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Manitoba Forward | Winnipeg Sun 09/22/2017
Pallister’s hail Mary pass
By: GRAHAM LANE, Chair, Manitoba Forward
Brian Pallister has given up on ending annual government deficits and reducing the PST (from 8% to 7%) by slimming down Manitoba’s notoriously low-performing public sector. The sector, paradoxically, delivers the worst services for about the highest costs. Pallister prefers, NDP-style, to keep pushing up taxes and fees — a pathetic failure for already over-taxed Manitobans.

Lately, he offered a Hobson’s choice to taxpayers – accept either a new health tax or endure reduced services. Neither is acceptable. He should live up to his pre-election pledge to find economies in a bloated public service while improving outcomes.

Pallister’s campaign featured a promise to reverse the 1% PST jump that was foisted on an unsuspecting electorate by an ‘out of gas’ NDP regime. Pallister’s promise came coupled with absolute determination to eliminate the annual deficit (over a decidedly low bar of two terms in office), without increasing or adding new taxes to the litany of taxes and fees already pummelling taxpayers.

Brian Pallister ignores his pre-election promises. He changes the lyrics of an old saying in his sales pitch to taxpayers: when the going gets tough, throw in the towel and raise taxes.

Consider just some of the promises broken:

1. Instead of halting Hydro’s expansion misadventure and holding an independent review of the NDP-driven boondoggle, he left the spending spigots on, full bore.

2. Rather than ending the NDP’s closed shop provisions funnelling government construction contracts to unionized firms (bringing higher costs), he has let the practice continue.

3. Instead of no new taxes without a referendum, Pallister now prepares to reach deeply into our pockets with a crushing carbon tax and a surprise health tax.

By not halting the Hydro expansion immediately after coming into power, he was suckered by Hydro to continue to spend on the projects without a pause, making it impossible to stop the misadventure. As for Pallister’s recent musings about a carbon tax, he looks to book $300 million a year in new annual revenue. Who knows what to expect from a new health levy?

Pallister got into office because of the mess the NDP made of the Province’s finances. His commitment to eliminate the deficit, address the Hydro debacle, and work towards lessening the burden of taxes and fees on taxpayers was expected to be realized by smarter spending and efficiency. We expected effective changes, not penalizing taxpayers more by diminished services and new taxes. His promises were once enough for an electorate crying ‘uncle’ under the weight of the NDP’s union feather-bedding and fiscal incompetence.

Now, instead of pushing more taxes at us, he should be firmly aiming at reducing the levers of pain left by the NDP: income taxes, PST, land transfer taxes, payroll tax, gasoline tax, etc. etc.. He should also bring spending under control by school divisions and the City of Winnipeg. Municipal governments are subjects of the Province, so Pallister should force a repeal of Winnipeg’s new development ‘impact’ tax, stop the City from raiding water bills to hide property tax rises, and remove the shameless traffic fine and photo radar tax grabs.

Pallister is not living up to his promises, so he should step aside. We deserve much better. Another NDP or NDP-lite government could well finish Manitoba.

Winnipeg Free Press- 09/13/2017
Hydro seeks annual rate hike of 7.9% until 2024
In a letter to the Public Utilities Board last week, Hydro said it will now require annual consumer electrical rate increases of 7.9 per cent until 2023-2024 — two more years than it previously projected. For 2024-2025, the Crown corporation figures it will need a rate hike of 4.54 per cent.

Manitoba Hydro said it had to revise its revenue requirements after the PUB denied its request for a 7.9 per cent rate increase in July. The regulator instead granted an interim increase of 3.36 per cent, which took effect Aug. 1.

Kelvin Shepherd, Hydro’s president and CEO, said Tuesday the corporation needs to improve its cash flow. It also wants to improve its debt-equity ratio to 25 per cent within the next decade, placing it on a solid financial footing and preventing the need for potentially higher rate increases in the future.

When Hydro didn’t receive the nearly eight per cent increase it sought this year, its financial goals became more elusive, Shepherd said.

"It shows you the impact when you defer rate increases to future years," he said in an interview.

The PUB will hold public hearings from Dec. 4 to Feb. 9 on Hydro’s general rate application for this year and next.

In its letter to the PUB, dated Sept. 5, the Crown corporation expressed dismay at the growing time and cost of processing information requests from intervenors in the application process. Hydro is required to cover intervenor costs as well as the appearance of expert witnesses before the PUB.

This summer, Manitoba Hydro responded to 1,547 information requests from the PUB and six other groups in an initial round of information requests concerning its rate application. The responses took up 9,000 pages. That followed an initial 2,700-page application by Hydro to the PUB in June and 12,000 pages of follow-up information, Shepherd said.

"It consumes a tremendous amount of staff time," the Hydro executive said, wondering out loud if "people are really reading that much information and getting value out of it."

Hydro estimates the cost of funding intervenors for the current application process at about $2.2 million — well above the cost in previous years. Intervenors include the Manitoba branch of the Consumers Association of Canada, Winnipeg Harvest, Indigenous organizations, industrial power users, the Business Council of Manitoba and the Green Action Centre.

"Ratepayers bear 100 per cent of the costs of this regulatory process," the corporation reminded the PUB in its letter.

The City of Winnipeg was also recently granted intervenor status but did not request funding from Hydro, a city spokesman said Tuesday.

Byron Williams, a lawyer representing Winnipeg Harvest and the consumers association, said intervenors play a vital role in the regulatory process.

He said the costs of funding intervenors is fairly modest when you consider Hydro is seeking rate increases that will cost consumers more than $200 million over the two-year application period.

Williams questioned Hydro’s budgeted need for two more years of 7.9 per cent rate increases simply because it didn’t get all it wanted in the PUB’s interim order this summer.

"Hydro’s math in extending the 7.9 (% hikes) seems pretty questionable. But we’ll test this in the regulatory process," he said.

NDP MLA James Allum said the PUB has already rejected Hydro’s 10-year plan for boosting its debt-equity ratio to 25 per cent.

"They’ve rejected this approach because it’s a politically driven approach that will only hurt families, hurt businesses and only hurt the economy," he said.

Manitoba Hydro incurred a huge debt after undertaking several massive capital projects in recent years, including the Keeyask Generating Station and the Bipole III transmission line.

Lifestyles55- 09/07/2017
We need a public inquiry into the NDP-Manitoba Hydro mess.
Over the past decade and a half, Manitobans have been witness to one of the most cynical, self-serving manipulations of a crown property in our almost-150-year history. Manitoba Hydro, its scandalous mismanagement and callous disregard for rational analyses, has put our province and its people at risk, due to the NDP government’s stubborn insistence on following an ill-advised path of expansion even in the face of well-founded, sensible advice to the contrary.

It is not good enough to lie down quietly and accept that we and our kids and our kids’ kids and their kids after that are going to have to pay for the NDP debacle that is Hydro for the next century. Manitobans deserve to know what happened and why, and then we need to create a strategy so that such abuse of a public utility can never happen again.

To get to the bottom of this scandal and ensure that it can never happen again, we need the province to call a public enquiry into the mistakes and misjudgments by the then-NDP government and its politically appointed board and management that have led to a debt of over $6 billion and a resulting call for rate increases that will severely damage our people and our economy.

Here are some of the questions that need to be asked:

  • Why did the NDP government ignore advice to postpone expansion at a time when hydro power was under challenge from the discovery of how to source cheap natural gas from shale?

  • Why did the NDP government refuse to accept advice to build a natural gas plant in Brandon, close to our provincial supply, when the cost would have been only five per cent of the at-the-time projected cost of dam expansion?

  • Why did the NDP government stubbornly insist that Hydro go ahead with building dams such as Keeyask when its production will not be needed until the 2040s, if ever? And why did they proceed with Wuskwatim, which was built to supply American markets, when the best that plant will be able to recoup in revenue is only about one quarter of its cost per kWh? And, critically, how did the costs escalate to over $2.2 billion from the initial estimate of $900 million?

  • How did Manitoba Hydro end up paying 60 per cent of the costs for building the Manitoba-Minnesota line, when the original deal anticipated that it would be paid for by United States utilities?

  • How did they plan to deal with the fact that our firm power contracts with Americans end only 12 years from now, when the dams are amortized over 100 years?

  • Why would they fund the development with loans that have much shorter terms and will have to be renegotiated several times as interest rates rise?

  • And, of course, the never ending question as to why Greg Selinger arbitrarily changed the eastern route of BiPole III to the west side of the province, when it would severely exacerbate the costs while reducing the amount of power that would reach the end user?

And finally, what are the details of the ‘partnerships’ concluded with First Nations as their consolation prize for not getting the opportunities that would have come their way with an east-side line construction?

These are just a few of the unanswered questions that a public enquiry needs to uncover. And while they are at it, the enquiry should also look into the details and rationale surrounding the decision to fund health care vesting for people who suffer a catastrophic health episode, disrupting their ability to earn a living and therefore making them unable to afford the first $1,500 or so of pharmaceutical costs? Why would funds from a utility be used for such a purpose? And how many more of these side deals were in play where Hydro has been used as a piggy bank for the NDP government?

These are very serious issues. If allowed to go through, the proposed rate increases will have a devastating impact on many of Manitoba’s most vulnerable citizens, especially those in rural Manitoba and the north, where some Hydro bills are already stretching past $600 a month. A doubling or even tripling of rates will also have a negative impact on our attractiveness to industry and other businesses.

A public enquiry will turn the spotlight on how this mess came to be and give the new government the ammunition it needs to ensure that such events never happen again.

The new Hydro board and government continue to look for creative answers to clean up the mess. Seeing into all the nasty, murky little dealings of the 17-year NDP-Hydro partnership can only help in discovering the solution.

Oh, you won't find anyone official to say it. Yet.

Like relatives trying to appear cheery and optimistic around a loved one that's been diagnosed with terminal cancer, the people in power are in the first stage of grief -- denial.

The prognosis for Hydro was delivered three weeks ago at hearings before the Public Utilities Board where the utility was seeking punishingly higher rates for customers in Manitoba.

It took us this long to read through the hundred-plus pages of transcript, to decipher the coded language of the witnesses, to interpret what they were getting at, and, finally, to understand the terrible conclusion.  We couldn't believe it, just as, we're sure, you can't--- so we did it all again, to get a second opinion, so to speak. 

Hydro conceded to the PUB that it undertook a massive expansion program--- involving three (it was once four) new dams and two new major powerlines (one in the United States)---which it could not afford.

Bipole III, the outrageously expensive power line ($5 billion and counting) that was built to bring electricity from the new dams south to customers in the United States, will be hooked up and operating in July, 2018. That's when Manitoba Hydro is supposed to start paying back the money it borrowed to build the line and the accumulated interest.

The problem is that Hydro doesn't have the money to pay for Bipole III !

We'll repeat that slowly in case you still don't understand:

Manitoba Hydro doesn't have the money to pay for Bipole III.

Three years later, in 2021,  the even more expensive Keeyask dam ($8.7 billion and counting) will go into service.  You guessed it...
Manitoba Hydro doesn't have the money to pay for Keeyask either.
How much money are we talking about?

* Hydro CEO Kelvin Shepherd told CJOB just this month that the utility needed $300 million a year to pay for Bipole III.  

* The PUB stated back in 2012 that when Keeyask came into service it would create additional annual costs for Manitoba Hydro of $500 million.  

* As you will soon see, shortfalls of $100 million here and $100 million there are inevitable.

* Which means that within four years, Hydro will need at least one billion dollars more each year to keep operating.

And the only dependable source for that money, they told the PUB three weeks ago, is Manitoba ratepayers. In other words --- YOU.

The utility needs a rate increase of 15-20 percent just to cover Bipole. The bill for the Keeyask generating station will be almost double, meaning that Hydro would need another rate hike, of 30 percent or more, which they want to apply in annual increments rather than all at once.

 But it still means your hydro bill with go up more than 50 percent, and likely much more, within four years.

Hydro told the PUB that it would already be in a financial crisis if it wasn't for two factors--low interest rates and high water.  

"To date, a financial crisis for Manitoba Hydro has -- coupled with rate shock for its customers, has been deferred due to two (2) factors, and those two (2)factors are entirely outside of Manitoba Hydro and this Board's control," said Hydro lawyer Patti Ramage.

Interest rates are the lowest they've been in 80 years. That's right, not since the mid nineteen-thirties.  But rates have started up. The federal bank rate was raised a quarter point in July and another rise is expected in the fall. The effect on Hydro will be devastating. Said Ramage:

"The project's (Bipole III) mostly complete.Regardless of accounting conventions, Manitoba Hydro is today borrowing cash for interest annually on the debt being borrowed to build the project. It's a huge number. We're talking 150 million, 175 million."

" make clear the fundamental reality of Manitoba Hydro's current financial situation. That reality is that we are borrowing money to fund our core Basic operations. That is an unsustainable practice...".

.".. interest expense will soon consume 70 odd percent of every domestic dollar. 70 percent of every domestic dollar is going to go to interest expense."

"It doesn't take much of an error on the interest rate forecast for that to move up to a hundred percent or more."

 "And we still have a business to run. We have to pay our operating costs, power purchases, water rentals, capital taxes, and by no means least of all, we have to replenish aging infrastructure."

And as for its impact on the capital projects...

"... Manitoba Hydro has $12 billion to borrow over the next five (5) years. Extremely modest increases in borrowing costs against plan can quickly reduce Manitoba Hydro's income by fifty (50) to even a hundred million dollars per year."

The PUB was told that Manitoba Hydro would have lost money this year and the two years previous if it wasn't for unusually high water levels. Ramage again:

"Manitoba Hydro will, in 2017, enjoy its fourteenth(14th) consecutive year of above-average water flows which is a wet period almost three (3) times the duration of the next largest period -- next longest period in well over a century of recorded history."

"... by any measure, Manitoba Hydro is in a cash deficit position. Without the benefit of high water, this deficit is in the order of 250 to $300 million per year, meaning rates today are 15 to 20 percent too low if Manitoba Hydro's ratepayers are held to be responsible for the cost of its -- of operating the system."

"So those two (2) factors... are what have been saving Manitoba Hydro, and those factors are not factors that we can count on to continue. "

Manitoba Hydro has known for years that it wasn't going to be able to pay for the massive expansion it had undertaken unless there was a miraculous return to the good ol' days when hydro power was in demand and even spot prices were sky high.

They gambled on that, until they ran out of time, money and luck.

Spot prices for electricity are now anywhere from 30 to 35 percent lower than forecast even two years ago.Hydro has written off $850 million in anticipated export revenue over the next ten years as a result.

Domestic revenue isn't any better. Growth in Manitoba has been so slow that Hydro predicted domestic revenue would be $900 million less over 10 years unless they got the huge rate increases they want.

Sales of power outside of Manitoba are so uncertain that Hydro has scrapped the premiums it used to charge for dependable "green" energy and "capacity values"

" is not prudent to assume as a planning tool that Manitoba Hydro is able to enter into new long-term export contracts, particularly into markets like MISO (the midwest energy exchange that links 15 American states plus Manitoba...ed) that are awash in energy." Hydro told the PUB.

Manitoba Hydro plans to save $500 million over the long-run by a new debt management strategy.

" Manitoba Hydro changed its debt management strategy to target a twelve (12) year term to maturity on new issuances instead of twenty (20) years."

"This is a strategy that only makes sense if there is an expectation of having income and cash -- income and the cash flow necessary to permanently retire shorter- term debt as it becomes due."

"We have to able to retire that debt when it becomes due or that strategy doesn't make sense. And that strategy is a $500 million saving, but it doesn't work if we don't have the cash at the end of the day to retire it. And that cash can only come from higher rates." said Patti Ramage.

Manitoba Hydro's submission to the Public Utilities Board included a recognition that its debt rating was in danger.  The province of Manitoba has had its credit rating cut twice within a year and now stands two ranks above junk bond status.  Hydro's debt rivals the provincial debt.

Two years ago Hydro defiantly defended its planto keep borrowing money for expansion even if its debt-to-equity ratio dropped to 90-10, with the risk that a drought would devour even that last 10 percent of equity, leaving the utility insolvent.

But Hydro was much more contrite before the PUB in 2017, stressing how it needed the large rate hikes to plump up the debt-to-equity ratio and satisfy skeptical credit rating agencies. The goal now is to keep the debt-to-equity ratio at 75-25.

Or else.

But, but, but... if the Public Utilities Board knows all this, why did they grant a small (3.36 percent)  interim rate increase, and put off dealing with the big problem until December's hearing?

The answer lies in Hydro's opening gambit in the July hearing.

Hydro lawyers came in telling the PUB it had no choice but to grant Hydro's application for a 7.9 percent interim rate hike.

 No choice.

They even had a higher court ruling to back them up.  Citing that court decision they declared that the financial health of Manitoba Hydro had to be preserved at all costs. And that meant that other considerations, such as the impact of the rate hike on the poor, the elderly, and those unfortunate enough to use electricity to heat their homes, had to be overridden.

Hydro's message was unmistakeable: If a 50 percent jump in hydro rates was going to make the poor and elderly suffer, then that's their tough luck. 

The provincial utility is playing chicken with the provincial government.  Remember, they asked the province to bail them out with an infusion of money, and got a negative answer. 

So they're gambling now that Brian Pallister will be forced to rescue the unfortunates who can't afford the hikes Hydro plans.

The members of the PUB must see the brinksmanship at play. They decided to pass the buck to December and give the province time to decide what to do.

In the meantime, the writing is on the wall.

Winnipeg Free Press- 08/01/2017
Hydro digging in on long-term rate hikes
Manitoba Hydro customers who think they got off lightly having to pay less than half of the 7.9 per cent interim rate hike sought by the utility, beware: winter is coming.

