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This article was published 24/11/2013 (1367 days ago), so information in it may no longer be current.
Graham Lane, the former chairman of the Public Utilities Board, says Manitoba Hydro's finances are weak, pointing to its low return on equity. (Peeling back the padding on Hydro's profits, Oct. 23). However, it is inappropriate to use return on equity as a measure to determine the financial strength of a Crown utility.
Unlike a privately owned utility, Manitoba Hydro is not in the business of earning a return on equity. Its mandate is to provide for the power needs of the province in the most reliable, environmentally sustainable and economical way possible. Of course, Hydro must conduct its affairs in a businesslike manner and has developed a number of measures to ensure ongoing efficiency of operations and financial stability.
The best measure of financial strength for a Crown utility is the amount of equity compared to the financial risks it faces. That is, does the utility have sufficient equity to withstand the occurrence of the worst possible negative event? In Manitoba Hydro's case, the answer is "a qualified yes." The qualification relates to the HVDC transmission line from northern Manitoba and the potential for a catastrophic event affecting the HVDC system, such as a tornado of similar force to the 2007 tornado at Elie. The vulnerability of the Dorsey converter station and other points along the HVDC system emphasizes the urgent need for the construction of Bipole III.
Notwithstanding this, Manitoba Hydro's equity is well within the range to withstand all other financial and operational risks facing the utility. Lane's contention that Manitoba Hydro's accounting methodologies could somehow eliminate equity is simply not accurate. In fact, Hydro's accounting practices are in full compliance with accepted accounting principles in Canada, are subject to rigorous external audit and are at the forefront of emerging international financial reporting standards (IFRS).
With equity exceeding $2 billion, Hydro is in the strongest financial position in its history.
With respect to prices for power, there is no doubt the era of cheap prices for electricity is coming to an end. However, compared to other jurisdictions, electricity rates in Manitoba are still among the lowest in North America and will remain there for the foreseeable future.
For example, electricity rates in our neighbouring provinces of Saskatchewan and Ontario are more than 60 per cent higher than rates in Manitoba. Moreover, SaskPower has recently applied to its rates review panel for rate increases of five per cent or more in the next three years. SaskPower says the rate increases are required for major investments in the province's electrical system. Other jurisdictions are also raising electricity rates for the same reason. The Conference Board of Canada has estimated that required investment in electric-sector infrastructure will be close to $350 billion over the next 20 years.
Low electricity rates and highly reliable service provide a significant economic advantage to residential and industrial consumers. It is an advantage we should be promoting to the full extent, enhancing the reputation of Manitoba as a great place to live and conduct business.
Lane also implies Hydro's payments to government are excessive and will be more so if the capital-expansion plan proceeds. However, all major Crown utilities make payments to their provincial governments in the form of water rentals, debt-guarantee fees, capital taxes or dividends. Manitoba Hydro's payments to government last year were $287 million, compared with B.C. Hydro's $759 million and Hydro-Quebec's $1.8 billion, to their respective governments.
Under the current formula, payments to government will rise substantially if Hydro's capital-development plan proceeds. But this is for the government to decide -- either to use increased revenues to further improve the economic and social well-being of our province or reduce them and moderate the impact on electricity rates.
Vince Warden recently retired as Manitoba Hydro's senior vice-president of finance and administration and chief financial officer.