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CBC News - 02/1892017
What Manitoba Hydro’s gamble means for your rates
By: KRISTIN ANNABLE
Facing increasing debt and an unstable energy market, Manitoba Hydro has one sure route to increase revenue.

The ugly truth for Manitobans is rate increases are the most stable revenue tool the Crown corporation can use and the next decade might not look too pretty.

"The biggest thing we can do to ensure that Manitoba Hydro continues to be sound financially is to manage our costs and look for reasonable rate increases that support the investments we have to make," Hydro CEO and president Kelvin Shepherd told CBC News.

"I can't control what the PUB (Public Utilities Board) will approve, but what I can control is what we ask for, and we are going [to] ask for a reasonable ask that is going to address Manitoba Hydro's requirements to keep us self-sustaining."

Another lever at Shepherd's disposal is the corporation's operating costs. Hydro made headlines earlier this month when it announced over 900 positions, or almost 15 per cent of its workforce, would be eliminated in a sweeping move to cut down on costs. The measure will save $65 million, but Shepherd admits isn't enough to cover the billions of debt carried by the province.



Built into the Crown corporation's 20-year plan from 2015 is 13 years of 3.95 per cent increases, followed by two per cent increases in the subsequent years. 

Sanford Riley, the chair of Hydro's board, has warned even higher rates — into the double digits — would be needed to get a handle on Hydro's burgeoning $13-billion debt-burden and increasingly low debt-to-equity ratio.

Shepherd isn't ready to tip his hand and say what increases Hydro will apply for this fiscal year, but said all signs point to a change in direction and asking for a hike higher than 3.95 per cent.


"We are going to have to raise rates faster," he said. "I think we are going to look at something different than 3.95 per cent."

One credit analyst says the Crown corporation's ability to raise rates has been used by credit agencies to justify the idea that Hydro can remain a self-supporting utility. Plus, Manitobans enjoy some of the cheapest rates in the country. 

"There is a lot more room for (Manitoba) to increase rates, unlike a province such as Ontario," said Tom Li, a utility credit analyst with DBRS, which released its outlook on Hydro in September.

"It shows how much flexibility there is for a utility to be able to increase its rates to recover costs."


Echoes of the 1970s 

Historical data provided by Manitoba Hydro show a correlation between increased rates and massive capital investments by the public utility. The utility stands in a similar position today as it was in the 1970s when Hydro was at various stages of building the $226-million Churchill Diversion, along with several other massive projects.

During this period, Manitobans saw the greatest rate increases in the public utility's history. Shepherd describes that era as a "different world" when interest rates had skyrocketed and the corporation's capital investments, by scale, were more massive than recent projects.

Six years of double-digit rate increases followed, beginning with a 20.6 per cent increase in 1974 — the highest increase in Manitoba Hydro's history. In the subsequent years, double-digit increases between 19.8 and 14.4 per cent continued until 1979.

Currently, the 695-megawatt 
Keeyask hydroelectric generating station, which is being built on the Nelson River in northern Manitoba, is estimated to cost roughly $7.2 billion. 

Bipole III — a 1,341-kilometre, 2,300-megawatt transmission line, running down the west side of Lake Winnipeg — is estimated to cost between $4.65 billion and $5.2 billion to build. 




"My responsibility is to try and bring forward a plan that addresses what we think is reasonable for customers at the same time while addressing the real requirement. We think we have to address the fact we have costs and increase investments we have in the system," Shepherd said.

The Public Utilities Board ultimately decides on rate increases requested by Hydro, but balked at Hydro's recent 2016-17 increase request of 3.95 per cent, arguing Hydro's finances have shown it could reach its debt-to-equity targets at a lower rate increase.

In its most recent decision the PUB allowed a rate increase of 3.36 per cent and dictated the interim rate increase must go into a deferral account to reduce the expected rate shock when Bipole III and Keeyask come into service. By 2018, when the Bipole is scheduled to become operational, nearly $360 million will be in the account to be used to help keep rate increases low, explained a spokesperson for Hydro.

The PUB hasn't ruled out accepting a 2017-18 rate increase of 3.95 per cent or higher if the financial situation of Hydro deteriorates to provide a "financial cushion."

Shepherd told CBC News Hydro's 2017-18 rate application won't be filed until the spring, after its 2016 financial forecast is complete.

Export stability

For last decade more than 30 per cent of Manitoba Hydro's revenue has come from exports, bringing in $5.2 billion over 10 years. Bringing Keeyask online is expected to increase those export revenues dramatically, explained Shepherd.

Manitoba Hydro is partially hedging its multibillion-dollar capital program on $4.5 billion in export contracts made possible by Keeyask's capacity. 
Shepherd admits, in hindsight, Hydro should have delayed the construction of Keeyask. While he argues Bipole will protect Manitobans from an "economy-devastating" blackout event, Keeyask was built to increase export capacity and changing markets have decreased its viability. Export prices are on the decline and alternative energy pushes in the United States have decreased demand, he said.

"I think it is fair to say that the economics have deteriorated," Shepherd said. "20/20 hindsight, I would have said, 'Yes, I would have waited.' But I am not faced with that today, I am faced with a project many years in the making and $3 billion already invested."



Four long-term export deals with Minnesota, Wisconsin and Saskatchewan have been signed that are dependent on Keeyask. The utility has sold off all the additional capacity and dependable energy brought on by Keeyask until 2025.


How much Hydro will make off each individual contracts with Xcel Energy, Minnesota Power, Wisconsin Public Service and SaskPower is confidential. The contracts begin around 2020, with some ending as late as 2040. 

Economist Brady Yauch described the decision to build Keeyask as a multibillion-dollar gamble that might not pay off, given the current energy market.
"Building big megaprojects and dams are always inherently risky. Manitoba Hydro thought they could get them done on time and on budget," he said, noting the projected delays and cost increases that have recently been announced.

"Industrial demand is … flat so the money they thought they'd get from being a major energy powerhouse in North America didn't materialize."
Dave McMillan, Minnesota Power's executive vice-president, says Hydro is the only utility in the area that has the resources and capacity to supply its needs. The private utility is embarking on a plan to rely more heavily on wind energy to supply power to its over 145,000 residential and commercial customers. Keeyask will give Minnesota Power the ability to store power on their system to use when wind levels are low.

The contract with Minnesota Power expires in 2035.

