by two new canola processing plants. Yorkton is only 100 kilometres from the Manitoba border, so why wasn’t at least one of those plants built in Manitoba? Saskatchewan developed policies and regulations encouraging investment while the-then NDP Government of Manitoba sat back as people left to fill the jobs elsewhere that investments created.

It shouldn’t be government’s role to create jobs. Government job creation contributed to the financial mess Manitoba finds itself. Bloated bureaucracies, hydro infrastructure spending divorced from market realities – the list of government inspired development failures from our recent past could fill pages.

Government’s responsibility is to create regulatory and policy environment that will attract investment, which in turn would create permanent good paying jobs. Such jobs are based on market reality and not what some central planner on Broadway thinks might be a good idea.

Premier Pallister needs to launch strategic regulatory and policy initiatives to attract new investments and jobs. The first place to look is at the present level of taxes and fees. Right now Manitoba taxes businesses at a rate higher than just about every other jurisdiction around us – Ontario being the exception. Canada’s largest province is in a downward economic tailspin that we have no desire to follow. Manitoba’s tax burden has become a tax on jobs and that needs to quickly change.

The premier should sit down with Manitoba’s job creators (e.g., agriculture, mining, forestry, aerospace, manufacturing) and have them outline the costs and regulatory red tape preventing them from investing more in Manitoba, or tempting them to pull up stakes and move. Those decision makers need to be at the table if we are going to correct the mistakes of the past.

The economic head-winds faced today will blow harder. The NDP relied on growing transfer payments from resource provinces like Alberta. But, transfers are at risk as the impact of low oil prices hits the entire country. There is no time to waste if Manitoba is going to reverse the trend that has resulted in some of our brightest and best leaving.

We need concrete action from the new government before the end of the year.

Graham Lane chairs Manitoba Forward (manitobaforward.ca).

Public deserves Hydro Inquiry

By: Graham Lane
Posted: Winnipeg Sun, September 9, 2016

A public inquiry into the affairs of Manitoba Hydro when under the direction of the Doer-Selinger NDP regime is long overdue. Premier Pallister should fulfill his pre-election promise for an independent review, ratepayers and taxpayers need and deserve it. During their reign, the NDP pushed the monopoly corporation into poor decisions which will damage our economy for decades ahead. Rather than being swept under the covers, Manitobans deserve to know the what, why and how of this historic boondoggle.

When the dust settles $5 -10 billion will have been wasted and our electricity bills will have soared ever higher: damaging household budgets, beggaring lower-income families and reducing industrial prospects. The boondoggle began with Hydro wildly overpaying for Winnipeg Hydro and Centra Gas, followed by bloated construction costs for Wuskwatim generating station. We still ‘patiently’ await Hydro’s new board’s decisions on Bipole III, Keeyask Dam and the supposed mothballed Conawapa Dam. Those decisions will not only determine what will be finished, built, fixed and written off, but what level of borrowing and further rate hikes Hydro will need.

With Wuskwatim, Pointe du Bois’ incredibly expensive new spillway and Hydro’s palatial new head office finished and Bipole III and Keeyask underway, all amazingly over-budget and driving ratepayer rates up, decisions to come could, at best, only hold down the eventual toll. Wuskwatim Dam: budgeted at $900 million, finished at $2 billion. Bipole III: first forecast at $1 billion, now on track to exceed $5 billion with over $2 billion spent. Keeyask: initially budgeted at under $5 billion, current outdated cost estimate $6.5 billion with over $2 billion spent. Head office: first forecast at $75 million, completed at $300 million. Conawapa: mothballed with over $400 million spent.

What has been spent and planned are only partly reflected in rates. The biggest rate jumps will come when the dust settles.

Partnerships were handed to a few First Nations. Wuskwatim – offer taken-up using funds borrowed from a Hydro that had to borrow it first. Keeyask – equity interests offered to four First Nations with Hydro lending them funds to cover their investment. First Nations received hundreds of millions from Hydro to induce their joining, with annual payments to come regardless of ongoing operational losses. Stories abound about non-tendered contracts at excessive prices and questionable inducements to go along with wasteful schemes.