That’s when the Public Utilities Board (PUB) is expected to decide on Manitoba Hydro’s application for an annual 7.9 per cent increase for the next four years.

"We have work to do between now and December," Manitoba Hydro chief executive officer Kelvin Shepherd said in an interview Tuesday. Lengthy public hearings will be held this fall for more in-depth arguments for and against the Crown corporation’s case that it needs to collect more revenue from its customers now to spare them even worse pain later from growing debt.

Manitoba Hydro, which is facing a huge debt due to the ongoing construction of the Keeyask Generating Station and the Bipole III transmission line, had requested a 7.9 per cent interim rate increase this summer.

The PUB rejected the request, approving just a 3.36 per cent increase on Monday. The interim boost in hydro rates kicked in on Tuesday.

Added revenues, the regulator said, must be placed in a deferral account established a few years ago to cushion future consumer rate hikes caused by the $5-billion Bipole project.

"I’m generally pleased the Public Utilities Board recognizes the need for greater action and focused on Bipole III coming into service," said Shepherd. That’s when more than $300 million in additional financing and operating expenses are going to hit Hydro’s books, he said.

"Rate increases are required to address that and the board saw that," Shepherd said, noting the board wasn’t quite prepared to grant the hefty rate increase Hydro was seeking just yet.

"They simply felt the interim rate review process was a pretty abbreviated process," Shepherd said.

"They didn’t have time to hear all the evidence and go through the due diligence," he said. "When you have an interim rate application, you may not have the time to review big, contentious issues."

In the PUB’s 29-page order Monday, one unnamed board member objected to any increase at all for Hydro until the PUB conducts public hearings this fall and issues a permanent order. The board noted that Manitoba Hydro’s financial situation for the current fiscal year and the next fiscal year has improved by $119 million compared with what it forecast in 2016. The head of Manitoba Hydro says no one should be lulled into a false sense of security by that.

Shepherd said Manitoba Hydro’s $71-million profit in the last fiscal year and the $92-million profit projected for this year "will be wiped out" once the Bipole III transmission line comes into service.

"We need to look at the longer term. The situation going forward is quite serious with debt sitting at $8 billion and growing," Shepherd said.

"We have an obligation to go forward and present a plan that is going to be for the best over the long term," he said.

Hydro aims to achieve a 25 per cent equity level in 10 years rather its previous 20-year target.

"Previous policy exposed hydro and its customers to significant risk," he said.

"Some of that is coming home to roost," the Hydro boss said, pointing to credit rating agencies downgrading Manitoba and "singling out Manitoba Hydro’s debt."

"It is not self sustaining. We don’t have enough revenue to support our debt going forward," he said. "Taking 20 years to solve the issue is going to cost Hydro and its customers a lot of money."

With rising interest rates in the forecast and the inevitability of revenue-depleting drought, taking steps now to pay down debt will cost customers less than waiting till later.

"We believe we have a strong case and we’ll continue to explain that," Shepherd said.

The growing global demand for renewable, reliable energy won’t save Manitoba Hydro from its growing debt, maintains Shepherd.

"There will be continued demand for Hydro," he said.

"It’s a renewable resource, it’s dependable. As jurisdictions phase out coal and carbon-emitting resources and implement more wind and solar power, you need a reliable source like hydro power to back it up."

When the Keeyask generating station comes on line, Manitoba Hydro will take in an extra $4.5 billion in export revenue from power sales but there aren’t many new customers in Manitoba lining up to buy power from it, he said. "Our forecast in Manitoba is pretty flat."

Winnipeg Free Press- 07/17/2017
Hydro still reeling from NDP's decisions
There are points to agree with in the article by Andrea McLandress (Saving Hydro at economy’s expense, July 10). But there is also a lot to question.

It is noteworthy that McLandress is the executive director of the Mining Association of Manitoba, an organization representing the interests of Manitoba’s mining industry, a heavy user of Hydro’s energy.

First, the points of agreement. She is correct when she states, "It is not easy to disentangle the business, finance and politics of Manitoba Hydro." Former premier Greg Selinger understood this complexity would make it easy to fool the public when he forced the utility to spend way beyond its means in a market that had evaporated even before the build started.

McLandress also appropriately acknowledges that our relatively low and stable power prices have given a major competitive advantage to Manitoba industry, offsetting lower taxes and depreciation regimes for capital offered in other jurisdictions.

She also makes a valid point when she states, "There appears to have been no consideration or consultation about the impact a 7.9 per cent increase would have on Hydro’s major customers and how that impact would affect Hydro’s bottom line." Hydro simply left the matter of price elasticity to a future application for a rate increase.

But McLandress is wrong when she states that the necessity for the Bipole III transmission line should not be disputed. Few Manitobans know that Hydro never tabled credible evidence of the need for the line. The gold standard for such evidence is a probability-based analysis of the financial, social and economic consequences with and without the line. If such an assessment was conducted, Hydro never made it available for scrutiny. In reality, Selinger prohibited any analysis at all on the strength of his untested word, and Hydro’s, that the line was needed for reliability.

And while McLandress accuses Hydro’s chair and vice-chair of using doomsday scenarios in their current round of meetings with business groups and chambers, she is guilty of the same offence when she speculates about a possible blackout and places the economic impact of such an occurrence at "north of $20 billion," leaving "hundreds of thousands of Manitobans without power for months."

Hydro already had a failure of its two existing bipoles in September 1996, now 21 years ago and the only unplanned outage in the more-than-40-year history of the lines. The cost to rehabilitate was only $11 million, including the cost of makeup power imported from the United States during the outage.

The down time for the two bipoles was less than two weeks. Both results were well short of the cost and the down time cited by McLandress.

She states that Hydro is forecast to remain profitable over the next decade even without the proposed 7.9 per cent rate increases. This is simply not factual. With the rate increases of 3.95 per cent (still twice inflation) contemplated until now, Hydro’s current application calculates that its cash flow would remain negative until 2023 and its cumulative net income would be essentially zero for three years beyond that.

The article states that, to this point, "downgrades (in Manitoba’s credit rating) have not been due to Hydro’s debt." This statement is at odds with a Sept. 21, 2016, Government of Manitoba news release which quoted Finance Minister Cameron Friesen in reference to "the July 2016 decision by S&P Global Rating to downgrade Manitoba’s credit rating (from AA to AA-) and (which) cited Manitoba Hydro as no longer being considered self-supporting, thereby placing the province at risk for further credit rating downgrades."

McLandress does a good job of arguing for her employer’s best interests. But to buttress those arguments with a mixture of fact and fiction is not in the best interests of anyone. The Hydro board is simply doing the best that it can in dealing with a mess left by the NDP.

That mess is a fact and the only option now is to deal with it. Until such a time as Hydro is able to find new markets for electricity produced by its overbuilt system, we should expect to be faced with rate increases of the magnitude being considered. Thank Selinger for poisoning the well before he left.

The board’s task now is to push Hydro to find those new markets (electric vehicles, conversion of electricity to other forms of transportable energy, export facilitated by an interprovincial grid, to name a few). Hydro’s challenge is to become much nimbler in responding to technological and market opportunities.

And yes, a continuation on the path already started but a long way from being finished — making Hydro a leaner organization.

* Garland Laliberte is a director and vice-president of the Bipole III Coalition, an organization of citizens who believe a route for the Bipole III transmission line on the east side of Lake Winnipeg is superior to the west side because of greater economic, social and technical benefits.

Edmonton Journal - 07/11/2017
Now is the time for a western Canadian electricity grid
Trading in electricity between the western provinces – is it effective?

The 2017 Canadian Free Trade Agreement does not do much to encourage provinces to trade electric energy east and west. Would a western Canada electric grid help electricity consumers in the western provinces? Some Alberta officials feel that their electric utilities are investor owned and they perceive the Crown corporations of BC Hydro, SaskPower and Manitoba Hydro to be subsidized by their provincial governments, so an interprovincial electric energy trade would not be on a level playing field.

Because of the limited trade of electric energy between the western provinces, each utility maintains an excessive reserve of thermal and hydroelectric generation greater than their peak loads, to provide a reliable supply during peak load days. This excess does not include variable wind and solar generation, which within a province can’t be guaranteed to be available when needed most.

This attitude must change. Transmission is cheaper than generation. By constructing a substantial grid with low profile and aesthetically designed overhead transmission lines, the excess reserve of thermal and hydroelectric generation above the peak electric load can be reduced in each province over time. Detailed assessments will ensure each province retains its required reliability of electric supply.

As the provinces retire aging thermal and coal-fired generators, they only need to replace them to a much lower level, by just enough to meet their future electric loads. Some of the money not spent in replacing retired generation can be profitably invested in the transmission grid across the four western provinces.

But what about Alberta, which does not want to trade electric energy with the other western provinces? It can carry on as usual within the Alberta Electric System Operator’s (AESO) market and will save money by keeping the installed reserve of thermal and hydroelectric generation to a minimum. When Alberta experiences a peak electric load day and some generators are out of service due to unplanned maintenance, it can obtain the needed power from the interprovincial electric grid. None of the other three western provinces will peak at the same time, because of different weather and time zones, so they will have spare capacity to help Alberta over its peak. The peak load in a province only lasts for a few hours, so Alberta will get by with a little help from its friends if needed.

The grid will have no energy flowing on it for this purpose except to assist a province from time to time when it’s unable to meet its peak load. The grid may only carry load five per cent of the time in a year for this purpose. Under such circumstances, the empty grid can then be used for other profitable markets in electric energy. This includes more effective use of variable wind and solar energy, by enabling a province to better balance such intermittent power as well as allowing increased installation of it in every province. This is a challenge for AESO which the grid would substantially ease.

Natural Resources Canada promoted the “Regional Electricity Co-Operative and Strategic Infrastructure” initiative for completion this year and contracted through AESO. This is a first step, but more is needed to achieve the full benefit of a western grid.

In 1970 a study was undertaken to electrically interconnect Britain with France, which was justified based on the ability to reduce reserve generation in both countries. Initially Britain rejected it, but France was partially supportive. In time, a substantial interconnection was built, and being a profitable venture, they are contemplating increasing the grid connections between them.

For the sake of the western consumers of electricity and to keep electricity rates from rising too quickly, as well as allowing productive expansion of wind and solar energy, an electric grid is essential across western Canada.
Dennis Woodford is president of Electranix Corporation in Winnipeg, which studies electric transmission problems, particularly involving renewable energy generators requiring firm connection to the grid. Mr. Woodford is also a board member of the Bipole III Coalition.

The Globe and Mail - 07/06/2017
Privatization won’t save provincially owned utilities
Most Canadians rely on provincially owned utilities to keep the lights on – and they’re getting burned. Mired in politics and empire-building, our big electricity providers have racked up a rap sheet of bad investments longer than their longest transmission lines.

Taxpayers and ratepayers – usually one and the same – are left to pay off ballooning hydro debts with nothing to show for it but politically driven white elephants. Bad planning and stubborn mismanagement in the face of cratering market prices for electricity have left no good options available to limit the financial fallout.

A couple of decades ago, privatization might have been a solution. Back then, wise investments in legacy hydro dams by earlier and more responsible generations of politicians produced juicy cash flows. Private investors would have lined up to pay a premium for shares in these utilities. Since then, years of political meddling and investments in economically dubious new hydro assets mean the only way to attract private capital would be to hive off the bad debts these entities currently carry, leaving taxpayers to foot the bill anyway.

The Ontario government’s partial privatization of Hydro One is a special case. Principally a transmission company, with a stable of local distribution companies, Hydro One doesn’t own power-generation assets but only delivers power to wholesale and retail consumers. That makes it a low-risk utility, as close to an old-fashioned blue chip as you can find in today’s stock market.

The same can’t be said of Ontario Power Generation. A recent C.D. Howe Institute study pegs OPG’s equity value at between zero and $5-billion. But that is before taking into account unknown billions in potential nuclear cleanup liabilities and decommissioning costs that will be incurred when older reactors, such as the Pickering nuclear station, must shut down for good.
Then there are the billions in new debt that Premier Kathleen Wynne’s government is piling onto OPG’s balance sheet with its pre-election scheme to cut power rates by 25 per cent in the short term. That plan will require OPG to borrow an extra $14-billion by 2027, according to the province’s Financial Accountability Officer, further weakening the company’s balance sheet.

Indeed, the only power entity truly worthy of privatization consideration is Hydro-Québec. It accounts for the lion’s share of the $31-billion to $45-billion in equity that provincial governments have tied up in their electrical utilities, according to the C.D. Howe study by Steven Robins. But selling off this proud symbol of the Quiet Revolution is taboo in Quebec. In the words of Hydro-Québec’s current chairman: “There’s a better chance Egypt would privatize the pyramids.”

Were Quebec ever to change its mind, it might be too late. Even Hydro-Québec, which owns among the best legacy assets on the planet and has 24 years left on its contract to buy power from Churchill Falls at a fraction of its market value, faces unattractive returns on its newer dams and weak export prices in U.S. markets for years to come.

But at least it’s not Newfoundland-owned Nalcor Energy. Nalcor’s 824-megawatt Muskrat Falls hydro project is now slated to cost $12.7-billion, up from an original $7-billion estimate, and produce electricity at 23.3 cents a kilowatt-hour, or about 40 times the spot-market price on any recent day in Ontario. Bankruptcy increasingly looks inevitable. Privatization is a pipe dream.

The same goes for Manitoba Hydro, which has whittled away its once-envied reputation. Its 695-megawatt Keeyask dam project is now expected to cost $8.7-billion, about twice original estimates. An accompanying transmission line has followed a similar cost trajectory. With its debt set to have doubled to $23-billion once these projects are complete, Manitoba Hydro now wants to raise power rates by 46 per cent over five years. “Without the rate increases, the company will not have enough cash flow to pay for its core operations,” it says.

BC Hydro’s prospects aren’t looking much better. The recently defeated Liberal government pushed ahead with the 1100-MW Site C dam project – exempting it from a formal review by the province’s independent utilities commission – promising jobs and economic development in remote ridings. But the business case for the $9-billion project (based on BC Hydro cost projections) was always weak, with power demand in the toilet and export prices going down the drain. The New Democratic-Green alliance now set to form a government has vowed to review the project. But delay would only drive up construction costs while cancellation would still leave ratepayers on the hook for money already spent.

A decade or more ago, privatization might have saved BC Hydro, Manitoba Hydro, OPG and Nalcor from themselves and the destructive meddling of their political masters. Now, taxpayers and ratepayers can only clutch their tax and hydro bills and feel the burn.

Winnipeg Free Press - 05/26/2017
Power Smart should stay in Hydro
Garland Laliberte is a director and vice-president of the Bipole III Coalition.
Also appeared in the Dauphin Herald as “Keep Power Smart inside Hydro, 05/30/2017
Bill 19, now under consideration in the Manitoba legislature, would usher in a new agency (Efficiency Manitoba) separate from Manitoba Hydro. It would enshrine into legislation a mandated electrical energy savings of 1.5 per cent of domestic load every year for the next 15. Bill 19 should be considered in the context of Hydro’s current situation.

The origins of the decision to expand Hydro (Keeyask, Bipole III and even Conawapa) go back to the Gary Doer years in about 2003. The plan was to sell to "the Americans." Rosann Wowchuk brashly claimed "the Americans will pay for Bipole III."

By 2010, it was becoming clear that the United States market was changing, the 2008 recession and fracked natural gas being two drivers. The Bipole III Coalition and others began sounding warnings that Hydro should reconsider its expansion plan. But former premier Greg Selinger, with his hand on the Hydro throttle, wouldn’t listen.

By 2012, revenue from the extra-provincial market, the largest part of which was in the U.S., had dropped precipitously from a buoyant $827 million in 2005 to less than $400 million. But Selinger still wouldn’t listen. Extra-provincial revenue remains about the same today, even with the benefit of the low Canadian dollar.

In 2013, Selinger finally authorized a long-called-for review of Hydro’s Preferred Development Plan (the Needs For and Alternatives To review). The NFAT review was conducted by an NDP-appointed Public Utilities Board panel with additional hobbles applied. Tellingly, Bipole III was excluded from the review. Review consultants who strayed from that edict had their pay docked. However, even the panel could see that the expansion was not required. It called for abandoning Conawapa.

"Sunk costs" exceeding $1 billion spent ahead of licensing of Keeyask on northern roads, transmission lines and a work camp were the main reason given by the panel for recommending, in 2014, that the Preferred Development Plan, minus Conawapa, proceed.

Also, by 2014, both Bipole III and Keeyask had been licensed by a compliant NDP-appointed Clean Environment Commission. With Bipole III barely begun and the Keeyask equipment not yet in the river, it was still not too late to put the plan on hold. But a stubborn Selinger would not hear of any reconsideration of the plan. Hydro fast-tracked both projects.

So here we are in 2017. We have a partly built Bipole III, a partly built Keeyask and, mercifully, a mothballed Conawapa. The new projects, now requiring capital expenditure approaching $14 billion, will be joined soon by a project for a tie line to the U.S. With part of that line in Minnesota, another $1 billion will be added to the $14 billion already committed. The requirement for capital, most of it debt, occurs at the same time as we are committed to a $16-billion refurbishment of our 50-year-old existing system.

We are headed toward a peak of $23 to $25 billion in debt about five years from now, with the exact amount depending on how much new revenue Hydro is allowed to extract from ratepayers. The current judgement of the PUB and the Boston Consulting Group, engaged last year by Hydro, is that we do not need new generation until at least 2031, and possibly later. Stated simply, we are overbuilt.

We have a flattening domestic demand and a U.S. export market that is willing to pay an average of only four cents per KWh for energy from an expansion which, if amortized over a reasonable period of time, costs about 10 cents in the north or 14 cents once transmitted to the south.