"The renewable aspect is huge, as is the battery (power) … For that reason we are willing to pay somewhat of a premium for it," he said. "And 15 to 20 years from now, it will be a resource for Manitobans in the long-haul."

Selling off excess energy, outside of contracts, to the United States — a.k.a "spot pricing" — has become increasingly challenging, argued Yauch.

Shepherd agreed, saying utility companies are being offered subsidies to use wind or solar energy which is hard to compete with. While volume of export has increased, prices are declining, he said. 

A report released in February by Greentech Media, a U.S.-based clean energy research group, reported solar energy accounted for 39 percent of new capacity additions across all fuel types in 2016.



With excess power up for sale from neighbouring states, the price has been driven down, explained Yauch of the Toronto-based Consumer Policy Institute.

"They'll take your power, but if they do it on a market-based price, they are going to do it at a cheap deal," he said. "No one has seen an increase in power prices."

CBC News - 02/18/2017
Manitoba Hydro’s walking on a tightrope - or is it?
By: KRISTIN ANNABLE
It's no secret that Manitoba Hydro has a debt problem. The board knows it, the government knows it and even its president and CEO admits Hydro has set itself up for years of razor-thin margins that give the Crown corporation little room for error.

"I characterize it as walking along a road, then walking along a sidewalk and then for about 15 years, I have to walk on a tightrope — everything has to go very good," Kelvin Shepherd told CBC News this week.

"Does it make me nervous? Yes, it makes me nervous."

Manitoba Hydro and its thousands of employees constitute the province's largest Crown corporation, holding billions of dollars in assets, but also $14 billion in long-term debt, with little equity to back it up. That debt has been projected to grow to $25 billion in the next three to four years, according to a government-ordered review of Hydro's finances by the Boston Consulting Group. 

Hydro is currently embarking on an aggressive capital expenditure campaign. Megaprojects including the $4.65-billion Bipole III transmission line and the $6.5-billion Keeyask Generating Station will be built primarily through debt financing and will significantly contribute to the corporation's current long-term debt load.



Depending on who you ask, this is either par for the course for the public utility or a risky gamble that could put Hydro (and by extension the province) in a perilous financial position.

Is the jewel in Manitoba's crown in as much distress as it would appear? In search of answers, CBC News interviewed economists, bond-rating agencies and analyzed the financial records of Hydro in hopes of getting a clearer picture.

One drought away from trouble

Sanford Riley, the chair of Hydro's board, has looked at the current numbers and sounded the alarm, telling CBC News the corporation's finances are a "ticking time bomb" that will require an equity injection from the province and multiple years of rate hikes to diffuse.

"We want to make people understand, this is a big problem. It's not a small problem," Riley said earlier this month. "We have absolutely no margin for error. No cushion."



Utility expert Brady Yauch of the Consumer Policy Institute agrees with Riley, telling CBC News Hydro could be one drought away from serious financial trouble.

"Manitoba Hydro is in a lot of trouble and that is something I have known for a while," said the Toronto-based economist, who is also the executive director of the Institute.
"It is not a new thing that suddenly hits now, it is something that has been building over time."

Yauch argued recent developments have shown the side factors that once made investing in Bipole III and Keeyask financially viable haven't materialized: export prices are on the decline, the price of both projects is expected to increase and demand for hydroelectricity has stagnated.

Delays in the projects could put a kink in Hydro's 20-year capital expenditure forecast — submitted by Hydro to the Public Utilities Board as part of its 2015-16 rate increase application — changes in when these projects become operational can alter everything from their debt-to-equity ratio projections, rate increase necessities and revenue forecasts.



Shepherd said the biggest concern with delays will be the increased borrowing costs the utility will have to shoulder; it costs the public utility over half a billion dollars annually to finance their debt, an expense that is expected to double over the next 10 years, according to the Public Utilities Board.

Built into the plan is a razor-thin margin in 2021 forecasts Hydro's debt-to-ratio margin falling to 12 per cent; that means 88 per cent of Hydro's capital will be debt.
"When you have very tiny levels of equity, you have no room for errors," Yauch said.

Forecasts show a five-year extended drought would cost Hydro $2 billion in lost revenue and with about $2 billion in equity in Hydro's kitty, it's a risk that hasn't escaped Shepherd.

"If we are at  the 10 per cent equity level and we suffer one of those five-year drought events, you could end up with Hydro essentially having all debt and no equity," Shepherd said. "Is that a high probability? Well, those droughts have  happened before, but they don't happen very often."

'Being built in the traditional way'

University of Manitoba economist John Loxley argues Hydro's 20-year plan is just par for the course for the public utility.

"The ratio recovers once the two are constructed," said Loxley, who is also a former Hydro board member appointed under the NDP.  "The idea that this is somehow new and dangerous defies logic, they have known about this for years … The reality is that Bipole and Keeyask, they are being built in the traditional way through debt financing."

He called Riley's comments reckless and scoffed at Riley's calls for an equity injection from the province.

Riley said there are as much as a $5-billion hole in Hydro's books and wants the provincial government to step up with an injection of capital to help fill the gap, alongside rate hikes and staff cuts.

"The basic idea that the province should borrow money to invest in Manitoba Hydro, the idea this would somehow improve the total debt of Hydro and the province is beyond me," Loxley said.

"They are making highly political statements that is damaging to hydro and its bond rating."

What the credit raters are saying

The international credit agencies charged with deciding Hydro's ability to repay its $13 billion debt have, for the most part, given Hydro a stable outlook. Its debt is guaranteed by the province and as long as Hydro is deemed to be self-supporting, its debt does not impact the Province of Manitoba's credit rating.

Both Moody's Investors Service and DBRS have issued stable outlooks for the Crown corporation in recent months, stating once massive capital projects such as the Keeyask dam and Bipole III transmission line become operational, the public utility's debt burden will be eased.

"We view Manitoba Hydro as being capable of prudently managing its debt, benefiting from access to funding from the Province and seeking rate increases and curtailing capital spending to continue as a self-supporting corporation," states Moody's in its November outlook on the utility.

Both agencies say, given Hydro's 20-year plan, it is fully capable of paying its own costs and debts through its operations.

In contrast, S&P Global Ratings, previously known as Standard and Poor's downgraded the province's credit rating to double-A-minus from double-A in July, it cited the province's debt burden as its chief reason and grouped Hydro's debt into the downgrade — something the DBRS and Moody's have not done.



