Manitoba Premier Wab Kinew speaks to media in Winnipeg on Oct. 18. Kinew says encouraging energy efficiency is his government's first priority in ensuring the province has enough capacity in its hydroelectric system.JOHN WOODS/The Canadian Press
Manitoba Premier Wab Kinew has taken a leaf from a well-worn Canadian playbook by blaming his predecessor for cooking the books. In a time-honoured tradition, he has found – wait for it – a gaping hole in the provincial budget.
“The outgoing PC administration lacked a steady hand when it came to the fiscal management of the province,” Mr. Kinew said last week of the former Progressive Conservative government his New Democratic Party ousted in the Oct. 3 election.
Mr. Kinew’s comments followed Finance Minister Adrien Sala’s midyear financial report that projected a $1.6-billion budget deficit in 2023-24 – more than four times the $363-million shortfall predicted in the PC government’s budget last March.
Manitoba’s net debt is now set to hit 37.1 per cent of gross domestic product by next Mar. 31 – the fourth-highest level among Canada’s provinces – instead of the 34.6-per-cent ratio the PCs projected in the budget.
Mr. Sala accused the former government of hiding a precipitous drop in export revenues at Manitoba Hydro amid drought conditions that drained water levels in the provincial utility’s reservoirs, leaving it with less power to sell in the U.S. spot market. Instead of the $450-million profit Manitoba Hydro had expected this year, it now projecting a $150-million loss – its second such shortfall in the past three years.
Red ink has traditionally been rare at Canadian hydro utilities, most of which rely on decades-old dams that produce abundant low-cost power to keep profits flowing. But Manitoba Hydro has gone from cash cow to financial basket case after experiencing huge cost overruns on its 695-megawatt Keeyask dam and Bipole III transmission line. The projects led to near-tripling of its debt load – to more than $24-billion – despite increasing its generating capacity by only 11 per cent.
Fluctuations in water levels are nothing new for hydro operators. But Manitoba Hydro is likely to experience dry conditions more frequently in coming decades because of climate change. Addressing its debt overhang should be a top concern for Mr. Kinew’s government to ensure the utility can weather future droughts.
Unfortunately, the new Premier seems to have other priorities. Mr. Kinew last week replaced all but one of Manitoba Hydro’s nine board members and handed the new board an ambitious mandate to, among other things, prepare a one-year freeze to electricity rates in 2025 and advance reconciliation with Indigenous peoples. The new board’s mandate letter does not even mention the word, “debt.”
A rate freeze was a signature NDP campaign promise that, along with Mr. Kinew’s inspiring personal story, helped the party win power. But his government needs to seriously reconsider the move if it wants to prevent Manitoba Hydro from becoming a chronic drain on the province’s coffers.
The utility needs to undertake radical action to restore its balance sheet to health. Interest costs account for more than a third its expenses, which is more than twice the proportion Hydro-Québec has been paying of late to service its debt. And with billions of dollars of debt needing to be refinanced with a few years – likely at much higher interest rates – Manitoba Hydro faces an even bigger financial squeeze.
To help relieve the pressure, the previous PC government slashed the amount the utility was required to pay it to guarantee its debt and cover water rental fees. Mr. Kinew has proposed to pay for his promised rate freeze by further reducing the debt-guarantee and water fees. But his proposal turns the old power-production equation on its head: Hydro utilities are supposed be sources of cash for provincial governments, not the other way around.
Manitoba still has the second-lowest electricity rates in Canada after Quebec. But given Manitoba Hydro’s financial condition, those rates are artificially low. That might be politically popular, but it undermines the province’s longer-term fiscal health.
Manitoba’s Public Utilities Board sets rates independently but based on criteria set by the government. The PUB authorized a 1-per-cent rate increase that took effect on Sept. 1, with another 1-per-cent hike approved for next April. Manitoba Hydro had applied for successive increases in September and April of 3.5 per cent each.
“The rates charged to a class of customers should generally reflect the cost of providing service to that class,” the PUB said in rejecting the utility’s application. “However, the board balances cost of service criteria against other ratemaking principles when approving just and reasonable rates.”
In his mandate letter to the utility’s new board, Mr. Sala called Manitoba Hydro the province’s “Crown jewel” and “the source of our Manitoba advantage – a low-carbon energy economy that keeps energy costs affordable for families and provides thousands of good jobs across the province.”
That is one way of looking at it. But if Mr. Kinew’s new government sticks to its plans, Manitoba Hydro may well wind up becoming a permanent ward of the state.