Bleeding money

Russell
Russell Wangersky
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Manitoba customers may have the lowest electrical rates in Canada, and Manitoba Hydro and its subsidiaries may be spreading their expertise worldwide — including being picked to review the Muskrat Falls project not once, but twice.

But it’s still worth watching the problems that utility is having as some of the underpinnings of its plans to be an electrical energy power house fall away.

On Aug. 29, Manitoba’s PUB authorized an interim, urgent rate increase of 2.5 per cent for the utility’s customers — that’s on top of a two per cent increase in April and a planned 3.5 per cent increase already under examination for next year.

Why the latest urgently needed increase? Here’s the PUB order: “By any terminology, however, Manitoba Hydro’s (MH) current financial situation is of significant or major concern, is problematic and warrants intervention. … The increase is only granted to preserve the financial stability of the utility based on current available information and upon consideration of the submissions made.”

What’s the issue? Manitoba Hydro is losing money.

“1. The need is urgent to avoid continuing losses on operations as will be evidenced in the quarterly report of the Manitoba-Electric Board for the three months ended June 30, 2012, which was to be released on or about Aug. 15 (a byelection has held up release of the quarterly report);

“2. financial ratios are deteriorating and are projected to further deteriorate in the test years;

“3. it is essential that the financial and credit rating integrity of Manitoba Hydro be maintained;

“4. prices on the export market are not expected to improve substantially in the near term…”

Its newest hydro station, Wuskwatim, has just come on line, and instead of making money, with low export sales prices it is actually losing money — and that cash will have to be made up. (Can you guess from where?)

“MH projects estimated revenue requirement impact with Wuskwatim in 2012/13 to be $106 million and $117 million in 2013/14.”

It is not what the utility had forecast, but is an expensive reality.

“The board finds that new Wuskwatim operating expenses are a material expense impacting MH’s current financial projections … which results in MH coming forward with the interim rate increase request at this time. … Further, MH has placed the Wuskwatim generating station into service which requires MH to bring certain expenses onto its operating statement, adding pressure for increased revenue to meet additional expenses. The low export prices do not appear to fully offset the additional costs.”

At least one intervenor suggested that the picture may get worse, noting “that Wuskwatim generating station was coming on line with negative net income, and expressed its concern that if Wuskwatim generating station was indicative of new northern generation, then MH’s net income might be expected to worsen rather than improve as Keeyask generating station and Conawapa generating station come into operation.”

Still, the board felt it had no choice but to go to the general rate base to find the money.

“MH argues that if these increases are not granted now, greater rate increases may be required in the future to protect against net income reductions and negative credit rating implications,” the board said. “Projected low export prices continue in the test years, both due to the continued economic reality … and the low price of natural gas which fuels competitive electricity generation alternatives. MH identifies these as the key factors to its current negative financial position.”

So what message can you take from all this?

You can, as our government probably will, insist that all other utility cases are different from our own and that we alone know what we are doing.

They will claim, correctly, that export sales aren’t part of the Muskrat equation, that Newfoundland ratepayers will carry all the freight for Muskrat Falls — but they will probably remain silent on Manitoba Hydro’s huge cost overruns

on Wuskwatim, Conawapa and Keeyask.

Because that can’t happen here. We’re better. Or smarter.

Or something.

Russell Wangersky is The Telegram’s editorial page editor. He can be reached by email at rwanger@thetelegram.com.

Organizations: Manitoba Hydro, Manitoba-Electric Board

Geographic location: Wuskwatim, Manitoba, Canada Newfoundland

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Recent comments

  • Ed Power
    September 11, 2012 - 20:35

    What's this?! No rebuttal by the famously pseudonymous John Smith?! No spirited defence of all hydro things Muskratty and Manitoban? If one wasn't faced with the prospect of paying for the billion dollar cost overruns for Muskrat Falls out of ones measley pay envelope or pension cheque, one could find the irony in Nalcors' reliance upon a project analysis provided by Manitoba Hydro - they of the flawed power requirement projections and massive cost overruns for their own megaproject - amusing.

  • Pierre Neary
    September 11, 2012 - 17:23

    "that Newfoundland ratepayers will carry all the freight for Muskrat Falls" The message seems loud and clear.

  • Winston Adams
    September 11, 2012 - 15:52

    Our Premier has an alternate plan already, it's the Energy efficiency Action Plan, where they will reduce the energy needed by 20 percent by 2020. And this can stabalize rates, not increase rates. And can be done at 1/4 or less than Muskrat falls. The only problem is that she has no yearly targets to achieve this, and no Efficiency group with a mandate to do this. But it's a perfect backup plan, if followed through, because efficient heating solves our problen for 2 decades or more. And she needs to reign in the expenditures of Nalcor immediately. If she acts in this direction it would be a blessing for the homeowner, and could very well reverse her decline in the polls. But first she has to realize the the timing is wrong for Muskrat falls, that there is a better solution, and to lay out targets for her existing Efficiency Action Plan. Just announce she's going to Plan B, which has been there all the time. What can the opposition say? They didn't even suggest it as a solution.

  • Premier Dunderdale please give your head a shake
    September 11, 2012 - 11:10

    Please Premier Dunderdale reevaluate what you are overseeing with the proposed Muskrat Falls Project. It appears that you and your government could very likely bring down the economy of Newfoundland and Labrador if you go ahead with the Muskrat Falls Project, especially if the onerous debt results that has been touted. Premier, all you have to do is take note of the economic problems that Manitoba Hydro are going through that are listed by Mr. Wangersky in this article, the firm you and your government chose to review the proposed Muskrat Falls Project, after you rejected the Public Utilities Board of Newfoundland and Labrador because it didn't give you the favorable review you were looking for because the data it held didn't support the debt. It is wise not to forget that 'rating agencies' of the past gave out favorable reviews which brought down some of the largest Financial Institutions, Corporations and the World Economy in 2008. Yes, Premier, there are times when all of us have to give our heads a shake to make sure that we are on the right trajectory for our and our province's future. You Premier Dunderdale are the leader of Newfoundland and Labrador and you can make or break us with the wrong move on the Muskrat Falls Project at the wrong time in our history.

  • Maurice E. Adams
    September 11, 2012 - 10:55

    And if you read today's Globe and Mail you will see that Canada's oil exports will also be impacted because the U.S. is moving rapidly towards energy self sufficiency. The days of exporting power from NEW hydro-electric generation plants to the U.S. is over (too expensive). We have a potential revenue generator in the Upper Churchill and in natural gas. Time for our premier and cabinet to acknowledge that realities have changed.

  • Ed. A.
    September 11, 2012 - 10:12

    can we send a copy of this to queen dunderdale and her parrot JEROME?

  • Derrick
    September 11, 2012 - 09:09

    WE will be lucky if its completed/working for under 10 billion, this will add a debt burden of about 20 Thousand dollars be person ( 10 billion/500K ), the sad part is only about 220 thousand people are employed at the present time.

  • Too Funny
    September 11, 2012 - 08:04

    "So what message can you take from all this?" That there will always be a reason to raise hydro rates.