We justify selling that energy at an average of four cents and, on some days, at a little over one cent, on the basis that, if we didn’t, the expansion still has to be paid for and the incremental cost in producing it is small, less than one cent. We say that we would get no revenue if we just let the water run over the spillway so better to get some revenue than none at all.

This kind of logic raises the question of why we overbuilt in the first place. Why did we forge ahead with expansion when all the signs were that we did not need the new energy?

The level of savings mandated by Bill 19 is greater than the conservation and efficiency effort used in determining that we do not need new energy until at least 2031. As it is presently conceived, Bill 19 would extend the energy glut even further into the future.

Why would we want to lock ourselves into legislation that, assuming Hydro survives financially, can only make our problem last even longer? Leave Power Smart in Hydro where it belongs. The new Hydro board will have enough difficulty getting out of the hole it is in without making matters worse.

Abandon Bill 19 and abandon Efficiency Manitoba.

Winnipeg Free Press - 05/26/2017
Pull plug on big Hydro rate hikes, heavy power users urge PUB
Manitoba's heaviest power consumers want the public utilities board to reject Manitoba Hydro's request for an interim rate increase of 7.9 per cent Aug. 1.

There's absolutely no justification for the rate hike, the Manitoba Industrial Power Users Group has told the PUB.

Hydro wants an annual rate increase of 7.9 per cent for the next five years. The PUB is not expected to begin hearing that application until at least November, but in the meantime, Hydro wants to jack up rates on an interim basis Aug. 1.

Major advocacy groups are now submitting lengthy and detailed arguments to the PUB.

The environmental coalition Green Action centre favours higher rates for Hydro if the utility can make its case, but wants some form of relief for low-income consumers.

"If Manitoba Hydro is not financially healthy, its customers potentially suffer twice over — first as customers responsible for assuming the utility's risk and making up its revenue requirement, and second as citizens of the utility's shareholder, the province," Green Action centre lawyer William Gange said in a submission to the PUB.

But the coalition representing the Consumers Association of Canada and Winnipeg Harvest is solidly in line with the large industrial users, lawyer Byron Williams said in his submission Friday.

Hydro has an "unhealthy addiction" to interim rate increases that are supposed to be used only in times of emergency and financial exigency, he said.

Instead of filing its documents in a timely manner, Hydro relied on "inflamed rhetoric," Williams said.

"Rather than provide its independent regulator with an evidence-based integrated financial forecast in December 2016, the chairperson of the Hydro board undertook a highly public, highly rhetorical campaign alleging a financial crisis for the Crown monopoly," he said.

MIPUG lawyer Antoine Hacault told the PUB this week that any consideration of an interim increase would further set back the hearing on the full application, pointing out that it was Hydro's own choice not to have filed a rate increase application by last Dec. 1 in order to have a 2017 increase heard this spring.

Hydro declined to comment Friday.

"We will not be publicly commenting on submissions to the Public Utilities Board outside of the regulatory and hearing process established by the PUB," Hydro corporate communications director Scott Powell said.

The PUB could grant an inflationary increase of 1.6 per cent, Hacault suggested.

Manitoba Hydro has been predicting since last fall that its debt could almost double to $25 billion because of the cost of the Keeyask and Bipole III megaprojects launched under the former NDP government.

Hydro board chair Sandy Riley had raised fears that the utility would seek significant double-digit increases if the Pallister government did not make an infusion of billions of dollars — which the premier has refused to do.

Hydro is reducing its workforce by 900 people, or 15 per cent, to cut $98 million annually from its payroll. So far, 818 employees have accepted voluntary buyout offers.

Hacault cited previous PUB decisions that interim rates should only be used for "unforeseen or emergency situations."

"There is no credible basis to argue that Hydro has or will be in an unforeseen or emergent situation from April 2016 through well into 2018 when a final GRA (general rate application) Order may be issued," he said.

The MIPUG contends that Hydro's revenues are doing well without that level of increase, and is arguing that the utility is not only trying to double previous revenue projections for 2017-18, but is also trying to make up lost ground from previous PUB decisions.

"Interim rates are a challenging but sometimes necessary tool," Hacault said. "However, given that they lead to rates being charged that have not been fully or fairly tested, interim rates should be used only in very limited circumstances where there is a real case of short-term need or a net benefit to customers. Hydro has failed to demonstrate either situation in this filing."

Williams said he also expects Manitoba Keewatinowi Okimakanak will file a submission to the PUB on behalf of consumers in northern Manitoba. MKO officials did not respond to an interview request Friday.

Winnipeg Sun - 05/25/2017
Tory missteps crushing Manitoba’s finances
Graham Lane leads Manitoba Forward at
Last week Canadians were informed by federal climate change Minister Catherine McKenna that the Trudeau government would impose a federal carbon tax on them to fight “carbon pollution.” Higher taxes on energy are a good thing, she gushed, because they create jobs, spark innovation and meet Canada’s commitments in the United Nations Paris Treaty agreement to fight climate change.

Notwithstanding that carbon dioxide is not pollution and is pumped into greenhouses to promote plant growth, this rosy but economically illiterate higher taxes equal economic prosperity theme is mostly absent in Manitoba where Premier Pallister is making things up on the go.

Pallister’s “made in Manitoba” carbon tax may exempt farmers while delivering new revenue to partially offset the financial damage from the Keeyask/Bipole III debacle. Ironically, Pallister now shares the blame for this mess with the NDP for not halting the project as promised.

To top off Pallister’s mishmash energy policy, he creates a new crown corporation to promote energy efficiency and reduce electricity demand while Keeyask’s unneeded surpluses are to arrive. Manitoba Hydro will export this additional surplus energy, not needed domestically until at least 2039, if ever, at prices well below the cost of generation and transmission (with ratepayers to carry the full burden).

Across the country, it’s more of the same. Ill-informed starry-eyed politicians rolling out half-baked energy policies that unnecessarily raise costs in the economy while increasing energy poverty.

Meanwhile, just south of us, the Trump government promises to lower energy costs by slashing green regulatory over-reach and promoting pipelines, shale gas and coal. These efforts could divert billions of investment dollars that would otherwise go to Canada.

Canadian producers who can’t raise prices in the international marketplace to compensate for carbon taxes will see falling incomes: the new tax will come out of their bottom line.

Unsurprisingly, this attack on our living standards is led by the same people who devastated Ontario’s once reliable energy system under the McGuinty and Wynn governments, before moving to Ottawa upon Trudeau’s election. Their quixotic climate change obsession has brought coal bans, backdoor regulatory suffocation of shale gas development, blocks on new pipelines, and higher taxes on gasoline (to discourage the evil automobile).

This is especially damaging to Western Canada’s resource economy, particularly its hydrocarbon, agriculture and commodity producing industries (which consume enormous amounts of energy). Actions supported by mostly the central Canada chattering classes harbouring an elite opinion that politicians can change the weather by raising fossil fuel taxes.

Saskatchewan’s Premier Brad Wall understands we compete with the U.S. not Germany, France and other countries embracing the climate change religion while suffering from power costs two to three times higher than here. To knowledgeable approval, Wall plans to block Trudeau’s carbon tax policies in court, towards protecting Saskatchewan’s oil and energy intensive resource sectors like farming and mining.

Which brings us to a heroic and lonely figure in Brian Pallister’s government.

MLA Steven Fletcher deserves much kudos for bravely filibustering his own government’s misguided efforts to set up an energy conservation crown corporation. Unfortunately for us, his efforts were to no avail. Likely, we will end up subsidizing solar for rich folk, just as Keeyask surpluses crushes Manitoba’s finances adding to the list of Pallister’s missteps.

Winnipeg Free Press - 05/23/2017
MLA’s filibuster gets filibustered
PROGRESSIVE Conservative MLA Steven Fletcher continued to stall passage of a government bill Tuesday evening that would create a new Crown corporation responsible for energy efficiency programs in Manitoba.

Using points of order and tabling numerous reports, from Manitoba Hydro and other sources, Fletcher held up clause-by-clause consideration of Bill 19 for the second time this month at an evening committee meeting of the legislature.

At press time, the filibuster continued, and MLAs from all three parties were preparing for the meeting to last till midnight, when, by earlier agreement, it would come to a close. According to legislative assembly rules, the bill could not be held up in committee beyond Tuesday evening.

"We’ve done this rodeo before," Fletcher said early on, referring to his four-hour filibuster on May 11 after the conclusion of public presentations on the bill.

Three more potential presenters, including a union official who had spoken previously, showed up Tuesday evening, hoping to address the all-party committee. But they were denied the opportunity to speak when Crown Services Minister Ron Schuler, the bill’s sponsor, uttered a firm ‘no’ when the chair of the meeting asked if there was leave to alter the agenda.

Fletcher questions the need to spend scarce dollars to establish a new corporation to improve energy conservation at a time when the province and Manitoba Hydro are deeply in debt and there is a glut of hydroelectric power.

The new legislation would create a new entity called Efficiency Manitoba, which would also be tasked with achieving certain energy savings targets over a 15-year timeframe. Creating a stand-alone energy-savings agency, independent of Manitoba Hydro, has been recommended by the Public Utilities Board. The PCs campaigned on the idea in the last election.

Rather than cede the spotlight entirely to Fletcher, Schuler spoke at length about the reasons the government introduced the bill and his concern at Manitoba Hydro’s growing debt. He said the need for increased energy conservation is critical, considering the fact that recent Manitoba Hydro dam and transmission line construction projects have exceeded projected costs by hundreds of millions — and even billions — of dollars.

Schuler’s frequent speeches prompted NDP MLA Rob Altemeyer to remark: "I don’t think I’ve ever seen a minister filibuster his own bill before."

Winnipeg Free Press - 05/19/2017
Not too late for Hydro to change course
John Roschuk is a senior engineer technologist and a power quality consultant who has worked in the electrical field for 52 years, including 17 years with Winnipeg Hydro.
Manitoba Hydro’s application to the utilities board for rate increases provides a golden opportunity for Premier Brian Pallister to do the right thing and save Manitoba Hydro and the Manitoba taxpayers by not allowing the rate increase and by keeping his election promise (Bipole III called ‘dumbest decision;’ Winnipeg Free Press, Oct. 25, 2014) to scrap the Bipole III project. It is not too late, and would curb the financial drain on Manitoba Hydro and the taxpayers.

The Bipole III capital cost represents a relatively small portion of the financial burden when all related costs are factored in. Bipole III will never generate positive revenue. It will be used to export electrical energy to "spot markets" at rates that generally are well below the cost of generation and transmission of the electrical energy.

Simply put, we will be selling at a loss. Rate increases will not salvage this mess. On the contrary, infusion of additional cash will simply increase the negative bottom line. The salvaged Bipole III infrastructure could be used to generate and transmit electrical power to Canadian markets at a profit.

It appears the only way Manitoba Hydro can survive is to transfer its financial burden to Manitoba taxpayers. Under the present structure, Manitoba Hydro will never be in a position to generate positive revenue from sales of electrical energy. It appears that all the Manitoba Hydro contracts are for sale of electrical energy to export spot markets. Spot markets were intended to provide utilities the ability to sell their surplus energy at substantially discounted rates, well below the cost of generation and transmission.

Manitoba Hydro’s financial predicament is a direct result of the NDP’s gross mismanagement. The decision to route the Bipole III line on the west side has cost Manitoba Hydro billions of dollars. It is intended to deliver electrical energy to the export market at a below-cost rate. Although Bipole III was intended to be a backup for Bipoles I and II, the west side Bipole III line is not compatible with Bipole I and II. The west-side route will have a severe negative impact on the west-side infrastructure, including subterranean, surface pipe lines, irrigation systems and public health and safety. Stray ground currents will accelerate corrosion of most conductive infrastructures. The negative impact of electric and magnetic fields have to be factored in to the overall cost. This has not been addressed in the public arena, although it is well documented globally by many highly credible research facilities.

If the premier allows the rate increases, he will be endorsing the NDP’s reign of terror that got us in this mess in the first place. If this ill-fated project is not "nixed", Manitoba Hydro is doomed to extinction. The NDP has demonstrated time and time again that they are masters at mismanagement. Ontario Hydro is one example.

We challenge Premier Pallister to do the right thing. Stop this fiasco.

Roblin Review - 05/09/2017
They told us so
Manitoba Hydro on Friday announced that it has applied to the Public Utilities Board (PUB) for a rate increase of by 7.9 per cent for the next five years.

For the average residential customer, the 7.9 per cent increase for 2017 will add $6.88 to their monthly bill (using 1,000 kilowatt-hours per month) and another $7.43 per month in 2018.

What the announcement didn’t point out, however, is that 7.9 per cent annual increases for five years add up to a whopping increase of 39.5 per cent which, if approved, will compound to more than 51 per cent over the less than six year period beginning Aug. 1, 2016.

Hydro president and CEO
Kevin Shepherd said the increases are “absolutely necessary” to protect the Crown’s financial sustainability by addressing its large debt and cash flow issues.

“Without question, developing two major projects, the Keeyask Generating Station and Bipole III transmission line at the same time, has resulted in Manitoba Hydro taking on a significant amount of debt to finance the construction of those projects,” Shepherd said.

When the two projects are done Hydro’s debt will have grown from $11 billion to at least $23 billion.

Well thank you very much NDP.

Can you believe some New Democrat supporters are already blaming the PCs for these Hydro increases? That defies all logic. And for the ultimate in stupidity, here’s what the NDP’s Crown services critic, Ted Marcelino, had to say.

“(The Pallister) government has shown it is not committed to keeping rates affordable for Manitoba families... The financial position of Hydro continues to be stable and sustainable, and Manitobans deserve a government that makes sure rates are affordable for Manitobans.”

The Bipole III
Coalition, which was formed about six years ago in an effort to lobby the provincial government to reconsider its decision to build a new bipole transmission line on the west side of the province, has been predicting this exact outcome since its inception. Yet despite the coalition’s best efforts, which included expert and what should have been convincing arguments for anyone with a brain, from former Manitoba Hydro executives no less, the NDP would not be swayed.

In a statement also released Friday, the Manitoba Hydro-Electric Board (MHEB) said after conducting a comprehensive review of Hydro’s operations last fall, the board felt it would take annual rate increases of 14 per cent every year for the next five years to put the corporation back on proper financial footing.

But after recognizing that “Manitoba ratepayers can only contribute so much”, it decided to try for increases of just 7.9 per cent.

Be that as it may, Manitoba Hydro customers – residential and commercial users alike – will be facing higher hydro bills for the next five years.

Does that mean Manitoba manufacturers will have to charge more for their goods and become less competitive? Will the Co-op have to raise the price of groceries? Will the arena have to charge more for ice? Will the Municipality of Roblin have to increase the rental fee for the hall?
What about people who use 4,000 kilowatt-hours of energy per month to heat their homes in the winter?

These increases would have been unnecessary had the previous NDP government just listened to reason and not gone ahead with Bipole III. (Or Keeyask for that matter – turns out the US doesn’t really need our “cheap electricity” anymore.)

Yes, the Bipole III coalition did tell us so. Unfortunately that’s cold comfort at this point.

The MHEB says if these proposed rate increases are approved by the PUB, “they will not eliminate the financial risks we face, particularly in the next five years.”

And that’s even more cold comfort.


Winnipeg Sun - 05/05/2017
Hydro seeks significant rate hikes
Manitoba Hydro customers could be in for a major price shock if the latest electricity rate application by the Crown corporation is approved.

Hydro announced Friday that it’s seeking rate increases of 7.9% this year and another 7.9% for 2018. The Crown corporation also revealed that it will be pursuing 7.9% rate increases for three more years after that, followed by annual increases of 2%.

Manitoba Hydro president and CEO Kelvin Shepherd said the rate increases are necessary to pay for rising debt associated with the Crown corporation’s two major capital projects.

“Without question developing two major projects, the Keeyask Generating Station and Bipole III transmission line at the same time, has resulted in Manitoba Hydro taking on a significant amount of debt to finance the construction of those projects,” said Shepherd in a release. “The rates we are proposing today will help ensure that Manitoba Hydro’s debt will continue to be self-supporting.”

The rate increase for 2017, if approved by the Public Utilities Board, will cost an average household an extra $6.88 a month. The 2018 proposed rate hike will see costs rise a further $7.43 per household.

Shepherd said cost overruns for both projects, coupled with lower demand for electricity and sluggish electricity prices in the export market, have hurt Hydro’s bottom line. He said in order to prevent even greater rate shock in the future, it’s imperative that Hydro becomes more financially sustainable today.

To help improve Hydro’s financial position, the Crown corporation has already announced a number of austerity measures, including the elimination of 900 Hydro jobs, said Shepherd.

“Our plan to become a leaner, more customer-focused organization is underway and forms an integral part of our efforts to address Manitoba Hydro finances,” said Shepherd.

Manitoba Hydro chairman Sandy Riley warned earlier this year that Manitobans could face rate hikes of more than 10% over the next few years. And while it appears rates won’t be rising to that extent, if the proposed increases are approved over the next five years, Hydro rates would jump 46% by 2021.

“That’s a huge increase,” said Todd MacKay, prairie director for the Canadian Taxpayers’ Federation. “That’s going to be a massive bill to pay for Manitobans to power and in many cases heat their homes.”

Mackay said he doesn’t believe Hydro is doing everything it can to avoid such large rate increases. He says the Crown corporation needs to do a better job of explaining why they’re proposing such high rate increases.

“They’re reaching deeply into Manitobans’ pockets and Manitobans deserve a very clear explanation,” said MacKay. “Why is this happening, who is responsible and what’s being done to address it beyond simply making people pay through the nose?”

Crown Services Minister Ron Schuler blamed the former NDP government for the proposed rate increases. He said in a statement Friday that the rate shock is a direct result of the NDP’s decision to proceed with Keeyask and Bipole III without proper scrutiny by the PUB.

