May 22, 2015


Graham Lane

Analysis

Fudging on annual utility bills

If there is anything the Selinger NDP government is good at, it is self-promotion.

A report the provincial government commissioned asserted the ratepayers of Manitoba Hydro, its wholly owned subsidiary Centra Gas, and Manitoba Public Insurance -- all monopolies controlled by the government -- have enjoyed the lowest overall annual costs in Canada for electricity, home heating and car insurance.

The general terms of reference provided to an accounting firm by the government served political aspirations, and, from those terms, the firm developed the methodology of comparison to be used. For home heating, the reference was to be households heated by natural gas, although many are not and use electricity at a much higher cost. The 2013 report was based on rates in effect as of March 31, 2013. Hydro's most recent electricity-rate increase took effect May 1.

The report claims Manitoba householders paid, on an annual basis, $844 for electricity, $734 for home heating and $1,152 for car insurance. Manitoba's aggregate was $2,731; the average for all the provinces was a reputed $4,829. On the surface, Manitobans appear to have low costs, but it is best to look deeper.

There are reasons for the differences; those differences, though, are not set out in either the government's press release or the accounting firm's report to the government. As well, the selection of the 'cost bundle' to be compared ignored major differences in provincial and municipal taxes and fees, costs much larger for Manitobans than the basket of costs the government selected.

Manitoba's low electricity rates are due to two major factors, the first being an aged and highly amortized electric infrastructure. As Hydro's infrastructure is updated and expanded, rates will soar -- the now-major cost differences for electricity may well fall. Second, Hydro's accounting practices have deferred $2 billion of expenditures over the past 10 years, costs largely yet to be represented in rates. This allows Hydro to report higher net income and lower current rates.

With respect to home heating, the report's approach ignores the 35 per cent of Manitobans that cannot use natural gas because the distribution pipelines don't reach their communities. For those hundreds of thousands of Manitobans who heat by electricity, their annual average cost is close to $1,200, not including the $300 for electric water heating -- three times the cost of heating water by natural gas. Nor, does the amount cited take into account the northern customers of Stittco, who rely on propane for home heating at more than twice the annual cost the report cites.

And as for car insurance, the report appears to ignore major factors. Vehicle-registration fees have been hiked significantly in Manitoba, while driver licensing is levied on the basis of accident records -- neither of these two factors is reflected. In the private insurance world, poor driving records are reflected in higher car insurance premiums. As well, the report makes no attempt to compare benefit levels. Manitoba is a total no-fault benefit environment; benefits are set by legislation and regulations, not by the courts. Also, differences in the distribution of vehicles as to make, model and year appear to be not reflected in the report, though major factors in rates, just as population density, the split between driver licensing and vehicle insurance costs and benefit design differences are ignored.

Finally, if the so-called basket ever climbed higher than that of another province, the government, apparently, would direct the corporation causing the supposed excess to issue ratepayers a rebate. The rebates would simply be a cost to the corporation and be reflected in rates. In the end, the consumer seems to always pay when dealing with this government.

The government's "basket" is engineered to result in a report complimentary to the government.

It is unlikely the government will publish a different basket of government fees and taxes, perhaps accompanied by a comprehensive analysis that extends to wage levels and disposable income, to compare against other provinces.

A comprehensive "cost" package would include retail sales taxes, provincial income taxes, land-transfer fees, probate fees, gas taxes, vehicle registration fees and the other myriad fees the government levies on Manitobans. In comparison with at least the other western provinces, such a report would not "favour" Manitoba -- higher provincial taxes, a higher retail sales tax rate, etc.

Such a comparison would likely not reflect well on this "borrow, tax and spend" ideologically driven, self-centred government.

 

Graham Lane is a retired chartered accountant; he was the chairman of the Public Utilities Board from 2004 to 2012.

 

Do your Hydro, Autopac and heating bills tally $2,731? Join the conversation in the comments below.

Republished from the Winnipeg Free Press print edition October 30, 2013 A11

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