February 23, 1998
Keeping Manitoba Hydro Small
What's up at Manitoba Hydro? Judging from recent changes in the legislation that governs this Crown jewel, not enough.
At the stroke of midnight on New Year's Eve, American power companies began to compete against each other. Full wholesale and retail competition will take time because the transmission networks required to achieve completely open markets don't exist yet. But the traditional monopoly utility with its restricted service territory and government-controlled rates is as dead as Thomas D'Arcy McGee.
The United Kingdom opened up electric power ten years ago. Now that twenty suppliers have replaced the former monopoly, British consumers are enjoying rate reductions of more than 10%. The same downward pressure on prices is expected soon in the U.S., with estimated savings as high as 25%.
But what's that got to do with us? Manitoba Hydro already has the cheapest rates on the continent, right?
That's true, but it's beside the point. The company can keep local rates low partly because it exports a quarter billion dollars worth of power a year to hungry U.S. utilities. The American regulator will permit these sales to continue only if we allow other suppliers access to our markets.
In response, Manitoba's government last June passed amendments to the Hydro Act that were intended to give the company more commercial freedom. Unfortunately, those changes fall far short of preparing the organization for a competitive world.
The new legislation does allow the company to expand its activities outside the province and to engage in "related business ventures" that diversify its product base. But a limit of $5 million has been placed on these transactions. Anything beyond that figure still needs the approval of the provincial cabinet.
That restriction is laughable when you consider the potential dimensions of such projects. TransAlta Corporation, an Alberta-based power company that has turned into an aggressive and outward-looking competitor, routinely enters into arrangements worth hundreds of millions of dollars with firms across the world. Its most modest foreign project, in Australia, comes in at $40 million.
Manitoba Hydro could transform itself easily into a huge enterprise that dominated the middle North American power market. But if it has to seek the counsel of poorly informed and hyper-cautious politicians every time it flexes its wings, forget it.
Why do elected officials feel they have the expertise to micro-manage the intricacies of the power market? It's like getting the board of directors involved in the minutiae of rebuilding old schools or the esoterica of reconfiguring hospital kitchens in Winnipeg. This extra grief goes beyond the core business of Cabinet, the setting of broad policy and strategic vision.
Imagine, for instance, if McCain's Foods had been obliged to ask the government of New Brunswick for permission every time it wanted to build another plant to process potatoes. Had that been required, the food-service giant's facilities in Manitoba would likely never have been built.
A second and amazing flaw in the new Act forbids anyone except Manitoba Hydro and Winnipeg Hydro to sell electricity at the retail level. (The American regulator has only forced the province to allow wholesale competition.) The reasoning behind this restriction? "It is believed that full retail competition would lead to rate increases as prices rise to market levels."
Wait a minute. Retail competition is a threat because it will raise prices? Did it have that effect in the railroad, trucking, airline or long-distance telephone industries when they were deregulated? Are MTS prices rising? Of course not. In fact, rates have fallen dramatically with competition.
Manitoba Hydro has low rates for two other reasons. First, it benefits from hidden government subsidies paid for by the taxpayer. Second, and more importantly, its dams produce a steady supply of inexpensive power. In a competitive market it could readily clean up, while creating thousands of high quality jobs in Manitoba. The prospect of politicians' preventing Manitoba Hydro from maximizing its commercial potential out of an ill-founded fear of domestic consequences provides absolutely the best argument for turning the utility into a publicly held, shareholder-owned firm.
Not everyone at Hydro is so timid. "What are we afraid of?" a company insider commented recently. "I think we can compete."
The electricity industry in North America is in the middle of a massive transformation. Trying to maintain a protected haven for an old-style operation when entrepreneurial opportunity abounds around us is unfortunate.
The Frontier Centre for Public Policy
is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."