“It is disturbing that Manitoba families will have to pay for the NDP’s political decisions and mismanagement of Manitoba Hydro,” said Schuler.

The former NDP government has come under fire in recent years for building Bipole III on the west side of Lake Winnipeg, despite initial plans by Hydro officials to construct a shorter and less expensive line on the east side of the lake.

But NDP Crown services critic Ted Marcelino says Hydro’s financial position remains stable and argues there is no reason for such large rate increases.

“This government has shown it is not committed to keeping rates affordable for Manitoba families,” Marcelino said in a statement.

Winnipeg Free Press - 05/05/2017
Hydro seeks 7.9% hike for 5 years
Large increases ‘smack of panic,’ consumer lawyer says
Manitoba Hydro is seeking a 7.9 per cent annual increase in its rates every year for the next five years.

Hydro really needs 14 per cent a year, but, "That was never going to be a viable option," president and CEO Kelvin Shepherd said Friday.

Hydro filed its rate application Friday to the Public Utilities Board, with supporting documents to follow May 12. Shepherd said the PUB hearing would probably start in November and run two months.
Hydro said the average residential consumer using 1,000 kilowatt hours per month would pay $6.88 more per month this year if the hike takes effect Aug. 1 as requested, but Shepherd acknowledged northern Manitobans could consume four times as much power in winter.

The application asks that the PUB confirm the interim 3.6 per cent increase granted last year and approve an interim 7.9 per cent increase to take effect Aug. 1, with further 7.9 per cent increases to come every April 1 through 2021.

"If you fully wanted to get Hydro back on solid footing with its debt-equity ratio, you’d need 14 per cent for the next five years," said Shepherd.

Hydro board chairman Sandy Riley has been warning since last fall Hydro would need significant, double-digit increases unless it received billions of dollars of cash infusion from the government. That money, which Riley has insisted should not be called a bailout, has not been forthcoming, and Premier Brian Pallister has said it isn’t coming.

Instead, said Shepherd, Hydro has taken the annual 3.95 per cent rate increases for the next 12 years it had indicated it needed before the 2016 election and "compressed" them into five years at 7.9 per cent, combined with spending reductions.

Manitoba Hydro has offered a buyout to try to cut 900 jobs — 15 per cent of its workforce — to reduce the payroll by $98 million a year. Shepherd won’t say how that is going until the buyout period ends May 19.

Hydro’s application states it hopes to be able to get by with an annual increase of two per cent as of 2022.

But a consumer coalition cautioned Friday that Hydro shouldn’t count on getting what it wants.

"It is notorious for its poor estimates. It’s important to remember that Manitoba Hydro has not proved its case," said Byron Williams, the Public Interest Law Centre lawyer representing the Consumers Association of Canada and Winnipeg Harvest, said Friday.

Hydro had promised its megaprojects would not force massive rate increases, Williams said.

"Clearly, there will be a profound sense of betrayal," he said. "Rate increases of this magnitude smack of panic."

Williams said the hardest-hit will be low-income Manitobans and northern residents, who typically use 4,000 kilowatt-hours or more of electricity to heat their homes in winter.

He said no one should be fooled into thinking this 7.9 per cent is good news after the double-digit warnings, which Williams called incendiary and inflammatory.

"It did not serve the utility’s reputation well — eight per cent is a great big horking increase."

Since 2008, Williams said, Manitobans have seen a 35 per cent increase on their hydro bills. In that same period, inflation has been 16.6 per cent.

Crown Services Minister Ron Schuler was not available for an interview but said by email Friday the NDP is to blame for the requested hikes.

"Hydro’s proposed 7.9 per cent rate increase is a direct result of the previous NDP government’s mismanagement of what was once Manitoba’s crown jewel," Schuler said. "It is no secret that Manitoba Hydro is facing serious financial problems as a result of 17 years of politically motivated decisions by the previous NDP government."

Schuler said the former NDP government’s decision to build the Keeyask and Bipole III megaprojects will almost double Hydro’s debt to $25 billion in the next four years and "jeopardizes the financial health of both the utility and the province."

"It is disturbing that Manitoba families and businesses will have to pay for the NDP’s political decisions and mismanagement of Manitoba Hydro. That is why we have given the PUB special powers to request and review information relating to past capital spending decisions so Manitobans can be fully informed as to how this serious financial situation came about," Schuler said.

The NDP responded Friday with its own statement from Crown services critic Ted Marcelino.

"The case for this increase is getting weaker by the day. For months, the minister responsible for Crown Services recklessly claimed that Manitoba Hydro is bankrupt, and the premier’s hand-picked board appointees threatened double-digit increases," Marcelino said by email.

"This government has shown it is not committed to keeping rates affordable for Manitoba families. In fact, the government’s last-minute change of the PUB’s mandate is a clear attempt to lay the groundwork for a rise in rates. The financial position of Hydro continues to be stable and sustainable, and Manitobans deserve a government that makes sure rates are affordable for Manitobans."

The Telegram 04/24/2017
Russell Wangersky: Manitoba has a problem of Muskrat proportions
It’s tempting to blame it on karma.

But the truth is, Manitoba Hydro was already in a hydroelectric hole before one of their subsidiaries was brought in to tell us whether or not Muskrat Falls was the right choice for this province.

And the hole — or the money pit — has just gotten bigger and bigger.

“It’s bad enough at Manitoba Hydro that the utility is looking for a government bailout to keep from having to get double-digit power rate increases this year alone. (That concern sound familiar?)”

Manitoba Hydro International was one of the outside firms brought in to justify the development of Muskrat Falls. Its support pushed the project ahead, and was used as a key defence of Muskrat by this province’s government.

But as it turns out, Manitoba Hydro was no better at picking a winning strategy for itself than it was in picking a winner for us.

Now, Manitoba Hydro is facing cost overruns, rate increases and delays — and it’s about to have a tough talk with Manitoba’s public utilities regulator.

Some of the issues on the table? Even higher increased costs and scheduling delays for their ongoing major Keeyask hydroelectric project, cost increases for a new major power line bringing hydroelectricity long distances to market, a “deterioration in the forecast of domestic load growth” and low export prices — the utility calls it “reduced outlook for escalation in the pricing of extra-provincial sales” — which they’d been depending on to finance the project.

Sound familiar? It should. Muskrat Falls has all the same problems.

Heck, the Manitoba government has even appointed a new board of directors for the utility, and the utility is undertaking a review of its “operations, capital programs and finances.” Just like here.

One place they might be going further? With what they are calling a “substantial headcount and operating cost reduction” at the corporation, including laying off 900 staff.

Winnipeg Free Press- 04/22/2017
Electrical storm on the horizon
Mounting debt not only hurts Manitoba Hydro, but potentially the province’s bottom line
On March 12, 1873, six years before Thomas Edison invented the light bulb, Winnipeg businessman Robert A. Davis was lighting his Main Street hotel with electricity. Using an arc lamp and a steam-powered electric dynamo brought from New York, the man who would become Manitoba’s fourth premier set in motion a series of events that would culminate in today’s Manitoba Hydro.

The Manitoba Free Press described Davis’ light — turned on four days after the founding of the Winnipeg Gas Co. — as an institution that "guides the weary traveller to a haven of rest, billiards and hot drinks, and lights up the streets probably more than the lamp of the newly incorporated gas company will for centuries to come."

That Davis would cast a shadow on the future of gas lighting would turn out to be no small coincidence. Electricity would go on to become a cornerstone of the province’s economy, an economic driver providing residents with cheap power and a significant lure for energy-intensive industries. It would generate billions of dollars in jobs and revenue and establish Manitoba as a world leader in hydroelectric power.

So where did it all go wrong? Has it all gone wrong? Does Hydro’s forecast of a $25-billion debt bring the corporation perilously close to insolvency, or is it a temporary liability on the path to a stronger future? Opinion, it seems, is divided by ideology. If you’re on the political right, the sky is falling. On the left? It’s no worse than Hydro’s building boom in the 1970s.

"I’d characterize our financial situation as challenging," said Kelvin Shepherd, president and CEO of Manitoba Hydro. "I wouldn’t characterize it as a crisis, by any stretch of the imagination."

Seven years after Donald Smith — the same man who pounded the famous last spike at Craigellachie, B.C., and thus completed Canada’s first transcontinental railway — co-founded Winnipeg Gas Co., the provincial legislature passed an act of incorporation creating the Manitoba Electric and Gas Light Co. in 1880. The two power companies would merge in 1881, a move that could be seen as a death knell for gas lighting and a sign electricity was here to stay.

Streetcars played a major role in the layout of city streets and in rolling out electricity, with Albert Austin founding the Winnipeg Street Railway Co. in 1881, at first running horse-drawn and later electric streetcars in Winnipeg and in the parishes of St. Boniface, St. John’s, St. James and Kildonan. That same year, New York businessman P.V. Carroll supplied a small dynamo to power a nightly demonstration of electric light along Main Street and Broadway, using the same arc-lamp technology as Davis used eight years earlier.

Two years later, in 1883, the North West Electric Light and Power Co. was created, and built a power plant on Wesley Street, near what’s now known as William Stephenson Way.

Then, in 1891, the first Edison electric streetcar made a maiden voyage along River Avenue, powered by a steam plant at what is now Bonnycastle Park on Assiniboine Avenue. It was the start of Albert Austin’s electric fleet, which he’d later sell to the Winnipeg Electric Streetcar Co.

The idea of using rivers to generate electricity dates back to the grist mills of the 16th and 17th centuries. Once it was understood electricity could be generated by moving a magnet inside a coil of wire, it didn’t take long for someone to get the idea to turn the power of a mill from grinding grain to generating volts.

The world’s first hydroelectric scheme, according to several sources, was in 1878 in Northumberland, England, where William George Armstrong used the flow of water to power a single arc lamp in his art gallery.

Manitoba would start to harness the power of its many rivers starting in 1900, though the first few steps were tentative. That year, the province’s first hydro plant was built on the Minnedosa River — now known as the Little Saskatchewan River — just south of Rivers. It operated only eight months of the year and sent power to Brandon, 14 kilometres to the east. It was dismantled in 1924.

By 1906, the Winnipeg Electric Railway Co. held a virtual monopoly on electricity in Winnipeg. That company built the first hydroelectric station, and the first to operate year-round, on the Winnipeg River, near Pinawa.

Of course, a monopoly didn’t sit well with the City of Winnipeg, which created City Hydro. Ald. John Wesley Cockburn, on his initiative, secured development rights for what would become the Pointe du Bois generating station and surrendered those rights to the city. Pointe du Bois — which is still in operation — would open in 1911 at a cost of $3,250,000 (about $79 million today).

Fast forward to 1961, and Manitoba Hydro is born, an amalgamation of the Manitoba Hydro-Electric Board and the Manitoba Power Commission. It would acquire Winnipeg Hydro in 2002. Today, Hydro operates 15 hydroelectric generating stations on the Nelson, Winnipeg, Saskatchewan, Burntwood and Laurie rivers. The corporation claims 96 per cent of its power is renewable, including power purchased from independent wind farms in Manitoba.

Hydro says it has contracts to sell $9 billion of power on the export market over the next 20 years, and will sell power on the spot market as opportunity arises.

For James Allum, NDP MLA, finance critic and backup Crown corporations critic, those who took the leap of faith to invest in the province’s future through hydroelectric power deserve our thanks.

"The historian in me knows that you stand on the shoulders of the ones who came before you," he said. "Those individuals and many others had a vision for hydro that ultimately came together to be for the benefit of the people of Manitoba.

"I think right now, the current government is putting that at risk."

The Progressive Conservatives under Brian Pallister have been sounding the alarm about Hydro’s debt, pointing to delays and rising costs for the Keeyask generating station and the Bipole III transmission line, and laying blame at the feet of the NDP, who held power when the projects were started and which pushed through the controversial western route for Bipole III, a $4.5-billion project made $1 billion more expensive by choosing a western route instead of east of Lake Winnipeg.

The Tories have been joined by credit-rating agency S&P Global, which declared Hydro’s debt "unsustainable." However, other credit-rating agencies, including Moody’s and Dominion Bond Rating Service have a more favourable outlook, although those agencies tie their ratings to the government guarantee of Hydro’s debt.

Business lobby groups such as the Canadian Taxpayers Federation and Winnipeg Chamber of Commerce have also expressed concern, saying Hydro’s debt threatens Manitoba’s status as having some of the cheapest power in North America and calls into question the balance sheet of the province as a whole.

"When you have a major bond-rating agency saying Hydro’s debt is so high it’s not self-sustaining, that’s very scary," said Todd MacKay, regional director for the taxpayers’ federation. "It should be a wake-up call to us all.

"You have lots of businesses who were in Manitoba because of low power rates, and now they’re wondering why to stay."

The Winnipeg Chamber of Commerce said low energy costs have been an important piece of Manitoba’s economic-development toolkit, and rate hikes could diminish that benefit, while runaway debt threatens the province’s autonomy.

"It’s not just the fiscal cost," said chamber president Loren Remillard. "The real cost could be losing the ability to determine our own future."

Remillard said the more debt a corporation holds, the more control those creditors expect over the institution. At some point, those creditors say no, or attach strings to further debt.

Pallister appointed longtime businessman Sandy Riley as chairman of Hydro, who soon joined Finance Minister Cameron Friesen in announcing the rising debt could lead to a downgrade of the province’s finances. Riley then announced 900 job cuts, and Hydro hopes to meet the bulk of that cut through a combination of attrition and a voluntary departure program released to employees April 10.

"Even with these reductions, double-digit annual rate increases would be required for at least five years in order to re-establish Manitoba Hydro on a proper financial footing," he told the Free Press in February.

Riley later announced he was asking the province for an infusion of equity to help stabilize Hydro’s balance sheet. The reaction was swift, and somewhat bewildered.

"I found that extremely baffling," the taxpayers’ federation’s MacKay said. "An equity partner? Manitoba owns Manitoba Hydro. How can you have more than 100 per cent equity?

"It’s kind of like deciding which end of a leaky canoe to bail out. If the government bails out Hydro, it shows up on the province’s debt. If they don’t, it shows up on Hydro’s. Ultimately, it’s a shell game."

Pallister’s response was blunt: no.

Both MacKay and Allum are on the same side of the bailout argument, and each has his own opinion about ulterior motives.

"It’s a pretty silly argument. The only people who benefit are Manitoba Hydro management, who get a boatload of cash to paper over their problems," MacKay said.

Allum sees a different reason.

"We’ve seen this movie played over and over, by the same characters," Allum said, adding a similar script was used in the lead-up to the privatizations of MTS and Ontario Hydro.

"It’s trying to create a crisis by throwing everything into the pot to unnerve Manitobans about the state of Manitoba Hydro and Manitoba’s economy.

"Every other indicator, however, tells us the debt affordability of Manitoba Hydro and the larger Manitoba context is on solid ground — debt always has to be managed, no one will ever dispute that — but those investments will pay for themselves over the long term and in the interim, we have multiple benefits for Manitobans."

Allum said the projects creating the bulk of Hydro’s debt, the Keeyask generating station and the Bipole III high-voltage transmission line, are necessary for meeting future demand for power.

He also sees benefits beyond electricity, particularly with the way First Nations have been integrated into the project, officially run by the Keeyask Hydropower Limited Partnership, which joins Manitoba Hydro and four Manitoba First Nations.

A report from the Boston Consulting Group supports Allum’s assertions, in part. It said Bipole III is a necessary addition to Manitoba’s electric infrastructure, insurance against catastrophic damage to its predecessors, Bipole I and Bipole II. Further, it said Bipole I and Bipole II run so closely together, a common catastrophe could wipe out both.

The Boston report, however, labelled the start of Keeyask as "imprudent," saying domestic demand isn’t expected to rise to a level requiring Keeyask’s output for 10 years after construction.

Allum said if that’s true, there’s no predicting what the future cost of construction and interest will be, adding today’s low-interest environment means there’s no time like the present.

"It (borrowing cost) was 13 cents on the dollar when we came into power," he said, referring to 1999, when the NDP under Gary Doer formed a majority government. "Today, it’s six cents."

Ian Goodman, president of The Goodman Group, an energy consultancy in Berkeley, Calif., said what’s also worrisome about Keeyask’s output is a soft export market held back by rock-bottom natural gas prices, weak economies and improving energy efficiency.

"It’s a perfect storm of relatively cheap supply and low demand for growth keeping electricity pricing cheap," he said.

Combine that with an American federal government moving away from environmental protection — U.S. President Donald Trump recently removed a moratorium on coal mining, for instance — and Manitoba Hydro’s ability to charge a premium for "green" hydroelectricity vanishes.

"In some ways, it’s gambling. When the gambles come off well, it’s good. When they don’t, it’s the people of Manitoba who are left picking up the tab," he said.

Goodman said some of this could have been foreseen: reviews prior to construction raised red flags, but also included the possibility of some favourable scenarios. That, and a tendency to favour job creation, is seen as the impetus for moving forward.

"I think that’s part of the concern. It’s a government-owned utility, a big force in the province’s economy and you tend toward what to an extent are political objectives. On a shorter-term focus, there are pluses: you spend a lot of money and it results in some jobs, very visible jobs.

"I understand the attraction politically. Instead of 10 jobs here and five jobs there, you get thousands of jobs in one place.”

Not helping Hydro’s finances, Goodman said, is the policy of running domestic rates as low as they are. It makes it a sound economic-development tool, but leaves little margin to build up cash reserves. That’s an issue Hydro president Shepherd plans to address.

"It’s hard to have that debate now, when things aren’t going so well. Once again, that may be, as a long-term choice, whether you’re going to plan and build up some reserves."

