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Rate shock

Posted: 07/3/2014 2:01 PM | Comments: 0


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On Wednesday the Public Utilities released its report on Manitoba Hydro's plan to build the Keeyask and Conawapa dams and a new transmission line to Minnesota.

The PUB green-lighted the Keeyask dam, but not Conawapa. It also approved the transmission line.

The estimated cost of Keeyask is $6.5 billion, but that's an old number. The PUB says a more realistic possibility is that Keeyask's capital cost could balloon to $7.2 billion. 

Among many things, the PUB said the Selinger government has to do more to protect Manitobans from projected rate increases to pay for Keeyask and the transmission line, not to mention the already-approved Bipole III transmission line to run from northern Manitoba to Winnipeg. The estimated cost for Bipole III is $3.28 billion, but that's also an old number.

On top of that, Hydro is also in the process of replacing its older infrastruture, including thousands of wooden poles first installed in 1940 during rural electrification. Hydro has estimated that the aggregate replacement value of its critical assets alone (poles, cables, manholes, conductors, transformers) in today's dollars is approximately $7.9 billion. That's also an old number.

The PUB says with everything Hydro has on its plate, an average electricity bill in 2013 could double by 2032. 

Here's what the PUB said about those costs and the hit on ratepayers. It's lifted directly from page 252 of the PUB's report.

Hydro has signalled potential annual rate increases of about four per cent over the next 20 years, but any rate increase first has to be approved by the PUB. The PUB recently awared Hydro only a 2.7 per cent increase for this year.

Rates and Ratepayer Impacts

Manitoba Hydro will have to invest in replacing aging infrastructure and in building Bipole III. This will result in increasing electricity rates over the coming decade. The construction of new generation and associated transmission facilities will add to and prolong these rate increases.

Furthermore, construction costs will most likely grow and revenue projections may not be achieved. This gap between rising costs and unrealized revenues will be borne by ratepayers.

Given the length of time projected for these rate increases and their magnitude, especially in the early years, the panel is concerned about intergenerational fairness and the impact on vulnerable residents and communities. Lower income consumers, particularly those in northern and aboriginal communities where energy choices are
limited or non-existent, will especially feel this impact.

The Government of Manitoba will receive significant revenues from incremental capital taxes and water rental fees from the development of the Keeyask project. It would be reasonable for the Government of Manitoba to use some or all of the incremental revenue it will realize from the Keeyask project to mitigate adverse rate impacts on
vulnerable consumers. Furthermore, Manitoba Hydro should take internal actions to moderate rate increases.

1) The panel recommends that the Government of Manitoba direct a portion of the incremental capital taxes and water rental fees from the development of the Keeyask Project to be used to mitigate the impact of rate increases on
lower income consumers, northern and aboriginal communities.

2) The panel recommends that Manitoba Hydro relax its 75/25 debt-to-equity ratio policy to moderate its proposed electricity rate increases.

3) The panel recommends that Manitoba Hydro implement cost containment measures to moderate its proposed electricity rate increases.

What are those "incremental capital taxes and water rental fees" worth to the government? Here's the PUB again:

Manitoba Hydro in the course of its operations pays to the Government of Manitoba fees and taxes, which currently total $262 million annually representing 16 per cent of Manitoba Hydro's revenues. Payments to the province are forecast to double to $516 million by 2032.

These charges include water rental fees, payroll and capital taxes, a provincial debt guarantee fee of one per cent on Manitoba Hydro's outstanding debt as well as a sinking fund administration fee. Manitoba Hydro also makes Municipal Grants in Lieu of Taxes, which total $22 million and are forecast to grow to $35 million by 2032.

Hydro Minister Stan Struthers has said the province was accepted all of the PUB's recommedations, but on the three above, the government appears less than enthusiastic.

"The Manitoba government will also consider the panel's specific recommendation respecting government revenues from new hyro development, as well as potential alternatives to support vulnerable consumers to reduce their bills," Struthers said in a July 2 memo to Hydro board chairman Bill Fraser and Hydro CEO Scott Thomson, which was obtained by the Free Press.

Struthers did not specifly what that those "alternatives" might be, other than yet-to-be developed enhanced energy efficiency programs for low-income families, aboriginal and northern communities and those customers currently excluded from program eligibility because of overdrawn accounts.




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