Hydro's uncertain future

Manitoba Hydro president Bob Brennan's announcement this week that he is retiring comes at a critical moment in the Crown utility's history. On the verge of launching plans to build two mega-generating stations, the corporation is caught in a court battle over its refusal to release export sales documents to its rate regulator. Further, Hydro is facing an external review for that capital plan. Mr. Brennan's absence from that inquiry would be unfortunate.

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(DALE CUMMINGS / WINNIPEG FREE PRESS)

These are tumultuous times for the corporation that Mr. Brennan, in his 21 years of leadership, has helped muscle into the North American energy market. By 2007, 30 per cent of Hydro's generation was exported. For years, export sales to the United States paid off for Manitobans, who have enjoyed the lowest rates on the continent.

But now Hydro is facing turmoil on the export market, which it has used to justify an ambitious program of dam construction. Spot energy sales prices have plummeted. Factor in dramatically rising construction costs for Wuskwatim (to be on stream next year), Keeyask, Conawapa and Bipole III, and suddenly the financials are not looking as solid. The Public Utilities Board concluded that Wuskwatim's revenues initially will not cover its costs. It also cast real doubt on the reliability of Hydro's financial forecasts for future dams.

The PUB's July order threw the risks into high relief for Manitobans. Hydro already envisions hiking domestic rates by 45 per cent in 10 years, and by 70 per cent in the next 20 years, to pay for Keeyask and Conawapa, based on the utility's forecasts of future export revenues. Construction costs of the dams have risen more than 50 per cent in the last few years. More realistic forecasts of export revenues, the PUB said, could see the expected domestic-rate increases actually double.

It is worrisome for Manitobans to have the utility regulator questioning Hydro's credibility and the reliability of its financial forecasts. The PUB and Hydro will go at it again in court soon, because Hydro refuses to release export sales documents for public perusal.

Further, the government has said it will put the utility's capital plans to an outside review before final approval on either Keeyask or Conawapa is given. That means Mr. Brennan's successor will be taking on the task of managing amid shifting economics as the utility's revenue forecasts come under intense scrutiny again.

Politically, the new president will immediately face a continuing controversy over where to build Bipole III, which the utility originally intended for the east side of Lake Winnipeg. The Selinger government, fearing endless delays from negotiations with local First Nations bands there, is insisting it run down the much more expensive western Manitoba route.

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(DALE CUMMINGS / WINNIPEG FREE PRESS)

The ill-advised move to the west side for Bipole III has become an election issue. Hydro -- and Mr. Brennan, personally -- is in the unenviable position of supporting a government edict that the weight of expert opinion has condemned as folly.

That project's future will turn on the outcome of the October provincial election, as the Tories have said they would return the route to the east side. While that would not be so troubling a prospect for the Crown utility, the comprehensive review of the capital program should be a real challenge if its mandate is adequately framed and the reviewers are truly independent.

Mr. Brennan has been a loyal, dedicated servant of Manitoba Hydro. His promise to stay on until his successor is selected indicates that he is in no hurry to leave and has the corporation's interests at heart. Manitobans can thank him for his service. He should now also commit to appear before the review of the capital program, whenever that occurs, to shed light on decisions he was central to over the last decade or more. That would aid the examination and give necessary insight to the thinking at the highest level of Manitoba's largest Crown corporation.

Republished from the Winnipeg Free Press print edition August 20, 2011 A16