Winnipeg Free Press - PRINT EDITION
Posted: 03/3/2014 1:00 AM | Comments: 0
Premier Greg Selinger has announced more future export sales of Manitoba Hydro's electricity to American utilities. His spin reminds me of the old adage: When something seems too good to be true, watch out!
With his latest announcement, the line between the NDP government and its captive utility has been erased. It must be embarrassing for the once-proud Hydro to find itself again playing second fiddle to a government full of self-praise.
An announcement is one thing, but we all know the devil is in the details.
First, are we talking about real bona fide sales or prospective sales? Without the construction of Bipole III and two new dams, Keeyask and Conawapa, the "sales" can't happen. And to build those $20-billion megaprojects, billions of dollars must be borrowed and final approvals provided on both the environmental and economic elements.
And then the sales must be finalized by the National Energy Board. American regulators also have to give the green light. If the green lights are given, new transmission has to be financed and built on the American side. Gaining landowner and regulatory approval in America can be an expensive and long, fought-out exercise, with no guarantee of success.
In any case, the NDP government has made export sales announcements before, going back to 2008, that were never concluded. Those "sales" were not sales, as in enforceable agreements, just paper "term sheets."
Premier Selinger boasts that the sales will bring in $9 billion. About 18 months ago, then-Hydro minister Dave Chomiak trumpeted export sales of $29 billion over 30 years. In 2005-06, Hydro reported export sales of close to $900 million. In recent years, export sales have fallen as low as $338 million. In trying to make sense of these dollar claims, it is important to realize the annual interest and plant amortization expenses associated with the planned $20-billion adventure alone will require almost $2 billion a year in additional revenue.
And construction costs can rise sharply higher than current estimates, as they have in the past. An increase in interest rates of two percentage points could add another $400 million to the revenue needed to break even on the expansion. Remember, more than 50 per cent of Hydro's current export sales go at the spot price, not the price for "firm" sales. Selling electricity into the MISO market (American Midwest) is not difficult. What is problematic is the mix between firm dependable sales and opportunity sales, and the prices and terms. American utilities, no different than in Saskatchewan and Ontario, are happy to buy power from Hydro if the price is lower than it would cost them to produce it themselves. And they don't have to renew the deals, while Hydro will still have the debts and costs.
Another important feature of any large sale is the ability to withdraw from the commitment in case of a drought or some other extraordinary event. In 2004, a Hydro official advised the Public Utilities Board that Hydro had honoured its firm sale commitments to its U.S. customers through the 2002-04 drought to keep its reputation as a dependable supplier. Doing so led to a $436-million loss in 2003-04, which led to a 9.5 per cent rate hike for consumers.
It was later determined that Hydro's contracts did not provide the utility an out from delivering power during the drought -- it had to do so.
The PUB's hearing was doomed at the start by its terms of reference, with restrictions placed on what aspects of the NDP-Hydro plans can be reviewed. Nevertheless, it will be interesting to see what independent experts engaged by the PUB and interveners for the PUB NFAT hearing have to say about the latest export sales announcements.
I remain profoundly disappointed in this government, spinning one tale after another as if assertions are enough to support a gamble of unprecedented magnitude. The ratepayers of this province are the only backstop if things go wrong.
As of now, and despite Premier Selinger's latest claims, there are no firm export sale commitments beyond those signed, committed to and having full regulatory approval. And none of those contracts requires building Bipole III, let alone it and two new massive dams that would mortgage the futures of following generations.
Graham Lane is a retired chartered accountant. He was chairman of the Public Utilities Board from 2002 -2012. During his term, the PUB regularly criticized and questioned Hydro's plans and forecasts while recommending an expert and comprehensive review of those plans. The review was called following his retirement and it is not comprehensive.
Republished from the Winnipeg Free Press print edition March 3, 2014 A9
Have you found an error, or know of something we’ve missed in one of our stories? Please use the form below and let us know.
Having problems with the form?Contact Us Directly
Even the Homeless Hero needed to be rescued
The doctor's diagnosis is in: I'm a rust bucket
Watchful lawyer exposes imposter scam
Time to confront straying wife over affairs
Province could end city hall's ethics problems
Blue will win, cuz they got each others' backs
It's about time to drop that torch, buddy
Law poses dilemma for NDP
Itsy-bitsy spider had murder in its eyes
Boom in West Broadway
Before the Great War, people travelled freely without passports or identification
First Nations rarely see charity meant for them
Lake foreplay OK, but best to stick to land loving
Where there's smoke there may, or may not, be fire
Who'll pay for a poll?
Blues can't lose
Fears should be faced, not embraced
Doc delves into dire straits of flood evacuees
Catalogue of culture
Brandon needs real fix for floods
The risks of being conservative
Thanks for letting me into your lives
Trending that caught Doug's eye: Comic curse
The long, long view
In conversation with... TV stars
Reading between the lines
Sunday bloody Sunday
My complete guide to being a modern hipster
Replacing TFSA money too early will cost you
Don't get knickers in a knot over outdoor shower
Statue of city's greatest golfer seems natural
Village tradition: Quality carries on into second generation
Bombers lacking basics of football
Emerging artists' show somehow succeeds in spite of itself
Kiss-and-tell hubby needs to call off his leering brothers
Frustration over flooding prompting many to sell their farms
Clean-scrubbed comedy came naturally to Regan