Hydro Ratepayers To Pick Up Another Tab

Blog, Energy, Frontier Centre

So, Manitoba Hydro plans to spend $700,000 of ratepayers’ money to ‘dialogue’ with their ratepayers on the ‘wisdom’ of its $20 billion (plus) development plans. Rather than propagating and disseminating propaganda on behalf of its political master, the Crown-owned monopoly utility would better serve ratepayers by cooperating in an independent and expert review of both the (government-directed) plans and options thereto (preferably before blindly continuing its ‘spend-a-thon’, all with borrowed money, all to the eventual account of the ratepayers, on the Province’s largest economic and financial gamble in its history).

For Publius and perhaps many others, it is becoming more and more obvious that the government realizes (at least at some level) that it may have wasted hundreds of millions, perhaps a billion or more, on a plan that was conceived before  ‘the Utility’s world changed” and is no longer sound (if it ever was).  Government seems more concerned with ‘how it looks’ than the welfare of Hydro’s ratepayers. Government expects that if ‘things don’t work out’ as Hydro, at least publicly, forecasts, then it will not be ‘it’ that will reap the financial consequences, it will be the ratepayers (and then years away, long after the next election). What changed after the plans were developed: a major recession; reduced industrial demand (both sides of the border); vastly increased shale gas production and much lower natural gas prices (American utilities in Manitoba Hydro’s trading area largely depend on natural gas generation for peaking demand needs, while coal serves the base load); distressed wholesale spot electricity prices (60% or so of Hydro’s exports of electricity fall into the wholesale spot sale category, and those prices are likely no more than 50% of the price for Hydro’s firm power exports – probably less than a third the cost of newly constructed generation and transmission); no price on carbon – no premium pricing for Hydro’s exports, as was expected by Hydro prior to 2008; extraordinary construction cost inflation – for example, Wuskwatim cost Hydro, and ratepayers, twice what was forecast; federal subsidies for wind farm generation in the United States; and, a Canadian dollar at or near par. Disappointing but sadly expected when dealing with the provincial government, realization of the changed economic reality (the perfect storm analogy comes to mind) and its implications for the government’s expansive and expensive plans for Hydro came late. And, when it did, it came after multi-millions had been spent, hundreds hired, partnerships entered into, and export commitments made. With so much said and done, it is clear government doesn’t want to ‘reflect’, doesn’t want to even consider far less risky plans (at least, publicly).  It certainly doesn’t want ratepayers to ‘know’ the risks and the rate implications. It prefers to keep up a mantra of “hydro is Manitoba’s oil” (an exaggeration to say the least) and keep the Utility’s ‘foot on the gas’.  As the Utility spends, the ‘plane moves further and further down the runway’, for government approaching the ‘fail safe’ line if not already there. Government and Hydro are comforted by the fact that Hydro’s accounting and rate approaches provide for the full rate implications for ratepayers being kept from ratepayers and deferred. Hydro’s expenditures on its capital expenditure development plan, including even the interest on borrowings made to fund the expenditures, are to be deferred until the plans are implemented and the new plant is in service. In short, Hydro’s full expenditures are not reflected in its current rates. During the time it is to take to implement its full development plan, which is a decade or so, it seems clear the plan is to gradually ‘drive up’ rates, presumably to avoid the full realization by ratepayers that rates, in the end, could be 100% or more higher than now. (The costs associated with Bipole III alone, if and when it is built and in service, would likely represent a rate increase of 30% or more. Government and Hydro claims new sales to the American market will blunt the effect, reality is that it could worsen it.) So, while Hydro, probably at the government’s direction, at least its agreement, plans not to allow an open expert review of the plans and a proper consideration of options available (options which would reduce risk, costs and further borrowings).  Hydro even fights its rate regulator at the Court of Appeals to hold back from the regulator its export contracts. The review (of actions, options, costs and potential revenues) should have taken place at least by 2009, if not earlier – before ratepayers were ‘put on the hook’ for a billion or so. That was the time for ‘dialogue’, and for transparency as well. Instead, the Utility plans to ‘enter into a dialogue’ with its ratepayers over it’s/government’s development plans, now (after so much has been spent and committed). The so-called $700,000 ‘dialogue’ will be yet another cost for ratepayers to bear (perhaps Hydro will ‘defer’ that cost in its books as well). Surely, government should at least be accountable, and pay, for the latest propaganda, as it is its plans that are to be defended. Ratepayers have enough to deal with, now and in the future, a further $700,000 plus interest should not be added to their burden.