It's TIME TO PANIC!
Manitoba Hydro didn't ask for a rate increase last month--- they
begged, they pleaded, and ... they threatened dire consequences if they didn't
get their way.
And that was just for the best-case scenario.
The reason for their desperation is in the supporting documents
that were filed with their application which can be summed up in four words:
Manitoba Hydro Horror Show.
Here's how the crisis shapes up:
* Manitoba Hydro won't be able to raise enough money to make its
interest payments in eight of the next 13 years.
* Manitoba Hydro won't earn enough money to cover the cost of
replacing aging infrastructure in nine of the next ten years, never mind paying
the billions required for new dams and transmission
* If the Province has to backstop Hydro, the utility will lose its
credit rating and borrowing costs will go way up.
* If Hydro loses its credit rating, it will take the Province over
the cliff with it. In short, Manitoba will lose its credit rating, too, and
taxpayers will pay the price.
* Manitoba Hydro can't make up the difference by exporting more
power. In fact, Hydro now predicts fixed export prices will be 7 percent lower
on average over the next 20 years.
Why? Fracking, which Hydro
dismissed five years ago as a fad.
And that's the sunny scenario.
In the event of a drought, Manitoba Hydro would probably deplete
its accumulated reserves depending on how severe it was and how many years it
"In this circumstance, there would not be sufficient reserves to
mitigate the potential financial impacts of the considerable array of the risks
the Corporation faces in fulfilling its mandate."
Oh, and a drought is almost inevitable. The last one was in 2004
which means we're entering the average drought
a severe drought occur during the first 10-year period,
net income and the equity ratio would be further challenged and higher rate
increases would be necessary."
the debt-to-equity ration is projected "to deteriorate from the
current 24% level to 11% equity by 2022/23" because of the huge borrowing
that's necessary to build two new dams, Bipole III, and a new link to the United
States, said Hydro.
"While Manitoba Hydro is prepared to accept deterioration of its
financial ratios in order to mitigate rate increases for customers, the proposed
3.95% rate increases are the minimum that are required to maintain rate
stability and manage the deterioration in the Corporation’s financial strength
during the period of extensive investments."
is imperative for Manitoba Hydro to be granted
the proposed rate increases..."
definition of "imperative":
1. of vital
Here are the some of the more relevant portions of the Manitoba
"The 3.95% proposed and indicative rate increases are the minimum necessary to manage the significant
deterioration in Manitoba Hydro’s projected financial results and ratios
in the next 10 year period. Should the PUB defer the proposed rate increases,
there is greater risk that future rate increases will be significantly higher
"Manitoba Hydro is relaxing its adherence to financial targets over
this period in order to alleviate rate increases in excess of 3.95% to the
extent possible. Due to the deterioration in Manitoba Hydro’s financial
ratios... any further increases to costs or reductions to revenues increases
the risk of significantly higher rate increases to
interest coverage ratio provides an indication of the ability of the Corporation
to meet interest payment obligations."
"Manitoba Hydro’s interest coverage ratio is also forecast to be
well below target for several years of the forecast. In eight years of the
forecast, Manitoba Hydro’s interest coverage ratio is below 1.0, which indicates
that the utility would experience elevated operational liquidity risk and
may have difficulty generating sufficient revenues and cash flow from operations
to pay its interest obligations."
capital coverage ratio measures the ability of current period internally
generated funds to finance sustaining capital expenditures (excluding major new
generation and related transmission)."
coverage is projected to be below target for nine years of the forecast, and
below 1.00 for six of those nine years, due to the reduction in net income and
increasing capital requirements to replace aging infrastructure..."
"Even with net extraprovincial revenues, Manitoba Hydro is
projecting losses on electric operations in 2018/19 to 2023/24
totaling approximately $0.9
billion..." (That's $900
million, for the mathematically challenged.)
"The key financial risks associated with rate increases lower than
i. Increased risk to
customers of rate instability and rate shock;
borrowing requirements and associated financing costs which must be recovered
from customers in the future;
negative implications to the Provincial credit rating and Manitoba Hydro’s
Province of Manitoba Debt
Province of Manitoba (excluding Manitoba Hydro)
Manitoba Hydro (self-supporting debt)
" The credit rating agencies view Manitoba Hydro to be financially
self-supporting in that the
Corporation is able to meet its financial obligations based on its own
revenues without being supported by the tax-base of the Province."
"Should the capital markets perceive Manitoba Hydro’s debt levels
to be too high, there may be negative implications to the Province’s credit
ratings, which could result in higher borrowing costs. As a result of the significance of the size of Manitoba
Hydro’s debt in relation to the Province of Manitoba’s debt as a whole, the
debt/equity ratio is a key indicator in the review of Manitoba Hydro for the
Province’s credit rating."
"In Manitoba Hydro’s judgment, the projected deterioration in the
equity ratio... is at the minimum acceptable financial operating level even with
the proposed and indicative rate increases. Any further deterioration in the
equity ratio significantly
increases the risk of large rate increases to customers in the longer
term and any reduction to the rate increases proposed in this Application only
intensifies this risk to customers."
Manitoba Hydro has clearly lost control of its finances.
Even with proposed rate hikes at twice
the rate of inflation, they can only promise the possibility of even greater
increases at every turn. Along with
the likelihood of a loss of the utility's credit rating and the province's
And we're still subsidizing the "sale" of power to Minnesota for
the next nine years.