As for where Hydro goes from here, the taxpayers’ federation’s MacKay said it’s crucial to not overreact but rather to conduct an in-depth analysis of what’s gone wrong, what’s gone right and what steps should be taken to move forward. He said cancelling the two big projects now is not an option, with billions already spent and billions more dependent on their completion.

Allum, meanwhile, was less circumspect. He said it’s time the Tories get their heads out of the 1970s, when the party predicted the same doom and gloom about the Limestone Generating Station, and look to the future.

"When you look at the big picture and the multiple benefits associated with (Keeyask and Bipole III), and I’m referring to the partnerships with the indigenous nations, and you have a favourable picture all the way around," Allum said.

"What I detect from the Tories constantly is they know the cost of everything and the value of nothing, " he said.

"They don’t see the benefits of these investments, with Keeyask or in the past whether it was Limestone or others, and the result of that is they could do considerable damage to a Crown corporation that has served Manitobans very well over 50 years and hopefully for many more years to come.

"The Tory approach to this is always to undermine the validity of the corporation, likely with a view towards privatization, which is what we saw with the privatization of Ontario Hydro and what we saw with MTS in the mid-90s."

As for Riley’s request for cash, Allum was also blunt.

"I think Mr. Riley needs to get out and start selling more power."

Goodman said that’s not so easy. He said Hydro’s prime export market is Minnesota, in particular the Twin Cities. It’s there where cheap natural gas — used in thermal generation — is driving down energy costs. He said that’s less of a concern on long-term contracts, which typically hedge rates based on inflation or the cost of new generating stations.

"But Manitoba Hydro also sells lots of exports via short-term contracts or spot transactions, and pricing for those types of exports will likely be based on prevailing rates."

Worrisome, he said, is that about 70 per cent of Hydro’s exports are these types of "opportunity" sales, while only 30 per cent are long-term, or "dependable."

"Manitoba Hydro seems to have based its plans on the assumption it would get the benefit of these dependable export sales, plus get better pricing for opportunity exports than it has been getting, and is likely to get," he said.

"So, in a period when Manitoba Hydro is spending heavily, notably for Bipole III and Keeyask, Hydro will be under continuing financial stress because costs are rising faster than revenues."

Goodman also said Hydro’s ability to build financial reserves is restricted by its policy of selling domestic power on very thin margins, offering cheap power to Manitobans but little in the way of profit that could build a cushion against future financial uncertainty.

For his part, Hydro president Shepherd said despite the challenges, steps Hydro is taking now — a 15 per cent staff reduction, overhaul of management and salaries and applications for rate increases — will help put the company back on solid ground financially.

He thinks this is a lean period from which Hydro will emerge stronger and more stable. He doesn’t envy our neighbours, who face considerable expense in the future moving away from fossil fuels for their electric needs.

"I do. I mean, we definitely have some financial challenges, but we also have some tremendous strengths: we generate almost all our electricity from renewable energy, from hydro, and we don’t face the cost uncertainty of jurisdictions such as Saskatchewan or Alberta in carbon pricing and converting from coal," he said. "We have a cost-effective and stable generating platform."

Shepherd said a key issue for Hydro is a revenue structure that provides for low rates, but generates insufficient revenue.

"If you look at core operations, forget the big projects, we’re not generating enough cash flow to cover core operations, so aside from the debt challenges we’re facing, there’s an underlying structural problem. Rates need to go up over a period of time."

Manitobans will get a clearer picture of Hydro’s financial situation from its submission to the Public Utilities Board in May arguing for rate increases. The PUB has typically set a high standard for using Hydro finances to approve a rate increase.

"There are some positives people need to remember, as well," Shepherd said. "If you look at our strengths, we have a lot of debt, yes, but we have a lot of room with rates where they are to generate the revenue to support the company’s operations. When we’re talking about rate increases, we’re still going to have among the lowest rates in the country over the next 10 years."

Winnipeg Free Press- 04/20/2017
Efficiency Manitoba inefficient
Also appearing in the Roblin Review 04/25/2017
The Pallister government is on entirely the wrong track in advancing Bill 19 to create a new Crown corporation, Efficiency Manitoba.

The new Crown will be responsible for demand-side management of electricity (DSM). Until now, DSM has been delivered in Manitoba under Hydro’s Power Smart program.

Efficiency Manitoba will be a stand-alone agency. It is mystifying to understand why such a drastic step is being taken, apparently without in-depth expert review of the concept.

The idea of divesting the Power Smart program from Hydro was proposed formally by the Public Utilities Board (PUB) in a report issued in June 2014. The PUB proposed this action after reviewing Hydro’s development plan earlier that year. The PUB concluded in that review that Hydro was not giving sufficient priority to DSM in planning its power generation. The then-NDP government voiced its support for the idea, but took no action.

In the interim, Hydro announced that a stepped-up Power Smart program could save 1,288 MW of power in the next 15 years at a cost of $2 billion. This was a surprising action, given the announcement was made the day after the April 2016 election, well before Pallister’s transition team could begin its work.

More importantly, it revealed that DSM was far more cost-effective than proceeding with the 695-MW Keeyask generating station at a cost that is now closing in on $9 billion. Stated bluntly, the announcement signalled that Power Smart could replace two Keeyasks at a quarter of the cost of a single one.

Undeterred, the new Hydro board decided in September 2016 that Hydro’s plans could not be changed because of the advanced stage of the work on Keeyask and Bipole III.
The creation of Efficiency Manitoba presents an interesting dilemma, given Hydro’s decision to barrel ahead with expanded generation and transmission capacity.

Bill 19 spells out that, each year for the next 15 years and beyond, Manitoba must reduce electrical demand by 1.5 per cent per year. At the same time, Hydro has been forecasting that new electrical demand, separate from any DSM measures, will grow by 1.5 per cent per year. This means that the two measures will cancel each other and the growth in the need for electricity in Manitoba will be zero over this timeline. So Manitoba will have no need for Keeyask for years to come.

Predicting electrical demand (Hydro’s responsibility) and power reduction (Efficiency Manitoba’s responsibility) will require very close co-ordination. Common sense indicates it will be more efficient if both activities are conducted within the same organization. DSM is technically complex work. It involves not only evaluating the merits of wind generation and solar power, but also complex engineering actions such as replacing conductors, aging transformers and hydraulic turbine blades, all of which reduce losses and free up new power. Only Hydro can carry out these functions.

There will be substantial administrative and operational inefficiencies with the creation of the new Crown corporation. Hydro currently has all the information, expertise and equipment to manage the Power Smart program. Transferring this function and duplicating, where necessary, will be costly. Staffing requirements will grow, which is inconvenient at a time when Hydro is downsizing.

The appointment of eight new board members will be needed to lead the new corporation along with the usual bureaucracy that follows such measures. If there is conflict in determining which DSM measure should be adopted, who will arbitrate? The common element for both Crown corporations is the minister of Crown Services, who cannot be expected to arbitrate such issues.

The claim that the new agency will mitigate the impact of rate increases on customer bills does not bear scrutiny. In an overbuilt system, every kilowatt-hour saved by a Manitoba resident will have to be sold outside the province. Right now, a residential kilowatt-hour generates revenue approaching 10 cents, a figure expected to at least double over the next 15 years. If the saved kilowatt-hour is sold today on the surplus energy market, it generates little more than three cents.

The difference will be an incremental cost to Hydro and will have to be made up by rate increases to all customer classes. At best, the initiative will redistribute the cost of electricity from those who can afford to implement DSM measures to those who cannot.

The entire process of creating a new DSM entity has not been given sufficient review. We are confident that if such a review were conducted, it would clearly establish that DSM should remain with Hydro and the creation of Efficiency Manitoba is a waste of resources.

*Dennis Woodford is president of Electranix Corporation, Garland Laliberte is dean emeritus of engineering at the University of Manitoba and Will Tishinski is a former vice-president of Manitoba Hydro.

Winnipeg Free Press- 04/18/2017
Province empowers PUB to dig down into Hydro finances
The provincial government has given the Public Utilities Board special authority to delve deeply into Manitoba Hydro's debt and capital-spending plans when it considers rate-increase applications later this year.

What was not clear Tuesday is whether this will help or hurt Hydro's chances of getting the significant double-digit rate increases the Crown corporation has warned it needs.

Finance Minister Cameron Friesen announced the move Tuesday.

Friesen said the provincial cabinet made the move at the PUB's request after months of growing concern over Hydro's debt and the impact that debt — fuelled by the Bipole III and Keeyask megaprojects — could have on the province's finances.

This is the first time the independent PUB tribunal has had the power to require Hydro to table evidence of its financial health and capital situation.

"We don't want to see Hydro rates go through the roof," Friesen told reporters. "It is prudent for a government to provide that direction."

Knowing the factors that could put Hydro's ultimate health in question helps the PUB set the appropriate rates, and find the balance between the needs of consumers and the needs of the utility, said Friesen.

But Friesen would not speculate whether having that information makes it more or less likely that the PUB will accede to what Hydro wants.

Hydro has warned the two megaprojects could almost double the Crown corporation's debt to $25 billion.

Hydro board chairman Sanford Riley has predicted that Hydro will be asking for significant multi-year double-digit increases when it takes its rate increase application to the PUB next month. A hearing date has yet to be set.

Riley has said in media interviews that Hydro needs — but has not yet formally requested — a cash infusion from the province.

NDP finance critic James Allum denounced the move Tuesday as "a smokescreen for Hydro to raise their rates. The government's already decided that Hydro rates should be higher," he said. "It certainly looks from our vantage point that everything that can be done to raise Hydro rates is being done."

Instead of jacking up rates, Hydro should be looking for new export customers outside of Manitoba, Allum said.

Manitoba Hydro can't comment on what the possible impact of the additional data might be, said public affairs officer Bruce Owen.

"Manitoba Hydro will absolutely comply with any changes to the process that are required by the government," he said.

Darren Christle, the PUB's executive director, said by email that the information will help the public be aware of all the information available, while allowing the PUB "to consider the financial consequences of Hydro’s capital decisions, and the impact on rates."

Byron Williams, Public Interest Law Centre lawyer for the Consumers Association of Canada and Winnipeg Harvest, said consumer activists have urged the province to go much further and give the PUB the power to "disallow" Hydro spending plans if they adversely affected rates.

Williams said there's "always been a tug of war" over how much information would be on the table at rates hearings.

"It increases transparency," said Gloria Desorcy, the CAC Manitoba executive director. The PUB will be able to see what all of Hydro's revenue needs are, she said, but could not predict if that information is more or less likely to lead the PUB to meet or lower Hydro's rates request.

Recently, Hydro said the cost of the Keeyask generating station has soared another $2.2 billion, to $8.7 billion.

Hydro has slashed management ranks and has offered buyouts in a bid to eliminate 900 jobs and reduce its workforce by 15 per cent at an expected annual savings of $98 million.

The province said the cabinet order requires Hydro to provide the PUB with full details on existing projects as well as details on new, currently committed and proposed, planned or forecast major capital expenditures; records justifying projects and laying out cost-benefit analyses; and existing records related to revenues and income.

Winnipeg Free Press- 03/29/2017
Hydro delay hits budget process
Spring in Manitoba means many things.

It means potholes and brown grass and (in Winnipeg at least) dusty mounds of the grey grit that was poured liberally over the city’s frozen roadways over the previous five months.

It also typically means hearing about Manitoba Hydro’s latest electricity rate application. Although the date moves around year to year, it is not unusual for Hydro to notify the Public Utilities Board of its intentions to raise rates by January, with hearings sometime during the spring or early summer.

This year, things have unfolded a bit differently. Nary a word was heard from Hydro in January of this year, prompting the PUB to take the unusual step of writing to Hydro on March 17 to ask when a rate application might be expected.

The PUB received a response on March 24, in which the utility indicated it will not file its rate application until "late April or early May." With three to four months of preliminary negotiations around scope and the funding of intervenors, that means a formal rate application hearing will not take place until the fall.

That is not unprecedented, but it is unusual. And in this particular year — when it is expected the Progressive Conservative government will be using the spectre of eroding financial stability at Hydro to help justify its expedited austerity measures — a delay of this kind is extremely unfortunate.

Why have things been pushed back so much? In its March 24 letter, the utility attributed the delay in filing the 2017 application to "significant new matters or material changes since Manitoba Hydro’s last General Rate Application."

Specifically, it listed the appointment of a new board, subsequent reviews of the utility’s operations, increases in the forecasted costs of Keeyask generating station and Bipole III transmission line, a "deterioration" in the forecast for growth in domestic electricity and a softening of export prices. It also mentioned Hydro’s decision to eliminate 900 jobs and other cost-saving measures.

Translated, Hydro is arguing that its financial position has worsened significantly since the last rate application. That in and of itself is not a huge surprise. That theory has been repeatedly enunciated in public by board chairman Sanford Riley and president Kelvin Shepherd, who have both sounded multiple alarms about Hydro’s worsening debt-to-equity ratio, the principal measurement of the utility’s financial health.

However, the correspondence between Hydro and the PUB only reveals part of the story here. It seems increasingly apparent that the new Hydro board, put in place less than a year ago, is committed to dramatic changes in the Integrated Financial Forecast.

Drafted by the utility’s senior management, the forecast includes best estimates of future revenues and liabilities over a 20-year-period, including things such as export market prices, domestic electricity use and capital expenditures. Taken together, the forecase forms the backbone of Hydro’s argument to the PUB for a rate increase.

Almost from the moment he took control of the board, Riley has been working diligently to construct a much dimmer view of Hydro’s financial future.

In February, Riley took the unusual step of publicly requesting an equity investment by the province to help stabilize Hydro’s debt-to-equity. He suggested that without a cash infusion, Hydro would have to go to the PUB and request double-digit rate increases that could be as high as 20 per cent.

This dire prediction was further bolstered in early March when Hydro announced that the combined costs of Keeyask and Bipole III had risen to $8.7 billion, a total higher than any previous financial forecast. In internal newsletters to Hydro employees, Shepherd has said the revised budget reflects increased "contingency, escalation and interest rate allowances" along with revised estimates of the cost of concrete work.

As is always the case, the PUB will have the final say on the veracity of the new integrated financial forecast and capital costs estimates. Riley’s hyperbole will either be substantiated, or disputed, when the PUB gets to the hearing stage this fall.

It is worth noting that just one year ago, Hydro’s forecast managed to avoid much of the doom and gloom that is emanating from the board right now. In fact, after scrutinizing the forecasts, the PUB found significant improvement in most areas of the utility’s long-term financial prospects. As such, it has allowed Hydro to continue pursuing its goal of rate increases of approximately four per cent annually until 2021. Informed observers are extremely interested to hear the PUB’s take on an entirely new long-term forecast.

Here’s the rub: In the upcoming provincial budget, to be tabled April 11, the future financial health of Hydro will be a constant presence as Premier Brian Pallister and Finance Minister Cameron Friesen make their case for enhanced austerity measures to bring down a chronic budget deficit.

Pallister and Friesen have repeatedly connected the government’s fiscal strategies to Hydro’s mounting capital expenditures. They have argued that unless the utility improves its debt-to-equity ratio, it could eventually undermine the province’s credit rating, and drive up borrowing costs. Given that Hydro is committed to finishing Keeyask and Bipole III — it has been determined that abandoning the projects now would be impractical — the province must cut deeper and faster than previously thought to guard against fiscal collapse.

Unfortunately, we won’t have the benefit of at least seeing the full details of Hydro’s financial forecast until well after the budget is tabled. That denies citizens, journalists and political critics the opportunity to assess the veracity of the Pallister government’s argument in favour of enhanced austerity.

In government, as in life, timing is everything. And at this moment in the history of the province, the timing of Hydro’s 2017 rate application is most unfortunate.

Winnipeg Free Press- 03/10/2017
Business council urges PCs to bail out Hydro
Propping up Manitoba Hydro in its time of need could pay big dividends in the future for both the corporation and the province, a powerful business lobby group says.
In a submission to Finance Minister Cameron Friesen this week in advance of the April 11 provincial budget, the Business Council of Manitoba urged the province to "take the steps necessary" to ensure Hydro is placed on a solid, independent financial footing.

In an interview Friday, Don Leitch, the business council’s president and CEO, said his organization isn’t going to prescribe how that ought to be done.
He said one option would be to grant Manitoba Hydro’s request for a cash injection so that its equity-to-debt ratio improves. If not, he said, the corporation’s credit rating could take a hit and its borrowing costs could rise.

There’s also the danger the province’s credit rating could be dragged down along with Hydro’s if nothing is done to stabilize the corporation, he said.

"It’s important to figure out what we’re going to do because if we get it wrong… we’ll impact the province’s financial stability," Leitch said.

In February, Hydro board chairman Sandy Riley called on the province to buy equity in the utility to get the highly indebted utility back on its feet.

Hydro’s debt has soared as it completes the Keeyask generating station and the Bipole III transmission line megaprojects. The costs of both are much higher than previously estimated.
Without the government’s help, Riley warned, residents could be hit with sky-high rate increases. Hydro has announced plans to trim its workforce by about 15 per cent to keep costs down.
Premier Brian Pallister has so far refused to publicly entertain a possible multibillion-dollar bailout for the Crown corporation. A month ago, he said that any such discussion was premature and suggested Hydro first make its case to the Public Utilities Board, which sets consumer power rates.

But the business council believes the province should be more proactive in dealing with the situation and not wait for the rate-setting process to play out.

While the government would have to borrow the money to prop up Hydro, the cash infusion would stabilize the corporation’s finances and curb the pressure to boost consumer rates exorbitantly, Leitch said, adding the province can borrow money at a more favourable interest rate than Hydro can.

The sooner that Hydro can improve its financial picture, the sooner it will be able to resume paying an annual dividend to the province, he said.

The business council is made up of CEOs from Manitoba’s leading firms.

