Manitoba Hydro is forecasting an approximate $400-million reduction in net export revenues due to ongoing drought.

As a result, the Crown corporation now anticipates a potential loss of between $190 million and $200 million for the current fiscal year, it said in a news release after releasing its second quarterly report for the first six months of the 2021-22 fiscal year Wednesday.

The publicly-owned utility had said earlier in its annual report it had budgeted a positive net income of $190 million for 2021-22.

The revised forecast said a lack of significant precipitation across much of Hydro’s watershed over the past year and lower water flows — water inflows to the southern portion of the system are the lowest in 40 years — have weakened the utility’s ability to generate and sell surplus energy on spot markets in the United States and Canada.

"Drought is one of the major risks for any utility that is predominantly hydroelectric," president and chief executive officer Jay Grewal said in the release.

"For Manitoba Hydro, anytime we have average to above-average water flows, we take advantage of that by running that water through our turbines and selling that excess energy on the opportunity or spot market, rather than simply spilling it downriver," she said.

That additional revenue is money we use to help keep rates for our customers here in Manitoba lower than they would be otherwise.

Manitobans' energy needs will be met throughout the winter months, the provincially-owned power corporation said. The drought won't stop Hydro from being able to maintain energy security and reliability "to meet all domestic and firm export commitments."

Late fall and winter precipitation, as well as the effect of the rate increase Manitoba Hydro receives once reviewed and approved by the Public Utilities Board, have the potential to impact the range of loss for this fiscal year, it said.

Hydro is preparing a rate application to file with the independent rate-setting regulator Monday.

Wednesday's quarterly report said Manitoba Hydro’s net loss for electrical and natural gas operations was $90 million for the first six months of 2021-22, compared to a $41-million loss for the same period last year.

The increase in net loss was attributable to higher finance expense and depreciation expense, mainly resulting from the first four of seven units of the 695-megawatt Keeyask generating station being brought into service, as well as decreased spot market sales that were offset by higher firm energy sales tied to Keeyask.