Department of Hydro?

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The Government of Manitoba may be rushing the construction of Bipole III because the more Manitoba Hydro borrows, the more the government takes in interest revenue from Hydro, thus keeping its deficit down to an already-too-high $1 billion a year.

How does this work? Hydro borrows an extra $1 billion through the Manitoba government to build the west-side line. In turn, the government tacks on a one per cent surcharge. The surcharge in the case of $1 billion would amount to $10 million each year: not a bad profit for pushing the Crown corporation into taking a route that is a potential environmental disaster.

Woodland caribou, a threatened species, will end up on the precipice; migratory birds (particularly large ones) will be killed by wire and tower collisions at the rate of 172,000 to 275,000 per year; severe weather events (tornadoes) west and south of Lake Manitoba will disrupt service periodically; and agricultural productivity will be seriously impacted.

But the government will be ahead by $10 million each year, and the bill will show up (albeit hidden) on everyone's hydro statement. A neat way to appear not to raise taxes!

It could be a very different situation, however, if the current weak power demand (augmented by increasing alternate energy sources) in the U.S. extends for some years. The consequence could be a weakened Manitoba credit rating.

Over the years, Hydro has played many roles in Manitoba. Its core job remains to provide efficient low-cost electrical power to Manitoba residents and industry. Not too many Hydro customers know they also paid for culverts under a highway in the Interlake to permit garter snakes to get from one side to the other without exposing themselves to vehicles.

Hydro's 2012 annual report released last month reveals an interesting picture that leads to questions about how this happened.

Years back, the government guaranteed Hydro loans, so the Crown corporation got a good interest rate based on the province's debt rating. Now, the government charges Hydro one per cent for the use of its credit rating, calling it a "provincial debt guarantee fee." Nothing illegal about that, but it does mean that, indirectly, consumers of electrical power in Manitoba pay an effective additional "tax," based on loans taken out by Hydro.

Based on this, the annual report shows the amount received by the government for facilitating these loans is $85 million annually. Looking closely at the fine print, some $170 million in debt charges is rolled back into capital, so the province will be collecting one per cent of that again next year. If Manitoba could manage within its own taxing power, the "cut" taken from Hydro loans would not be needed, and Hydro bills could be reduced accordingly.

Compared to what is traditionally an arm's-length relationship with Crown corporations, a non-arm's-length relationship has evolved between the province and Hydro.

If the $85-million fee is added to the $119 million in revenue from "water rentals and assessments" paid to the province by Hydro, the total becomes $204 million annually that must be recovered from Hydro customers.

As an aside, given the water rental is a fixed rate regardless of the price Hydro receives for power, when the rate received from the spot market is one per cent, as it is this week, fully one-third of that amount goes to the government as a water rental fee. If it walks like a tax, and talks like a tax...

As Hydro goes into increased debt during its "decade of investment," the government only stands to reap greater rewards for charging Hydro to use its credit rating. Little wonder that with such an incentive the government pushes Hydro into even greater debt by moving ahead on Hydro projects at inflated costs (e.g. a longer transmission line than necessary) and at a pace not supported by demand. Calmer heads might call this a conflict of interest!

This brings up the whole question of the roles of, and relationship between, a government and a Crown corporation: both in terms of clarity of information and influence on the nature of Hydro expenditures outside its core mandate.

Initially, the rationale for a Crown corporation was to play a role in an industry best-suited to a monopolistic operation. The Crown corporation idea was to prevent the single operator from charging monopolistic prices to people with no other choices. Given the current mess, one must seriously question whether a Crown utility operating as if it (Hydro) were a department of the government, shouldn't formally become an actual government department.

Under such circumstances, with all the legislative exposure and debate departments get on their estimates, etc., one could hope for more detailed and frequent information being available to the public, enabling more open discussion. Under the present operating structure, both the government and Hydro seem to be exempt from full accountability.

Alternatively, Hydro might better serve the public as a private corporation, regulated in its monopolistic industry setting by an objective Public Utilities Board, assigned appropriate powers to protect consumer interests.

All of the above options have positive and negative aspects: Any one of them can be made to work in the public interest. The current lack of accountability, however, puts the taxpayers as well as all users of electrical power onto a slippery slope that beyond the short run will become a millstone of debt around the neck of present and future Manitoba taxpayers.

If Hydro is to remain a Crown corporation, clarity of roles between it and the Manitoba government need resolution.

If clear information is not forthcoming, the public interest can only be served by a complete change in structure to ensure greater information access and accountability.

-- Jim Collinson is a strategic energy consultant.

Republished from the Winnipeg Free Press print edition October 2, 2012 A8