Hydro’s building spree was to be supported by profitable exports of surplus energy: catastrophically, the prices obtained for the exports are less than half Hydro’s cost, with the difference picked up by ratepayers. Through questionable accounting and regulatory mechanisms, Hydro defers massive rate hikes to be required in the end, with so much spent already whether Bipole III, Keeyask and Conawapa are finished or not. Eventually, annually half a billion plus from our bills would go straight into the government’s coffers, unless the new government gives ratepayers a well-deserved break.

A full-scale public inquiry needs to be held. If not, incredible blunders, wasteful spending and questionable actions will go unmasked, leaving the public in the dark. We deserve much better. We voted for openness, transparency and change, let’s have it. Do the PCs want to ‘wear’ NDP’s mess?

Graham Lane, former PUB chair and retired C.A., leads Manitoba Forward (manitobaforward.ca).

Woe to ratepayers, cash to government

By: Graham Lane
Posted: Winnipeg Sun, September 1, 2016

In late August, Manitoba Hydro released its 2015-16 annual report, five months after its year-end. Manitoba’s largest Crown Corporation continues to portray itself as a sound and effective public enterprise dedicated to the needs of ratepayers. Dig deeper and the report reveals an astounding assumption that, despite being an enterprise in trouble, nothing much will change under a new boss, board, watchdog (PUB) and government.

The media release claimed the energy monopoly made money in 2015-16 while progressing with a massive expansion, one portrayed as in the interest of ratepayers. Neither claim is true.

Despite rates increasing annually at twice the rate of inflation since 2004, adding over $400 million a year to Hydro’s revenues, the utility actually lost $7 million in 2015-16. The reported profit ignored a further currency loss on Hydro’s U.S. denominated debt (the accumulated loss on U.S. debt now exceeds a half a billion).

And, while Hydro puts a shine on the utility’s massive infrastructure expansion, it fails to admit that its forecasts suggest billions will be lost as a result of the expansion unless future rate increases continue to be much higher than the rate of inflation. In short, Hydro will continue to subsidize American utilities while plundering Manitoba ratepayers to avoid having to rely on the Province to avoid defaulting on its debts.

In its recent downgrading of the Province’s debt, Standard and Poors (S&P) stated that they no longer consider Hydro a self-supporting utility able to meet its obligations without the assistance of the provincial government. Why? Because Hydro’s plans are not working out. Rather than electricity exports to American utilities paying for Bipole III, and new dams, Manitoba households and businesses will be forced to pony up big time. Recalling starry-eyed politicians – so this is Manitoba’s oil?

The usual ratio of debt (loans from investors) to capital (retained earnings and capital shares) is 60-40 for private utilities. For publicly-owned utilities, such as Manitoba Hydro, an acceptable ratio is 75:25. Hydro’s ratio as at March 31, 2016 was 83:17, and the equity part – the Province hasn’t put in a dollar of capital – is backed by non-earning so-called assets and a range of deferred costs that a private utility would have long written-off.

When planning the expansion, Hydro projected annual rate hikes no higher than the rate of inflation, and that Bipole III would be paid for by profitable exports. But, costs soared, export prices fell, and demand for energy flattened. Almost three out of every four kilowatt hour of exports in 2015-16 went for 4 cents or less – only a
third of the expected full cost of producing and transmitting power from the new dams (Wuskwatim finished; Keeyask, in construction).

Anticipate power bill woes for Manitoba ratepayers and a growing bonanza for the Province. As it borrows, builds and generates – leaving out revenue from income taxes on workers, payroll taxes and PST – Hydro provided close to $400 million to the Province in 2015-16. That $400 million will get ever-bigger as the expansion proceeds. Ratepayers will suffer, government will profit. Is this fair?

Government first, consumers last – in other words NDP policy as usual.

A crushing disappointment.

Graham Lane leads Manitoba Forward (manitobaforward.ca).