According to S&P, Hydro's "high and rising leverage" has led them to combine the debt, it wrote in its July outlook on the province.

Equity injection

Riley told CBC News earlier this month a proper capital injection from the province could lower the rates "well below" the double-digit increases they currently believe are necessary to balance the books. 

So far, Premier Brian Pallister has balked at Riley's request for an equity injection, telling media this week he needs to hear more about the state of Hydro's finances from the Public Utilities Board.

Shepherd admits the future looks bleak for the corporation, but said it not all doom and gloom. He said he isn't ready to wade in on the possibility of an equity injection to stabilize Hydro.

"Whether people should be worried or not is up to them. What I can encourage them is not to get too mislaid by the misinformation and rhetoric. We are a solid company with great assets," he said.

"I am not downplaying the financial concerns because $25 billion of debt is a concern, but I would encourage people not to forget about the strengths we have in this province and corporation."

Brandon Sun - 02/13/2017
Sound Off: Get ready for Hydro increases
By: UNCREDITED
Our publicly owned Crown corporation, Manitoba Hydro, has just announced possible double digit percentage increases in monthly rates to its customers. I can’t help wondering if the general public realizes that these increases are the result of numerous years of interference into the operations of Hydro by our previous provincial government. Manitoba Hydro was treated as a “cash cow” by our elected officials and now, once again, the taxpayers are left to pick up the tab for mismanagement. Sounds like we are about to see horrendous rate increases by a utility with tremendous potential ruined by short-sighted politicians.

Winnipeg Free Press - 02/13/2017
Too premature to consider Hydro bailout: Pallister
By: LARRY KUSCH
Premier Brian Pallister deflected questions Monday on whether he would consider a multibillion-dollar bailout for Manitoba Hydro, suggesting such discussions are premature.

At a press conference called ostensibly to restate the province's demands for greater federal health transfer payments, Pallister suggested the Crown corporation make its financial case to the Public Utilities Board when it seeks its next consumer rate hike.

Sandy Riley, the Progressive Conservative-appointed Hydro chairman, has said the corporation needs a massive provincial equity infusion to get back on its feet. Hydro has also unveiled plans to trim its workforce by about 15 per cent.

Pallister said the investigative role of the Public Utilities Board should be allowed to play out.

"Unless we understand how we got in this mess in the first place, we shouldn’t move ahead with remedial action because we are not going to be addressing the causes," the premier told reporters. "We may even be repeating the causes of the problem. So the first thing that has to happen is that we have got to investigate and get to the bottom of how we got into this mess in the first place...

"Until we understand how we got into this multibillion (dollar) hole in the first place, talking about solutions would be premature."

Hydro is currently finalizing its financial forecasts for the PUB, a spokesman for the Crown corporation said Monday. No date has been set for a hearing by the regulator.

Pallister would not say whether he has had talks in recent days with Riley over his public appeal for a cash injection. "I don’t talk about personal discussions," the premier said.

Pallister castigated the previous NDP government for placing Manitoba Hydro in a perilous financial predicament by forcing it to greatly expand hydroelectric power production for the American export market. He said Manitobans were not properly consulted.

"I’m not afraid of a public discussion on Hydro or anything else. I think it’s a good healthy thing," he said.

Meanwhile, in beating the drum for higher federal health payments, Pallister cited the findings of six independent studies that show the course Ottawa has set will make it difficult for provinces and territories to maintain adequate funding for social programs and balance their books in the future.

The federal government this year is ending a string of six per cent annual increases in provincial health funding. It has reduced the annual transfer to three per cent and then kicked in extra money for home care and mental-health services. The total increase amounts to about 3.4 per cent this year. Manitoba and the country's largest provinces are demanding an overall increase of 5.2 per cent.

Pallister noted that because of Ottawa's intransigence on the issue so far, Manitoba has been forced to build Ottawa's new health funding formula into its forthcoming budget. The date of the spring provincial budget has not yet been announced.
The premier said the province remains committed to working with organized labour to find cost savings that will allow it to avoid laying off front-line staff and maintaining provincial services.

While he expressed disappointment in the province's inability to negotiate with Ottawa on health funding, Pallister said the two levels of government are working smoothly on the immigration file, including the recent flurry of asylum claims at the Canada-U.S. border point at Emerson.

Federal-provincial discussions have centred on security issues at the border and the cost to social agencies of dealing with larger numbers of asylum-seekers.

"My first concern is for the security of Manitobans, but I’m also, of course, concerned for people seeking refuge here," Pallister said. "Manitoba has always been that welcoming place for people seeking help, and I want to make sure that continues. And I believe Manitobans do, too."

While the punditocracy whipped itself into a justifiable if ritual lather over another Ottawa bailout of Bombardier, the $372-million loan is small change compared with the multi-billion-dollar green electric power fiascos across the country.

A rough tally of the ballooning financial plight of the electricity sectors in British Columbia, Manitoba, Ontario and Newfoundland quickly runs to more than $50 billion in new debt and imbedded costs for investments that threaten to be money-losing drags on growth and consumers — and the federal government —for years to come.

A rough tally of the ballooning costs in four provinces’ green electricity debacles runs over $50 billion

The looming disasters have two things in common. They are the work of government-controlled and politically manipulated Crown corporations. They are also the product of a deliberate push to produce clean, green and renewable carbon-free electricity. No fossil fuels allowed. Money is no object.

British Columbia

An $8.8-billion dam known as the Site C Clean Energy Project in northeastern B.C. has been described as a “white elephant” by a former hydro executive. Last month Moody’s warned that “BC Hydro posts some metrics that are among the weakest of Canadian provincial utilities.” The company’s debt is heading to $20 billion. Hydro, said Moody’s, has the “flexibility to increase utility rates to ensure that its own revenues will continue to support its operations and debt payments.”

Approval of Site C came in the context of the B.C. Green Energy Act, which mandates that 93 per cent of the province’s electricity must come from “clean and renewable resources.” There is, alas, no requirement for economic viability. And in a bit of double-think, B.C. Hydro’s environmental impact statement notes there could be huge demand for Site C power if assorted liquid natural gas projects go ahead. The province will therefore mandate carbon-free renewable power to help produce carbon-containing LNG.

