Cost overruns and delays for two megaprojects have left Manitoba Hydro with increasing costs and limited options.
A rate-setting hearing with the Manitoba Public Utilities Board (PUB) that began Dec. 4 reviewed Manitoba Hydro’s request for a 7.9 per cent rate hike, which would take effect on April 1, 2018. Manitoba Hydro also applied for a 7.9 per cent increase for Aug. 1, 2017, but the PUB approved a 3.36 per cent interim rate increase from that date.
“Without rate increases, Manitoba Hydro is forecast to be considerably short of the cash needed to fund our core operations over the next five years,” said Manitoba Hydro media relations officer Bruce Owen.
The PUB was slated to review both the interim increase and the proposed April 1, 2018 increase at the hearing, which was scheduled to run until Dec. 7.As of the release of this newsletter, no decision had been announced.
The Bipole III Transmission Line project and the Keeyask Generating Station have both faced delays and cost overruns. Owens said the projects have contributed to Manitoba Hydro’s need to increase rates.
“Simply, the combined cost of the projects is approximately $13 billion and will contribute to the debt for Manitoba Hydro as they come into service,” Owen added.
He noted Bipole III is scheduled to be in service by this summer and the 1,384-kilometre transmission line is targeted for completion by March 2018.
“The 695-megawatt Keeyask, being built on the Nelson River near Gillam, is anticipated to be cash-flow negative and contribute a net loss to Manitoba Hydro until at least the mid- to late 2030s when the bulk of its capacity shifts to satisfying domestic needs,” Owen said.
Other factors such as a decrease in electricity demand and alternative energy sources also account for lowered revenue, Owen said.
“With growth in electricity demand here in Manitoba slowing, projected revenue from sales in the province is down hundreds of millions of dollars in the next decade compared to previous forecasts,” he said. “Income from sales outside of the province is also projected to be hundreds of millions less than previously forecast because of the continued availability of cheap natural gas-fired generation, resulting in lower electricity prices on the short-term opportunity market.”
The hearing will also cover Manitoba Hydro’s 10-year plan to restore the utility’s financial health. The plan includes a management restriction as well as a 15 per cent workforce reduction, sales of surplus electricity outside Manitoba and annual 7.9 per cent rate increases from 2018 to 2023, along with a 4.54 per cent increase in 2024 before returning to inflationary increases.
“Previous financial plans did not adequately prepare Manitoba Hydro to absorb the significant increase in operating and borrowing costs that result from the completion of the major capital projects while still ensuring the continued financial strength of the corporation,” Owen explained. “The control budgets for Keeyask ($8.7 billion) and Bipole III ($5.04 billion) have increased by $2.2 billion and $0.4 billion respectively, necessitating further increases in gross borrowing, exacerbating the strain on the previous financial plan.
“Unless we have adequate income and cash flow coming from higher rates, this much debt leaves us without the capacity to absorb any additional costs such as from high interest rates or a drought, which would impact the amount of electricity we produce and export. Costs from rising interest rates or drought would instead need to be passed directly onto our customers in the form of higher, unplanned rate increases,” he added.
The Consumers Coalition, a group consisting of the Public Interest Law Centre on behalf of Winnipeg Harvest and the Manitoba branch of the Consumers Association of Canada, presented a statement to the PUB hearing on Dec. 4.
The statement argued that “to date, Manitoba Hydro has not met its onus of demonstrating that the proposed rate increases will achieve the needed balance between the interests of ratepayers and the financial health of the utility.”
The coalition also stated in their view the 7.9 per cent rate application for 2017/18 and 2018/19 should be rejected and that a “rate shock to avoid rate shock represents a fundamental change of perspective at Manitoba Hydro that has not been justified as necessary.”
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