Solar Power Bad for Hydro’s Bottom Line

A recent Winnipeg Sun editorial suggested that Hydro’s now-closed solar power program should not be renewed. In response, Justin Phillips, an executive with a solar installer, praised the program as having been a roaring success. Why? For bringing in $110 million of private investment and providing potential long-term benefits for Manitobans that took up the initiative. Yet, and ahead of Efficiency Manitoba (to be led by a former Hydro manager) taking over Hydro’s Power Smart’s responsibilities, Brian Ransom (a former Chairman of Hydro’s Board of Directors) opined, in a commentary for Frontier Centre For Public Policy, that the program should not be renewed.

Hydro’s Solar Power Pilot Program, which ended May 2018, featured two types of subsidy. One was Hydro providing a one-time subsidy for the equipment, the second was to continue as long as participants drew electricity from their solar panels. The ongoing subsidization, more costly than the one-time equipment subsidy, has customers displacing high-value dependable grid hydroelectricity with intermittent solar panel electricity. The displaced grid electricity is usually exported by Hydro at prices well below the average cost of new generation and transmission, bringing about a substantial drop in Hydro’s overall revenue – and, in time, to push up rates for all customers.

In his Frontier Centre dissertation, Ransom projects in detail the cost for Hydro and its solely grid customers from a renewed solar program. And, while Ransom doesn’t focus on the overall impact on residential customers ‘going solar’, which would depend on the level of the investment and the percentage of grid power experienced, going solar’ may not be financially advantageous even for them. Only if Hydro rates end up soaring could solar customers gain long-term financially.

Hydro must maintain sufficient generating capacity, its obligation extends to grid customers installing solar just the same as if there were no solar panels. “Sorry, but we were counting on the sun to shine more” isn’t an acceptable reason to Ransom for failing to supply “ … as much electricity as each and every customer requires every second of every minute of every hour of every day”. The bottom line is that the impact of customers using solar panels would only be lessened for Hydro if the customer went completely off the grid.

Ransom suggests that, if Hydro is to return to allowing customers to install solar panels while remaining connected to the grid, solar customers should have to pay a fee to cover the costs of Hydro providing “guaranteed instantaneously available grid backup power”.  This would help compensate for the spread between residential grid price and the export opportunity price plus operating costs.

This would mean that residential customers using their own solar panels would only get a credit based on the export opportunity (cheap) price rather than Hydro’s full residential rate. Anything more would require grid-only customers to, long term, pay more.  Alternatively, customers installing solar panels should go off the grid entirely and provide their own batteries and/or standby generators.

Ransom makes sense, either case would be a truer test of the competitiveness of solar power, leaving Hydro to pursue its responsibilities, with economy and fairness for both grid-only and solar customers.

Hydro and Pallister’s Second Term

Brian Pallister sets conventional bookkeeping aside in pursuit of his government’s second term. And, the Public Utilities Board is helping him out in several ways. First, it is ignoring Hydro’s risky accounting practices in considering yet another rate increase while not requiring an updated long-term financial forecast. Also, PUB denied Hydro’s request to rush the coming review yet restricting the scope for outside Intervenors to participate.

Pallister bizarrely took the NDP off the hook for its disastrous expansion of Hydro when he abandoned his pre-election promise to review Bipole III and failed later to halt construction of the Keeyask dam. Now he gets to personally wear the consequences. If he had acted responsibly, the pocketbook consequences for Hydro ratepayers would have been less damaging than those on the way from having to carry $25-billion of debt.

Pallister’s hopes for a second term will also be aided by an inexperienced Hydro board with yet another new President, questionable accounting, and a too-compliant utility regulator. He will aim to keep Hydro worries out of the campaign by having near-term Hydro rate increases well below what conservative accounting and common-sense demand.

Hydro’s debt swollen balance sheet will grow even larger as major projects wind up, ultimately swelling  the liability for ratepayers while creating an even more massive burden on the province’s finances. If Pallister is to show an improving provincial budget he needs ‘help’ from Hydro. The government’s annual budget needs the funds, now $430 million and growing, it gets each year from water rentals, debt guarantee fees, capital tax and other charges.

Pallister desperately needs dollars to bring down the provincial deficits. It is worrisome that, as Hydro’s debts approach the level of the government’s other debts, Hydro’s true capacity to continue payments to government becomes compromised. Moreover, a considerable portion of Hydro’s transfers to government are treated as the province’s revenue while Hydro’s books count defers them to be ‘costs’ over decades.

PUB is a player in this economic and political drama. It bought into Hydro’s accounting ‘games’ – which routinely involve recording current expenditures as costs over decades while inflating demand expectations to keep rates lower (for now) – despite poor energy markets and risks from rising interest rates and drought. PUB’s ‘skin-deep’ approach to rate reviews helps current ratepayers but fails the regulator’s responsibility to protect future generations of ratepayers. PUB is assisting a weak government to win a second term by ignoring Hydro’s accounting games.

The overall growth in Manitoba’s economy during Pallister’s reign, artificially pumped up by Hydro’s debt-funded expansion, has been average. Taxes remain uncompetitive, with the public sector still bloated and unreformed. What happens when the expansion is finished – back to the traditional low-growth NDP model?

When Finance Minister Scott Fielding crowed that his government had successfully reduced the current year’s deficit below last year’s, he conveniently ‘forgot’ that the ‘supposed’ improvement came from his government’s accounting games that boosted last year’s deficit. That subterfuge brought a “qualified” audit opinion from the Auditor General.

A qualified audit opinion, Hydro deferring $1 billion in costs, and PUB accepting Hydro’s risky accounting practices in a compromised review process – all reasons for Hydro ratepayers, taxpayers and voters to worry and be wary.