Bleeding Money

Commentary, Energy, Frontier Centre

Manitoba customers may have the lowest electrical rates in Canada, and Manitoba Hydro and its subsidiaries may be spreading their expertise worldwide — including being picked to review the Muskrat Falls project not once, but twice.

But it’s still worth watching the problems that utility is having as some of the underpinnings of its plans to be an electrical energy power house fall away.

On Aug. 29, Manitoba’s PUB authorized an interim, urgent rate increase of 2.5 per cent for the utility’s customers — that’s on top of a two per cent increase in April and a planned 3.5 per cent increase already under examination for next year.

Why the latest urgently needed increase? Here’s the PUB order: “By any terminology, however, Manitoba Hydro’s (MH) current financial situation is of significant or major concern, is problematic and warrants intervention. … The increase is only granted to preserve the financial stability of the utility based on current available information and upon consideration of the submissions made.”

What’s the issue? Manitoba Hydro is losing money.

“1. The need is urgent to avoid continuing losses on operations as will be evidenced in the quarterly report of the Manitoba-Electric Board for the three months ended June 30, 2012, which was to be released on or about Aug. 15 (a byelection has held up release of the quarterly report);

“2. financial ratios are deteriorating and are projected to further deteriorate in the test years;

“3. it is essential that the financial and credit rating integrity of Manitoba Hydro be maintained;

“4. prices on the export market are not expected to improve substantially in the near term…”

Its newest hydro station, Wuskwatim, has just come on line, and instead of making money, with low export sales prices it is actually losing money — and that cash will have to be made up. (Can you guess from where?)

“MH projects estimated revenue requirement impact with Wuskwatim in 2012/13 to be $106 million and $117 million in 2013/14.”

It is not what the utility had forecast, but is an expensive reality.

“The board finds that new Wuskwatim operating expenses are a material expense impacting MH’s current financial projections … which results in MH coming forward with the interim rate increase request at this time. … Further, MH has placed the Wuskwatim generating station into service which requires MH to bring certain expenses onto its operating statement, adding pressure for increased revenue to meet additional expenses. The low export prices do not appear to fully offset the additional costs.”

At least one intervenor suggested that the picture may get worse, noting “that Wuskwatim generating station was coming on line with negative net income, and expressed its concern that if Wuskwatim generating station was indicative of new northern generation, then MH’s net income might be expected to worsen rather than improve as Keeyask generating station and Conawapa generating station come into operation.”

Still, the board felt it had no choice but to go to the general rate base to find the money.

“MH argues that if these increases are not granted now, greater rate increases may be required in the future to protect against net income reductions and negative credit rating implications,” the board said. “Projected low export prices continue in the test years, both due to the continued economic reality … and the low price of natural gas which fuels competitive electricity generation alternatives. MH identifies these as the key factors to its current negative financial position.”

So what message can you take from all this?

You can, as our government probably will, insist that all other utility cases are different from our own and that we alone know what we are doing.

They will claim, correctly, that export sales aren’t part of the Muskrat equation, that Newfoundland ratepayers will carry all the freight for Muskrat Falls — but they will probably remain silent on Manitoba Hydro’s huge cost overruns

on Wuskwatim, Conawapa and Keeyask.

Because that can’t happen here.?We’re better. Or smarter.

Or something.