October 18, 2017

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Hydro seeks big rate hikes to cover costs

To help pay for mega-dam, lines

Manitoba Hydro says it needs rate increases about double the rate of inflation over the next two years to help ensure its financial integrity.

Hydro will appear before the Public Utilities Board in the coming weeks to ask for rate increases of 3.95 per cent in each of the next two years. The hikes are part of its 20-year plan to have ratepayers help pay for the construction of a new mega-dam and transmissions lines.

With a rate increase already granted by the PUB earlier this year, a 2.75 per cent hike to generate more than $38 million to the utility, Manitobans could see a potential cumulative increase of more than 10 per cent by 2017.

That doesn't include the 3.5 per cent rate increase awarded by the PUB to Hydro in 2013.

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Manitoba Hydro says it needs rate increases about double the rate of inflation over the next two years to help ensure its financial integrity.

Hydro will appear before the Public Utilities Board in the coming weeks to ask for rate increases of 3.95 per cent in each of the next two years. The hikes are part of its 20-year plan to have ratepayers help pay for the construction of a new mega-dam and transmissions lines.

Manitoba Hydro says it needs more money to upgrade its transmission lines and substations, among other costs.

BORIS MINKEVICH / WINNIPEG FREE PRESS FILES

Manitoba Hydro says it needs more money to upgrade its transmission lines and substations, among other costs.

With a rate increase already granted by the PUB earlier this year, a 2.75 per cent hike to generate more than $38 million to the utility, Manitobans could see a potential cumulative increase of more than 10 per cent by 2017.

That doesn't include the 3.5 per cent rate increase awarded by the PUB to Hydro in 2013.

In documents recently filed by Hydro to the PUB, the Crown corporation says 3.95 per cent rate increases in each of the next two years would add $117 million to its bottom line.

The increases are to be effective April 1 this year and next year.

The increases, if approved by the PUB, would add about $6.50 to the average monthly bill of a residential customer using 1,000 kilowatt-hours per month.

"The advantage of hydro is that it's a predictable, long-term price," Premier Greg Selinger said Monday.

"Natural gas prices go up and down — there's a great deal of volatility."

The premier said demand from American utilities, which are retiring coal plants, remains high and talks continue to sell more power to Saskatchewan.

Hydro and SaskPower signed a memorandum of understanding two years ago to discuss the purchase of up to 500 megawatts starting in 2020.

"All the indicators are that there's a great demand for hydro among our customers in the United States, but also to the west of us as well," Selinger said.

Hydro says the proposed 3.95 per cent rate increases are the minimum it needs to not only meet domestic electricity demands, but to manage the deterioration in its financial strength as it spends billions building the Bipole III transmission line, the Keeyask generating station and a new transmission line to the United States, plus upgrades to its older dams, transmission lines and substations that were built decades ago.

"Even with the proposed and indicative rate increases, Manitoba Hydro is projecting losses on electric operations in 2018-19 to 2023-24 totalling approximately $900 million as forecast domestic and export revenues will not be sufficient to cover the increased costs," the utility said in arguing for the rate increases.

"The proposed and indicative rate increases are necessary to stabilize Manitoba Hydro's cash flow from operations to the minimum level to fund the majority of sustaining capital expenditures."

Compounding matters for Hydro since it announced its building plan about five years ago are the huge changes in the energy market.

Natural gas prices have fallen almost 40 per cent from last year in part because of oversupply — stocks were built up after last winter's cold weather, but have not been needed with this year's milder temperatures. Natural gas is the main competitor to hydro power as it can be burned to make electricity and is the leading fuel to replace coal in the U.S. The supply of gas will also stay high as a result of new methods to drill shale gas known as fracking.

The cost of installing alternative energy solar panels has also decreased, resulting in larger solar projects being installed in the U.S., including a US$25.4-million installation at Minneapolis-St. Paul International Airport, the largest solar power project in Minnesota to date.

Most dramatic is the recent decline in crude oil prices and its impact on low gasoline pump prices.

While Hydro does not compete against oil directly, the price of crude still figured prominently in Hydro's rationale to build the 695-megawatt Keeyask generating station on the Nelson River, said lawyer Byron Williams, who represents the Manitoba branch of the Canadian Consumers Association.

Hydro has said two pipeline proposals, which would see more crude oil shipped from Alberta's oilsands to Eastern Canada and the United States, would need a steady supply of electricity to power pumping stations along each line.

Williams said some analysts say it's possible if crude oil prices stay low, and if there is less investment in the oilsands, pipeline projects might be delayed. "That's part of the climate we have out there," Williams said.

"What does that do to the overall business risk facing Hydro? It adds a bitter context. How sustainable is the Hydro business model?

"Do you want to be locked into a bunch of major investments when the market is so volatile? That's both the glory and weakness of Hydro.

"In a time of heightened risk, some people get bold and some people say, 'Well, maybe we should wait a bit.' "

bruce.owen@freepress.mb.ca

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