Manitoba Hydro, backed by the NDP government, is undertaking an expensive advertising campaign to "sell" the public on the wisdom of undertaking the largest, $20-billion-plus, public investment in the province's history.
In its campaign, the utility recalls its halcyon days of the 1960s and 1970s, when, virtually without opposition, it tamed Manitoba's northern rivers and began the development of northern hydro generation. Much has happened since, and the changes are not harbingers of future success.
1. Construction costs are now many multiples of the cost levels of 50 years ago, while export sales to America, which serve as the foundation of Hydro's plans, are dominated by spot sales bringing only three cents or less per kilowatt hour (Manitoba's electricity exports have been subsidizing American electricity consumption since 2008).
2. While export prices are low, the marginal cost of bringing new generation and transmission to market will exceed 10 cents per kilowatt hour.
3. Northern development requires the co-operation of First Nations, and the price of co-operation is high, and comes when Americans have choices for their supply of electricity, favouring projects that provide jobs for Americans, as economic issues trump environmental worries.
4. While the cost of producing new hydro-electric power has soared, the cost of producing power from natural gas has fallen (new technology has brought new supply and a collapsing of the price of natural gas -- making generation through efficient combined-cycle gas plants a sound economic choice.
5. Industrial demand for power is flat or falling -- The Tembec paper mill has closed, HudBay has closed its smelter, and Vale is closing its smelter and refinery in Thompson.
With Hydro's plans dependent upon the utility's long-term forecasts, the unfortunate truth is that Hydro's cost, electricity demand and export income forecasts have habitually been woefully wrong. For example, Hydro built Wuskwatim for $1.8 billion, not for the $900 million it expected. The export prices for Wuskwatim's output have averaged less than half Hydro's forecast, resulting in the prospect of the dam losing $100 million a year.
Hydro's net income results now rely not only on annual large, twice-the-rate-of-inflation, rate increases but also the deferral of hundreds of millions of dollars the utility has spent but not recorded as an expense. These deferred costs include levies made by the government, which has recorded them as income. And the utility's balance sheet is supported by the inclusion of hundreds of millions of intangible, illiquid and non-performing assets; there are no liquid retained earnings.
By itself, Bipole III will eventually require a domestic rate increase of 30 per cent, and no one can be certain spending another $15 billion or more to construct Keeyask and Conawapa will not end up driving even larger rate increases.
The government has directed that its plans for Hydro will be subject to a review before the Public Utilities Board, as if such an event will 'relax' the population; leaving aside the fact a proper review should have taken place before Hydro spent a billion and more, entered into partnerships with two First Nations and committed itself to selling more power to the Americans.
The review by PUB will not consider Bipole III or the contracts with First Nations; these matters are to be considered a given.
It will not seriously consider other options to meet future increased domestic electricity demand, options that would allow for a deferral of Keeyask, Conawapa and Bipole III.
And the review will not be held before an expert and independent panel (the members of the Public Utilities Board are not utility experts, and have all been appointed by government).
These are not Hydro's halcyon days, far from it. These are also not the province's halcyon days. In the 1960s and 1970s, the province lacked the heavy debt load it now has, and was not recording annual deficit after annual deficit.
A private company with the balance sheet and history of inaccurate forecasting Manitoba Hydro has wouldn't risk its shareholders' money with the gamble now being implemented by Hydro with the NDP government's backing. Such a company would not even be able to raise the money required to undertake the gamble.
If Hydro's plans are implemented, while government's income from levies made on Hydro will soar, regardless of the results, ratepayers won't be so lucky. Ratepayers will pick up the tab, with the risk for lower income households being in energy poverty. Imagine the impact on a lower-income household heated by electricity receiving an average monthly electricity bill of $480; it is not difficult to forecast an eventual tripling of rates, with negative consequences for the entire Manitoba economy.
Manitobans are now paying for propaganda intended to lull them into a false sense of security, one relying on questionable projections and an absence of a comprehensive independent expert review and audit.
These are not Hydro's halcyon days, nor the province's, nor the population's, far from it.
Graham Lane was chairman of the Manitoba Public Utilities Board from 2004 to 2012. He is giving a speech titled Dam-Nation — Rolling the Dice on Manitoba’s Future, to a sold-out audience at the Winnipeg Convention Centre on Wednesday, June 5, hosted by the Frontier Centre. Lane’s report will be available at www.fcpp.org following the speech.