Manitoba Hydro at a crossroad

The stakes are enormous and the diversity of opinion on the proper course of action is broadas Manitoba Hydro once again asks Manitobans to pay more for electricity.

On Monday the Public Utilities Board (PUB) begins hearings into a rate application by Manitoba Hydro that would see electricity rates rise by 7.9 per centthrough to 2019 with the intention for those increases to continue for another three years before easing back.

• Hydro wants 7.9% annual rate hike to continue to 2024

The request takes rate hikes well past the cost of inflation and higherthan the PUB has historically given to the Crown corporation.

The submissions to the board run to the thousands of pages. Consultants, economists, construction analystsand lawyershave weighed in with reams of data.

Known knowns

While there is a diversity of opinion, some things are fairly irrefutable.

Manitoba Hydro's finances are not in good shape. The big projectsit has on the go (Keeyaskgenerating station and the BiPoleIII transmission line)are behind schedule and way over budget.

The accumulation of debt for these and other projects and maintenance will push the company's debtclose to $25 billion in the next few years.

Another reality is this is not some private company's burden that shareholders have to bear. Manitoba owns it. Citizens are on the hook for this money and if you combine it (which bond-ratings agencies are now doing) with theManitoba government's debt (approximately $24 billion and counting) the numbersare eye-watering.

A further conclusion that can be drawn is steep rate increases will impact Manitoba's lowest income earners the hardest and some of the province's industries that use a lot of power could also take a hit.

The company is also shedding 800 jobs, which has an impact on Manitoba's economy and will cost Hydro millions in the short term.

Course correction

Flush with a whopping election victory in 2016, Brian Pallister, who had flayed theprevious government with accusations of mismanagement at Hydro, set a new course.

He dumped both the Crown corporation's board and the leadership of the PUB and installed a new roster.

If pundits thought the new appointees would march to the beat of the premier's drum, the new head of the Hydro board likely surprised them.

From the start Hydro Board Chair Sandy Riley, a well-known Winnipeg businessman, wasn't afraid to make his opinions known.

• Manitoba Hydro is a 'ticking time bomb' that needs financial help from province: board
• Manitoba Hydro faces tough choices to battle massive debt

He gently poked at thePallistergovernment last year for an "equity injection" to right-size the balance sheet of the utility, and when that went no-where, settled on the course of rate increases to fix Hydro's books and sooth the money lenders who are feeding the furnace of debt the company has accumulated.

As late as last Friday Riley used words such as "mess" and an "existential threat to the well being of Manitoba," to describeHydro's fiscal position.

When Keeyaskand BiPole III move from projects to operating units of Hydro, Riley says, hundreds of millions of dollars in interest costs will be charged on the company's financial statements and that will wipe out a profit last year of $33 million and turn it in to huge losses.

The consumers' perspective

Among those with intervenor status in front of the PUB for the rate application sits the Consumers Coalition. Made up ofthe Consumers Association of Canada (Manitoba) Inc. and Winnipeg Harvest and spearheaded by lawyers from the Public Interest Law Centre.

Their thrust is thathikes as large as 7.9 per cent constitute "rate shock," will have a harsh impact on consumers and a chilling effect on Manitoba's economy.

Lead lawyer Byron Williams and his team have assembled data suggestingHydro is too conservative in estimating its potential revenue from exports, and isn't calculating long enough timelines to recover from the intensive capital spending the company has done and is doing currently.

"Hydro hyperbole," says Williams. "Their doomsday scenario just isn't borne out."

Further to that, Williams thinks Sandy Riley and the board are too focused on the bond rating agencies who monitor Hydro's debt and not enough on the bond markets that are willing to put up the cash.

But there is common ground between the two perspectives:Keeyask and BiPoleIII.

"The new board (of Hydro) and our clients would agree we wouldn't have done these [projects] and there will be pressure on Hydro's finances we are just not seeing the apprehended catastrophe," Williams says.

The Consumers Coalition says it would likely supporta rate increase of between three and four per cent.

Carbon tax to soften the blow

Last Friday Sandy Riley spoke for nearly a full hour about the financial woes of Hydro, but the headline to his speech came in the last few minutes and he lobbed anidea at thegovernment.

To an observer it could appear cheeky or almost humorous, were stakes not so high, but he declared as "a private citizen" and not "chair of the board" an idea.

Use carbon tax revenue from the PC government's "made-in-Manitoba" climate change strategy to offset rate hikes for vulnerable Manitobans.

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

Nowhere in the Tory climate change plan is there a recommendation like this.

On Friday, Crown Services Minister Cliff Cullen was obligated to react and hisresponse was mostly noncommittal.

His government, he said, was still gathering submissions from Manitobans likelytoconclude in late December. However previously Pallister's governmenthasindicated itsdesire to use carbon tax revenue to purchase electric busses, upgrade other diesel vehicles, and shut acoal-fired electricity plantnot to prop up Hydro.

What is known now is thePUB must make a decision over the next few months and can only deliberate with what they know. And without a signal from the Pallistergovernment on Riley'scarbon tax proposal, it's an option they're not likely to consider.

Hydro says they need the rate increase to stay afloat, something opponents argue could bankrupt vulnerable Manitobans.The consumers' Coalition wants rates to rise more slowly, something Hydro's board says could bankrupt Manitoba's Crown power utility.

It's a complex decision before the PUB, and once again, the stakes of getting it wrong are enormous.