Winnipeg Free Press - PRINT EDITION

Manitoba Hydro is on solid ground

  • Print
A recent article in the Free Press by Dan Lett (PUB doubts Hydro's business model, July 4) implies that because The Public Utilities Board (PUB) ordered a higher electricity rate increase than requested by Manitoba Hydro, that Hydro's core business model of selling surplus energy on the export market to keep rates low in Manitoba is in doubt. The article suggests that rapidly rising construction costs and the strong Canadian dollar will make Hydro's export sales unprofitable.

While it is true that construction costs have escalated to unprecedented levels, this is a worldwide phenomenon as a result of dramatic increases in the costs of such commodities as steel, copper and concrete. In addition, shortages of skilled labour are driving up construction costs to levels never seen before. As unwelcome as these price increases are, the demand for clean sources of electricity is also soaring and Manitoba Hydro is able to demand significantly higher prices for the power it sells to neighboring utilities. Therefore, the overall return on Hydro's investments in new generation and transmission is being maintained and in some cases, enhanced.

With respect to the strong Canadian dollar, it is not correct that this is having a negative impact on Hydro's profits. In fact, because Hydro finances a portion of its capital requirements in U.S. dollars, it is able to manage U.S. cash inflows and outflows such that there is a virtual offset. For this reason, Hydro is relatively indifferent, from a financial perspective, to the strength or weakness of the Canadian dollar versus the U.S. dollar.

In its rate application filed with the PUB in support of a 2.9-per-cent rate increase, Manitoba Hydro cited the following reasons for needing additional revenue from domestic customers:

1) Like any other business, Manitoba Hydro is faced with increasing cost pressures as it fulfils its mandate to provide a safe, reliable and efficient supply of energy to Manitoba consumers.

2) Because Manitoba Hydro has significant requirements for funds to manage its operating and capital programs, the more funds it can generate internally, the less it will have to borrow from external markets. Reduced borrowing leads to reduced debt, which in turn leads to reduced financing costs for the ultimate benefit of Manitoba consumers.

3) In order to maintain the financial well-being of Manitoba Hydro and to provide assurance to bond-holders and debt-rating agencies that Manitoba Hydro is financially strong and self-sustaining, it is important for Manitoba Hydro to continue to make steady progress toward the achievement of its financial targets. One of the key financial targets is the debt/equity ratio which measures the proportion of fixed assets financed by debt versus equity. Manitoba Hydro has been striving to achieve a debt/equity ratio of 75:25 and has made considerable progress over the past decade -- from a ratio of 88:16 in 1997 to the current debt/equity ratio of 76:24.

4) Because Manitoba Hydro's electricity is generated almost exclusively from hydraulic sources, the corporation is vulnerable to periods of low water flows caused by prolonged drought. To adequately provide for these low water conditions which will inevitably occur, it is prudent to build a level of financial reserves that can withstand the negative financial impacts of such conditions.

5) In addition to drought, the corporation faces many other risks including the potential loss of infrastructure due to extreme weather or some other catastrophic event, the loss of export markets which could occur for a number of reasons beyond Hydro's control, and the risks associated with an aging infrastructure and an aging workforce. Again, a sufficient level of financial reserves is important to adequately address these risks.

Over the past decade, Manitoba Hydro's rate increases have been well below the rates of inflation. While this has been very beneficial for consumers, it is now prudent to gradually raise rates over time. In submitting its rate application to the PUB, Manitoba Hydro was confident that a 2.9-per-cent rate increase in 2008 followed by annual rate increases closely aligned with the rates of inflation would be acceptable for our requirements. However, the higher up-front rate increases awarded by the PUB will allow for rate increases in the future to be lower than they would otherwise be.

The PUB stated in its order that, "even with a five-per-cent increase as of July 1, 2008 and, if confirmed and implemented a further four per cent as of April 1, 2009, electricity prices will remain lower than are found in the vast majority of North American jurisdictions." Manitoba Hydro agrees with this statement and further firmly believes that its business model will continue to provide Manitobans with an electricity price and security of supply advantage for generations to come.

Bob Brennan is president and chief executive officer of Manitoba Hydro.

Republished from the Winnipeg Free Press print edition August 11, 2008 $sourceSection$sourcePage

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes

    No

  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.

letters

Make text: Larger | Smaller

LATEST VIDEO

Christmas Cheer Board hamper kickoff

View more like this

Photo Store Gallery

  • A mother goose has chosen a rather busy spot to nest her eggs- in the parking lot of St Vital Centre on a boulevard. Countless cars buzz by and people have begun to bring it food.-Goose Challenge Day 06 - May 08, 2012   (JOE BRYKSA / WINNIPEG FREE PRESS)
  • A one day old piglet glances up from his morning feeding at Cedar Lane Farm near Altona.    Standup photo Ruth Bonneville Winnipeg Free Press

View More Gallery Photos

Poll

Should the federal government force band chiefs and councillors to disclose their salary information?

View Results

View Related Story

Ads by Google