Rome Burns as Nero Fiddles – Hydro before the Court of Appeal

Blog, Energy, Frontier Centre

Publius supports the Winnipeg Free Press’ editorial call for the Manitoba Court of Appeal

Publius Publius

to settle, through a judgment, a longstanding dispute between Manitoba Hydro and the Public Utilities Board over PUB’s access to information.PUB, after having no success in previous efforts to gain Hydro’s export contracts and term sheets, issued a subpoena in the summer of 2011, yes more than a year and half ago. The subpoena requires Hydro to provide PUB with the Utility’s export contracts and term sheets. Hydro has refused to provide the information, claiming PUB has no jurisdiction over Hydro’s export dealings, and took the dispute to the Manitoba Court of Appeal.

The case was heard in early 2012, and while several interim rate increases have been provided to Hydro in the interim (and Hydro’s placing a new request for yet another rate increase before PUB), neither the information being sought has been delivered to PUB nor has a judgment from the Court been issued. According to WFP, Hydro seeks an ‘out-of-court’ solution, one that would keep the contracts and terms sheets away from the public, if not PUB, while at the same time expecting PUB to grant its latest application.

Approval of that application would represent an overall 9% increase to final rates, an injection of $120 million a year from fiscal 2013/14 by Manitoba ratepayers to keep Hydro from reporting losses on its operations (while it continues to implement a massive capital expenditure program – which could, among other important matters, involve borrowing $20 billion – premised on further export sales).

Export sales and prices are critical to the establishment of Manitoba ratepayer rates. Ratepayers are called upon to ‘cover’, through rates and domestic demand, the revenue requirements (based on the costs of the Utility’s operations, which include the amortization and financing of major capital assets) of the Utility less export sales. If export sales, either due to inadequate volumes or prices, are ‘disappointing’ the discrepancy will be represented, in time, in higher Manitoba ratepayer rates. (Manitoba ratepayers are already subsidizing American utilities through low-priced sales of hydro-electric generation.)

In short, without ‘seeing and testing’ the contracts PUB cannot even be assured that the Manitoba ratepayer rates sought by Hydro are adequate, let alone be assured that the costs Hydro forecasts to incur to further develop its generation and transmission infrastructure represent prudent expenditures, prudency a necessary criteria of setting of just and reasonable rates (which is required of PUB).

It is not just the forecasts of export demand and expected pricing that PUB (preferably also to be available to the public through an open and transparent hearing), requires to set just and reasonable rates, and also avoid future rate shocks, but also other provisions of the contracts and proposed contracts – which most likely provide Hydro’s responsibilities to deliver power to its export contracts in circumstances such as a drought or equipment failure.

While Publius holds that the existing legislative framework provides PUB the ‘jurisdiction’ to review Hydro export contracts, term sheets (proposed contracts) and export-related plans, if not approve export sales rates, whether the Court ‘sides’ with PUB’s position or not PUB should not provide Hydro any more rate increases until the regulator has received the information it has subpoened (and such other information that it requires to be able to form an informed view of Hydro’s current and future revenue requirements).

Publius joins the WFP in calling for both parties (Hydro and PUB) to let the Court do its job and, more than a year and half since the subpoena was issued, provide its judgment. Settling a matter of such significance to ratepayers should not be done behind closed doors, in the end it is the ratepayers that ‘carry the can’ for Hydro’s ‘investments and commitments’.

And, ahead of that (and a proper review of Hydro’s plans, commitments and actions), PUB should take Publius’ previous advice (previous post) and reject any further Hydro rate increases (while refunding the money held by Hydro in deferred revenue that has arisen from a previous 1% rate increase allowed by PUB).