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Hydro’s Dismal Financial Results

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04Dec

Do you enjoy paying more than necessary to cover the blunders of an incompetent government directing a mandatory monopoly? I don’t.

Without fanfare, not even a media release from the NDP, Manitoba Hydro recently posted its financial results for the first half of its current fiscal year. The poor results are likely the last picture of Hydro’s financial condition Manitobans will see before the upcoming provincial election.

For the year ended September 30, 2015, Hydro’s net equity fell by $441 million. A slim net operating profit of $53 million was more than destroyed by a massive increase in the Canadian dollar equivalent of Hydro’s American debts. As weak as it was, Hydro’s six-month ‘operating’ profit – reported before taking into account the gigantic negative financial hit from currency weakness – was made possible only by deferring (pushing out) incurred operating costs ($361 million) to future reporting periods.

Is it likely Hydro’s results will improve in the future? Hardly, with the costs to hit the Utility’s books once the uneconomic west-side Bipole III comes into service. The Utility willfully ignores the risk of future currency losses and the potential for a major write-down of existing and underway uneconomic projects, Hydro projects years of net operating losses until accumulating large rate increases to be imposed on Manitobans pull its results into the black.

The most favoured of the three financial beneficiaries of Hydro’s operations and projects remains the provincial government. It not only received $341 million (built into the Utility’s swollen rates) from Hydro over the last year, but stands to gain from every dollar Hydro spends on capital projects, every molecule of water that flows through its turbines, and every cent borrowed. I leave out income and payroll taxes and the PST that the government pulls in from Hydro’s operations. If Hydro builds every part of its plan, the annual take for government could hit $1 billion.

There are two other major beneficiaries of the NDP’s Hydro play – American utilities and their customers (receiving subsidized electricity from Manitoba) and northern First Nations (sharing the ownership of generating stations plus jobs, contracts and community development handouts). Like the NDP government, a few First Nations (which also enjoy the same rates and service as other Manitobans) will gain from revenue guarantees from the uneconomic infrastructure that all ratepayers are being forced to fund.

So, the lack of fanfare upon the release of Hydro’s recent results is no surprise.

Since 2004, Hydro’s electricity rates have soared by 41% above base 2003 rates, taking about $400 million a year more out of ratepayers’ pockets than in 2003. Hydro’s projections – based on outdated construction cost estimates (too low) and forecasts of customer demand and export revenue (too high) – suggest that, in a mere 16 years, rates will rise to 271% of the base level.

More likely even those dire projections will prove wrong, making it worse. Say goodbye to “Manitoba’s Advantage”, say hello to energy poverty for many and problems for industry.

Let us hope that April 2016 brings a new government and a halt to the ‘build’ madness. What is needed is a proper, independent and comprehensive review of Hydro’s plan. Never in Manitoba’s history have so few caused so much damage to so many.

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