Province on the sidelines as PUB, Hydro do battle

Perhaps couples' counselling would help.

Something needs to be done to ease the hostility between Manitoba Hydro and the Public Utilities Board. For many years now, Hydro and the PUB have sparred over rates and the utility's business plan.

Last month, the PUB refused Hydro's request to raise rates by 2.9 per cent in each of the next two years. Instead, the PUB ordered rates to go up by only 1.9 and 2.0 per cent. Hydro appealed that decision, claiming the PUB order will cost the utility $65 million. Hydro says it needs the money to combat a softening U.S. market and a lack of snowfall this winter that will lower lake and river levels and result in northern dams generating less electricity. "All these conditions are going to flow together to indicate that we're going to need the money," Hydro spokesman Glen Schneider told the Free Press.

The PUB deliberately destabilizing Manitoba Hydro? Not exactly.

Hydro and the PUB have been sparring over two major issues: export contracts and the utility's $20-billion capital expansion plans. Hydro believes legislation prohibits the PUB from nosing around export contracts or using the costs of building additional dams when analyzing rate applications. The two sides have been to court on several occasions to fight this fight. In January, an appeal court ruled Hydro was entitled to fight a PUB subpoena seeking export-contract details.

The problem is, all these issues are related. The revenues Hydro earns selling electricity to the United States and the cost and cost-effectiveness of new dams and transmission lines, are related to domestic electricity rates. If you earn less money than originally forecast selling into the United States and the cost of building new dams goes up precipitously, there must be an impact for the ratepayer. Regardless of what the legislation says, these are relevant issues.

In its last decision, the PUB essentially helped hoist Hydro on its own petard. Hydro spent months in hearings before a PUB tribunal arguing its export contracts were solid and its capital costs were under control, all the while offering scant details to back up its claims. So the PUB called Hydro's bluff. If you're so convinced everything is hunky-dory then obviously you don't need this rate increase. Please make do with a smaller rate hike.

This was a particularly surprising decision because the last time Hydro was facing conditions like this, the PUB ordered the utility to raise rates MORE than it had requested. It seems like some other strategy is most definitely at work in this application.

Sitting quietly on the sidelines of this mess is the NDP government. While serious questions are being raised about Hydro's viability, Premier Greg Selinger is becoming increasingly conspicuous by his absence. The province is just about to bring Wuskwatim online at a time when export prices have tumbled. The cost of building Keeyask, the next mega-generating project on the Hydro drawing table, has gone way up at the same time U.S. markets are buying less and less Manitoba-made electricity. In addition, Hydro is also moving ahead with the Conawapa dam and the new Bipole III transmission line, a project that has also increased in cost because of a decision to avoid any route east of Lake Winnipeg to protect the boreal forest. Hydro doesn't dispute the inflated price tag of Keeyask, but argues this dam is needed to meet future demands of existing export contracts.

In general, the regulator is right to continue pressing Hydro for more information. Hydro has shown a propensity for concealing bad news. Outgoing Hydro CEO Bob Brennan did not share key information with his board about the increasing costs of both the dams and Bipole III. The fact the board was kept in the dark on these details is reason enough to question the veracity of Hydro's assertions and justify the release of more information.

It's also enough to warrant a change in strategy by Selinger and his government. Both Hydro and the PUB are creatures of the Manitoba legislature. With a majority government, Selinger could amend legislation to give the PUB all the access it requires to make an informed decision on rates. If Selinger does not wish to give the PUB that authority, he should explain why.

As well, Selinger should probably reconsider the construction of new dams. Hydro may have a board, but cabinet makes all decisions about whether to build a new dam. Again, if Selinger is going to continue adding generating capacity at a time when export markets aren't demanding it, he should explain why in the clearest possible terms. The dispute between Hydro and the PUB has been pretty entertaining. But at some point, it's incumbent on the province to settle the matter. For the sake of the two combatants and the ratepayers of Manitoba.

dan.lett@freepress.mb.ca

Republished from the Winnipeg Free Press print edition February 16, 2012 A8