Halcyon Days

Blog, Energy, Manitoba, Publius Tacitus (historic), Uncategorized

You may have seen Hydro’s effort to have a ‘dialogue’ with Manitobans about its

Publius Publius

development plans.

In Hydro’s effort to “sell” the public on the wisdom of it undertaking the largest public investment in the Province’s history ($20 billion plus), the Utility begins by recalling the halcyon days of  its 1960s and 1970s, when it tamed the Nelson River and began the development of northern hydro generation and transmission.

It may come as a surprise to those endless optimists  (Hydro executives and the NDP government), but much has happened since those ‘endless  happy days of summer’, and not many of them are harbingers of future success for Hydro’s latest plans.

Let there be light:

  1. It is now 2013, construction costs are many multiples of the cost levels of 50 years ago;
  2. It is now 2013, export sales of electricity to the American market are dominated by spot sales, 60 per cent or more of Hydro’s export sales bring 3 cents or less per kilowatt hour (Manitoba electricity exports are subsiding American electricity consumption, and have been since 2008);
  3. It is now 2013, the marginal cost of new generated and transmitted power to the United States market exceeds 10 cents per kilowatt hour;
  4. It is now 2013, northern development requires the cooperation of First Nations, and the price of that cooperation is high, very very high;
  5. It is now 2013, and Americans have choices for their supply of electricity, and they favour sources that provide jobs for American;
  6. It is now 2013, and the production of shale gas has soared, collapsing the price of natural gas as and making generation through efficient combined cycle gas plants a sound environment and economic choice over new coal plants;
  7. It is now 2013, and the manufacturing sector in both Canada and America is not what is was (and was expected to be in the future), outsourcing and a recession has reduced industrial demand;
  8. It is now 2013, and even Obama’s environmentally friendly Democrats, which now longer control Congress, are more focused on American jobs and the American economy than the environment (and wind generation is subsided in the United States); and
  9. It is now 2013, and the Canadian dollar hovers around par with the USD, electricity exports are priced in American dollars.

Hydro’s cost and export income projections have been habitually significantly wrong  for a decade. As but one example, Hydro built Wuskwatim for $1.6 billion, not the $900 million it forecast; and, Hydro’s net revenue from export-import transactions have been ‘out’ year after year.

Hydro’s annual net income results and reported retained earnings levels are regularly bolstered by domestic rate increases (exceeding inflation), the deferral of hundreds of millions of dollars that have been disbursed but not recorded as expenses, and, the inclusion on its balance sheet of millions and millions of dollars of intangible and illiquid assets.

Hydro depends on annual above inflation domestic rate increases and billions of dollars in more borrowings to stay solvent and implement its grandiose development plan.

After Limestone was constructed, the plant ‘lost money’ for almost a decade. The Ontario government paid a penalty of about $150 milion to ‘walk away’ from Conawapa twenty years ago. Wuskwatim can be expected to lose money for a decade or more, based on its generation being priced at the spot price for exports. The construction of Bipole III, by itself, would require an eventual domestic rate increase of 30 per cent. No one knows what carrying through with Keeyask and Conawapa will end costing and realizing – profit or loss?

When was the last major industry brought to Manitoba? Have not there been more closures than expansions in recent years – Flin Flon, Thompson, Pine Falls.

Consider the recent history of Hydro’s forecasts, whether net income, capital expenditures, operating expenses, head office construction, export volumes or prices, Manitoba industrial load. Consistently out, that is the record.

Hydro advertises that its plans will be subject to a NFAAT (a hearing before a ‘sub panel’  of the Public Utilities Board), as if this should ‘relax’ the population. Leaving aside that a proper review of Hydro’s plans would best have taken place before Hydro, with the government’s blessing, had spent a billion or so, entered into partnerships with two First Nations and committed itself to selling more power to the Americans, the NFAAT as expected will not:

  1. Consider Bipole III, it is to be considered a ‘given’;
  2. Seriously consider a combined cycle gas plant (which would bring diversity of supply and reduce Hydro’s risk in the next and all future droughts),  and a deferral of Keeyask, Conawapa and Bipole III; and
  3. Be held before an expert and independent panel (the members of the Public Utilities Board are not utility experts and, in fact, have all been appointed by government (without a competition). A perception of conflict exists, even as the members attempt to exercise their responsibilities in the public interest, which they can be expected to do (within their limited jurisdiction and without full transparency from Hydro).

These are not Hydro’s ‘halcyon days’, far from it. These are  not the Province’s halcyon years either. in the 1960s and 1970s, the Province did not carry a heavy debt load, and was not recording annual deficit after annual deficit.

Can one imagine a company with the Province’s balance sheet and income statement proceeding with such a gamble? (Of course, such a company wouldn’t be able to rely on its customers to backstop it.)

Much has changed since 2008′ let alone the 1960s and 1970s.

Hydro and its chief cheerleader, the government, is determined to ‘bet the farm’, and on a gamble of incredible proportions. Any number of risks could materialize and leave Manitoba residential, commercial, institutional and industrial customers ‘holding the bag’.

While Hydro forecasts seeking rate increases of twice the rate of inflation for twenty years, an incredibly bad prospect to begin with – particularly for lower income households, rural and northern communities dependent on electricity for heat and industry – how could any competent and knowledgeable observer have any confidence that the actual rate increases can be held at those exorbitant levels?

Make no mistake, government has no intention of picking up any loss that may well develop, Hydro’s ratepayers are the ‘backstop’.  Whatever rate increases are required to keep Hydro ‘in the black’ will be sought and, in the end, approved.

It is tragic that government hasn’t either made that clear and allowed those ‘holding the bag’ to really understand the risks.  They would rather lull the population ‘to sleep’ with dreams of a return to halcyon days.

Manitobans are now to pay for the propaganda, propaganda intended to lull the population into a false sense of ‘security’, one relying on the highly questionable assertion that Hydro and the government ‘are right’ and Manitobans will not end up subsidizing our southern neighbours with our swollen electricity bills.

These are not Hydro’s halcyon days, nor the Province’s, nor the population’s, far from it.