Eight months ago we reported that Hydro was on its deathbed, based on the testimony of the utility's own witnesses at a hearing of the Manitoba Public Utilities Board.
Since then the patient's condition has deteriorated rapidly. It's time to call the family to pay their last respects.
Last week the Bank of Canada announced that the years of low interest rates are officially over. The Bank raised the bank rate by one quarter of one percent. It was the third rate hike within a year. It's just the start.
Hydro lawyer Patti Ramage told the PUB last August that Manitoba Hydro "is today borrowing cash for interest annually on the debt being borrowed to build (Bipole III). It's a huge number. We're talking 150 million, 175 million."
"... we are borrowing money to fund our core Basic operations. That is an unsustainable practice...".
".. interest expense will soon consume 70 odd percent of every domestic dollar. 70 percent of every domestic dollar is going to go to interest expense."
"It doesn't take much of an error on the interest rate forecast for that to move up to a hundred percent or more."
"And we still have a business to run. We have to pay our operating costs, power purchases, water rentals, capital taxes, and by no means least of all, we have to replenish aging infrastructure."
She added: "... Manitoba Hydro has $12 billion to borrow over the next five (5) years. Extremely modest increases in borrowing costs against plan can quickly reduce Manitoba Hydro's income by fifty (50) to even a hundred million dollars per year."
Have you been outside lately? Did you notice something missing?
Hint: there's hardly any snow.
That's very, very bad news for Hydro. The PUB was told last year that only two things were keeping Manitoba Hydro from insolvency. One was low interest rates (see above.) The other was high water levels which were bringing Hydro unexpected revenue. No snow, means no water, means no power to sell, means no bonus revenue.
But its worse. The last drought in Manitoba was 14 years ago. Weather cycles call for a drought roughly every 14 years. Uh oh.
Hey, you professional journalists: Start asking Hydro what they've done with the $1.5- to $2 billion they squeezed out of rate payers following the last drought to be the contingency for the next drought.
The world price for oil is climbing again, which is good news for Canada. The Canadian dollar is a petrocurrency, so every increase in oil prices boosts the value of the Canadian dollar. But Manitoba sells its hydropower in American dollars. So every rise in the value of Canadian money, means we earn less for our power from our American customers.
You may have read somewhere that the U.S. is about to become the world's biggest exporter of oil and natural gas. The reason is fracking. You know, fracking, the process that Manitoba Hydro "experts" dismissed ten years ago as a fad that wouldn't affect the prices Hydro was going to get from the Yankee buyers of our green energy.
Today, the price they pay for hydroelectric power is linked to the price of natural gas which, thanks to fracking, is near all-time lows.
So, reading the patient's chart:
* interest rates up, Hydro's costs way up
* precipitation extremely low, a drought more than likely, sales evaporate, revenue disappears
* the exchange rate rising, profit margin squeezing daily
* fracking boom, hydroelectric sales only at bargain basement prices
And that's without saying a word about rising costs.
On Monday, Manitoba Hydro finally confessed that the cost of the unnecessary Keeyask generating station could climb to $9.9 billion, although they still pretend to believe they can deliver the megaproject at a cost of more than $1 billion less. Ha ha ha. Injecting levity into a grave situation is not always a good thing.
A company hired by the PUB to review Hydro's runaway dam building projects predicts that at the rate construction is going the Keeyask station will be a year late and will cost $10.5 billion.
Here's how they arrived at that conclusion: they looked at the amount of work done already at Keeyask and compared it to the amount of work that should be completed on a project of this size at this stage of construction.
http://www.pubmanitoba.ca/v1/nfat/pdf/hydro_application/appendix_02_4_developing_the_keeyask_and_conawapa_capital_cost_estimates.pdf Page 23.
We reported Hydro's confession eight months ago that it doesn't have the money to pay for Bipole III, or for Keeyask, and they will need a billion dollars more in revenue within 5 years just to cover the annual borrowing costs of these megaprojects. That's a billion dollars every year more than they raise now.
And that was determined before the interest rate increases--past, present and future---and the pending drought and the escalating cost of construction.
The next sound you hear will be the squeal of flatlining as credit rating agencies pull the plug.