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A warning of a looming train wreck here. A magnificient triumph there







Two things sent chills down our backs this week.

First, was the magnificent performance of Winnipeg's own Samantha Hill at the Tony Awards, a show which was watched by 7.2 million people.  She had the honour of singing the immortal showstopper 'Music of the Night' during a tribute to Andrew Lloyd Webber's 'The Phantom of the Opera', which, this January  became the longest-running show in Broadway history.

This year Hill reached the top of the theatre mountain, taking the female lead of Christine Daee in the Broadway production, opposite Peter Joback as the Phantom. If you missed it, you can catch their performance at the Tony's here:

 http://broadwayworld.com/article/VIDEO-PHANTOM-OF-THE-OPERA-Cast-Performs-at-Tony-Awards-20130610

At the other end of the scale, we read the full 30-page heart-stopping commentary by Graham Lane, former chairman of the Public Utilities Board, on Doer's Folly, the runaway train that's Manitoba Hydro and the wreck that's awaiting us at the end of the line.

Lane issued his paper concurrently with a speech to the Frontier Centre for Public Policy, the local think tank, which he's just joined.  As head of the PUB, Lane watched Hydro careen from one disaster to another, from a crippling drought to meglomaniacal growth plans. Now, after a year-long "cooling off" period, he's free to talk about what he knows as an insider.
His speech and written commentary can be summarized in two words:

Both barrels.

Lane demonstrates how Manitoba Hydro has become a puppet for the NDP government. Contrary to what people may believe, Hydro's main objective is NOT to provide power at the lowest rates possible for Manitobans.  
Hydro has been subverted into becoming an arm of the New Democratic Party which furthers the party's ideology regardless of the cost to ratepayers.

For the uninitiated, Lane is talking about the series of Seventies-style mega projects that Hydro has announced and which are forecast to cost $33 billion over 20 years.  This includes the BiPole III power line from power plants in northern Manitoba to the south, two new giant dams and power stations, and the rebuilding of a dilapidated dam on the Winnipeg River, a dam which was owned by Winnipeg Hydro and which was said to require only minor upgrading when Manitoba Hydro took it over.

"Recently, Manitoba’s NDP government has unleashed a barrage
of propaganda in support of the planned costly development, including the
repeating of an implausible claim originally made by former Manitoba Premier Doer that hydroelectric power is “Manitoba’s oil”
...", wrote Lane.
Government promises and commitments, he says, take advantage of the gullibility of ratepayers and taxpayers who have no independent way to measure the claims of either the government or the utility.  As an example, he said,"While the government regularly boasts of Manitoba Hydro’s low rates, Hydro’s present rates are similar to two other provinces reliant on hydro generation (British Columbia and Quebec), and are not due to operational efficiency, far from it."
The cost and revenue forecasts behind Hydro's massive expansion plans should be taken with a grain of salt, except that they're not worth a grain of salt, Lane said.
Every single assumption the NDP made in 2008 to justify Hydro construction to produce power for export has been wrong:
At that time, both Hydro and Government expected:

• Natural gas prices would stay high and increase (not $4 per GJ, but $10 or
more);
• There would be a price on carbon, providing for a premium price for hydro
power;
• Rather than industrial closures, new and expanded industry would develop to drive demand growth;
• Higher spot and fixed export prices would develop, not the three cents and
under for spot sales of recent years;
• Construction costs to increase with inflation—now, the initial forecasts are
recognized as being far too low;
• An eastern route for BiPole III would save a billion dollars and reduce troublesome engineering concerns;
• A lower Canadian dollar; and,
• A much higher rate would be in place for new or expanded energy intensive
industry.
Hydro has no idea of the true cost of its plans and no idea how much, if any, profits it will make.  Does this sound familiar?  Think the Canadian Museum for Human Rights or the new football stadium to see where this kind of planning leads. Straight to your wallet.
Hydro's latest estimate of how much its going to spend on expansion ($33 million) is 60 percent higher than the forecast provided in 2011, and that forecast "was up sharply from the forecast before that..." Lane says.
Less than two years ago, Hydro was saying it would collect $12 billion in revenue from power exports. Now it's saying, maybe $6 billion.
"And, not only export revenues can be lower, domestic demand can be lower than projected—there have been no major new industries for Manitoba since the 1990s, and none are on the horizon."
"Tembec has shut their pulp and paper mill. Hudson Bay Mining &
Smelting has closed its smelter. And, Vale plans to close its smelter and refinery."
"As a result, almost fifteen years’ worth of forecasted industrial demand growth has evaporated."
Does this sound like a company that knows what it's doing?
There is no legitimate watchdog to question Manitoba Hydro's grandiose plans, Lane warns.
The Auditor General recused herself from examining the risks associated with Hydro's expansion plans. "Thus, the Province’s largest economic gamble in history is taking place with the Auditor General on the sidelines."
[ Lane thinks she stepped aside because she sat on Hydro's board before taking the government job, but he's wrong.  For nine months she declared there was no problem with conflict of interest; she only recused herself, and abruptly at that, after The Black Rod revealed that she had been sending someone to sit in on Hydro board meetings and secretly keep her briefed ever since she allegedly severed ties with Hydro.