Manitoba

Manitoba Hydro, also building clean and renewable projects worth billions, this week announced 900 layoffs with a warning from Sandy Riley, its new chairman, that the utility is a “ticking time bomb” that needs a financial bailout. Rate increases exceeding 10 per cent per annum are possible.

A report last year from The Boston Consulting Group (BCG) warned that Manitoba Hydro’s debt could double to $23 billion by 2023, propelling the provincial debt/GDP ratio to 65 per cent. If interest costs rise, Manitoba could become “a province with the highest debt per capita of any in Canada,” said Riley.

The BCG report also concluded that the projects driving Manitoba Hydro into a fiscal mess were approved based on political and environmental concerns rather than economics. “Imprudence can be traced to systemic decision governance issues,” including lack of clear division of roles among players and the fact that rates were not linked to returns.

Delays and cost overruns are already at play. Complicating matters is Manitoba’s too-clever plan to sell surplus electricity to neighbouring Minnesota and Wisconsin, since they were forced to forgo fossil-fuel generation under a new U.S. Clean Power Plan. But with President Trump in the White House and a U.S. market awash in cheap natural gas, those sales now look doubtful.

Even last year, pre-Trump, BCG warned Manitoba Hydro about the probability of low export prices for electricity, setting Manitoba up for a reversal of the original plan. Instead of subsidizing cheap electricity at home through high export prices, Manitoba could end up with expensive electricity at home and cheap or non-existent export markets.

Whatever the lost merits of Manitoba’s energy project, BCG concluded there could be no going back. Sunk costs of $5 billion and $2 billion in cancellation costs are just too great to justify killing the projects.

Ontario

Under Ontario’s Green Energy Act, the Liberal government of Kathleen Wynne has saddled the province with escalating wind and solar electricity costs that will drain billions from industry and consumers. Power costs have already doubled to nearly 12 cents a kilowatt-hour to pay for the green energy needed to replace coal plants. For a detailed review of Ontario’s electricity troubles, may I suggest a Google search for my column last October under the headline “Boondoggle: How Ontario’s pursuit of renewable energy broke the province’s electricity system.”

Newfoundland

The cost of Muskrat Falls, a giant Labrador hydro project designed to ship “clean” and “cheap” hydro power overland and underwater to Newfoundland, is now said to be approaching $12 billion. Former premier Roger Grimes (whose predecessor, Danny Williams, pushed Muskrat) said recently the project “will haunt all of us, unfortunately, for the rest of my life, my daughter’s life, my granddaughter’s life even.”

Williams defended the project in a speech last month as a job creator that will cost only three to four cents more per kilowatt-hour — numbers energy consultant Tom Adams describes as a fantasy from another world. Muskrat power, if it ever reaches Newfoundland, will arrive at an estimated price of 22 cents per kilowatt-hour on top of the existing 12 cents.

Muskrat Falls is a prototypical modern green-megaproject whose proponents, political and corporate, used the current obsession with carbon reduction to justify billion-dollar spending on “renewable” and “clean” hydro power in the wilds of Labrador. As in Manitoba, the plan is to export the power to other jurisdictions, but no jurisdiction is going to pay 22 cents for Muskrat power that can be bought for at least half that elsewhere.

As in Manitoba and Ontario, massive losses loom for Newfoundland. At a current $12-billion estimated cost (excluding financing), the per capita debt burden on Newfoundlanders increases by $24,000. Since half the Muskrat debt is guaranteed by Ottawa, thanks to prime ministers Harper and Trudeau, federal taxpayers are also on the hook.

The grim state of the electricity sectors in the four provinces (with new risks of generation turmoil and price increases in Alberta) creates an impossible situation for the dreams of the Trudeau government, which announced in November plans to use electricity as a “nation-building effort.” Ottawa would be better off sticking with bailing out Bombardier for a few hundred million bucks rather than getting itself even more tangled in provincial electricity boondoggles where bailouts costs would run to the tens of billions.


Something has changed radically in Manitoba Hydro's view of its fiscal future and there is growing concern over who will feel the brunt of big rate increases.

At the end of 2015 the utility was requesting increases of
3.95 per cent year-over-year until 2024. Now a message from the board of the Crown corporation says double-digit increases will be needed for at least five years.

On Friday Manitoba Hydro announced it would seek a workforce reduction of 900 staff, starting with offering severance packages to employees. The press release announcing the cuts also came with a statement from Hydro board chair Sandford Riley saying staff reductions would not be enough to improve the company's fiscal problems. 



"Even with these reductions, double digit annual rate increases would be required for at least five years in order to re-establish Manitoba Hydro on a proper financial footing," Riley said in the statement.

The statement also reiterated the board's interest in getting an injection of capital from the provincial government.

Business owner calls double-digit increases 'mind-boggling'

Just about every piece of equipment in Denny's Meat Market, from coolers to saws and grinders, consumes electricity and owner Denny Dueck sees double-digit rate increases for electricity as "mind-boggling."

"We have equipment that runs on it on a daily basis, 24-7. It never quits," Dueck says. "You have an increase on that product; where am I going to get the money for the increase on that bill?"

Dueck says possible rate hikes that large are just another in a long string of increased costs his business has been facing, citing bumps in property taxes and water rates. He fought off stiff competition from big-box groceries and rising meat costs, but rate hikes larger than perhaps 10 per cent a year are tough to chew.

"When I heard about the increase, I said, you know what? I might as well shut my doors because I'll give it to Hydro," Dueck said.

Dueck also has plenty of sympathy for Hydro staff who may face layoffs.

"I feel bad for 1,000 people that are going to lose their jobs. That's ludicrous! It sucks!" Dueck said.

Dueck has a message for the board, management and minister in charge of Manitoba Hydro on rate hikes.

"Give your head a shake. What are you doing out there? It's not just hurting me, its hurting everyone in the city. What, are we going to get a second job now to pay for the Hydro?" Dueck said.

Food or electricity?

Business owners aren't the only people looking at the electricity meter and worrying about the bill.

Josh Brandon with the Social Planning Council of Winnipeg says people living below the poverty line and on fixed incomes will struggle to make ends meet if the cost of electricity rises so much over the cost of inflation.

He says in some rural and northern regions, where natural gas is unavailable, the impact could be even more acute.

"People living below the poverty line are already struggling. They are having to make impossible choices already about whether they are not going to pay their Hydro bill or cut back on food or rent or other basic necessities," Brandon told CBC News.

