Saving hydro

By Graham Lane

A needless fall federal election looms, polls suggest the Liberals will end up staying with a minority. And, towards achieving that expensive result, the Trudeau government has encouraged Canadians to vote Liberal with announcements promising new and expanding spending programs – despite having already just driven the federal debt up by half a trillion dollars.

saving hydro
Pine falls generating station.

One of the ‘good news’ actions was Trudeau’s bailout of Newfoundland and Labrador (NL)’s “debt-plagued” Muskrat Falls hydroelectric project. It has parallels in Manitoba, another province with precarious finances increasingly threatened by ill-advised Manitoba Hydro boondoggle investments (made by politicians rolling the dice with taxpayer dollars). 

Trudeau has upped the federal stake in Muskrat Falls to $10.2 billion. While Harper’s past Conservative government had already given a $5 billion loan guarantee for the troubled hydroelectric project, Trudeau has pledged an extra $3.2 billion from future federal oil revenues; taken a $1 billion direct ownership stake, and, third; upped the federal loan guarantee by $1 billion. The bailout saves a $13 billion project initially commissioned to come in at half of that. Without this pre-election bailout, NL’s ratepayers would have faced a doubling of already hefty electricity rates. This, in a province with massive debts and an unemployment rate twice the national average.

Canada’s Parliament Budget Officer (PBO) has concluded that NL’s current fiscal policy is not sustainable, forecasting requiring “permanent tax increases or (massive) spending reductions … to (just) stabilize government debt”. Otherwise, the PBO forecasts that NL’s net debt could soar out of control. (And, this Muskrat Falls political bailout will not fix NL’s finances overall). 

The federal PBO also reports that Manitoba’s fiscal policy is not sustainable – with an increasing risk of spiralling out-of-control debt. Like NL Manitoba undertook major hydroelectric expansions with soaring costs. Neither of the two provinces’ economies could afford these foolhardy ventures. But there is no talk, so far, of an equivalent federal bailout of Manitoba’s hydroelectric customers.

Many would have Premier Pallister seek equal treatment from Trudeau – a bailout for Manitoba Hydro’s boondoggle expansion ($20 billion plus to be spent, twice original estimates). But, unlike NL, which opened its books to the public and Ottawa and successfully secured a massive federal bailout, the Pallister government has played down the risk for Hydro residential customers and industries that lies with the prospect of soaring future Hydro rates.

Manitoba is just coming out of the Covid-19 lockdown disaster which crushed the economy and provincial finances, with years of government deficits forecasted. And, the present drought could further damage Hydro’s (and the Province’s) already-wounded finances. Remember Manitoba Hydro lost close to $500 million in one year of drought in 2004. 

The federal PBO should be listened to, there is grave risk in Manitoba’s government ignoring bleak forecasts for Manitoba. But, while Manitoba Hydro’s customers need a bailout, it’s bailout should not come from the federal government, a la NL.

The provincial government should neither look to Ottawa or to future large Manitoba Hydro rate jumps. Ultimately finally fixing Manitoba’s utility boondoggle expansion lays with an intelligent restructuring of Manitoba Hydro and the province’s broader energy policies, including modernizing regulatory policy. Start with separating transmission and generation, and opening generation to all.

This would start addressing the challenge at hand: discouraging future damage of Manitoba Hydro by unaccountable politicians. 

Graham Lane, a retired CPA/CA, is a member of the Frontier Centre of Public Policy’s expert advisory panel

Leave a Reply

Your email address will not be published. Required fields are marked *