Beginning of end for Manitoba Hydro? - Manitoba Energy Council

Posted: 10/26/2018 4:00 AM

Winnipeg Free Press

https://www.winnipegfreepress.com/opinion/analysis/beginning-of-end-for-manitoba-hydro-498615521.html

An Oct.18 provincial news release advises that former British Columbia premier Gordon Campbell will be heading an economic review into the Keeyask Generation Project and Bipole III Transmission and Converter Stations Project.

Taxpayers may well ask why we need to spend $2.5 million to study an issue that has been studied to death. Even the media release acknowledges that Campbell will be building "on work previously conducted by the Public Utilities Board and Manitoba Hydro." We can also add here the expensive and extensive report prepared by the Boston Consulting Group.

There may well be method to their madness: B.C.’s former premier orchestrated B.C. Hydro’s foray into the world of privatization.

A report by economist Marjorie Cohen explains that in the early 2000s — when Campbell was premier — the B.C. government devised a new energy policy that de-coupled the four major components of B.C. Hydro: administration and customer service, distribution, generation and transmission, with the intent to privatize some of them.

The private Bermuda-based company Accenture took over B.C. Hydro’s major service activities, including customer services, information technology, financial services, human resources, and procurements — fully one-third of the company’s workforce. Cohen was critical of the fact there was no public oversight of the private company, and that it was "impossible to see how Accenture’s promise to save B.C. Hydro $250 million over 10 years will be assessed adequately in the future."

If this scenario sounds familiar, it’s because something similar happened to Manitoba Telephone System (MTS) in 1996. The Progressive Conservative government of Gary Filmon, despite promises that it would not privatize MTS, began the process in 1994 when it sold off its coaxial cable system, even though an Ernst and Young report found that owning the system gave MTS a strategic advantage and that selling it would be detrimental to MTS’s future.

Filmon’s government then made a deal for $47 million with an American company to run MTS’s telemarketing services. It then carved MTS into four separate divisions, all the while claiming that the restructuring had nothing to do with privatization. Next it commissioned three separate reports (sound familiar?) from brokerage firms who would eventually profit handsomely from privatization. On May 2, 1996, Filmon’s government announced it would privatize MTS, despite a groundswell of public protest.

MTS’s privatization is history, but it shouldn’t be forgotten. Its sale made certain high-profile people a lot of money at the same time as rates increased 14 per cent above the rate of inflation, full-time jobs were converted to part-time and some jobs left the province. Even before MTS was taken over by Bell, it provided worse service than SaskTel — still a Crown — while paying its CEO 10 times more than SaskTel pays its CEO.

Even though the hydroelectricity sector is different from the telecommunication sector, both examples we’re looking at are Crown corporations, and there is a template for privatizing Crowns that follows this pattern:

Tell the public that there is a major problem with the Crown
Hire private-sector consultants to confirm and cement the narrative that the problem is one of too much government interference
Separate divisions of the Crown, ostensibly to make it run more efficiently
Begin to sell off the divisions to the private sector

It’s important to note that B.C. Hydro is still a Crown corporation, but the role of private interests is such that it is a Crown in name only. Could the same thing happen in Manitoba?

It is too soon to speculate what sort of recommendations Campbell will come up with, but, according to Simon Fraser University Professor John Calvert, under Campbell’s leadership B.C. Hydro opened up its crown land and water rights to private interests, resulting in a "massive giveaway of public assets". Should Campbell be able to exploit the bad press Manitoba Hydro has received since the Progressive Conservatives took power, any number of privatization schemes could unfold. Manitobans need to be very careful not to throw the baby out with the bathwater.

Yes, there are concerns with the cost of Keeyask and Bipole III, but despite what the Manitoba government claims, it is not definitively settled that the capital investment will not pay off over the long term. Yes, there is also debate around any attempt to increase hydro rates, currently the lowest in Canada. Regardless of one’s position, at least any rate increases in Manitoba will stay in the public purse rather than being siphoned off for private profit.

Privatization and large rate increases go hand in hand. Calvert notes that B.C. Hydro’s rates at one point increased substantially more the going market rate, and have remained high. In Ontario, the partial selloff of Hydro One to private interests has resulted in hydro rates doubling. It is also important to remember that Ontario’s former Progressive Conservative premier Mike Harris set the selloff up when he divided the utility into three separate divisions, a strategy Campbell followed in B.C. One wonders if the creation of the new Manitoba Crown corporation, Efficiency Manitoba, to handle demand-side management, is a move in this direction.

In 1977, Manitoba’s Progressive Conservative premier, Sterling Lyon, in an attempt many say was to stoke political controversy, commissioned the Tritschler Report to investigate "the scope, direction, timing and scheduling of northern power projects, and the question of costs involved." This squabble is now forgotten, and although the utility has much to answer for in its treatment of First Nation communities, no one can deny that the high standard of living that most Manitoba settlers enjoy today is in large part because of the substantial capital investments that have been made by Manitoba Hydro over the decades.

The political head-butting over Hydro is nothing new, but the stakes are much higher today. Privatization was not on the table in 1977 the way it is now. Campbell brings a particular expertise and ideology to his investigation into Manitoba Hydro — one that should worry all Manitobans.

Lynne Fernandez holds the Errol Black Chair in Labour Issues at the Canadian Centre for Policy Alternatives – Manitoba.

On-line comments to this article by Dennis Woodford: Very well put together Ms. Fernandez. There are changes occurring in the electric power industry that are not understood. This means we cannot rely on past history here or elsewhere to predict a future outcome.

First of all, Manitoba Hydro rates are not the lowest in Canada. Manitoba Hydro residential rates are over 25% higher Hydro Quebec’s.

Second of all, what is happening elsewhere in the developed world where electricity rates are higher than here, it is lower cost for electricity consumers to start generating or storing their own electricity. As a result, traditional electric power companies such as Manitoba Hydro are facing significant disruption as our electricity rates increase. The disruption will largely be customer driven.

Large power plant in this day and age is an increasing risk; for example, Keeyask, Site C in BC and Muskrat Falls in Labrador and Newfoundland.

The increasing costs of electricity (Manitoba Hydro asking for 7.9% increase pa for 6 years) will lead to customers demanding more control over their electricity use. The development happening elsewhere is local electricity trading areas known as “microgrids” or distributed energy resources. Here customers are demanding local energy trading or “peer-to-peer” trading.

How is peer-to-peer trading being achieved? In some US states and Europe, use is being developed with a distributed ledger technology such as blockchain. This is where a user or a user & producer of electricity have an automated marketer (computer) that is continually searching for the best deal in a 5+ minute market. Customers may even include the battery in their plugged-in electric car as part of their market operation.

This will all begin to happen when our electric distribution and transmission system becomes open access to allow peer-to-peer trading – to be eventually demanded by Manitobans when they see what is happening elsewhere and Hydro’s costs are no longer competitive. All such transactions will require a fee to be paid to Hydro for the use of their transmission.

Finally, we all do not understand this disruption, and certainly it is outside the radar of our leaders. We can’t predict exactly what will develop, Manitobans will make it happen.