Brandon says it's even more frustrating because it's not clear how much of an increase Hydro will request from the Public Utilities Board. He says the signals from the utility are confusing because his organization was already concerned about the 3.95 per cent increase previously granted to Hydro.

The Social Planning Council provided some analysis for Hydro last fall on the effect of increases from four to eight per cent. Now it may go much higher — increasing what Brandon calls the energy poverty rate.

"Now if we are talking about 10 or more per cent it's going to be pretty difficult for a lot of families," Brandon said.

Pallister 'concerned' about rate hikes, won't commit to Hydro bailout

Progressive Conservative Premier Brian Pallister told reporters Monday that rising power rates and Hydro's poor fiscal fortunes were created by the former NDP government.

"We all know the mess at Hydro and we understand the overreach of the previous administration was a mistake. We see that already in rapidly escalating hydro costs and that's hurting Manitoba families, so we are very concerned about the increasing costs and how we can strengthen Manitoba Hydro," Pallister said. 



Pallister was asked several times if his government was willing to make an equity investment to help Hydro's bottom line and perhaps ease a rate hike, but he told reporters it was up to the PUB to determine where the rates will be set.

Riley has spoken publicly about Hydro's need for a cash injection from the province and it was mentioned last Friday in the board chair's statement on job cuts and rate increases.

Pallister says his government doesn't want to see double-digit increases for electricity, but suggested the NDP went around agencies such as the Clean Environment Commission and the Public Utilities Board. Pallister says his government won't do that and will allow the PUB to make the decision on any future rate increases.

"I do not believe that circumventing those processes is in Manitoba's best interest, so I respect the protections that Manitobans have with those agencies and we'll make sure that we follow the proper procedures in dealing with any rate application increase," Pallister said.

Winnipeg Free Press - 02/08/2017
Pallister’s course on Keeyask means higher rates
By: DENNIS WOODFORD
Premier Brian Pallister promised during the 2016 election campaign he would immediately halt construction of the $4.65-billion 2,300-megawatt Bipole III and the 695-MW Keeyask hydroelectric generator, now valued at $7.2 billion.

The day after the April 19 election, Manitoba Hydro launched its aggressive Power Smart Program. If carried through for an investment of less than $2 billion, Power Smart would reduce Manitoba’s load requirement more than what Keeyask, at $7.2 billion, would supply. In other words, Keeyask and Bipole III would not be required even to meet the contracts being put in place with the Americans for some of its power.

Pallister, unfortunately, let construction continue, at a cost of $10 million per day, through September. He appointed a new board with business expertise and little engineering capability. They hired the credible Boston Consulting Group to review the situation of Bipole III, sized to 2,300 MW, to carry the 695 MW of the Keeyask generating station.

Bipole III was being justified for "reliability," but there was never a probability-based reliability study tabled by Manitoba Hydro, as is accepted practice for such developments. Instead, alarmist statements of disaster were made to scare the daylights out of everyone, statements the consulting group picked up on. The reliability scare tactics failed to include the impact of the aggressive Power Smart program and the reliability benefit for the Manitoba-Minnesota Power Transmission project needed for the increased electricity contracts to Minnesota.

Hydro’s board fed data from Manitoba Hydro to the consulting group that was based on higher load growths in Manitoba than is actually happening, particularly with its Power Smart program causing lower load growth. Furthermore, the data the board fed the consulting group was an optimistic price for future exported electricity.

By September, the consulting group recommended continuing with the development of the Bipole III west side route and Keeyask because "the project is too far along to change it."

A benefit is the temporary economic growth from the construction and related industry giving Manitoba a good current economy. A very severe consequence, in addition to the disaster to farming, business and the environment, is the $25 billion the province has to borrow for Manitoba Hydro and the devastating hydro rate increases that will follow.

Would Pallister want to reduce the lucrative half-billion dollars annually into the treasury from loan guarantees, water rentals and capital taxes all to be paid as a "hidden tax" from our increasing hydro rates if the $25 billion were cut back? The $25 billion may well have been reduced if Pallister had stopped construction of Bipole III and Keeyask on April 20 and supported Power Smart initiatives. It is questionable whether Power Smart will continue to be aggressive or just a token effort because the Manitoba Hydro vice-president for this program has been fired. On the surface, it seems the aggressive Power Smart program has to be cut to avoid stranding Keeyask.

Manitoba Hydro warned the Crown corporations committee at the legislature several months ago the 3.95 per cent hydro rate increase would be inadequate. We now know we will be exposed to an annual increase in hydro rates of 10 per cent or more over five years.

This will be a tragedy for some businesses, which may have to fold, and a disaster for low-income earners on electric heat, many of whom will face energy poverty. Thermostats will be turned down, and food purchases will be scrimped — factors neither the Hydro board nor the government appear to have considered. A home heated electrically today at $700 each winter month will rise to $1,200 after the five years of rate increases.
To address energy poverty, the provincial government should be prepared to allocate the half-billion dollars it will receive annually into the treasury from Manitoba Hydro to compensate households with electric heat and low income, and also to businesses facing bankruptcy.

The chair of Manitoba Hydro's board didn't mince words in describing the financial problems facing the utility, in the wake of a workforce reduction of 900 staff and potential double-digit rate increases.

"We want to make people understand, this is a big problem. It's not a small problem. We take that position not only from Manitoba Hydro's perspective, but from the perspective of the government of Manitoba and the people of Manitoba; Hydro is a ticking time bomb," Sandy Riley told CBC News.

The board of the utility has been signaling for some time the situation at Hydro is dire.



Riley said the financial picture became increasingly clear as the relatively new board of directors (appointed in May 2016) worked through the company's books. He said the board had a completely different view of the health of the crown corporation from that of the previous appointees. For example, Riley said, on keeping requests for electricity rate increases to below four per cent.

"They were wrong. just simply wrong...we don't agree with them. We don't agree with what they did, we don't agree with the conclusion," Riley said.

Riley said the crown corporation has a fiscal hole in the range of $4.5 billion to $5 billion and wants the provincial government to step up with an injection of capital to help fill the gap, alongside rate hikes and staff cuts. He didn't say exactly how much that cash injection might be, other than it wouldn't be all of the multi-billion dollar shortfall.