"As for Hydro’s Board of Directors, a review of the roster will likely conclude that industry expertise and experience, independence and the avoidance of conflicts of interest, are now missing. Each member of Hydro’s Board of Directors was appointed by the government, without competition, with no relevant experience required, and all Board members serve at the pleasure of the Government. When has the Chair of Hydro’s Board of Directors even spoken in public on Hydro’s development plans? Never."
The Public Utilities Board now rubberstamps rate increases without asking for proof that they're legitimately needed.  The coming NFAT review (Need For and Alternatives To) of the next two dams to be built "is a sham", said Lane; the government has forbidden the PUB from examining the need for BiPole III, a vital element of the dams projects, and from scrutinizing the deals the government is making with Indian reserves to own parts of the dams being built at public expense.
How can anyone compare alternatives if they're not allowed to consider the billions to be spent on BiPole III or the hundreds of millions tied up in the Indian "partnerships"?
The first of these partnerships, the Wuskwatim power station, is an unmitigated disaster that's losing $100 million a year. The "partnership"  guarantees the Indian bands involved a share of the "profits" even when there are no profits. This is supposed to be the model on which other "partnerships" are based.
BiPole III, alone, will mean Hydro rates will rise 30 percent unless there are offsetting revenues, says Lane. 
And if the PUB tries to prop up the debt-to-equity ratio of Hydro, which bond raters  look at as a measure of a utility's financial health, electricity users in Manitoba could find themselves facing annual rate hikes of 8 percent, instead of the 4 percent now contemplated.   Yes, 8 percent PER YEAR.
Do you feel those chills yet?
Lane says Manitoba Hydro has been losing money on power exports since 2008!
Less than half of Manitoba Hydro's export sales are at fixed prices. The rest is sold at cut-rate and spot prices which range from one cent to four cents a kilowatt hour when it costs us 10 cents to produce power from new dams.
The PUB under Lane ordered Hydro to tell them how rates would be affected if losses on exports didn't stop.  Hydro ignored the directive.
The bad news comes so fast we don't know where to file it.
Hydro has 35 percent more employees than in 2001.  Accounting tricks let them hide $200 million in operating expenses a year, and this lets them embellish their annual net income.
Hydro "massively overpaid" for Winnipeg Hydro. To fix the City's Pointe de Bois generating station will cost $2.4 billion " when at the time of the acquisition there were no major expenses anticipated for the plant’s refurbishment."
"And, while the terms of the purchase required Hydro to build a new head office downtown, it didn’t require a $283-million ‘palace’."
"...Hydro has undertaken a media campaign indicating its capital assets are old and need refurbishing, yet it has failed to provide the PUB with an Asset Condition Report, one that would likely highlight the poor condition of generators and transmission and distribution assets it purchased from Winnipeg Hydro."
On and on it goes, with one red thread running through all the bad news---the government.
The government, you see, wins regardless if Hydro fails.  
The government collects hundreds of millions of dollars from Hydro in annual fees, including a fee for whenever Hydro borrows money.  
So when Hydro borrows $33 billion to build new power plants, the government collects $300 million a year.  Hydro includes that in its costs and uses that to ask for higher rates. 
There's a term for that chicanery---hidden taxes
Lane says the annual fees are more than the expected export revenue. The result -- even higher rates.
Manitoba citizens are screwed coming and going.  
The government takes money from Hydro, which Hydro has to recoup from ratepayers. And the government orders Hydro to undertake money-losing but politically correct megaprojects which end up costing us higher rates.  
In the event of a shortfall,  say with the drought that's due any year now, Hydro depends on the government to bail it out and the only way they can do that is to take money from taxpayers.
There's a clear conclusion to reach from Lane's 30-page essay---Manitoba Hydro is bleeding Manitoba dry.  They're doing it on the orders of the NDP government. He's not exaggerating when he says there's an urgency to confront the disaster in the making.
Hydro refuses to address how ratepayers are expected to keep up with the never-ending increases in their electricity bills.  The government refuses to contemplate what will happen when Hydro's debt is added to provincial debt and interest rates rise.
It's a Broadway story of a whole different kind. 

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