In its submission, it acknowledged Manitoba is not in a financial position to consider significant tax relief. The group has long pushed for the elimination of the payroll tax on large companies. It did, however, continue to advocate for a full review of the provincial tax structure to ensure Manitoba is competitive with other jurisdictions.

While the business council commended the government’s cost-cutting efforts, it urged the province to continue to make "critical investments in infrastructure and capital projects" to help grow the economy. The Pallister government has recently placed a halt on numerous projects initiated by the NDP prior to last April’s election.

The business council said Manitoba doesn’t need to get them all done, but some should go ahead — especially when the private sector and the federal government are prepared to ante up. Leitch cited a needed refurbishment of the Manitoba Museum and the expansion of the Winnipeg Art Gallery as two worthwhile projects.

"A stop-and-start approach to capital investment, whether in infrastructure, in building health or education capacity or community assets, will not contribute to growing our economy or making Manitoba the most improved province," the group said in its submission.

Winnipeg Free Press- 03/09/2017
Future is bright for solar, alternative energy markets in Manitoba
Solar energy enthusiasts gathered in Winnipeg on Thursday to shed some light on something that didn't really exist here a year ago — a market for solar energy in Manitoba.

The Manitoba Environmental Industries Association, which organized the event, hopes the Energy Summit becomes an annual event.

How long the sun shines on the industry may depend on whether Manitoba Hydro continues offering its $1-per-watt incentive on solar installations announced last April that has jump-started the influx of more solar installations in the province.

"I don't want to give Manitoba Hydro all the credit," one participant said, but the 38 new solar installations since the incentive was announced and the 60 expected in the coming fiscal year is a massive increase for Manitoba.

A very low cost for electricity in Manitoba — the second lowest in North America — is typically cited as the main reason for the lag in solar energy generation in Manitoba.

"Having said that, we are entering a phase where the cost of electricity is going up that will make renewable technology more cost effective. We may be lagging behind other jurisdictions but, absolutely, the next five-to-10 years will be great," said Margo Shaw, the association's executive director.

For that to come true she believes there will have to be more education on the technology, the environmental underpinnings and the economics behind solar.

"The incentive is a good first step but education is key," Shaw said. "Not only for the decision-makers but also for the general populace to make sure we are all pushing for the same kind of things."

Alternative energy advocates Andea Kraj, president of CORE Renewable Energy and Eric Bibeau, associate professor in the mechanical engineering department at the University of Manitoba who spoke at the Energy Summit, are big proponents of deploying the right kind of alternative energy in the right situation.

Bibeau is working with Sagkeeng First Nation to install a 25-kilowatt hydrokinetic power-generation system on the Winnipeg River. His research focus is on innovative renewable energy technologies for distributed applications.

Manitoba imposes a large amount of red tape that is a deterrent to more alternative energy applications in the province, Bibeau said.

Advocates are hopeful the program, which is less than a year old, will only get better.

Justin Phillips, the president of Sycamore Energy and its re-branded local operation, Solar Manitoba, said the industry as well as the province are just getting past the learning stage.

"These are exciting times," he said. "The process has really sped up. The learning curve is at least eight or nine months. Now we are getting approvals very quickly."

His company just broke ground on a 70-kilowatt project with approximately 260 solar panels on a farm near Rivers that will be one of the largest in the province.

Jana Brunel, who heads up Manitoba Hydro's emerging energy technologies work, said the incentive program is scheduled to run until the spring of 2018. She said there is lots of momentum and more interest than was originally imagined.

"The early adopters were the year-one participants, she said. "That's now shifting to people who would not have done it without the incentive and who are encouraged by word of mouth. Those are motivating factors as well as the unknown of potential rate increases."

The uncertainty about rate increases was not part of the equation a year ago when the solar incentive was announced.

Since then, Hydro has announced costs for its Keeyask generating station have jumped by $900 million, and credit-rating agencies have expressed concern about the corporation's mounting debt. Hydro has previously warned it will ask the Public Utilities Board for double-digit rate increases for the next few years.

But as much as there is substantial new interest in solar, Brunel points out it only represents a tiny portion of the overall energy sector in Manitoba.

"It is exciting nonetheless," she said.

CBC News - 02/19/2017
What Manitoba Hydro’s gamble means for your rates
Facing increasing debt and an unstable energy market, Manitoba Hydro has one sure route to increase revenue.

The ugly truth for Manitobans is rate increases are the most stable revenue tool the Crown corporation can use and the next decade might not look too pretty.

"The biggest thing we can do to ensure that Manitoba Hydro continues to be sound financially is to manage our costs and look for reasonable rate increases that support the investments we have to make," Hydro CEO and president Kelvin Shepherd told CBC News.

"I can't control what the PUB (Public Utilities Board) will approve, but what I can control is what we ask for, and we are going [to] ask for a reasonable ask that is going to address Manitoba Hydro's requirements to keep us self-sustaining."

Another lever at Shepherd's disposal is the corporation's operating costs. Hydro made headlines earlier this month when it announced over 900 positions, or almost 15 per cent of its workforce, would be eliminated in a sweeping move to cut down on costs. The measure will save $65 million, but Shepherd admits isn't enough to cover the billions of debt carried by the province.

Built into the Crown corporation's 20-year plan from 2015 is 13 years of 3.95 per cent increases, followed by two per cent increases in the subsequent years. 

Sanford Riley, the chair of Hydro's board, has warned even higher rates — into the double digits — would be needed to get a handle on Hydro's burgeoning $13-billion debt-burden and increasingly low debt-to-equity ratio.

Shepherd isn't ready to tip his hand and say what increases Hydro will apply for this fiscal year, but said all signs point to a change in direction and asking for a hike higher than 3.95 per cent.

"We are going to have to raise rates faster," he said. "I think we are going to look at something different than 3.95 per cent."

One credit analyst says the Crown corporation's ability to raise rates has been used by credit agencies to justify the idea that Hydro can remain a self-supporting utility. Plus, Manitobans enjoy some of the cheapest rates in the country. 

"There is a lot more room for (Manitoba) to increase rates, unlike a province such as Ontario," said Tom Li, a utility credit analyst with DBRS, which released its outlook on Hydro in September.

"It shows how much flexibility there is for a utility to be able to increase its rates to recover costs."

Echoes of the 1970s 

Historical data provided by Manitoba Hydro show a correlation between increased rates and massive capital investments by the public utility. The utility stands in a similar position today as it was in the 1970s when Hydro was at various stages of building the $226-million Churchill Diversion, along with several other massive projects.

During this period, Manitobans saw the greatest rate increases in the public utility's history. Shepherd describes that era as a "different world" when interest rates had skyrocketed and the corporation's capital investments, by scale, were more massive than recent projects.

Six years of double-digit rate increases followed, beginning with a 20.6 per cent increase in 1974 — the highest increase in Manitoba Hydro's history. In the subsequent years, double-digit increases between 19.8 and 14.4 per cent continued until 1979.

Currently, the 695-megawatt 
Keeyask hydroelectric generating station, which is being built on the Nelson River in northern Manitoba, is estimated to cost roughly $7.2 billion. 

Bipole III — a 1,341-kilometre, 2,300-megawatt transmission line, running down the west side of Lake Winnipeg — is estimated to cost between $4.65 billion and $5.2 billion to build. 

"My responsibility is to try and bring forward a plan that addresses what we think is reasonable for customers at the same time while addressing the real requirement. We think we have to address the fact we have costs and increase investments we have in the system," Shepherd said.

The Public Utilities Board ultimately decides on rate increases requested by Hydro, but balked at Hydro's recent 2016-17 increase request of 3.95 per cent, arguing Hydro's finances have shown it could reach its debt-to-equity targets at a lower rate increase.

In its most recent decision the PUB allowed a rate increase of 3.36 per cent and dictated the interim rate increase must go into a deferral account to reduce the expected rate shock when Bipole III and Keeyask come into service. By 2018, when the Bipole is scheduled to become operational, nearly $360 million will be in the account to be used to help keep rate increases low, explained a spokesperson for Hydro.

The PUB hasn't ruled out accepting a 2017-18 rate increase of 3.95 per cent or higher if the financial situation of Hydro deteriorates to provide a "financial cushion."

Shepherd told CBC News Hydro's 2017-18 rate application won't be filed until the spring, after its 2016 financial forecast is complete.

Export stability

For last decade more than 30 per cent of Manitoba Hydro's revenue has come from exports, bringing in $5.2 billion over 10 years. Bringing Keeyask online is expected to increase those export revenues dramatically, explained Shepherd.

Manitoba Hydro is partially hedging its multibillion-dollar capital program on $4.5 billion in export contracts made possible by Keeyask's capacity. 
Shepherd admits, in hindsight, Hydro should have delayed the construction of Keeyask. While he argues Bipole will protect Manitobans from an "economy-devastating" blackout event, Keeyask was built to increase export capacity and changing markets have decreased its viability. Export prices are on the decline and alternative energy pushes in the United States have decreased demand, he said.

"I think it is fair to say that the economics have deteriorated," Shepherd said. "20/20 hindsight, I would have said, 'Yes, I would have waited.' But I am not faced with that today, I am faced with a project many years in the making and $3 billion already invested."

Four long-term export deals with Minnesota, Wisconsin and Saskatchewan have been signed that are dependent on Keeyask. The utility has sold off all the additional capacity and dependable energy brought on by Keeyask until 2025.

How much Hydro will make off each individual contracts with Xcel Energy, Minnesota Power, Wisconsin Public Service and SaskPower is confidential. The contracts begin around 2020, with some ending as late as 2040. 

Economist Brady Yauch described the decision to build Keeyask as a multibillion-dollar gamble that might not pay off, given the current energy market.
"Building big megaprojects and dams are always inherently risky. Manitoba Hydro thought they could get them done on time and on budget," he said, noting the projected delays and cost increases that have recently been announced.

"Industrial demand is … flat so the money they thought they'd get from being a major energy powerhouse in North America didn't materialize."
Dave McMillan, Minnesota Power's executive vice-president, says Hydro is the only utility in the area that has the resources and capacity to supply its needs. The private utility is embarking on a plan to rely more heavily on wind energy to supply power to its over 145,000 residential and commercial customers. Keeyask will give Minnesota Power the ability to store power on their system to use when wind levels are low.

The contract with Minnesota Power expires in 2035.

"The renewable aspect is huge, as is the battery (power) … For that reason we are willing to pay somewhat of a premium for it," he said. "And 15 to 20 years from now, it will be a resource for Manitobans in the long-haul."

Selling off excess energy, outside of contracts, to the United States — a.k.a "spot pricing" — has become increasingly challenging, argued Yauch.

Shepherd agreed, saying utility companies are being offered subsidies to use wind or solar energy which is hard to compete with. While volume of export has increased, prices are declining, he said. 

A report released in February by Greentech Media, a U.S.-based clean energy research group, reported solar energy accounted for 39 percent of new capacity additions across all fuel types in 2016.

With excess power up for sale from neighbouring states, the price has been driven down, explained Yauch of the Toronto-based Consumer Policy Institute.

"They'll take your power, but if they do it on a market-based price, they are going to do it at a cheap deal," he said. "No one has seen an increase in power prices."

CBC News - 02/18/2017
Manitoba Hydro’s walking on a tightrope - or is it?
It's no secret that Manitoba Hydro has a debt problem. The board knows it, the government knows it and even its president and CEO admits Hydro has set itself up for years of razor-thin margins that give the Crown corporation little room for error.

"I characterize it as walking along a road, then walking along a sidewalk and then for about 15 years, I have to walk on a tightrope — everything has to go very good," Kelvin Shepherd told CBC News this week.

"Does it make me nervous? Yes, it makes me nervous."

Manitoba Hydro and its thousands of employees constitute the province's largest Crown corporation, holding billions of dollars in assets, but also $14 billion in long-term debt, with little equity to back it up. That debt has been projected to grow to $25 billion in the next three to four years, according to a government-ordered review of Hydro's finances by the Boston Consulting Group. 

Hydro is currently embarking on an aggressive capital expenditure campaign. Megaprojects including the $4.65-billion Bipole III transmission line and the $6.5-billion Keeyask Generating Station will be built primarily through debt financing and will significantly contribute to the corporation's current long-term debt load.

Depending on who you ask, this is either par for the course for the public utility or a risky gamble that could put Hydro (and by extension the province) in a perilous financial position.

Is the jewel in Manitoba's crown in as much distress as it would appear? In search of answers, CBC News interviewed economists, bond-rating agencies and analyzed the financial records of Hydro in hopes of getting a clearer picture.

One drought away from trouble

Sanford Riley, the chair of Hydro's board, has looked at the current numbers and sounded the alarm, telling CBC News the corporation's finances are a "ticking time bomb" that will require an equity injection from the province and multiple years of rate hikes to diffuse.

"We want to make people understand, this is a big problem. It's not a small problem," Riley said earlier this month. "We have absolutely no margin for error. No cushion."

Utility expert Brady Yauch of the Consumer Policy Institute agrees with Riley, telling CBC News Hydro could be one drought away from serious financial trouble.

"Manitoba Hydro is in a lot of trouble and that is something I have known for a while," said the Toronto-based economist, who is also the executive director of the Institute.
"It is not a new thing that suddenly hits now, it is something that has been building over time."

Yauch argued recent developments have shown the side factors that once made investing in Bipole III and Keeyask financially viable haven't materialized: export prices are on the decline, the price of both projects is expected to increase and demand for hydroelectricity has stagnated.

Delays in the projects could put a kink in Hydro's 20-year capital expenditure forecast — submitted by Hydro to the Public Utilities Board as part of its 2015-16 rate increase application — changes in when these projects become operational can alter everything from their debt-to-equity ratio projections, rate increase necessities and revenue forecasts.

Shepherd said the biggest concern with delays will be the increased borrowing costs the utility will have to shoulder; it costs the public utility over half a billion dollars annually to finance their debt, an expense that is expected to double over the next 10 years, according to the Public Utilities Board.

Built into the plan is a razor-thin margin in 2021 forecasts Hydro's debt-to-ratio margin falling to 12 per cent; that means 88 per cent of Hydro's capital will be debt.
"When you have very tiny levels of equity, you have no room for errors," Yauch said.

Forecasts show a five-year extended drought would cost Hydro $2 billion in lost revenue and with about $2 billion in equity in Hydro's kitty, it's a risk that hasn't escaped Shepherd.

"If we are at  the 10 per cent equity level and we suffer one of those five-year drought events, you could end up with Hydro essentially having all debt and no equity," Shepherd said. "Is that a high probability? Well, those droughts have  happened before, but they don't happen very often."

'Being built in the traditional way'

University of Manitoba economist John Loxley argues Hydro's 20-year plan is just par for the course for the public utility.

"The ratio recovers once the two are constructed," said Loxley, who is also a former Hydro board member appointed under the NDP.  "The idea that this is somehow new and dangerous defies logic, they have known about this for years … The reality is that Bipole and Keeyask, they are being built in the traditional way through debt financing."

He called Riley's comments reckless and scoffed at Riley's calls for an equity injection from the province.

Riley said there are as much as a $5-billion hole in Hydro's books and wants the provincial government to step up with an injection of capital to help fill the gap, alongside rate hikes and staff cuts.

"The basic idea that the province should borrow money to invest in Manitoba Hydro, the idea this would somehow improve the total debt of Hydro and the province is beyond me," Loxley said.

"They are making highly political statements that is damaging to hydro and its bond rating."

What the credit raters are saying

The international credit agencies charged with deciding Hydro's ability to repay its $13 billion debt have, for the most part, given Hydro a stable outlook. Its debt is guaranteed by the province and as long as Hydro is deemed to be self-supporting, its debt does not impact the Province of Manitoba's credit rating.

Both Moody's Investors Service and DBRS have issued stable outlooks for the Crown corporation in recent months, stating once massive capital projects such as the Keeyask dam and Bipole III transmission line become operational, the public utility's debt burden will be eased.

"We view Manitoba Hydro as being capable of prudently managing its debt, benefiting from access to funding from the Province and seeking rate increases and curtailing capital spending to continue as a self-supporting corporation," states Moody's in its November outlook on the utility.

Both agencies say, given Hydro's 20-year plan, it is fully capable of paying its own costs and debts through its operations.

In contrast, S&P Global Ratings, previously known as Standard and Poor's downgraded the province's credit rating to double-A-minus from double-A in July, it cited the province's debt burden as its chief reason and grouped Hydro's debt into the downgrade — something the DBRS and Moody's have not done.

According to S&P, Hydro's "high and rising leverage" has led them to combine the debt, it wrote in its July outlook on the province.

Equity injection

Riley told CBC News earlier this month a proper capital injection from the province could lower the rates "well below" the double-digit increases they currently believe are necessary to balance the books. 

So far, Premier Brian Pallister has balked at Riley's request for an equity injection, telling media this week he needs to hear more about the state of Hydro's finances from the Public Utilities Board.

Shepherd admits the future looks bleak for the corporation, but said it not all doom and gloom. He said he isn't ready to wade in on the possibility of an equity injection to stabilize Hydro.

"Whether people should be worried or not is up to them. What I can encourage them is not to get too mislaid by the misinformation and rhetoric. We are a solid company with great assets," he said.

"I am not downplaying the financial concerns because $25 billion of debt is a concern, but I would encourage people not to forget about the strengths we have in this province and corporation."

Brandon Sun - 02/13/2017
Sound Off: Get ready for Hydro increases
Our publicly owned Crown corporation, Manitoba Hydro, has just announced possible double digit percentage increases in monthly rates to its customers. I can’t help wondering if the general public realizes that these increases are the result of numerous years of interference into the operations of Hydro by our previous provincial government. Manitoba Hydro was treated as a “cash cow” by our elected officials and now, once again, the taxpayers are left to pick up the tab for mismanagement. Sounds like we are about to see horrendous rate increases by a utility with tremendous potential ruined by short-sighted politicians.