Massive capital projects such as the Keeyask dam and Bipole III transmission line have put pressure on the company as they run over budget.

The financial picture at Hydro is in such rough shape, Riley said, that rate increases to improve the situation could actually run a few points above 10 per cent.

"We have absolutely no margin for error. No cushion," Riley said.

Provincial funds could ease rate hikes

Riley said an equity injection from the provincial government could ease the financial situation at Hydro and bring the needed rate increases down.

"If we have an investment from the owner of Hydro, which is us, the people of Manitoba, it will allow us to moderate increases overtime that will allow less of an impact on consumers," Riley said.

Riley said a proper capital injection from the province could lower the rates "well below" the double-digit increases they currently believe are necessary to balance the books. That could help lower-income rate-payers and businesses that use large amounts of power.

The Public Utilities Board approved a 3.36 per cent rate increase for all customer classes last August. Hydro, under the previous board, had asked for a 3.95 per cent hike.


Riley said he hasn't yet had a conversation with Premier Brian Pallister on the need for an equity injection by taxpayers but he said it will very soon. Yesterday, Pallister was repeatedly asked if he would consider such a move, but he was noncommittal.

The premier was not available for a interview today, but his office sent a statement blaming the previous NDP government for the current state of Hydro's finances and expressing concern for families and businesses that may face increased Hydro bills. It's too soon, Pallister said, for a decision on an equity injection.

"It would be premature to comment on other plans being considered or developed by Manitoba Hydro," Pallister said in the statement.

Impact on province's credit rating

Another compelling reason for the province to step-in and help with Hydro's finances and its fiscal future lies with credit rating agencies, Riley said. 

The businessman and board chair said some agencies are moving to combine the provincial debt with Hydro's, potentially triggering a downgrade for the province that would cost hundreds of millions in added debt servicing costs.

"If that's the case Manitoba quickly becomes a province with the highest debt per capita of any in Canada... Those are worrying numbers, because if you get a rate increase of one per cent because of a change in the ratings, on $50 billion worth of debt, which is where you'll be with Manitoba combined [with Hydro's debt], that's $500 million of additional costs that are going to go year after year to people who are lending us money," Riley said.

That is unsustainable for the province, he said. 

The crown corporation's fiscal plan could restore the company's financial health and make it a key asset for the province, but the time to act is now, Riley said. 

Winnipeg Free Press - 02/07/2017
Shine a light on Hydro layoffs
By: EDITORIAL

Also published in the Brandon Sun as “Shinning a light on Manitoba Hydro job cuts”.

It may be a good time for those working in Crown corporations across the province to update their resumés. Manitoba Premier Brian Pallister told reporters on Monday the government has set a 15 per cent management-reduction target as a starting point for all Crowns.

But Mr. Pallister shouldn’t think this is going to save money right away. As in any case where there are massive layoffs and voluntary buyouts, the savings aren’t realized during the year they take place.

Take for example the Friday announcement from Manitoba Hydro. The Crown corporation is planning to eliminate 900 positions, or 15 per cent of its workplace, in 2017. But that won’t ameliorate the need for Hydro to initiate double-digit rate increases over the next five years. More than anything, Friday’s announcement signals to the provincial government that the newly constituted board got serious about finding efficiencies before seeking government assistance in dealing with its growing deficit.

Hydro CEO Kelvin Shepherd said the board hopes a volunteer departure program can be used to help downsize, after regular retirements occur. Mr. Shepherd foreshadowed Friday’s announcement in September, suggesting the Crown utility would definitely "have to reduce operational costs" and staffing makes up 80 per cent of those costs.

While not finalized, Mr. Shepherd says the basic framework for this new departure program would allow for two weeks pay for every year served, to a maximum of 30 weeks. Which means, any savings won’t occur until 2018 when it’s expected the Crown corporation will save $65 million annually.

This is normal when any organization does cutbacks — the benefits aren’t immediately realized. For example, when the federal government in 2012 attempted to cut 30,000 people from its public service ranks, it was estimated it would cost taxpayers $3 billion. Unions ensure that their staff are protected, as they should, so the full effects aren’t felt immediately.

During public meetings in October, the Manitoba Hydro board had suggested it was hoping for a major equity injection from the province to prevent the need for double-digit rate increases. The rate hikes remain a possibility, but perhaps now there is an opportunity for the board to return to the province and revisit that request. How it will be received is another question altogether. Mr. Pallister confirmed Monday he won’t consider a bailout and questioned the need for double-digit increases entirely.

Suggestions within the labour movement are that these Hydro moves are classic "shock doctrine" tactics to create a crisis, with the government responding with privatization as the only solution. However, the premier has denied that repeatedly, going so far as to include in the mandate letter given to Ron Schuler, minister for Crown Services, that the top priority is "above all else" to keep Manitoba Hydro public.

Manitoba Hydro has been in trouble for some time. Its debt is set to double to $25 billion within four years. Within two days of winning the election last April, Mr. Pallister’s government fired the Hydro board and replaced them with appointees who have senior financial management expertise.

So the Crown corporation says it has done what it can to cut 15 per cent off the top, but that’s not translating to any real savings in 2017. The premier remains doubtful that double-digit rate increases are necessary. And labour is suggesting this is all just a plot to drive privatization discussions.

Someone needs to shine more light on what’s really going on at Manitoba Hydro.

Winnipeg Sun - 02/06/2017
Step aside, Premier Pallister - you failed
By: GRAHAM LANE, Manitoba Forward
Sanford Riley, chair of Manitoba Hydro’s board of directors, recently announced that 900 employees would be let go along with three sacrificial executives. Furthermore, he forecasts a series of double-digit annual rate increases — unless a desperately needed government bailout comes.
 
No real surprise to the many knowledgeable critics of Hydro’s expansion, just far too late to save ratepayers’ and taxpayers’ hides.
Premier Pallister, before the election, pledged to stop Bipole III and hold a public review of the highly questionable $25-billion plan. Virtually every critic believed him, rejoicing in the upcoming demise of the NDP government’s control over Hydro.

Problem is Pallister broke his promises and let the expensive boondoggle continue while his new board studied the situation. It is impossible for Brian Pallister to not have known that Hydro’s expansion was highly questionable. Yet, he allowed the expansion to continue while his new board got up to speed: a bad decision.

