The brand-new Wuskwatim power station is pushing Manitoba Hydro into insolvency.
It's no wonder that Hydro went running to the Pubic Utilities Board for a rate increase less than six months after the first of Wuskwatim's 3 generators went on line in February.
And Hydro has warned the PUB that if it goes into the abyss, the Province may follow.
All this is found within the convoluted language of the reasons, posted on the PUB website, for a 2.5 percent rate increase that was granted in August to start Sept. 1. This increase is hard on the heels of a two percent increase announced in the spring.
Wuskwatim is the first of three megaprojects being developed by Hydro between now and 2020 to be followed by a glorious period, named Soviet-style, the Decade of Returns. The plan was to build power stations before they were needed for Manitoba users, sell the power to American customers, rake in big bucks from premium prices for "clean" electric energy, and use the export profits to pay the construction costs while keeping Manitoba rates low.
Instead, the cost of building Wuskwatim was double what was estimated and the power is selling for less than half of what was expected. In fact, it costs so much more to produce the power from Wuskwatim than we're selling it for, that Manitobans have to pay higher rates to subsidize the price.
The PUB estimated last year the addition of the new Wuskwatim generating station would add $150 million a year to Manitoba Hydro's annual costs in interest and carrying charges on its $1.6 billion cost.
"The need is urgent to avoid continuing losses on operations..." Hydro argued before the utilities board.
"The Board finds that new Wuskwatim operating expenses are a material expense impacting MH’s current financial projections ... and which results in MH coming forward with the interim rate increase request at this time." the PUB concluded.
"MH reports that it has suffered a substantial net loss on electricity operations in the first quarter of 2012/13. The Board has real concerns about the deteriorating financial position of MH and the negative turn in the financial ratios that will follow based on the projections filed by MH if the requested interim increases are not granted."
Manitoba Hydro, it seems, is running to stand still.
"It does not appear that there has been a material improvement to MH’s net income position since the Board granted the 2% interim increase effective April 1, 2012." said the PUB.
"MH restated that without the September 1st increase, it will return zero net income under current projections..."
Isn't that great? We spend $1.6 billion on a new power plant and we get to pay higher rates for electricity so that the utility can maybe break even. That's New Democonomics.
In its most hair-raising observation, the PUB stated flatly:
"MH notes it is concerned about the projected decrease in its interest coverage ratio and the potential impact of the ratio deterioration on the credit rating of both the Province and MH."
Like you, our eyes glazed over.
Up to the point when we looked up the definition of "interest coverage ratio".
Holy mackeral, it means the point where Hydro won't be able to cover even its interest costs. When that happens, the credit rating of Hydro will race Greece's to the bottom, and Manitoba's credit rating may not be far behind.
Hydro tried to spin this as a revenue problem, not a spending problem. They even tried to blame it on drought -- until the PUB discovered the low water volumes in the spring had become average water volumes by late summer.
But though Hydro has the electricity to sell, it still can't make enough money to cover the costs of Wuskwatim. The Obama Recession has kneecapped the American economy and dried up demand for Manitoba power. And the expansion of cheap and plentiful shale gas has undercut the price so much Manitoba is almost giving away electricity just to stay in the market.
The Public Utilities Board does not have any good news for Manitoba consumers.
"... MH continues to spend significant amounts on the combined ‘pre-building’ phases of Keeyask, Conawapa and Bi-Pole III transmission line. Regarding the financing of these projects, less consumer revenue means greater debt financing than planned to fund this stage of these mega-projects, affecting MH’s debt/equity ratio."
Translation: Hydro is already spending so much money preparing to build the next two megaprojects, they'll soon be back asking for even higher rates for Manitoba customers.