Privatization is the Smartest Way to Help Manitoba Hydro

Commentary, Crown Corporations, Ian Madsen

Appeals to sentiment and other emotions will not make Manitoba Hydro financially viable. Manitobans cannot wish away the debacle that cost the utility, and all Manitobans, billions of dollars. The problem over a decade ago, and it will take decades to get out of the mess.

It is true that attempts of northern development and providing aid to Indigenous communities are only a very small part of the bad planning and cash-burning character of the Wuskwatim- Keeyask-Bipole III disaster. Yet it is an important part.

These attempts were integral to a project that lacked a hard-headed, risk-averse management plan. The Crown corporation missed the risks of insufficient demand for its high priced firm electricity in the U.S.. Changes in the energy markets – US fracking and dramatic reductions in the cost of wind and solar renewables – were coupled with out of control budgets for Hydro’s expansion.

A Frontier Centre for Public Policy analysis shows that Hydro could be worth anywhere from $3.6 to $21.4 billion dollars as a private business on a fully taxed basis before interest expense (i.e., disregarding its enormous debt), with a narrower range of $6.3 billion to $7.7 billion (median to mean values of projections).

Using comparable Canadian and Brazilian hydroelectric-dominated utilities, the range is $4.3 to $17.0 billion, again fully taxed and without debt, with a narrower range of $8.3 billion to $9.9 billion (median to mean values of projections).

By using either method, and, since the company’s older (pre-1990) legacy operations are low cost and still have good operating margins, with better reliability than many comparable companies, Manitoba Hydro could easily be worth $10 billion, perhaps substantially more.

Another $1 to $2 billion could be realized from the sale of Centra Gas, which has been hampered by being neglected by Hydro in favour of promoting electrical energy over natural gas.

Sadly, the possible $12 billion will not offset the debt incurred as Hydro’s new power plants and lines are completed. However, proceeds from a Centra Gas sale could make the inevitable resolution of the Hydro fiasco less onerous on Manitoba taxpayers and ratepayers.

If there is no sale of any part of Hydro, the province will have to assume up to twenty billion dollars in debt. That is a lot of debt for a province with a small population, and which also have over $32 billion in non-Hydro debt.

Blaming and name calling and harkening back to a vanished past will not make Manitoba Hydro solvent. Ordinary hapless Manitobans have been far removed from this horrendously managed company. Direct (non-government) experienced shareholder ownership of the firm would have prevented this shipwreck from being inflicted on taxpayers and ratepayers. This Crown corporation has, in fact, put a whole province at risk of future public austerity and diminished economic opportunities.

It is the discredited philosophy of Crown ownership that has led to this impending disaster, and its political masters that blithely endorsed its delusional precepts. Albertans may not love Capital Power (a former municipal Crown) or TransAlta (long ago a Crown), but they are well managed, competitive, profitable, solvent, and no threat to the Alberta economy or its people, as Manitoba Hydro and its promoters have been and are.

In this respect, Manitoba could take a lesson from Alberta.