Who would buy Manitoba Hydro?

Canada, Commentary, Energy, Graham Lane, Uncategorized

As the next election approaches, Manitoba’s NDP government will likely try to scare the public by trotting out its favourite hoary old political chestnut — privatization.

The NDP will increasingly accuse the opposition of “dark plans” to privatize Manitoba Hydro, just as it did in past provincial elections. It will bank on the general public not being in favour of selling the monopoly utility, and will recall, again and again, the Progressive Conservatives’ sale of the telephone company MTS during the Filmon years.

That sale is lauded by many who point out MTS is stronger than ever, now paying taxes while providing competitive prices and modern services. Add to those advantages MTS’s investment/borrowing risk goes to shareholders, not taxpayers.

Never mind, and for good measure the NDP will also throw in Manitoba Public Insurance as another potential PC sacrificial offering to the privatization bogeyman. When they launch these allegations this time around, however, the NDP will encounter a different response.

First, many voters don’t really care anymore. The young “click to buy on the Internet” generation has a more modern mindset — and prefers competitive choice and customer-oriented service delivery to a dreary government-directed and owned monopoly any time. Second, immigration brings new voters with little or no prior allegiance to Crown-owned enterprises. And, for those who remain preferring government ownership of business enterprises, they, too, are likely becoming less supportive of Hydro and MPI. Why?

Hydro’s $34-billion development plan, with the above-inflation rate hikes and large-scale borrowing, is risky and potentially highly damaging to ratepayers and taxpayers. As for MPI, many policyholders prefer competition and suspect new options and lower prices would develop if MPI’s comfortable monopoly was removed. Both Hydro and MPI have swollen personnel complements and low productivity and both avoid transparency and too often operate for political purposes (at a hidden but real expense to ratepayers).

Nonetheless, the opposition parties are not likely to espouse or promote privatization, despite ample evidence of the lower performance of state-owned enterprise both in Manitoba and the world over.
And this time, when the opposition categorically denies any intention of privatization, most voters will believe them and ignore the NDP’s time-worn scare-mongering. Many voters will remain unengaged with the issue, largely because Hydro and MPI have long lost their way.

MPI fought the Public Utilities Board over justifiable rebates, regularly hides its approach to both program options and the extension business and has lost control of its operating expenses. A private insurer would do better. Hydro is a much bigger and more urgent problem. It continues to hide information about its export contracts and the $224 million it spent on First Nations negotiations. Hydro is a massive monopoly driven by the present government’s political needs, not those of ratepayers.

A private utility simply couldn’t borrow tens of billions of dollars and bet the farm on a huge dam-building program when the electricity-export market the plan relies on has substantially changed. Only the highest political direction (overriding more cautious advice) and the ability to charge whatever the costs to ratepayers enables this hugely risky venture.

Tragically, the plan ignores huge and unnecessary price increases for consumers — especially ironic for an NDP that traditionally positions itself as a champion of the poor. The path the government is following will especially harm lower-income households dependent on electric heating.

As matters now stand, it would be amazing if any private firm even had an interest in acquiring Hydro or MPI. Hydro’s retained earnings (the government’s equity in the Crown) of $2.5 billion is composed of intangible non-earning assets, not cash. And, it would be difficult to extract the utility from commitments made to American utilities and First Nations. As for MPI, its investment portfolio is heavily exposed to fixed-income bonds, which will fall in value as interest rates rise. To top it off, both Crowns undertake tasks for the government and have unfunded pension obligations and outsized personnel complements (slimming down would cost big money).

Hydro and MPI are both ensnared by legislation and require approvals for policy and rate changes. A prospective new owner would have to be satisfied its actions to improve operations and reduce risks wouldn’t be blocked, while also requiring solid assurances that rates would be set sufficient to meet the costs of operation (without subsidizing the government), and provide for acceptable industry financial ratios and an adequate return on its investment.

In short, neither Hydro nor MPI will be privatized following the next provincial election. Despite a strong case for getting government out of business and bringing in real market expertise, first messes have to be cleaned up and certainty must replace avoidable risks.

The best that can be hoped is that after the next election, and whichever party wins, government will focus on ratepayers’ concerns and not its own.