Hydro’s power play verges on arrogance

Opinion

Hey there, time traveller!
This article was published 16/09/2017 (2014 days ago), so information in it may no longer be current.

If arrogance could be converted into electricity, Manitoba Hydro would never have to build another dam.

Despite having been sternly rebuffed by the Public Utilities Board (PUB) on its last rate application, Hydro is back at the provincial utilities regulator with a new demand for higher electricity rates, over a longer period of time. In total, Hydro is seeking 7.9 per cent annual rate increases until 2024, two years longer than it did earlier this year in an interim rate application.

Manitoba’s power utility may be short on cash, but it certainly doesn’t suffer from a shortage of brass.

The PUB found Hydro’s spring rate application to be gratuitous, particularly its plan to aggressively reduce the utility’s debt-to-equity ratio through historically high rate increases. After Hydro asked for 7.9 per cent in the spring, the PUB approved 3.36 per cent and cautioned the utility about digging too deeply into the pockets of ratepayers.

One might think leadership at Hydro would learn from that experience and reflect that newly found knowledge in its regular rate application. Clearly, that was not to be.

More worrisome is Hydro’s decision to go on the offensive and attack the PUB, the rate application review process and the tradition of including third-party intervenors. In a letter that accompanied the rate application, Hydro president and CEO Kelvin Shepherd lamented the growing cost and time needed to respond to requests for information from intervenors in the application process.

Shepherd stated that in the last rate application, Hydro had to respond to more than 1,500 requests for information from both the PUB and intervenors. This required 9,000 pages of additional information on top of Hydro’s original 2,700-page submission. Shepherd complained that this process takes up “a tremendous amount” of staff time and questioned whether “people are reading that much information and getting value out of it.”

Shepherd also took issue with the cost of the process. As is the case in all regulatory hearing processes, the funding for intervenors is charged back to the applicant. Hydro was ultimately asked to pay $2.2 million to fund the work of six intervenors to its rate application hearing.

“Ratepayers bear 100 per cent of the costs of this regulatory process,” Shepherd said in his letter.

In many respects, Hydro’s stubborn, obstinate response to the PUB was predictable. In the wake of the July decision to give Hydro less than half of what it asked for, Shepherd accused the board of ignoring relevant financial information. It hardly seems surprising now that the utility has taken a more adversarial approach this time around.

However, in going on the attack, Hydro is creating an awkward situation for Premier Brian Pallister. The premier, after all, appointed the current board, including its chairman, Sandy Riley. There is little doubt that these are the folks driving the display of stubbornness unfolding now in Hydro’s executive offices.

Does Pallister concur with Shepherd’s assessment of the PUB, particularly the expense and pointlessness of the intervenor model? If he does, he would have good company in former premier Gary Doer.

A sometimes reluctant environmentalist, Doer frequently criticized regulatory hearings, and not just those involving the PUB. He railed against the complexity and cost of environmental hearings into the expansion of the Red River Floodway.

“It’s a ditch,” he was known to say on a regular basis. “It’s a ditch!”

In 2003, Doer lashed out at the PUB for putting Hydro though a lengthy and expensive hearing process in the midst of what was then a drought cycle.

“Hydro is having one of its worst years in 10 years and the PUB makes them go through a very expensive process, just so that they can order them to lower rates that are already among the lowest in North America,” Doer said. “There is something wrong with that movie.”

He also criticized regulators for the intensity of hearings on the Wuskwatim generating station, suggesting that process featured “a lawyer for every megawatt that is going to come from that dam.”

Does Pallister concur with one of his predecessors? He has not been that forthcoming on the subject, but there are a few signs that he has lost faith in the PUB. He has made a number of high-quality appointments to the regulator, including the inspired decision to tap Winnipeg lawyer Robert Gabor to serve as chairman. That doesn’t appear to be the work product of a government that is planning to gut the PUB process.

Even so, Pallister may have to consider adopting a more direct tone on the subject. Hydro’s criticism of the PUB and its processes is bad for the citizenry. It is misplaced and misinformed and suggests that the very body Hydro is attacking now has become the last line of defence between ratepayers and unjustified, crippling rate increases.

The PUB and its intervenors have served Manitobans well over the years, and not only by turning back rate increases demanded by Hydro and Manitoba Public Insurance. The PUB, when it felt the evidence supported it, forced Hydro and MPI to raise rates more than they had wanted.

For MPI customers, there is also the small issue of the $500 million in rebates ordered by the PUB, many of those in years when the Crown insurance company had no such plans.

As for the intervenors, it is simply impossible to have a thoughtful regulatory process without their input. The intervenors provide the gross majority of the independent, third-party analyses of Hydro’s corporate and capital plans. It was intervenors, for example, who prompted the PUB to fight for more than a decade to take capital expenditures into account when setting rates. Hydro fought ruthlessly to keep its dam and transmission line projects outside consideration of electricity rates.

More importantly, intervenors allow the PUB to fulfil its true role as the judge and adjudicator of rate increases. If not for intervenors, the PUB would have to hire more of its own independent experts, which would force it to serve as both adjudicator and witness. And that is not a good process.

Shepherd’s complaints about the time it takes to respond to questions and the costs of funding intervenors are also thin. The PUB makes significant demands on intervenors to justify their participation and funding. If an intervenor is gratuitous in its questioning, or does not deliver on its performance pledges, it will not get its funding. That ensures that any group granted intervenor status shows up with its “A” game.

The premier has, to date, allowed Hydro to chart its own course. The rebuke Hydro received in July — for trying to moderate its debt-to-equity ratio in 10 years instead of the more reasonable 20-year time frame — should have been cause for concern, in and of itself. The public attack Hydro has launched on the PUB and its intervenors has only intensified the need for Pallister to step forward.

In a perfect world, Pallister would calm the dispute by publicly supporting the PUB and privately advising Riley and the Hydro board to take a different approach. Without the premier’s presence, it is likely that PUB hearings on Hydro rate applications will become longer, more contentious and, ultimately, more expensive.

Confidence can be a very valuable commodity. But when confidence evolves into arrogance, little good can come from it. Hydro’s steadfast devotion to a path that the PUB has already undermined will not serve anyone well — not ratepayers, not the utility and certainly not the government of the day.

dan.lett@freepress.mb.ca