Manitoba Hydro argues future at risk without rate hike

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This article was published 19/07/2017 (2073 days ago), so information in it may no longer be current.

Financial crisis. Rate shock. Manitoba Hydro has come close to both, it told a Public Utilities Board hearing Wednesday into whether or not to approve an application for a 7.9 per cent interim rate hike, effective Aug. 1.

On Tuesday, intervenors representing consumers and major industrial power users called the Crown corporation’s projections pessimistic. Hydro’s figures show it is forecasting a net income of $92 million for the current fiscal year — even without the 7.9 per cent rate increase.

On Wednesday, Hydro fired back with dire warnings about what might happen if the increase isn’t approved.

“Manitoba Hydro is not going to grow out of its troubles,” lawyer Patti Ramage told the board, an independent, quasi-judicial tribunal with broad oversight and supervisory powers.

“The issue we have is with revenue,” Ramage said, pointing to an $880-million reduction in net exports and export prices down 30 per cent.

Domestic sales are down $900 million and the forecast “load growth” of new domestic markets is flat. At the same time, Hydro is sinking lower into debt, financing two once-in-a-lifetime capital projects when interest rates are on the rise and revenue-generating high-water levels must eventually fall.

“There’s nowhere to hide or no way to mitigate shocks like interest rate increases,” Ramage told the board.

The lowest interest rates in 80 years and 14 consecutive years of higher-than-average water flows are all that prevented a financial crisis for Hydro and rate shock for its customers, she said.

Manitoba Hydro’s application for the rate increase forecasts “a significant deterioration to the outlook for Manitoba Hydro over the next 10 years.”

The Crown corporation says the capital costs of major new projects is significantly higher, driving increased carrying costs without making a lot of money for Hydro.

BiPole III — a high-voltage direct current transmission project that will deliver energy to southern Manitoba and the United States — is expected to come into service next year. “Once it comes on stream, it generates minimal incremental revenue,” said Ramage, adding when the project is finished there will still be a $205 million “deficiency” every year.

Even if the board approves its application for the 7.9 per cent rate increase, the utility will still be down $80 million a year, Hydro says.

Keeyask — a 695-megawatt hydroelectric generating station being developed with four Manitoba First Nations — is four years from being finished. Hydro says more than $12 billion will be borrowed over the next five years, including refinancing to complete major investments.

Even after announcing in February it was reducing its work force by 900, Manitoba Hydro won’t stop sliding deeper into debt unless “significant action” is taken, Hydro lawyer Odette Fernandes said. “The risks are not diminishing with each passing day.

“We will never generate the cash needed to pay off the debt,” she told the PUB, which, in approving rates, considers both the impact to customers and financial requirements of the utility.

According to Hydro, it is too late to cancel megaprojects and the utility is facing a dark future if it can’t raise revenues by hiking rates.

“Debt is going to be 15 times current domestic revenues,” Ramage said. “Interest expenses will consume 70 per cent of every domestic revenue dollar. It doesn’t take much to move it up to 100 per cent and we still have a business to run… We have to replenish aging infrastructure.”

The Public Utilities Board will now decide if and when it approves the interim rate increase.

Executive director Darren Christle said Wednesday there is no deadline for a decision. However, once it makes its decision, the board will inform Manitoba’s finance minister before issuing a news release.

The PUB may also decide to approve an increase that is more or less than the 7.9 per cent requested, Christle said.

For example, during a time of drought and lower revenues nearly 20 years ago, Manitoba Hydro applied to the PUB for a two per cent increase and the board came back with a recommendation of five per cent.

carol.sanders@freepress.mb.ca

 

Manitoba Hydro's submission