The Black Rod

The origin of the Usher of the Black Rod goes back to early fourteenth century England . Today, with no royal duties to perform, the Usher knocks on the doors of the House of Commons with the Black Rod at the start of Parliament to summon the members. The rod is a symbol for the authority of debate in the upper house. We of The Black Rod have adopted the symbol to knock some sense and the right questions into the heads of Legislators, pundits, and other opinion makers.

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Monday, January 24, 2011

Manitoba Hydro's three magic numbers tell all you need to know

Reading the transcripts of the Public Utilities Board's current hearings into Manitoba Hydro's requests for rate hikes is a lot like mining.

You enter a deep, dark, scary tunnel of near-impenetrable verbiage. Sometimes you wander off into passages that seem to go nowhere, leaving you crying for help. You often feel stifled, struggling for breath as the walls seem to close in on you and the lights dim and you wonder what possessed you to be here in the first place.

But then you stumble across a vein of gold.

Here are some nuggets from the last few days of hearings:

Winnipeg Lawsuit Update

Ten months after the City of Winnipeg launched a lawsuit against Manitoba Hydro for $10 million, Hydro still hasn't filed a statement of defence.

The city claims it was shortchanged when Hydro remitted money it collected from a 2.5 percent tax on electricity and natural gas. Hydro calculated the tax on pre-GST sums; the city says it should have added the tax after the GST.

Winnipeg was balancing its 2010 budget by claiming the money from the Hydro lawsuit as an asset. Hydro, in the meantime, is keeping the lawsuit off its books.

THE CHAIRPERSON: Mr. Warden, the expanded time frame goes back to a time in which the City of Winnipeg operated Winnipeg Hydro, is that not the case?
MR. BOB PETERS: Mr. Warden, does Manitoba Hydro show this litigation as a contingent liability in the financial statements?

MR. BOB PETERS: Why is that?
MR. VINCE WARDEN: Well, we don't consider -- again, it's before the courts, but we discussed it with our auditors at year-end and we -- our preference was not to show it as a liability and our auditors agreed with that.

THE CHAIRPERSON: Mr. Warden, in the hypothetical situation that the City was successful, the end result would be that customers paid more, is that not the case?
MR. VINCE WARDEN: Customers would pay more going forward if the City was successful; the retroactive piece, though, it would be impractical for us to try --attempt to collect that from customers.
Hydro and the city continue to hold discussions "offline", said Warden.
Gary Doer intimidated

Name the American lobbyist who scared Manitoba Premier Gary Doer into abandoning a power line along the east side of Lake Winnipeg. Instead he ordered the line west of the lake at a cost of nearly one billion dollars more.

MR. BOB PETERS: Are there additional reasons as to why the west side routing was selected over east side, Mr. Warden, other than the --
MR. BOB PETERS: -- the one we've talked about?
MR. VINCE WARDEN: -- there was a -- a concern expressed by government, conveyed to Manitoba Hydro, that the export sales to the US could be in jeopardy if the routing was -- was on the east side.
MR. BOB PETERS: And why would the -- why would the export sales to the US be in jeopardy if the routing was on the east side as opposed to a different routing?
MR. VINCE WARDEN: Because of various lobby groups in the US that have that kind of influence.
MR. BOB PETERS: And who does Manitoba Hydro understand those lobby groups would be representing?
MR. VINCE WARDEN: Environmental interests in -- in the US and -- and probably in Canada as well.
MR. ROBERT MAYER: If I understand correctly, the name Kennedy came up a number of times in that kind of discussion when we dealt with environmental issues. And something about rapage -- raping and pillaging the boreal forest in the area and, therefore, suggesting that it might not be as green in energy as the Americans would like to think they're buying.
MR. VINCE WARDEN: Yes, Mr. Mayer, I agree that name did arise.
Backdoor Taxes

The province of Manitoba charges Manitoba Hydro for the water it uses to create power. It also routinely interferes with the operation of Manitoba Hydro such as when it ordered the Bipole 3 line go go west of Lake Winnipeg, increasing Hydro's costs and reducing efficiency. Hydro is forced to ask for higher rates to balance its books. But the NDP dips into Hydro profits, thereby using hydro rates as backdoor taxes.

MR. BOB PETERS: On a comparison of the amounts paid to the province of Manitoba versus the net income of Manitoba Hydro, would you agree with me, Mr.Warden, that the province is realizing a return greater than the annual net income to Manitoba Hydro in most years?
MR. VINCE WARDEN: I -- I wouldn't characterize it as a return, necessarily. There are payments to the province for which Manitoba Hydro is receiving value.
MR. BOB PETERS: My question wasn't meant to imply value is not received, Mr. Warden, but on a comparison of the amounts paid to the province versus the Corporation's net income, the province is being paid an amount greater than the annual net income to Manitoba Hydro?
MR. VINCE WARDEN: Yes, that's correct.
MR. BOB PETERS: And I guess what I was saying is for the '09 fiscal year, if you take the payments to the province and you add them to the net income of Manitoba Hydro and you calculated as a percentage, 47 percent was paid to the province with 53 percent staying as net income to Manitoba Hydro?
MR. VINCE WARDEN: I haven't done that calculation, Mr. Peters, but that -- that sound -- that sounds right, yes.
MR. BOB PETERS: Mr. Warden, in 2010 there was a forecast payment to the province of Manitoba of approximately $240 million. You'll accept that?

