Hydro Debt Mess Complicated

by Graham Lane

Published in the Winnipeg Sun, December 14, 2018

With all due respect to Sun columnist Tom Brodbeck, I disagree with the thrust of his Dec. 5 opinion piece “Hydro rates shock scare turned out to be bogus.” Mr. Brodbeck uses Manitoba Hydro’s recent request for a 3.5% rate increase to argue that Hydro’s previous calls for a series of 7.9% annual rate hikes were unjustified, even “bogus.”

He argues that former Hydro Board Chair Sandy Riley’s warning of the need for much higher rate increases was “nothing more than fear mongering, or incompetence.” Brodbeck’s statement reveals a serious underestimation of the precarious state of Hydro’s finances. This is surprising, but even the smartest commentators can be buffaloed by complicated and risk-laden accounting “conventions.”

Financing Hydro’s growing debt will eventually force large rate hikes, just as Riley warned. Hydro’s long-term debt, $18.2 billion on March 31, 2018, will soar to pay for the construction of the $5 billion Bipole III transmission line, the $8.7-billion Keeyask generating station, the Manitoba/Minnesota Transmission Project, and our share of the stateside Great Northern Transmission Project.

Before the Public Utilities Board “halved” the last rate hike from Hydro’s 7.9% request, Hydro had forecast its long-term debt would max out at $24.3 billion in 2022-23. That figure assumed approval of higher rate increases (which increase Hydro’s revenues). Evidence forced by PUB in the last public rate hearing projected that, with rate hikes nearer to recent levels, another billion would be added to peak long-term debt, bringing it to $25.3 billion.

But, wait, even that debt forecast is precarious since Hydro has barely begun a 20-year maintenance and refurbishment program for older facilities in its system. In 2015, Hydro projected that program would cost $13.6 billion but it has edged higher to $15.7 billion since then. How will Hydro fund this requirement without those pesky high rate hikes Riley sought?

Hydro covers interest costs during construction of new facilities by counting them as part of project cost. Annual finance costs that were about $600 million in 2017-18 will jump by about $200 million once Bipole III is in-service, presumably in 2018-19. Keeyask, without further cost over-runs, can be expected to add another $350 million to annual finance costs (if completed on schedule in 2021-22).

Circling back to Brodbeck’s analysis, he is relying on Hydro’s projection of relatively insignificant near-term annual net income “paper” surpluses in the range of $18 to $51 million to support his view. Unfortunately, any surpluses Hydro can generate in the next few years will be “paper” ones, cash outflow will continue. Debt will peak a billion dollars higher than forecast and Hydro’s financial risk will deepen. Eventually, steep rate increases will be needed, just as Riley forecast.

Hydro may be of the view that there is no hurry to pay off its debt, but this fails to take into account changes in the industry with which just about every other utility is wrestling these days. It also reveals a failure to appreciate disruptions coming from solar, wind and even competitive natural gas.

What worked 40 years ago will not work today. Riley’s warnings remain justified, unfortunately for ratepayers.

Privatize Canada Post

by Graham Lane

Published in the Winnipeg Sun, November 23, 2018

I never thought I would advocate for an end to Canada Post.

My maternal grandfather was the first mail carrier to carry mail by air in western Canada. A letter from the then Postmaster General thanking him on his retirement graces a place in our home. My grandfather lived up to the old adage – through rain or snow, the mail always gets through. A pacifist, he served as a medic in the First World War; an account of the horrors of death in the mud and trenches was never to come from his mouth. (He arrived back from the war in the summer of 1919, nine months after armistice, late enough to miss the Winnipeg General Strike and the unfair firing of Canada Post workers.) Because of him, and despite past labour problems and strikes, I have had a soft spot for mail carriers – till now.

Every week I look forward to receiving The Economist, a weekly U.K, magazine.  For years, I got the print version. But, weekly delivery was ‘always’ late. So late, that often I got two editions on the same day, one being over a week late. From general observation, confirmed by family and friends, you cannot trust Canada Post for timely deliveries. Despite an ongoing rapid falling in mail volumes (down 50% over 10 years) , a letter sent to my address from another Winnipeg address has taken a week or more to be delivered. Letters, bills, magazines, even advertisements, virtually never delivered on time.

Under Harper’s reign, Canada Post was, finally, addressing the problems. Then, the federal plan was to recognize reality and end general household mail for community post boxes. While that plan might not have ended the tardiness of mail delivery, at least the sharp cost increases for stamps was expected to end. But, Justin and his crew of ‘big government’ stalwarts stopped the move to community boxes, leaving a mix of service levels, everywhere, with service lousy while costs and stamp prices continue to climb.

As for the letter carriers and sorters, they have lost the public spirit that once, now long ago, ran through the complement. Now, driven by a militant union, we, the ‘customers’, cover very generous  wages and the cost of ultra-expensive pensions (underfunded by $6 billion). Canada Post is now for the employees and their union executive, no longer the vital national public service it was in my grandfather’s days.

It is time to end Canada Post’s ‘quasi monopoly’ of standard mail delivery and, also, sell its expensive parcel operation (up 25% in 2017) to competitive free enterprise firms. It is time to end allowing a public sector union to use the public as the piggy bank for improving their wages, benefits and security, with no real concern for the public interest. Canada Post has out-lived its value, having long lost the loyalty past service provided.

The Wheat Board was sold off without farmers going broke, Canada National Railway (CNR) was privatized and the trains still run. The privatization of Air Canada has led to more choices and better service. Time for Canada Post (inception 1867, but still no accumulated equity) to follow their lead.

With the federal government owing a trillion dollars, selling the Post Office would bring needed money and competition.