Statement from the Manitoba Hydro-Electric Board on Hydro's rate application

May 5, 2017

Statement from Manitoba Hydro-Electric Board (MHEB) Chair, H. Sanford (Sandy) Riley on Manitoba Hydro's General Rate Application

The decision to apply for the proposed 7.9 per cent rate increase is a necessary step mandated by the serious financial situation the MHEB found following our appointment last year and is a direct result of capital investment decisions on the Keeyask and Bipole projects that seriously overextended Hydro's financial position. Keeyask is currently projected to exceed budget by $2.2 billion and the decision to use the west-side Bipole III route increased the cost of that project by an estimated $1 billion. These decisions have placed Manitoba Hydro's debt trajectory on what one ratings agency has already described as an "unsustainable" path. With the completion of these capital projects, Manitoba Hydro's debt will have grown from $11 billion to at least $23 billion, an increase of more than 100 per cent. This is a legacy debt that all Manitobans will be responsible for paying.

Manitoba Hydro's accelerating levels of debt leave it — and the province — vulnerable to a number of serious risk factors. These include the potential for drought conditions, further deterioration in export markets, increasing interest rates, and the need for ongoing capital reinvestment in existing transmission and distribution facilities. Export revenues to the United States, alone, have declined by approximately 25-30 per cent since 2008. This situation creates an unacceptable level of financial risk to Manitoba Hydro in its present weakened financial condition and must be addressed now in order to protect Manitoba Hydro, and Manitobans, from future financial shocks that have the potential to be very severe.

We cannot go back and change the past. The projects are far too advanced to terminate or postpone. But we do have to address the significant challenges we are facing. We recognize that direct financial support from the Government of Manitoba, the ultimate owner of Manitoba Hydro, is not currently an option. We have therefore focussed our efforts on those factors which are within our control. As a Board, we are doing so with a responsible and balanced plan that management of Manitoba Hydro will carry out. Steps have already been taken to operate more cost-effectively and efficiently with the utility itself. Manitoba Hydro management has already accelerated cost containment measures and we have taken the very difficult decision to reduce staff in the next two years. The Corporation continues to look for additional efficiencies in our operations such as improved asset-management measures and new ways to streamline processes.

And today we are filing a rate application with the Public Utility Board that asks for an increase of 7.9 per cent from our customers for each of the next two years. The application also signals our intention to apply, at the appropriate time, for further increases of a similar amount for the following three years. At that point we expect to be in a stable financial position where much lower rate increases of two per cent should be possible. We know that this will not be an easy time for ratepayers but we also know that when this process is complete, Manitoba Hydro will be restored to financial health and we will continue to enjoy electricity rates that are among the lowest in North America.

We also note that these proposed rate increases are significantly lower than the possible double-digit rate increases which we contemplated in the wake of our comprehensive review of Hydro's operations last fall. Putting Hydro on a proper footing within the period of maximum risk would have required annual rate increases of 14 per cent per year for five years. As we contemplated the need to balance the interests of ratepayers with the need to restore Manitoba Hydro to financial health, we recognized that Manitoba ratepayers can only contribute so much while protecting the overall competitiveness of Manitoba's economy. This consideration guided the rate application filed today.

While this approach places the Corporation on a multi-year path to achieving minimum standards with regard to its increased debt load, we want to make sure that Manitobans understand that, even if these rate increases are approved by the PUB, they will not eliminate the financial risks we face, particularly in the next five years. The risks created by prior decisions remain, they are significant, and we should all hope that our worst fears do not materialize. These rate increases will, however, be a responsible step in the direction of protecting our ratepayers, and ultimately taxpayers, in the long term.

For more information on this MHEB Statement, please call Scott Powell at Manitoba Hydro who will arrange contact with Sanford Riley.
Scott Powell — Director, Corporate Communications, Manitoba Hydro
204-360-4417
SPowell@hydro.mb.ca