Wuskwatim boondoggle

Wuskwatim power station still gives the PUB the willies.

Wuskwatim, the first, and smallest, of three new power stations on the Nelson River is set to go online later this year. The PUB has been raising concerns about its viability for years.

They were back at it last week.

Wuskwatim was supposed to be the model for the coming megaprojects on Hydro's books.

It was built to supply power for export, years before the power was needed for Manitoba customers. The revenue from American customers was going to pay much if not all the cost of construction.

But things changed, then changed again.

Wuskwatim was delayed a year because they couldn't find a general contractor to do the job. Then Manitoba's need for power increased faster than expected and Wuskwatim power was needed sooner. But Hydro has already signed contracts with American buyers. Which wasn't such a big problem because the recession that hit in 2008 has reduced the call for power.

When power starts flowing from Wuskwatim, it will cost an estimated 10 cents a kilowatt hour. But for the portion sold in Manitoba, Hydro will be earning only an average of five or six cents.

Yep, we'll be buying power for less than it costs to produce.

And, unless Hydro has an ironclad contract with its U.S. customers, so will they. Which means we will be subsidizing the Americans.

And that's exactly why the PUB is scared stiff of Hydro's plans to spend $17 billion to build power plants to supply American customers in advance of our own needs.

MR. VINCE WARDEN Just going through your -- your high level calculations of -- of a cost of ten (10) cents per kilowatt hour, which certainly based on the cost of -- of Wuskwatim and the interest depreciation related cost does not sound unreasonable. However, when you -- when you consider -- and you just reviewed the price -- the export prices with Mr.Cormie and -- and we're looking at ten (10) cents starting to occur in -- in 2019 -- 2018/'19 or earlier. So to build a plant that costs ten (10) cents per kilowatt hour that's going to last for a hundred years and to get the return on that investment starting six (6) or seven (7) years hence,sounds like a really good investment; does it not?
MR. BOB PETERS: You're predicating that response, Mr. Warden, on the export prices rising to where the Corporation has them in their forecast, correct?
MR. VINCE WARDEN: Well, I was just going through the -- the table you -- you pointed out in your book of documents, Mr. Peters, and that's -- that is the forecast of export prices.
MR. BOB PETERS: That was the IFF-09 (Integrated Financial Forecast) forecast?
MR. BOB PETERS: Well, then let me continue on that. You're asking the ratepayers of today to pay rate increases to help fund the construction of Wuskwatim when that energy isn't needed by Manitobans today?
MR. VINCE WARDEN: But I think that's the point. It is needed. It's -- the new supply is needed imminently. And now is it this year, next year? We'll determine that...
There has been some changes in load growth since we committed to Wuskwatim, but, you know, some of those things are beyond our control. But there's no doubt that new generation is -- is required for the Manitoba load.
MR. BOB PETERS: And if -- if new generation is required for the Manitoba load, Mr. Warden, the price expected on average that Manitoba Hydro will extract for that Manitoba load will be probably closer to the four (4) to five (5) cent per kilowatt hour range.

MR. BOB PETERS: Well, for -- let's pick your residential customer, Mr. Warden, paying six (6) cents and if the price under my math is closer to ten (10) cents out of Wuskwatim, then the residential customer would have to have a rate increase in excess of 50 percent.
MR. VINCE WARDEN: But we're not asking --we're not asking for a rate increase in that order of magnitude in our -- we've got -- we're before this Board asking for a very reasonable 2.9 percent rate increase.
MR. BOB PETERS: And so to share in those benefits, Manitoba Hydro's ratepayers are going to be expected to pay additional rate increases?
MR. VINCE WARDEN: To keep the -- the -- the benefits being provided to current and -- and future ratepayers, that's -- that's correct. There's -- there is an investment; there is a return.
The gamble: the ante and the pot

Three numbers are all you need to understand what's at stake in these PUB hearings.

$17 billion. That's how much Manitoba Hydro intends to spend to build three power plants to supply American customers for years before the electricity is needed here. Hydro expects to get big bucks for the power because its "green" and the Yankees will be willing to pay up so they won't have to build coal plants to supply it themselves. But Hydro's got its eye on a bigger prize.

$1 billion. That's the cost of a power line to the Manitoba border. Hydro wants one of its U.S. customers to build the line as part of a deal to get Manitoba power. This line is the ultimate goal of all the U.S. power deals, because it will tie Manitoba into the midwest power grid, allowing us to buy and sell electricity forever at minimum cost to us. Right now, we're restricted by the amount of power the current lines can carry.

$400 million. That's how much it would cost to build a gas turbine near Brandon if we were only looking at supplying power to Manitobans for the next 10-12 years. Plus the cost of the gas, of course. No Keewaysk power station needed. No Conawapa, no Bipole 3, not for another decade at least.

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