Premier Brian Pallister giveth, and he taketh away.
Over his first five years in government, Pallister has delivered a broad and growing range of tax cuts, including a one-point cut in the provincial sales tax and a 25 per cent reduction in education property taxes, the first cut in a multi-year plan to eliminate the education levy.
But, at the same time, the premier is bulldozing ahead on a cynical plan to wring $5 billion worth of Hydro electricity rate increases from ratepayers — approximately $300 million per year — over the next two decades.
If Pallister forges ahead with this plan, and nobody can stop him, he will be sentencing Hydro ratepayers to nearly two decades of exponential annual increases to their electricity bills.
The rate increases Hydro is seeking over the next 15 years are triggered by Bill 35, a proposed law that would largely stop the Public Utilities Board from reviewing electricity rate increases, while allowing the Pallister government to set electricity rates by cabinet decree.
However, Bill 35 also requires Manitoba Hydro to make significant reductions in its debt load, which increased substantially from construction of the Bipole III transmission line and the Keeyask generating station.
Right now, Hydro has a debt-to-equity ratio of 85 per cent/15 per cent, which means the utility has roughly five times more debt than it has in net equity. Pallister has said Hydro needs to bring down its debt, and build more equity, to ensure it is "financially sustainable" in the future.
This past week, Hydro CEO Jay Grewal told a legislative committee the utility is trying to move the debt-to-equity target to 75-25. To achieve that, Grewal said Hydro needs another 3.5 per cent increase in rates this fall, on top of a 2.9 per cent increase the Pallister government approved in the spring by cabinet decree.
What Grewal failed to mention is Bill 35 forces Hydro to adopt an even more aggressive debt-to-equity ratio of 70-30. To meet that target, Hydro will need steep rate increases in each of the next 19 years.
There are two fundamental problems with what Grewal said during the committee hearing.
First, she would not explain why Hydro appears to be operating within the parameters of Bill 35, even though it has not been passed into law. The bill was delayed by the opposition NDP until the fall legislative session.
Even so, Hydro stopped asking for PUB rate approval two years ago, allowing government to set electricity rates by cabinet decree. A coalition of consumer groups and big industrial power users are pressing the PUB to do a rate review now, before the legislation is passed.
And second, Grewal refused to acknowledge the revised debt-to-equity targets have already been rejected by the PUB in past rate hearings.
At 2018, Hydro applied for five straight years of 7.9 per cent rate increases to help the utility achieve a 75-25 debt-to-equity ratio. The PUB ultimately rejected that plan after determining — with the help of expert advice from interveners — it was inappropriate for a government monopoly utility.
Although private power companies routinely use a 75-25 ratio, the PUB determined state-owned, monopoly utilities that are backstopped by government do not need to meet the same target. That is not to say the PUB is unconcerned about debt; in the 2000s, the PUB raised rates sharply to ensure Hydro had the revenue to cover higher debt costs.
The PUB also heard from experts on the institutional bond market that lenders are much less concerned about debt to equity, and more concerned about the borrower’s ability to make interest payments.
For the record, there is no evidence lenders have any concern about Hydro’s financial stability. Even at Hydro’s current debt-to-equity ratio, the utility has locked in billions of dollars in debt at historically low interest rates. That would be impossible if lenders had any concern about its debt load.
Finally, it is important to note Pallister had other options for improving Hydro’s equity position without gouging ratepayers.
In the current budget year, the Pallister government will collect $480 million in water rental fees (a surcharge on the water that flows through generating stations), debt guarantees (a surcharge on Hydro borrowing) and capital tax. This money is skimmed right off the top of Hydro revenues and deposited into government’s general revenue account.
In recent rate hearings, the PUB has asked the province to take less money from Hydro as a way of building equity without increasing the burden on ratepayers. Pallister ignored that advice, choosing instead to take Hydro revenues to balance the budget and leave ratepayers to bear the burden of the new and aggressive equity targets.
With his manipulation of Hydro, Pallister is demonstrating his prodigious skills as a pickpocket.
With one hand, the premier is dishing out billions of dollars in tax cuts. And while everyone is distracted by his generosity, he is using his other hand to scoop billions of dollars out of the pockets of Hydro ratepayers.
The worst part is there’s not much anyone can do. Not when lawmakers operate outside the law.