Manitoba's utility regulator will allow Manitoba Hydro to raise rates to 3.36% on an interim basis effective Aug. 1, a hike that is less than half of what the province-owned power company sought.
All revenue from the increase will flow to an existing deferral account for the Bipole III transmission system and be used to temper future rate hikes when the network comes into service in 2018, the Manitoba Public Utilities Board said in its July 31 decision. Manitoba Hydro had sought a 7.9% increase this year and the same hike annually for five years in its May application. The board, known as the PUB, said it needed more information on the company's plan to halve the time it takes to change its capital structure to 25% equity.
"The utility's 2016 financial forecasts now seek to achieve that 25% equity level over a period of 10 years, with the first five of those 10 years embedding consecutive annual rate increases of 7.9%, followed by five consecutive years of 2.0% rate increases," the PUB said in its decision. "This contentious issue will be examined during the General Rate Application."
Manitoba Hydro has cut staff and sought rate increases in part to offset construction costs of the Bipole III high-voltage, direct-current transmission system which will carry power from the northern part of the province to the more-populous south and U.S. export markets and the Keeyask hydroelectric station. The projects, initiated by the province's previous socialist government, were reported to be plagued by budget overruns and other problems after the right-leaning Progressive Conservative party took control in a 2016 election. Keeyask's costs have jumped an estimated C$2.2 billion to C$8.7 billion and the project is 21 months behind schedule, while Bipole III's cost and in-service date have also been revised. Higher debt costs and slumping power prices for exports have tempered the company's revenue outlook.
"We are concerned that the PUB has not taken quicker action to begin to address the serious financial challenges and risks facing Manitoba Hydro," CEO Kelvin Shepherd said in a July 31 statement. "With our debt already having increased to [C]$16 billion and scheduled to grow by another [C]$8 billion over the next five years, it's imperative we increase our financial capacity to fund our ongoing operations, rebuild equity in our company, and have sufficient free cash flow to ensure that our debt is considered self-sustaining."
The PUB plans to review Manitoba Hydro's full rate application with public hearings that start in December.