Hydro revenue streams quietly buoy Manitoba budget By: Dan Lett Posted: 7:00 PM CDT Wednesday, Apr. 7, 2021

Opinion

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This article was published 06/04/2021 (1360 days ago), so information in it may no longer be current.

Deep within the folds of the 2021-22 provincial budget, Premier Brian Pallister has hidden a rather embarrassing secret.

According to documents tabled Wednesday, the Pallister government will reap a record-setting $480-million cash windfall from Manitoba Hydro.

As the province tries to recover from the economic impacts of a deadly pandemic, one could argue that’s pretty good news.

However, the potentially embarrassing aspect of the windfall is it was triggered by the construction of the Keeyask generating station and Bipole III — two megaprojects Pallister hates with a passion.

For five years, the Tory leader has unleashed a relentless attack on the former NDP government’s decision to build the respective dam and transmission line, which were collectively $3.7 billion over budget. He has called it the biggest political scandal in the province’s history.

The irony Pallister is unlikely to acknowledge is his government will profit from the very same projects he vigorously argued should never have been built, via revenue streams the Progressive Conservatives argued should have been eliminated or reduced years ago.

The 2021-22 budget estimates Manitoba will reap $131 million from water rental fees, a surcharge on the amount of water that runs through Hydro’s northern generating stations.

However, the real windfall comes from two revenue streams much more difficult to dig out of the budget documents.

The first is the debt guarantee fee.

Government borrows money on behalf of all Crown corporations and, in exchange, it pays the province a surcharge on all outstanding debt. As Hydro’s debt has gone up substantially from Keeyask and Bipole III, so, too, has the amount of money the Pallister government has collected from debt guarantees.

In 2016, when the PCs took power, the guarantee fees generated $118 million; in the current fiscal year, that figure jumps to $231 million — and will continue to rise in the next two years as the majority of debt related to Keeyask and Bipole III hits the Hydro balance sheet.

The second is the corporation capital tax, which is charged on the value of Hydro’s capital assets.

In 2016, this tax generated $69 million in revenue; in this year’s budget, the Pallister government will collect an estimated $118 million, largely due to the addition of Keeyask and Bipole III.

Put all three revenue sources together — water rentals, debt guarantees and capital taxes — and Hydro payments to the provincial government this year will be 60 per cent higher than in 2016.

It deserves to be said the Pallister government is only adhering to the same fiscal policies and accounting rules as its NDP predecessor. The big difference is the PCs were huge critics of these payments when they were in opposition.

In 2014, when the NDP was trying to justify the need to build Keeyask and Bipole III, the Tories said the two projects would lead to an unjustified cash grab that would victimize Hydro customers.

“So, I’m sure, if they’re looking down the road, they’re thinking if we add more dams to the system, we can then charge a higher water rental rate,” PC MLA Cliff Cullen (now education minister) told the legislature in March 2014.

“And if Manitoba Hydro are going to be borrowing more money, well, we can charge them a higher premium on the money that we’re guaranteeing to repay.”

In May 2014, Tory MLA Blaine Pedersen — now the infrastructure minister — told the legislature the NDP government “seems to be very intent on making sure that they, the NDP, are the only winners in this because we know that the government receives a lot of money out of Manitoba Hydro.”

The size of the Hydro payments to government even provoked some concern with former Saskatchewan premier Brad Wall, who was commissioned by Manitoba to do a review of Keeyask and Bipole III.

In his recently released report, Wall noted nearly 20 per cent of Hydro’s gross revenue is paid in various forms to government general revenues, the highest Crown utility dividend in the country.

Wall recommended if revenues generated by any capital project do not cover its costs “then the government should reduce or suspend its collection of transfers from Manitoba Hydro until those cost shortfalls are made up.”

A government spokesman said the current government has no plans to change the structure of payments from Hydro to general revenues.

The spokesman said the debt guarantees help ensure Hydro is getting the best possible interest rates, and the real concern going forward is the enormous debt created by the dam and transmission line.

That response is really not surprising.

Pallister has expended a lot of political capital arguing Keeyask and Bipole III have destroyed the financial stability of Hydro and, in the process, put customers on the hook for considerably higher electricity rates. It would be hard for him to abandon that narrative.

Still, if he really wanted to protect Hydro customers, he could take Wall’s advice and reduce or suspend these payments.

Of course, to make that a reality, the premier would need to demonstrate the will to do now what he and his party argued the NDP should have done in 2014.

dan.lett@freepress.mb.ca

Dan Lett
Columnist

Born and raised in and around Toronto, Dan Lett came to Winnipeg in 1986, less than a year out of journalism school with a lifelong dream to be a newspaper reporter.

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