Manitoba Hydro plus growing debt: a bad equation

Winnipeg Free Press

18-07-2025

Opinion
Manitoba Hydro's PUB filing raises new questions about the utility's financial sustainability with big implications for ratepayers and taxpayers.
Hydro's forecast calls for annual rate hikes of 3.5 per cent, or a 40 per cent increase over the next 10 years. Even if these rates happen and there is no guarantee, given the current government's populist predilection towards pawning the 'crown jewel' of the province for immediate political cash, Hydro will not generate enough funds to support its business.
Instead, to pay for refurbishment projects and for a small amount of new capacity, Hydro will try to increase its debt load by a further $8.6 billion. And this is a best-case scenario, given the likely occurrence of one more low-water level year (four of the past five), interest spikes, export price drops or the high probability of major projects exceeding budget.
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Hydo acknowledges its precarious starting position stating 'there is no room left to allow material increases to the debt ratio while maintaining the financial health of the utility.' Only one other Crown utility could say this, Newfoundland and Labrador Hydro, before it received a more than $5-billion bailout from the federal government in 2021.
It is also an understatement. At nearly $1 billion, Hydro's yearly interest payments now consume 35 cents of every dollar on your Hydro bill, far in excess of the average of seven cents across other North American utilities, private or Crown-owned.
How did this happen? Foremost is Hydro's record of grossly inefficient capital spending. Over a 20-year span beginning in 2014, Hydro's debt-financed asset base will increase by 250 per cent, or nearly $20 billion, but will produce only 20 per cent more energy capacity.
The Keeyask generating station and Bipole III — the latter which was primarily needed for transmission capacity but misleadingly justified on the basis of risk mitigation — are the main reasons. They created $12 billion in new debt but not enough new revenue to even cover the interest payments while starving Hydro of the scarce capital and people that should have been invested in rebuilding end-of -life core infrastructure.
A planned 600 megawatts of private wind generation is excluded because even though it will create a sizable, debt-like expense, it is an intermittent energy source with minimal 'always on' contribution to our peak winter energy. And at the end of this period Hydro will still have significant, aged infrastructure.
Second is Manitoba's poor performance managing energy demand to reduce the size and to extend the need date of expensive, new energy. The goal under Hydro's old Power Smart program was to reduce domestic peak load by 1,100 megawatts before 2028. In today's dollars, achieving half this target puts Manitoba in line with efficiency measures in other jurisdictions and is worth a $7-billion hydro generating station.
Inexcusably, no measurable progress on peak load was made by Hydro. When Efficiency Manitoba took over in 2020, it ignored energy capacity altogether in favour of overall savings, whether or not achieved during times of the year or day when there is abundant or scarce capacity, and which have also fallen short of target every year.
Last but not least are Hydro's burgeoning administration costs. Over the five years since 2022 wages and salaries will have grown by over 30 per cent, far outstripping revenue increases. This is due to contract settlements and wage bracket inflation of 3.5 to five per cent per year and hundreds of added employees, including 200 hires to satisfy a recent agreement with the IEBW. With almost 1,000 employees or nearly 20 per cent of its workforce, now earning over $150,000 per year, Hydro can be viewed as an important employer of highly skilled individuals in our province but fairly criticized for being untethered to effective productivity measures to assess the value of these positions.
The consequences to Manitobans are real. In late 2022, the prior government reduced fees paid by Hydro to the province by $190 million per year on the basis of being excessive compared to other jurisdictions. The current government has gone further, cutting Hydro's capital taxes and debt guarantee fees worth more than $250 million annually. This is not justified on any basis, other than as an outright subsidy from Manitoba taxpayers to Hydro ratepayers at a cost of $5 billion over the next 20 years.
Hydro's high and rising debt, large financial support from the province, low revenues due to politically suppressed rates, lack of board independence from government and massive downside risk tied to water levels will attract the attention of others, notably debt rating agencies like Moody's and DBRS and the provinces of B.C., Alberta and Saskatchewan whose taxpayers contribute billions into equalization payments made to Manitoba each year.
In its PUB filing, Hydro highlights the risk of no longer being viewed as a self-supporting entity by DBRS. On their criteria noted above, it seems clear Hydro already fails the test or is on the razor's edge of doing so. If this happens Hydro, will be considered dependent and its obligations will be added to the province's, doubling our per capita debt overnight, leading to a credit downgrade and higher interest costs for the province and Hydro, potentially in hundreds of millions of dollars.
On the equalization front, the case for adjusting Manitoba's own source revenue upward and payments from Ottawa downward will be much more convincingly made by the Western provinces based on Manitoba's near elimination of normal fee revenues from Hydro and its insistence on keeping Hydro rates below required levels.
The math alone, shocking as it may to Manitobans who believed the low-cost energy narrative of every government for the past 20 years, shows that 3.5 per cent annual increases are insufficient. Rates will have to go up more and they should be paid for by those who consume the most energy and who can afford it, for example larger residences, larger businesses and major industrial users. This is done in other jurisdictions to varying degrees and needs to start yesterday in Manitoba — likewise, demand management and usage incentives that will curtail our peak power use.
Higher rates will not cause any large employer to leave the province just as lower rates have not attracted a single large employer, despite the hype and promise, over the past 40 years. Higher rates will, finally, begin to price our energy for what it is, a scarce resource that must be conserved through efficiency and green energy initiatives that haven't been cost justified because of our low power bills.
Early in my short tenure as chair of Manitoba Hydro, I connected with board members of other Crown and state-owned utilities looking for advice and a sanity check on the upside-down governance practices I encountered.
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While I was not left reassured things would get better, I was guided by the perspective of a former CEO of the Tennessee Valley Authority, the largest government-owned utility in the U.S. Before our first conversation, he had read The Manitoba Hydro Act and said I should do the same to get grounded on Hydro's core purpose, which was to provide for the continuance of a supply of power to Manitobans in an economic and efficient manner.
When one considers the fiscal mess Hydro faces today it is not hard to imagine how much could have been avoided if mandate letters from past successive governments had adhered to the Hydro Act and the inherent priorities of financial sustainability, operational excellence and effective capital deployment.
The current PUB filing emphatically tells us there is no time or money left for more political adventures or overreach. It should be a clarion call for governance reform starting with a professional, highly competent and independent board, rather than well-intentioned, partisan individuals with limited authority and financial expertise and zero experience overseeing a complex, multibillion-dollar utility.
Of all the seemingly intractable policy areas facing our provincial government, this single change is surely one of the most achievable and with the most potential to mitigate against the heightened risk of a financial calamity.
Edward Kennedy is a former chairman of the board of Manitoba Hydro.