Winnipeg Free Press - 02/13/2017
Too premature to consider Hydro bailout: Pallister
Premier Brian Pallister deflected questions Monday on whether he would consider a multibillion-dollar bailout for Manitoba Hydro, suggesting such discussions are premature.

At a press conference called ostensibly to restate the province's demands for greater federal health transfer payments, Pallister suggested the Crown corporation make its financial case to the Public Utilities Board when it seeks its next consumer rate hike.

Sandy Riley, the Progressive Conservative-appointed Hydro chairman, has said the corporation needs a massive provincial equity infusion to get back on its feet. Hydro has also unveiled plans to trim its workforce by about 15 per cent.

Pallister said the investigative role of the Public Utilities Board should be allowed to play out.

"Unless we understand how we got in this mess in the first place, we shouldn’t move ahead with remedial action because we are not going to be addressing the causes," the premier told reporters. "We may even be repeating the causes of the problem. So the first thing that has to happen is that we have got to investigate and get to the bottom of how we got into this mess in the first place...

"Until we understand how we got into this multibillion (dollar) hole in the first place, talking about solutions would be premature."

Hydro is currently finalizing its financial forecasts for the PUB, a spokesman for the Crown corporation said Monday. No date has been set for a hearing by the regulator.

Pallister would not say whether he has had talks in recent days with Riley over his public appeal for a cash injection. "I don’t talk about personal discussions," the premier said.

Pallister castigated the previous NDP government for placing Manitoba Hydro in a perilous financial predicament by forcing it to greatly expand hydroelectric power production for the American export market. He said Manitobans were not properly consulted.

"I’m not afraid of a public discussion on Hydro or anything else. I think it’s a good healthy thing," he said.

Meanwhile, in beating the drum for higher federal health payments, Pallister cited the findings of six independent studies that show the course Ottawa has set will make it difficult for provinces and territories to maintain adequate funding for social programs and balance their books in the future.

The federal government this year is ending a string of six per cent annual increases in provincial health funding. It has reduced the annual transfer to three per cent and then kicked in extra money for home care and mental-health services. The total increase amounts to about 3.4 per cent this year. Manitoba and the country's largest provinces are demanding an overall increase of 5.2 per cent.

Pallister noted that because of Ottawa's intransigence on the issue so far, Manitoba has been forced to build Ottawa's new health funding formula into its forthcoming budget. The date of the spring provincial budget has not yet been announced.
The premier said the province remains committed to working with organized labour to find cost savings that will allow it to avoid laying off front-line staff and maintaining provincial services.

While he expressed disappointment in the province's inability to negotiate with Ottawa on health funding, Pallister said the two levels of government are working smoothly on the immigration file, including the recent flurry of asylum claims at the Canada-U.S. border point at Emerson.

Federal-provincial discussions have centred on security issues at the border and the cost to social agencies of dealing with larger numbers of asylum-seekers.

"My first concern is for the security of Manitobans, but I’m also, of course, concerned for people seeking refuge here," Pallister said. "Manitoba has always been that welcoming place for people seeking help, and I want to make sure that continues. And I believe Manitobans do, too."

While the punditocracy whipped itself into a justifiable if ritual lather over another Ottawa bailout of Bombardier, the $372-million loan is small change compared with the multi-billion-dollar green electric power fiascos across the country.

A rough tally of the ballooning financial plight of the electricity sectors in British Columbia, Manitoba, Ontario and Newfoundland quickly runs to more than $50 billion in new debt and imbedded costs for investments that threaten to be money-losing drags on growth and consumers — and the federal government —for years to come.

A rough tally of the ballooning costs in four provinces’ green electricity debacles runs over $50 billion

The looming disasters have two things in common. They are the work of government-controlled and politically manipulated Crown corporations. They are also the product of a deliberate push to produce clean, green and renewable carbon-free electricity. No fossil fuels allowed. Money is no object.

British Columbia

An $8.8-billion dam known as the Site C Clean Energy Project in northeastern B.C. has been described as a “white elephant” by a former hydro executive. Last month Moody’s warned that “BC Hydro posts some metrics that are among the weakest of Canadian provincial utilities.” The company’s debt is heading to $20 billion. Hydro, said Moody’s, has the “flexibility to increase utility rates to ensure that its own revenues will continue to support its operations and debt payments.”

Approval of Site C came in the context of the B.C. Green Energy Act, which mandates that 93 per cent of the province’s electricity must come from “clean and renewable resources.” There is, alas, no requirement for economic viability. And in a bit of double-think, B.C. Hydro’s environmental impact statement notes there could be huge demand for Site C power if assorted liquid natural gas projects go ahead. The province will therefore mandate carbon-free renewable power to help produce carbon-containing LNG.


Manitoba Hydro, also building clean and renewable projects worth billions, this week announced 900 layoffs with a warning from Sandy Riley, its new chairman, that the utility is a “ticking time bomb” that needs a financial bailout. Rate increases exceeding 10 per cent per annum are possible.

A report last year from The Boston Consulting Group (BCG) warned that Manitoba Hydro’s debt could double to $23 billion by 2023, propelling the provincial debt/GDP ratio to 65 per cent. If interest costs rise, Manitoba could become “a province with the highest debt per capita of any in Canada,” said Riley.

The BCG report also concluded that the projects driving Manitoba Hydro into a fiscal mess were approved based on political and environmental concerns rather than economics. “Imprudence can be traced to systemic decision governance issues,” including lack of clear division of roles among players and the fact that rates were not linked to returns.

Delays and cost overruns are already at play. Complicating matters is Manitoba’s too-clever plan to sell surplus electricity to neighbouring Minnesota and Wisconsin, since they were forced to forgo fossil-fuel generation under a new U.S. Clean Power Plan. But with President Trump in the White House and a U.S. market awash in cheap natural gas, those sales now look doubtful.

Even last year, pre-Trump, BCG warned Manitoba Hydro about the probability of low export prices for electricity, setting Manitoba up for a reversal of the original plan. Instead of subsidizing cheap electricity at home through high export prices, Manitoba could end up with expensive electricity at home and cheap or non-existent export markets.

Whatever the lost merits of Manitoba’s energy project, BCG concluded there could be no going back. Sunk costs of $5 billion and $2 billion in cancellation costs are just too great to justify killing the projects.


Under Ontario’s Green Energy Act, the Liberal government of Kathleen Wynne has saddled the province with escalating wind and solar electricity costs that will drain billions from industry and consumers. Power costs have already doubled to nearly 12 cents a kilowatt-hour to pay for the green energy needed to replace coal plants. For a detailed review of Ontario’s electricity troubles, may I suggest a Google search for my column last October under the headline “Boondoggle: How Ontario’s pursuit of renewable energy broke the province’s electricity system.”


The cost of Muskrat Falls, a giant Labrador hydro project designed to ship “clean” and “cheap” hydro power overland and underwater to Newfoundland, is now said to be approaching $12 billion. Former premier Roger Grimes (whose predecessor, Danny Williams, pushed Muskrat) said recently the project “will haunt all of us, unfortunately, for the rest of my life, my daughter’s life, my granddaughter’s life even.”

Williams defended the project in a speech last month as a job creator that will cost only three to four cents more per kilowatt-hour — numbers energy consultant Tom Adams describes as a fantasy from another world. Muskrat power, if it ever reaches Newfoundland, will arrive at an estimated price of 22 cents per kilowatt-hour on top of the existing 12 cents.

Muskrat Falls is a prototypical modern green-megaproject whose proponents, political and corporate, used the current obsession with carbon reduction to justify billion-dollar spending on “renewable” and “clean” hydro power in the wilds of Labrador. As in Manitoba, the plan is to export the power to other jurisdictions, but no jurisdiction is going to pay 22 cents for Muskrat power that can be bought for at least half that elsewhere.

As in Manitoba and Ontario, massive losses loom for Newfoundland. At a current $12-billion estimated cost (excluding financing), the per capita debt burden on Newfoundlanders increases by $24,000. Since half the Muskrat debt is guaranteed by Ottawa, thanks to prime ministers Harper and Trudeau, federal taxpayers are also on the hook.

The grim state of the electricity sectors in the four provinces (with new risks of generation turmoil and price increases in Alberta) creates an impossible situation for the dreams of the Trudeau government, which announced in November plans to use electricity as a “nation-building effort.” Ottawa would be better off sticking with bailing out Bombardier for a few hundred million bucks rather than getting itself even more tangled in provincial electricity boondoggles where bailouts costs would run to the tens of billions.

Something has changed radically in Manitoba Hydro's view of its fiscal future and there is growing concern over who will feel the brunt of big rate increases.

At the end of 2015 the utility was requesting increases of
3.95 per cent year-over-year until 2024. Now a message from the board of the Crown corporation says double-digit increases will be needed for at least five years.

On Friday Manitoba Hydro announced it would seek a workforce reduction of 900 staff, starting with offering severance packages to employees. The press release announcing the cuts also came with a statement from Hydro board chair Sandford Riley saying staff reductions would not be enough to improve the company's fiscal problems. 

"Even with these reductions, double digit annual rate increases would be required for at least five years in order to re-establish Manitoba Hydro on a proper financial footing," Riley said in the statement.

The statement also reiterated the board's interest in getting an injection of capital from the provincial government.

Business owner calls double-digit increases 'mind-boggling'

Just about every piece of equipment in Denny's Meat Market, from coolers to saws and grinders, consumes electricity and owner Denny Dueck sees double-digit rate increases for electricity as "mind-boggling."

"We have equipment that runs on it on a daily basis, 24-7. It never quits," Dueck says. "You have an increase on that product; where am I going to get the money for the increase on that bill?"

Dueck says possible rate hikes that large are just another in a long string of increased costs his business has been facing, citing bumps in property taxes and water rates. He fought off stiff competition from big-box groceries and rising meat costs, but rate hikes larger than perhaps 10 per cent a year are tough to chew.

"When I heard about the increase, I said, you know what? I might as well shut my doors because I'll give it to Hydro," Dueck said.

Dueck also has plenty of sympathy for Hydro staff who may face layoffs.

"I feel bad for 1,000 people that are going to lose their jobs. That's ludicrous! It sucks!" Dueck said.

Dueck has a message for the board, management and minister in charge of Manitoba Hydro on rate hikes.

"Give your head a shake. What are you doing out there? It's not just hurting me, its hurting everyone in the city. What, are we going to get a second job now to pay for the Hydro?" Dueck said.

Food or electricity?

Business owners aren't the only people looking at the electricity meter and worrying about the bill.

Josh Brandon with the Social Planning Council of Winnipeg says people living below the poverty line and on fixed incomes will struggle to make ends meet if the cost of electricity rises so much over the cost of inflation.

He says in some rural and northern regions, where natural gas is unavailable, the impact could be even more acute.

"People living below the poverty line are already struggling. They are having to make impossible choices already about whether they are not going to pay their Hydro bill or cut back on food or rent or other basic necessities," Brandon told CBC News.

Brandon says it's even more frustrating because it's not clear how much of an increase Hydro will request from the Public Utilities Board. He says the signals from the utility are confusing because his organization was already concerned about the 3.95 per cent increase previously granted to Hydro.

The Social Planning Council provided some analysis for Hydro last fall on the effect of increases from four to eight per cent. Now it may go much higher — increasing what Brandon calls the energy poverty rate.

"Now if we are talking about 10 or more per cent it's going to be pretty difficult for a lot of families," Brandon said.

Pallister 'concerned' about rate hikes, won't commit to Hydro bailout

Progressive Conservative Premier Brian Pallister told reporters Monday that rising power rates and Hydro's poor fiscal fortunes were created by the former NDP government.

"We all know the mess at Hydro and we understand the overreach of the previous administration was a mistake. We see that already in rapidly escalating hydro costs and that's hurting Manitoba families, so we are very concerned about the increasing costs and how we can strengthen Manitoba Hydro," Pallister said. 

Pallister was asked several times if his government was willing to make an equity investment to help Hydro's bottom line and perhaps ease a rate hike, but he told reporters it was up to the PUB to determine where the rates will be set.

Riley has spoken publicly about Hydro's need for a cash injection from the province and it was mentioned last Friday in the board chair's statement on job cuts and rate increases.

Pallister says his government doesn't want to see double-digit increases for electricity, but suggested the NDP went around agencies such as the Clean Environment Commission and the Public Utilities Board. Pallister says his government won't do that and will allow the PUB to make the decision on any future rate increases.

"I do not believe that circumventing those processes is in Manitoba's best interest, so I respect the protections that Manitobans have with those agencies and we'll make sure that we follow the proper procedures in dealing with any rate application increase," Pallister said.

Winnipeg Free Press - 02/08/2017
Pallister’s course on Keeyask means higher rates
Premier Brian Pallister promised during the 2016 election campaign he would immediately halt construction of the $4.65-billion 2,300-megawatt Bipole III and the 695-MW Keeyask hydroelectric generator, now valued at $7.2 billion.

The day after the April 19 election, Manitoba Hydro launched its aggressive Power Smart Program. If carried through for an investment of less than $2 billion, Power Smart would reduce Manitoba’s load requirement more than what Keeyask, at $7.2 billion, would supply. In other words, Keeyask and Bipole III would not be required even to meet the contracts being put in place with the Americans for some of its power.

Pallister, unfortunately, let construction continue, at a cost of $10 million per day, through September. He appointed a new board with business expertise and little engineering capability. They hired the credible Boston Consulting Group to review the situation of Bipole III, sized to 2,300 MW, to carry the 695 MW of the Keeyask generating station.

Bipole III was being justified for "reliability," but there was never a probability-based reliability study tabled by Manitoba Hydro, as is accepted practice for such developments. Instead, alarmist statements of disaster were made to scare the daylights out of everyone, statements the consulting group picked up on. The reliability scare tactics failed to include the impact of the aggressive Power Smart program and the reliability benefit for the Manitoba-Minnesota Power Transmission project needed for the increased electricity contracts to Minnesota.

Hydro’s board fed data from Manitoba Hydro to the consulting group that was based on higher load growths in Manitoba than is actually happening, particularly with its Power Smart program causing lower load growth. Furthermore, the data the board fed the consulting group was an optimistic price for future exported electricity.

By September, the consulting group recommended continuing with the development of the Bipole III west side route and Keeyask because "the project is too far along to change it."

A benefit is the temporary economic growth from the construction and related industry giving Manitoba a good current economy. A very severe consequence, in addition to the disaster to farming, business and the environment, is the $25 billion the province has to borrow for Manitoba Hydro and the devastating hydro rate increases that will follow.

Would Pallister want to reduce the lucrative half-billion dollars annually into the treasury from loan guarantees, water rentals and capital taxes all to be paid as a "hidden tax" from our increasing hydro rates if the $25 billion were cut back? The $25 billion may well have been reduced if Pallister had stopped construction of Bipole III and Keeyask on April 20 and supported Power Smart initiatives. It is questionable whether Power Smart will continue to be aggressive or just a token effort because the Manitoba Hydro vice-president for this program has been fired. On the surface, it seems the aggressive Power Smart program has to be cut to avoid stranding Keeyask.

Manitoba Hydro warned the Crown corporations committee at the legislature several months ago the 3.95 per cent hydro rate increase would be inadequate. We now know we will be exposed to an annual increase in hydro rates of 10 per cent or more over five years.

This will be a tragedy for some businesses, which may have to fold, and a disaster for low-income earners on electric heat, many of whom will face energy poverty. Thermostats will be turned down, and food purchases will be scrimped — factors neither the Hydro board nor the government appear to have considered. A home heated electrically today at $700 each winter month will rise to $1,200 after the five years of rate increases.
To address energy poverty, the provincial government should be prepared to allocate the half-billion dollars it will receive annually into the treasury from Manitoba Hydro to compensate households with electric heat and low income, and also to businesses facing bankruptcy.

The chair of Manitoba Hydro's board didn't mince words in describing the financial problems facing the utility, in the wake of a workforce reduction of 900 staff and potential double-digit rate increases.

"We want to make people understand, this is a big problem. It's not a small problem. We take that position not only from Manitoba Hydro's perspective, but from the perspective of the government of Manitoba and the people of Manitoba; Hydro is a ticking time bomb," Sandy Riley told CBC News.

The board of the utility has been signaling for some time the situation at Hydro is dire.

Riley said the financial picture became increasingly clear as the relatively new board of directors (appointed in May 2016) worked through the company's books. He said the board had a completely different view of the health of the crown corporation from that of the previous appointees. For example, Riley said, on keeping requests for electricity rate increases to below four per cent.

"They were wrong. just simply wrong...we don't agree with them. We don't agree with what they did, we don't agree with the conclusion," Riley said.

Riley said the crown corporation has a fiscal hole in the range of $4.5 billion to $5 billion and wants the provincial government to step up with an injection of capital to help fill the gap, alongside rate hikes and staff cuts. He didn't say exactly how much that cash injection might be, other than it wouldn't be all of the multi-billion dollar shortfall.

Massive capital projects such as the Keeyask dam and Bipole III transmission line have put pressure on the company as they run over budget.

The financial picture at Hydro is in such rough shape, Riley said, that rate increases to improve the situation could actually run a few points above 10 per cent.

"We have absolutely no margin for error. No cushion," Riley said.

Provincial funds could ease rate hikes

Riley said an equity injection from the provincial government could ease the financial situation at Hydro and bring the needed rate increases down.

"If we have an investment from the owner of Hydro, which is us, the people of Manitoba, it will allow us to moderate increases overtime that will allow less of an impact on consumers," Riley said.

Riley said a proper capital injection from the province could lower the rates "well below" the double-digit increases they currently believe are necessary to balance the books. That could help lower-income rate-payers and businesses that use large amounts of power.

