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).
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