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Hydro and Pallister’s Second Term

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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.

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