Hydro digging in on long-term rate hikes

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This article was published 01/08/2017 (3060 days ago), so information in it may no longer be current.

Manitoba Hydro customers who think they got off lightly having to pay less than half of the 7.9 per cent interim rate hike sought by the utility, beware: winter is coming.

That’s when the Public Utilities Board (PUB) is expected to decide on Manitoba Hydro’s application for an annual 7.9 per cent increase for the next four years.

“We have work to do between now and December,” Manitoba Hydro chief executive officer Kelvin Shepherd said in an interview Tuesday. Lengthy public hearings will be held this fall for more in-depth arguments for and against the Crown corporation’s case that it needs to collect more revenue from its customers now to spare them even worse pain later from growing debt.

Manitoba Hydro, which is facing a huge debt due to the ongoing construction of the Keeyask Generating Station and the Bipole III transmission line, had requested a 7.9 per cent interim rate increase this summer.

The PUB rejected the request, approving just a 3.36 per cent increase on Monday. The interim boost in hydro rates kicked in on Tuesday.

Added revenues, the regulator said, must be placed in a deferral account established a few years ago to cushion future consumer rate hikes caused by the $5-billion Bipole project.

“I’m generally pleased the Public Utilities Board recognizes the need for greater action and focused on Bipole III coming into service,” said Shepherd. That’s when more than $300 million in additional financing and operating expenses are going to hit Hydro’s books, he said.

“Rate increases are required to address that and the board saw that,” Shepherd said, noting the board wasn’t quite prepared to grant the hefty rate increase Hydro was seeking just yet.

“They simply felt the interim rate review process was a pretty abbreviated process,” Shepherd said.

“They didn’t have time to hear all the evidence and go through the due diligence,” he said. “When you have an interim rate application, you may not have the time to review big, contentious issues.”

In the PUB’s 29-page order Monday, one unnamed board member objected to any increase at all for Hydro until the PUB conducts public hearings this fall and issues a permanent order. The board noted that Manitoba Hydro’s financial situation for the current fiscal year and the next fiscal year has improved by $119 million compared with what it forecast in 2016. The head of Manitoba Hydro says no one should be lulled into a false sense of security by that.

Shepherd said Manitoba Hydro’s $71-million profit in the last fiscal year and the $92-million profit projected for this year “will be wiped out” once the Bipole III transmission line comes into service.

“We need to look at the longer term. The situation going forward is quite serious with debt sitting at $8 billion and growing,” Shepherd said.

“We have an obligation to go forward and present a plan that is going to be for the best over the long term,” he said.

Hydro aims to achieve a 25 per cent equity level in 10 years rather its previous 20-year target.

“Previous policy exposed hydro and its customers to significant risk,” he said.

“Some of that is coming home to roost,” the Hydro boss said, pointing to credit rating agencies downgrading Manitoba and “singling out Manitoba Hydro’s debt.”

“It is not self sustaining. We don’t have enough revenue to support our debt going forward,” he said. “Taking 20 years to solve the issue is going to cost Hydro and its customers a lot of money.”

With rising interest rates in the forecast and the inevitability of revenue-depleting drought, taking steps now to pay down debt will cost customers less than waiting till later.

“We believe we have a strong case and we’ll continue to explain that,” Shepherd said.

The growing global demand for renewable, reliable energy won’t save Manitoba Hydro from its growing debt, maintains Shepherd.

“There will be continued demand for Hydro,” he said.

“It’s a renewable resource, it’s dependable. As jurisdictions phase out coal and carbon-emitting resources and implement more wind and solar power, you need a reliable source like hydro power to back it up.”

When the Keeyask generating station comes on line, Manitoba Hydro will take in an extra $4.5 billion in export revenue from power sales but there aren’t many new customers in Manitoba lining up to buy power from it, he said. “Our forecast in Manitoba is pretty flat.”

carol.sanders@freepress.mb.ca