The Public Utilities Board approved a 3.36 per cent rate increase for all customer classes last August. Hydro, under the previous board, had asked for a 3.95 per cent hike.

Riley said he hasn't yet had a conversation with Premier Brian Pallister on the need for an equity injection by taxpayers but he said it will very soon. Yesterday, Pallister was repeatedly asked if he would consider such a move, but he was noncommittal.

The premier was not available for a interview today, but his office sent a statement blaming the previous NDP government for the current state of Hydro's finances and expressing concern for families and businesses that may face increased Hydro bills. It's too soon, Pallister said, for a decision on an equity injection.

"It would be premature to comment on other plans being considered or developed by Manitoba Hydro," Pallister said in the statement.

Impact on province's credit rating

Another compelling reason for the province to step-in and help with Hydro's finances and its fiscal future lies with credit rating agencies, Riley said. 

The businessman and board chair said some agencies are moving to combine the provincial debt with Hydro's, potentially triggering a downgrade for the province that would cost hundreds of millions in added debt servicing costs.

"If that's the case Manitoba quickly becomes a province with the highest debt per capita of any in Canada... Those are worrying numbers, because if you get a rate increase of one per cent because of a change in the ratings, on $50 billion worth of debt, which is where you'll be with Manitoba combined [with Hydro's debt], that's $500 million of additional costs that are going to go year after year to people who are lending us money," Riley said.

That is unsustainable for the province, he said. 

The crown corporation's fiscal plan could restore the company's financial health and make it a key asset for the province, but the time to act is now, Riley said. 

Winnipeg Free Press - 02/07/2017
Shine a light on Hydro layoffs

Also published in the Brandon Sun as “Shinning a light on Manitoba Hydro job cuts”.

It may be a good time for those working in Crown corporations across the province to update their resumés. Manitoba Premier Brian Pallister told reporters on Monday the government has set a 15 per cent management-reduction target as a starting point for all Crowns.

But Mr. Pallister shouldn’t think this is going to save money right away. As in any case where there are massive layoffs and voluntary buyouts, the savings aren’t realized during the year they take place.

Take for example the Friday announcement from Manitoba Hydro. The Crown corporation is planning to eliminate 900 positions, or 15 per cent of its workplace, in 2017. But that won’t ameliorate the need for Hydro to initiate double-digit rate increases over the next five years. More than anything, Friday’s announcement signals to the provincial government that the newly constituted board got serious about finding efficiencies before seeking government assistance in dealing with its growing deficit.

Hydro CEO Kelvin Shepherd said the board hopes a volunteer departure program can be used to help downsize, after regular retirements occur. Mr. Shepherd foreshadowed Friday’s announcement in September, suggesting the Crown utility would definitely "have to reduce operational costs" and staffing makes up 80 per cent of those costs.

While not finalized, Mr. Shepherd says the basic framework for this new departure program would allow for two weeks pay for every year served, to a maximum of 30 weeks. Which means, any savings won’t occur until 2018 when it’s expected the Crown corporation will save $65 million annually.

This is normal when any organization does cutbacks — the benefits aren’t immediately realized. For example, when the federal government in 2012 attempted to cut 30,000 people from its public service ranks, it was estimated it would cost taxpayers $3 billion. Unions ensure that their staff are protected, as they should, so the full effects aren’t felt immediately.

During public meetings in October, the Manitoba Hydro board had suggested it was hoping for a major equity injection from the province to prevent the need for double-digit rate increases. The rate hikes remain a possibility, but perhaps now there is an opportunity for the board to return to the province and revisit that request. How it will be received is another question altogether. Mr. Pallister confirmed Monday he won’t consider a bailout and questioned the need for double-digit increases entirely.

Suggestions within the labour movement are that these Hydro moves are classic "shock doctrine" tactics to create a crisis, with the government responding with privatization as the only solution. However, the premier has denied that repeatedly, going so far as to include in the mandate letter given to Ron Schuler, minister for Crown Services, that the top priority is "above all else" to keep Manitoba Hydro public.

Manitoba Hydro has been in trouble for some time. Its debt is set to double to $25 billion within four years. Within two days of winning the election last April, Mr. Pallister’s government fired the Hydro board and replaced them with appointees who have senior financial management expertise.

So the Crown corporation says it has done what it can to cut 15 per cent off the top, but that’s not translating to any real savings in 2017. The premier remains doubtful that double-digit rate increases are necessary. And labour is suggesting this is all just a plot to drive privatization discussions.

Someone needs to shine more light on what’s really going on at Manitoba Hydro.

Winnipeg Sun - 02/06/2017
Step aside, Premier Pallister - you failed
By: GRAHAM LANE, Manitoba Forward
Sanford Riley, chair of Manitoba Hydro’s board of directors, recently announced that 900 employees would be let go along with three sacrificial executives. Furthermore, he forecasts a series of double-digit annual rate increases — unless a desperately needed government bailout comes.
No real surprise to the many knowledgeable critics of Hydro’s expansion, just far too late to save ratepayers’ and taxpayers’ hides.
Premier Pallister, before the election, pledged to stop Bipole III and hold a public review of the highly questionable $25-billion plan. Virtually every critic believed him, rejoicing in the upcoming demise of the NDP government’s control over Hydro.

Problem is Pallister broke his promises and let the expensive boondoggle continue while his new board studied the situation. It is impossible for Brian Pallister to not have known that Hydro’s expansion was highly questionable. Yet, he allowed the expansion to continue while his new board got up to speed: a bad decision.

Pallister was “buried” by information and advice from many experienced professionals and experts that had studied Hydro’s plans. Their concerns were articulated in extensive studies and media reports, all based on relevant market research and valid risk concerns.
Unanimously, they lobbied Pallister and his colleagues, seeking an immediate halt and inquiry upon a PC election win. Before the election, Pallister welcomed all efforts to save the public’s purse.

Pallister won the election but, surprise, surprise — and despite further urging by many knowledgeable critics — he didn’t follow through. He brought in a new-to-hydro board which spent about $10 million a day before coming to the same conclusion as the critics had laid out in graphic detail well before. The problem with the new board was they didn’t realize the depth of the hole that the NDP dug for Hydro. As a result, the new board and Pallister’s government continued the Bipole III, Keeyask dam and Minnesota tie-line projects.

A big mistake by the new board and Premier Pallister — a tragedy for Manitobans.

The result of the long delay before what was already known became accepted by the new board is that billions of dollars more will be lost, billions that will likely be collected in the future from ratepayers, including suffering lower-income households heating their homes electrically.

We will see energy poverty if Pallister’s government doesn’t pick up the tab and leaving industry and the general economy to be seriously damaged for generations to come. If Pallister had stopped the madcap building spree right after the election — as he promised — further wasted billions could have been saved.

Blame the NDP, blame Hydro executives, blame the old and new Hydro boards, even blame the opposition parties during the NDP years, yes! But, in particular, now also blame Mr. Pallister. His blunder should be recognized and acted upon immediately. His incredible mistake will likely have a greater impact on our economy than all the other decisions combined that the PCs make during this term.
His blunder is so big in fact that Mr. Pallister should step down and enjoy his Costa Rican property. Let the PCs elect a new leader and premier, one that would listen and work for the people of Manitoba, starting by authorizing the promised, but never held, broad independent inquiry of Hydro.

Ratepayers and taxpayers deserve nothing less.

Winnipeg Free Press - 02/06/2017
Hydro layoffs a Tory warning - lean times ahead
Public sector workers, unions should prepare themselves for cutbacks
For public sector workers and their unions, it was shock and awe.

Friday’s announcement Manitoba Hydro was cutting 900 jobs came as a pretty big surprise. The Crown power utility had made some noise earlier in the year about the need to drastically reduce its overhead to deal with a mounting debt load from the construction of new generating stations and a new transmission line. Enough noise that hundreds of unionized workers at Hydro agreed to join non-unionized staff and management in a wage freeze for this year.

But 900 job cuts? Hardly anyone saw that coming.

Hydro said the cuts were necessary to put the utility back on the path to financial stability. The utility is facing the prospect of major rate increases to deal with continuing low electricity export prices and massive increases in debt related to its capital program. Previously, Sandy Riley, the newly appointed chair of the Hydro board, had suggested that without radical changes, Hydro’s burgeoning debt could single-handedly erode the province’s credit rating, which would mean increased borrowing costs in the future.

The impact on Hydro is hard to calculate right now. The utility isn’t being specific about which jobs will be lost, how many are currently unfilled and exactly how many actual layoffs will be needed to achieve its stated target. There will be a voluntary departure program, and nearly 1,000 employees are eligible to retire in the next year or so. Those two streams will ultimately decide how many actual pink slips get handed out.

The bigger question is what, exactly, will these layoffs accomplish?

Not all job cuts are created equal. For government, where appearance is often more important than reality, layoffs are not always what they seem. Yes, actual pink slips get handed out, but in many instances, the work performed by the departed employees is handed off to consultants. For better or worse, government gets the credit for making a tough decision even though the actual costs of running government don’t really go down that much.

For the time being, the Hydro layoff announcement — which seeks to reduce total employment at the utility by nearly 15 per cent — serves two important goals.

First, it sends a strong message to bond rating agencies and core Tory supporters that the current government is serious when it comes to fiscal restraint.

And second, that other public sector workers and their unions should prepare themselves for a world of pain.

The timing of the Hydro downsizing is significant. According to sources, Finance Minister Cameron Friesen is expected to have a second summit meeting with public sector unions in mid-February to discuss possible wage freezes or rollbacks. The first face-to-face meeting took place in early January, a gathering that was distinguished by the complete lack of detail about what exactly the province wants from its unions that they haven’t already given up voluntarily.

Tens of thousands of provincial civil servants are already working under contracts that started with wage freezes and held subsequent increases to less than two per cent annually. Another 40,000 or so government workers have contracts expiring this year, and their unions have been upfront about the fact they are willing to look at similar deals.

In that context, the Hydro announcement becomes a diabolically effective tool of intimidation. Any public sector labour leader who didn’t think Premier Brian Pallister was serious about squeezing unionized employees is patently aware now that the new Tory government is going to cut deeply and broadly across government to find savings.

It would certainly help the dialogue with unions if, at the February meeting between Friesen and labour leaders, the province revealed more of its master plan. To this point, it’s been nothing but cryptic rhetoric.

Public sector union officials continue to maintain that they do not know whether Pallister wants savings from existing, settled contracts, or whether he will focus his attention on contracts that are up for negotiation this year. Pallister has threatened to bring in legislation, but has not told anyone what that legislation would seek to do. Wage freezes? Rollbacks? Layoffs? Nobody knows.

Pallister will get concessions from those groups that mirror, at the very least, what the former NDP government got in past years. However, the unions are unlikely to agree to re-open existing contracts, so it makes sense for Pallister to look at legislative options to force concessions on bargaining groups that are under existing deals.

Whether he can do so remains a matter of great debate.

Government would have to show a sincere commitment to negotiating a solution before bringing forward legislation. And just putting the finance minister in a room with labour leaders is not likely going to be enough to meet that requirement. At some point, either Friesen or Pallister is going to have to make a formal proposal to the unions. And soon.

The Pallister government is working all-hands-on-deck to get the next provincial budget in order. The economy continues to sputter, own-source revenues are hardly growing, health-care transfer payments will be down slightly and the costs of operating government continue to rise.

On top of that, you have the very real threat that 2017 will see a significant increase in interest rates. Those conditions will make deficit reduction nearly impossible.

With the shock and awe of the Hydro announcement, Pallister has successfully captured the attention of all public sector unions. It’s time to let them and the broader public know exactly what it is he wants from unionized workers going forward.

Steinbach Online - 02/06/2017
Large Air Crane To Start Working West of Steinbach This Month
There will be a quite spectacle in the skies west of Steinbach starting in late February. Manitoba Hydro will be starting to install the large towers for the Bipole III transmission line. And Public Affairs Manager Scott Powell says one of the main means of installation in our area will be by a huge helicopter.
"We have been testing and will be using a large Erickson Aircrane which is a large, very powerful, helicopter that will lift the towers out of the assembly yards, fly them to the location and lower them down into place. Our ground crews will bolt them to the ground and get the guy wires in if they're single point towers, and, once they get them bolted in that helicopter lets go, heads back and picks up the next one and it really can speed up your process."
Stacks Image 3040

Erickson Skycrane at work (Photo credit: Manitoba Hydro)

Powell says they can install 10-20 towers per day by helicopter but only two to four per day by regular crane. He says the air crane will be used to install the majority of the 334 towers from east of Winnipeg, south to Mitchell, then west along Highway #52 and Provincial Road 305 and continuing west to Carman.
Stacks Image 3042
"For a lot of people in agriculture, it (the helicopter) greatly reduces the footprint on the ground by minimizing the size and the amount of construction equipment we need to have in an area to get those towers installed."

Powell says we shouldn't be surprised to see people stopping and gathering to watch when the sky crane is at work.

"They're actually quite an incredible machine. They were originally designed and built by Sikorski and Erickson acquired the rights to build these units. They are loud but it is really something to watch. I know the contractors have told us, when they're using these things, a crowd will always gather to watch these machines in action because it is quite something to see a helicopter carrying a 100-150 foot-tall tower. Its' really quite something to look at."

Some of the towers will also be installed by traditional cranes.

Powell says the Bipole III project is to be completed by July of next year. He notes there will be 3,025 towers over the entire length of the transmission line from northern Manitoba and 12% of them have already been erected.

Winnipeg Free Press - 02/03/2017
Manitoba Hydro cutting 900 jobs in ‘necessary first step’

Manitoba Hydro is cutting 900 jobs — 15 per cent of its workforce — and there's more to come.

The cuts will come from throughout the entire organization, including the elimination of three vice-president positions, and should save the utility $65 million a year.

But that won't be enough to save Manitobans from significant rate increases for the next five years unless the provincial government provides financial help, Hydro board chair H. Sanford Riley said Friday in a prepared statement.

"Even with these reductions, double-digit annual rate increases would be required for at least five years in order to re-establish Manitoba Hydro on a proper financial footing," he said.

"We believe that a balanced approach in which the government — the owner of Manitoba Hydro — invests equity into Manitoba Hydro, will allow the utility to moderate rate increases to more manageable levels."

Kelvin Shepherd, the Crown corporation's president and CEO said the intention was to reduce the 6,200-person workforce more slowly through attrition, but the utility couldn't wait any longer. He said Hydro wants to cut as many of the jobs as possible by the end of 2017.
There are between 900 and 1,000 employees eligible for retirement, though they may not all be in jobs Hydro wants to reduce, and they won't necessarily be willing to take a buyout. Shepherd wouldn't say what the next move would be if 900 people don't leave voluntarily.
And he declined to answer questions about the amount of financial help the board is seeking or the size of rate increases Manitobans could expect.

"Those are all discussions between the board and the government," he said.

Premier Brian Pallister has, so far, resisted making any commitment to a Hydro bailout and was not available for comment Friday.
The government released a statement from Crown Services Minister Ron Schuler, who pointed the finger at the NDP.

"Serious problems, created by political decisions and direction of 17 years of NDP government, have forced the board of directors of Manitoba Hydro to make some very difficult decisions," Schuler said.

"Addressing the financial challenges of Hydro will take time. Our government will continue to monitor the corporation's ongoing efforts. We will review and consider Manitoba Hydro's plan for the future alongside the necessary processes of the Public Utilities Board, which will play a significant role moving forward."

NDP labour critic Tom Lindsey called the decision "a shocking and shortsighted move."

"The loss of so many skilled workers puts Hydro’s long-term future in doubt by making it more difficult to finish projects on time and meet export contract deadlines, Lindsey said in a prepared statement. He said "it will force Hydro to rely more heavily on contract and out-of-province labour to fill the gaps Pallister is creating."

Hydro said in the fall that megaprojects approved by the former NDP government would doom the utility to doubling its debt to $25 billion and cause serious damage to Manitoba's credit rating.

Friday's news came as no surprise to the unions representing the bulk of Hydro's workforce.

"They certainly made lots of noises in the fall," said Unifor's Paul McKie. "First they create the false story of a financial crisis, now they kill hundreds of good jobs."

McKie, the union's Manitoba and Saskatchewan area director, said there's plenty of anger over the announcement.

"It's not good — 900 jobs is massive," he said, adding Unifor has no idea how many of its members will be affected. "To take 900 good-paying jobs out of the Manitoba economy is vicious."

International Brotherhood of Electrical Workers Local 2034 president Mike Velie said Hydro is targeting 200 to 250 IBEW-member positions but has not provided specifics.

About 280 members are currently eligible to retire, Velie said.

"They have a brand-new board hand-picked by the premier," Manitoba Federation of Labour president Kevin Rebeck said. "This is a broken promise. Manitobans put their trust in (Pallister) to protect services."

The Canadian Union of Public Employees has already lost 150 Hydro jobs in the last five years and recently agreed to a wage freeze in the first year of a four-year deal, Local 998 president Chris Mravinec said, adding further reductions of CUPE members will affect customer service.

Brandon Sun - Print Edition 01/24/2017
Sound Off - Future looking bleak
Those worried about Premier Brian Pallister taking holidays in Costa Rica should be more concerned about the cost of hydro in the coming years due to the ridiculous decisions made by the past NDP government.  Manitoba Hydro realizes that its runaway expansion plans have turned into billion-dollar mistakes.  We will be looking at rate increases of at least four per cent for many upcoming years to pay for the boondoggle.  Manitoba residents are on a path to energy poverty, similar to what is happening in Ontario.  Add a carbon tax to hydro increases, among other perpetual increases, and the future is looking bleak for working Manitobans.  Thank you, NDP, for allowing Manitoba Hydro to make lives more difficult for low- and middle-class Manitobans.

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