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
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).