Pallister was “buried” by information and advice from many experienced professionals and experts that had studied Hydro’s plans. Their concerns were articulated in extensive studies and media reports, all based on relevant market research and valid risk concerns.
Unanimously, they lobbied Pallister and his colleagues, seeking an immediate halt and inquiry upon a PC election win. Before the election, Pallister welcomed all efforts to save the public’s purse.

Pallister won the election but, surprise, surprise — and despite further urging by many knowledgeable critics — he didn’t follow through. He brought in a new-to-hydro board which spent about $10 million a day before coming to the same conclusion as the critics had laid out in graphic detail well before. The problem with the new board was they didn’t realize the depth of the hole that the NDP dug for Hydro. As a result, the new board and Pallister’s government continued the Bipole III, Keeyask dam and Minnesota tie-line projects.

A big mistake by the new board and Premier Pallister — a tragedy for Manitobans.

The result of the long delay before what was already known became accepted by the new board is that billions of dollars more will be lost, billions that will likely be collected in the future from ratepayers, including suffering lower-income households heating their homes electrically.

We will see energy poverty if Pallister’s government doesn’t pick up the tab and leaving industry and the general economy to be seriously damaged for generations to come. If Pallister had stopped the madcap building spree right after the election — as he promised — further wasted billions could have been saved.

Blame the NDP, blame Hydro executives, blame the old and new Hydro boards, even blame the opposition parties during the NDP years, yes! But, in particular, now also blame Mr. Pallister. His blunder should be recognized and acted upon immediately. His incredible mistake will likely have a greater impact on our economy than all the other decisions combined that the PCs make during this term.
His blunder is so big in fact that Mr. Pallister should step down and enjoy his Costa Rican property. Let the PCs elect a new leader and premier, one that would listen and work for the people of Manitoba, starting by authorizing the promised, but never held, broad independent inquiry of Hydro.

Ratepayers and taxpayers deserve nothing less.

Winnipeg Free Press - 02/06/2017
Hydro layoffs a Tory warning - lean times ahead
Public sector workers, unions should prepare themselves for cutbacks
By: DAN LETT
For public sector workers and their unions, it was shock and awe.

Friday’s announcement Manitoba Hydro was cutting 900 jobs came as a pretty big surprise. The Crown power utility had made some noise earlier in the year about the need to drastically reduce its overhead to deal with a mounting debt load from the construction of new generating stations and a new transmission line. Enough noise that hundreds of unionized workers at Hydro agreed to join non-unionized staff and management in a wage freeze for this year.

But 900 job cuts? Hardly anyone saw that coming.

Hydro said the cuts were necessary to put the utility back on the path to financial stability. The utility is facing the prospect of major rate increases to deal with continuing low electricity export prices and massive increases in debt related to its capital program. Previously, Sandy Riley, the newly appointed chair of the Hydro board, had suggested that without radical changes, Hydro’s burgeoning debt could single-handedly erode the province’s credit rating, which would mean increased borrowing costs in the future.

The impact on Hydro is hard to calculate right now. The utility isn’t being specific about which jobs will be lost, how many are currently unfilled and exactly how many actual layoffs will be needed to achieve its stated target. There will be a voluntary departure program, and nearly 1,000 employees are eligible to retire in the next year or so. Those two streams will ultimately decide how many actual pink slips get handed out.

The bigger question is what, exactly, will these layoffs accomplish?

Not all job cuts are created equal. For government, where appearance is often more important than reality, layoffs are not always what they seem. Yes, actual pink slips get handed out, but in many instances, the work performed by the departed employees is handed off to consultants. For better or worse, government gets the credit for making a tough decision even though the actual costs of running government don’t really go down that much.

For the time being, the Hydro layoff announcement — which seeks to reduce total employment at the utility by nearly 15 per cent — serves two important goals.

First, it sends a strong message to bond rating agencies and core Tory supporters that the current government is serious when it comes to fiscal restraint.

And second, that other public sector workers and their unions should prepare themselves for a world of pain.

The timing of the Hydro downsizing is significant. According to sources, Finance Minister Cameron Friesen is expected to have a second summit meeting with public sector unions in mid-February to discuss possible wage freezes or rollbacks. The first face-to-face meeting took place in early January, a gathering that was distinguished by the complete lack of detail about what exactly the province wants from its unions that they haven’t already given up voluntarily.

Tens of thousands of provincial civil servants are already working under contracts that started with wage freezes and held subsequent increases to less than two per cent annually. Another 40,000 or so government workers have contracts expiring this year, and their unions have been upfront about the fact they are willing to look at similar deals.

In that context, the Hydro announcement becomes a diabolically effective tool of intimidation. Any public sector labour leader who didn’t think Premier Brian Pallister was serious about squeezing unionized employees is patently aware now that the new Tory government is going to cut deeply and broadly across government to find savings.

It would certainly help the dialogue with unions if, at the February meeting between Friesen and labour leaders, the province revealed more of its master plan. To this point, it’s been nothing but cryptic rhetoric.

Public sector union officials continue to maintain that they do not know whether Pallister wants savings from existing, settled contracts, or whether he will focus his attention on contracts that are up for negotiation this year. Pallister has threatened to bring in legislation, but has not told anyone what that legislation would seek to do. Wage freezes? Rollbacks? Layoffs? Nobody knows.

Pallister will get concessions from those groups that mirror, at the very least, what the former NDP government got in past years. However, the unions are unlikely to agree to re-open existing contracts, so it makes sense for Pallister to look at legislative options to force concessions on bargaining groups that are under existing deals.

Whether he can do so remains a matter of great debate.

Government would have to show a sincere commitment to negotiating a solution before bringing forward legislation. And just putting the finance minister in a room with labour leaders is not likely going to be enough to meet that requirement. At some point, either Friesen or Pallister is going to have to make a formal proposal to the unions. And soon.

The Pallister government is working all-hands-on-deck to get the next provincial budget in order. The economy continues to sputter, own-source revenues are hardly growing, health-care transfer payments will be down slightly and the costs of operating government continue to rise.

On top of that, you have the very real threat that 2017 will see a significant increase in interest rates. Those conditions will make deficit reduction nearly impossible.

With the shock and awe of the Hydro announcement, Pallister has successfully captured the attention of all public sector unions. It’s time to let them and the broader public know exactly what it is he wants from unionized workers going forward.

