Hey there, time traveller!
This article was published 2/4/2012 (3407 days ago), so information in it may no longer be current.
After years of generating huge profits, Manitoba Hydro now has bottom-line worries of its own that show just how shaky energy markets have become.
The Crown utility needs more money from its ratepayers as it deals with a huge cash shortfall caused by a balmy winter and a poor market for surplus power sales in the United States.
Hydro got approval from the Public Utilities Board on Saturday for a two pent hike to all customers effective April 1. Hydro had wanted a 3.5 per cent increase and a further 3.5 per cent increase effective April 1, 2013.
Without the additional money from Manitobans, Hydro says it will see a net loss of $51 million in the next fiscal year and $58 million in 2013-14.
"It's a pretty big hit," Manitoba Hydro spokesman Glenn Schneider said Monday.
To put that hit into perspective, just three years ago Hydro was flying high with premium power sales to the U.S. Hydro's net income for 2010 was $164 million and in 2011, it was $143 million. All told, those final numbers were $108 million better than initially forecast.
But it didn't last long. The U.S. recession and the increased availability of cheap shale or natural gas reduced demand for Manitoba-made hydro power dramatically. Hydro now makes less than half of what it did on short-term surplus power sales than it did in 2008-09.
Byron Williams, a lawyer representing the Consumers Association of Canada and the Manitoba Society of Seniors, said profound changes in the power-supply market -- including from wind and shale gas -- emphasizes the need for an independent review on Hydro's development plans for the next 20 years. That plan includes construction of the Bipole III transmission line and the Keeyask and Conawapa generating stations.
"The world has dramatically changed," he said. "A review should happen sooner rather than later."
For the fiscal year that ended March 31, Hydro says net income will be approximately $73 million, down from the $125 million it first predicted. That $73 million is to be further reduced by $23 million because of an earlier PUB order to sock money away into a special deferral account to protect consumers from future rate shock.
"The bulk of the rest of it is from the mild winter, which means lower revenues for us from our customers and also the effect of continued low export rates," Schneider said. "It's certainly much lower than it's been in quite a while."
An added kicker is the new 200-megawatt Wuskwatin generating station near Thompson. The $1.3-billion project, to come into service this year, is now seeing increased operating, administrative and other costs at a time when demand for surplus power south of border won't increase any time soon.
While the PUB found merit in Hydro's case for a two per cent rate increase, it stopped short of approving other requests from the utility to cushion its financial position, including denying Hydro's request to move the $23 million into net income.
What also sets the PUB order apart from others is it came on Saturday, the last official day of Graham Lane's job as chairman before he retires.
Progressive Conservative Hydro critic Reg Helwer said Hydro's poor fiscal outlook can also be blamed on the NDP government, which uses the utility as a piggy bank.
"Manitobans are having to bail out Manitoba Hydro because of all the poor decisions that this government has made," Helwer said. "This government has pulled out millions of dollars in surplus and had they left that money in there, they wouldn't have had to go to the public with this rate increase. To me, this looks like a tax grab from everyday Manitobans."
Schneider said the Crown corporation won't overreact to the current setback.
He said the mild winter was just a blip and the U.S. economy is showing signs of life.
One such sign is the recent decision by Minnesota Power to build a 500-kilovolt line -- more than double the load first planned -- to deliver power from Manitoba to developments in the Mesabi Iron Range with a secondary line continuing to Duluth.
Schneider also said cheap rates for natural gas will likely go up when older, smog-belching, coal-fired power plants in the U.S. are shut down and switch over, driving up demand for cheaper hydroelectric power from Manitoba.
What Manitoba Hydro says:
Without a rate increase, Hydro forecasts a net loss of $51 million in 2012-13. It says it's confronted by the double whammy of low export sales because of a sluggish U.S. economy and reduced domestic revenues due to a warmer-than-normal winter. Hydro's also dealing with increased costs from the new Wuskwatim generating station near Thompson, which is due to come into service this year.
What the Public Utilities Board says:
An interim rate increase is needed to enhance the fiscal health of Hydro while also balancing the hit on consumers. Hydro originally wanted a 3.5 per cent interim rate increase, but the PUB said two per cent was more in line. The PUB also wants Hydro to fully justify that increase when the Crown power utility applies for its 2012-13 general rate application before the end of May.