Carbon tax revenue should be used to offset rising energy rates: Hydro board chair

The board chair of Manitoba Hydro says the public utility's balance sheet is "a mess" and the province should consider using part of the revenue from its recently announced carbon tax to "soften the blow" of higher hydro powerrates on the people most impacted.

"The Manitoba government is currently consulting with the public regarding next steps in its recently unveiled green strategy, and it's impossible for me to speak here today without noting the government's rationale for its strategy is based primarily on the investments that Manitobans have made in Hydro," board chair Sanford Riley said during a speech to the Manitoba Chambers of Commerce on Friday morning.

He was referring to the province's "made-in-Manitoba" climate plan, which includes a flat carbon tax of$25 per tonne over the next five years.

The plan is the Pallister government's response to the federal climate strategy, and Riley said it would generate roughly $250 million per year in additional revenue for the province at a time when Hydro is seeking an unprecedented rate hike.

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He stressed he was making the suggestion as a "private citizen," not in his capacity as board chair.

"My own view is that it would be entirely reasonable for the government to use this revenue to soften the blow for those who are most affected," he told the audience.

That includes people in rural communities who have to heat their homes with electricity instead of gas, some types of businesses and northern communities, Riley said.

Manitoba Minister of Crown Services Cliff Cullen said the government has had discussions with Hydro and knew the suggestion could be coming. He pointed to ongoing consultation efforts with Manitobans about what to do with carbon tax revenue, which are set to conclude on Dec. 22.

"Clearly, we'll have a look at what Manitobans want to do in terms of the money that's generated," Cullen said."We'll listen to their concerns and we'll make those decisions some time in the new year."

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Next week, the Public Utilities Board will begin a two-month hearing on the Crown utility'sproposed rate hike of 7.9 per cent for the next few years. Riley has said the hike is necessary to offset mounting Manitoba Hydro debt.

"It's going to be a historic process. Nobody has ever come forward with this kind of a rate application ever before, and so we know that we're going to have to provide an awful lot of supporting detail to justify the position we've taken," Riley said. "But we do look forward to the opportunity to share these details with the PUB and with Manitobans."

'Existential threat'

Riley rang alarm bells during his speech at the event as he referred to a "mountain of debt" facing Hydro.

"This is an existential threat to the well-being of Manitoba," Riley said. "I'm not being alarmist, it's a fact."

Cullen didn't dispute Riley's concerns about Hydro's finances.

"I think Manitobans have to remember why we're having this discussion. You know, it was previouslyrecklesspolitical decisions at Manitoba Hydro that got us into this situation," he said.

"Clearly, [these are] challenging times at Manitoba Hydro, and we have to address those concerns."

Troubled infrastructure projects such as theKeeyaskdam and theBipoleIII transmission line were poorly planned, Riley said.

Keeyask, set to open in 2022, will cost at least $8.7 billion. Riley says the business case for it was poorly constructed and the current board wouldn't have supported it.

Bipole III will cost at least $5 billion. Electricity will start flowing down the line next year.

Riley said neither project is reflected in the company's books and won't be until they are completed.

When they are, Riley warns, hundreds of millions of dollars in interest costs will be charged on Hydro's financial statements, which he saidwill wipe out a profit last year of $33 million and turn it into huge losses.

"Our balance sheet is a mess," Riley lamented. "The debt doubled over five years."

The danger of all this, the businessman warned, is that bond rating agencies will react to whether someone is trying to fix the problem or not.

'Rate increases have to be part of the plan'

If the New York and Toronto-based agencies don't see a turnaround, Riley said, they will adjust borrowing costs upward and further plunge the company into debt.

Hydro is a Crown corporation, so its debt is guaranteed by the province of Manitoba. That makes Hydro's problem everyone's problem, Riley said.

He said the current board of Hydro is determined to fix the problem and not pass it along to the next generation.

"When you take the kids out to dinner you don't pass along the bill to the one in the high chair," he said.

He said he worries deeply about a year of drought or too much moisture, either of which could punch massive holes in Hydro's ability to generate electricity and make money.

Riley also identified interest rates and the company's ability to sell power to American states as serious issues the utility faces.

He said the plan to fix Hydro is based on the proposed rate hikesfor the next five years and reducing staffby 800 people a process already started and trimming management, a process already completed.

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"We can't solve this by cost cuts," Riley said."Rate increases have to be part of the plan."

On the bright side, Riley pointed to where Manitoba's electricity rates are currently, compared to other jurisdictions.

"We have the lowest rates in North America. Not by a little, by a lot," he said.

Even with multi-year rate hikes, Riley believes that will remain the case.

"I'm not asking people to be happy with the rate increases but the alternatives are worse," he said.