Dam-Nation: Rolling the Dice on Manitoba’s Future

Energy, Graham Lane, Manitoba, Publications, Uncategorized

Executive Summary

While many Manitobans are aware of the provincial government’s planned massive expansion of Manitoba Hydro’s (Hydro) northern hydroelectric generation and transmission facilities, few understand the negative implications for their own pocketbooks. Recently, Manitoba’s NDP government has unleashed a barrage of propaganda in support of the planned costly development, including the repeating of an implausible claim originally made by former Manitoba Premier Doer that hydroelectric power is “Manitoba’s oil” (in essence, equating Manitoba’s hydroelectricity prospects with Alberta’s oil and gas opportunities).

Having spent a significant part of my career associated with Crown Corporations and governments, culminating as the Former Chairman of the Public Utilities Board (PUB) of Manitoba, I am uniquely enabled to comment on these plans.

In this paper, which is based on a speech delivered at a Frontier Centre luncheon on June 5, 2013, I explore the governments’ plans to spend a (presently) forecast of $33-billion, based on borrowing tens of billions. The overall capital development plan includes the construction of BiPole III and two new northern dams, the refurbishment of a dilapidated dam on the Winnipeg River (acquired in Hydro’s purchase of Winnipeg Hydro), the renewing of assets at or past normal service lives, and the undertaking of ‘normal’ capital asset projects.

Despite the fact that Hydro’s ratepayers will be required to meet the full rate implications of the government’s direction, the level of openness and transparency with respect to these plans have been woefully and long absent. Hydro has already spent billions and made commitments to First Nations, American utilities, contractors, manufacturers, employees and trainees, all before an independent and expert review of the plans and options has been undertaken and final approvals for proceeding secured.

I make the case that the revenue, cost, demand and export price forecasts provided by Hydro (often cited by the government in support of its plans) are not worth ‘a grain of salt’—as every major forecast made by Hydro over the past decade has been widely off the mark. There have been major cost over-runs and other forecasting errors, and circumstances have changed following the inauguration of the plans.

I recommend that Hydro’s non-performing assets be written down, if not off, asserting that the reason the deductions from reported equity haven’t been done is the implications for the Province’s deficit situation and credit rating, and note that both Hydro and the Province’s financial positions are very weak.

The challenges faced by Hydro do not exist in a vacuum—the Province’s own Balance Sheet is laden with debt, with annual deficits in the past as well as in the future outlook (without even considering the prospects of future restraint by the federal government as to the transfer grants that keep this Province ‘alive’). This paper supports the position that the underlying financial position and prospects of the Province and Hydro, and the risk inherent in the government’s Hydro expansion plans, doesn’t support a gamble of tens of billions.

While the government’s motivation, at this point, is political, it is also difficult to ignore the challenge the government would have in curtailing commitments made, and the magnitude of the revenue stream that would flow from an expanded Hydro for the government.

There is a high risk that if the government implements plans for Hydro, within twenty years domestic ratepayers will be paying, in total, $2.5- to $3.0-billion for their annual electricity bills (current aggregate Manitoba electricity bills are $1-billion), with close to $750-million of that (leaving out the provincial sales tax) flowing into the provincial government’s pocket. Today’s roughly 7 cents per kWh price for residential consumers could rise to 20 cents within Hydro’s forecast horizon, bringing major problems for lower income households, rural and northern residences (unable to access natural gas for heating), industry and the general economy.

I hold that the bodies presently providing ‘oversight’ with Hydro are conflicted and unable to properly protect ratepayers. The planned Public Utilities Board Needs For and Alternatives To (NFAT) Review is, unfortunately, a sham. Other matters associated with Manitoba Hydro’s actions clearly require independent audits, along with a proper independent review and reconsideration of the present plans.

The broader interests of all Manitobans are best served by slowing the planned development, while a major reform of both the development plans and Hydro is undertaken. The ratepayer communities, which, in the end pay the bills, must be truly involved in the process.

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