Steinbach Online - 02/06/2017
Large Air Crane To Start Working West of Steinbach This Month
By: DARYL BRAUN
There will be a quite spectacle in the skies west of Steinbach starting in late February. Manitoba Hydro will be starting to install the large towers for the Bipole III transmission line. And Public Affairs Manager Scott Powell says one of the main means of installation in our area will be by a huge helicopter.
"We have been testing and will be using a large Erickson Aircrane which is a large, very powerful, helicopter that will lift the towers out of the assembly yards, fly them to the location and lower them down into place. Our ground crews will bolt them to the ground and get the guy wires in if they're single point towers, and, once they get them bolted in that helicopter lets go, heads back and picks up the next one and it really can speed up your process."
Stacks Image 3040

Erickson Skycrane at work (Photo credit: Manitoba Hydro)

Powell says they can install 10-20 towers per day by helicopter but only two to four per day by regular crane. He says the air crane will be used to install the majority of the 334 towers from east of Winnipeg, south to Mitchell, then west along Highway #52 and Provincial Road 305 and continuing west to Carman.
Stacks Image 3042
"For a lot of people in agriculture, it (the helicopter) greatly reduces the footprint on the ground by minimizing the size and the amount of construction equipment we need to have in an area to get those towers installed."

Powell says we shouldn't be surprised to see people stopping and gathering to watch when the sky crane is at work.

"They're actually quite an incredible machine. They were originally designed and built by Sikorski and Erickson acquired the rights to build these units. They are loud but it is really something to watch. I know the contractors have told us, when they're using these things, a crowd will always gather to watch these machines in action because it is quite something to see a helicopter carrying a 100-150 foot-tall tower. Its' really quite something to look at."

Some of the towers will also be installed by traditional cranes.

Powell says the Bipole III project is to be completed by July of next year. He notes there will be 3,025 towers over the entire length of the transmission line from northern Manitoba and 12% of them have already been erected.

Winnipeg Free Press - 02/03/2017
Manitoba Hydro cutting 900 jobs in ‘necessary first step’

By:
NICK MARTIN
Manitoba Hydro is cutting 900 jobs — 15 per cent of its workforce — and there's more to come.

The cuts will come from throughout the entire organization, including the elimination of three vice-president positions, and should save the utility $65 million a year.

But that won't be enough to save Manitobans from significant rate increases for the next five years unless the provincial government provides financial help, Hydro board chair H. Sanford Riley said Friday in a prepared statement.

"Even with these reductions, double-digit annual rate increases would be required for at least five years in order to re-establish Manitoba Hydro on a proper financial footing," he said.

"We believe that a balanced approach in which the government — the owner of Manitoba Hydro — invests equity into Manitoba Hydro, will allow the utility to moderate rate increases to more manageable levels."

Kelvin Shepherd, the Crown corporation's president and CEO said the intention was to reduce the 6,200-person workforce more slowly through attrition, but the utility couldn't wait any longer. He said Hydro wants to cut as many of the jobs as possible by the end of 2017.
There are between 900 and 1,000 employees eligible for retirement, though they may not all be in jobs Hydro wants to reduce, and they won't necessarily be willing to take a buyout. Shepherd wouldn't say what the next move would be if 900 people don't leave voluntarily.
And he declined to answer questions about the amount of financial help the board is seeking or the size of rate increases Manitobans could expect.

"Those are all discussions between the board and the government," he said.

Premier Brian Pallister has, so far, resisted making any commitment to a Hydro bailout and was not available for comment Friday.
The government released a statement from Crown Services Minister Ron Schuler, who pointed the finger at the NDP.

"Serious problems, created by political decisions and direction of 17 years of NDP government, have forced the board of directors of Manitoba Hydro to make some very difficult decisions," Schuler said.

"Addressing the financial challenges of Hydro will take time. Our government will continue to monitor the corporation's ongoing efforts. We will review and consider Manitoba Hydro's plan for the future alongside the necessary processes of the Public Utilities Board, which will play a significant role moving forward."

NDP labour critic Tom Lindsey called the decision "a shocking and shortsighted move."

"The loss of so many skilled workers puts Hydro’s long-term future in doubt by making it more difficult to finish projects on time and meet export contract deadlines, Lindsey said in a prepared statement. He said "it will force Hydro to rely more heavily on contract and out-of-province labour to fill the gaps Pallister is creating."

Hydro said in the fall that megaprojects approved by the former NDP government would doom the utility to doubling its debt to $25 billion and cause serious damage to Manitoba's credit rating.

Friday's news came as no surprise to the unions representing the bulk of Hydro's workforce.

"They certainly made lots of noises in the fall," said Unifor's Paul McKie. "First they create the false story of a financial crisis, now they kill hundreds of good jobs."

McKie, the union's Manitoba and Saskatchewan area director, said there's plenty of anger over the announcement.

"It's not good — 900 jobs is massive," he said, adding Unifor has no idea how many of its members will be affected. "To take 900 good-paying jobs out of the Manitoba economy is vicious."

International Brotherhood of Electrical Workers Local 2034 president Mike Velie said Hydro is targeting 200 to 250 IBEW-member positions but has not provided specifics.

About 280 members are currently eligible to retire, Velie said.

"They have a brand-new board hand-picked by the premier," Manitoba Federation of Labour president Kevin Rebeck said. "This is a broken promise. Manitobans put their trust in (Pallister) to protect services."

The Canadian Union of Public Employees has already lost 150 Hydro jobs in the last five years and recently agreed to a wage freeze in the first year of a four-year deal, Local 998 president Chris Mravinec said, adding further reductions of CUPE members will affect customer service.

Brandon Sun - Print Edition 01/24/2017
Sound Off - Future looking bleak
By: UNCREDITED
Those worried about Premier Brian Pallister taking holidays in Costa Rica should be more concerned about the cost of hydro in the coming years due to the ridiculous decisions made by the past NDP government.  Manitoba Hydro realizes that its runaway expansion plans have turned into billion-dollar mistakes.  We will be looking at rate increases of at least four per cent for many upcoming years to pay for the boondoggle.  Manitoba residents are on a path to energy poverty, similar to what is happening in Ontario.  Add a carbon tax to hydro increases, among other perpetual increases, and the future is looking bleak for working Manitobans.  Thank you, NDP, for allowing Manitoba Hydro to make lives more difficult for low- and middle-class Manitobans.

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