Manitoba Chambers of Commerce Our Plan to Restore Manitoba Hydro and Protect Manitobans H. Sanford Riley Chair, Manitoba Hydro Electric Board December 1, 2017 1
Review of Manitoba Hydro s financial challenge Cash flow negative operations Growing debt Overview Review of Manitoba Hydro business risks 10 year plan to restore Manitoba Hydro There are no easy answers 2
The Power in our Province Core generation is from water power - 15 hydropower stations 5,200 MW developed 5,000 MW remaining potential 99% of electricity generated in Manitoba is renewable Two thermal generating stations primarily for backup and reliability US import capability critical to meet seasonal peaks and provide backup in event of failure or prolonged drought 3
Board Perspective Manitoba Hydro Electric Board represents a talented and diverse cross section of Manitobans Deep experience with operating businesses that have large balance sheets like Manitoba Hydro Strong experience from perspective of Hydro stakeholders and community members All committed to building a Manitoba where future generations enjoy the same opportunities we enjoyed 4
Need to Finish Bipole $5 billion 100% of right of way clear Over 2,200 towers (75%) installed Critical for power system 5
Need to Finish Keeyask $8.7 billion 45 per cent of control budget spent Export contracts already signed 6
Slide 6 bo1 Keeyask with spillway in upper left. Targeted in-service date is August 2021. bowen, 2017-11-15 bo2 Keeyask Oct. 2017. Spillway in upper left. Targeted in-service date August 2021. bowen, 2017-11-15
The Challenge Cash Flow Deficiency (100) (200) Millions of Dollars (300) (400) (500) (600) (700) (800) (900) (1,000) (296) (228) (242) (306) (294) (278) (467) (559) (660) (835) (913) 2017 2018* 2019 2020 2021 2022 2023 2024 2025 2026 2027 ACTUAL First full year Bipole III in service FISCAL YEAR ENDING No Rate Increases, 20 Year WATM First full year Keeyask in service *2018 reflects the 3.36% interim rate increase effective August 1, 2017 approved in Order 80/17 7
The Challenge Too Much Debt 8
Manitoba Hydro Net Income No further rate increases 200 33 90 65 (200) (101) (128) (152) Millions of Dollars (400) (600) (800) (447) (701) (768) (1,000) (1,200) (946) (1,016) 2017* 2018** 2019 2020 2021 2022 2023 2024 2025 2026 2027 ACTUAL FISCAL YEAR ENDING *2017 net income before $20 million non recurring gain **2018 reflects the 3.36% interim rate increase effective August 1, 2017 approved in Order 80/17 No Rate Increases, 20 Year WATM 9
Manitoba Debt to GDP Ratio Hydro debt included, total debt to GDP ratio forecast will increase to 65% 60 80% Net debt (billions of dollars) 50 40 30 20 MH CONSIDERED SELF SUPPORTING TO 2016 70% 60% 50% 40% 30% 20% 10 10% 0 0% Provincial Debt* MH Debt** Debt to GDP*** *From RBC: Canadian Federal and Provincial Fiscal Tables September 26, 2017 **3.95% Rate Increases, 20 Year WATM ***Assumes 2% growth in 2018 on 10
Equity Challenge and Risks Manitoba Hydro Equity Ratio 30% 25% Target Equity 25% 22% 27% 20% 15% 10% 5% 0% 19% 16% 15% 14% 13% 13% 13% 13% 12% 12% 11% 11% 10% 10% 10% 10% 10% 18% 15% 14% 13% 13% 13% 14% 11% 11% 9% 8% 8% 6% 6% 5% 4% 4% 4% 5% 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 FISCAL YEAR ENDING Downside Case: Base Case with 2023 2027 Drought Base Case: 3.95% to 2036, 20 Year WATM Minimum Target 11
Business Risks at Hydro Low water levels Increasing interest rates Construction risks Domestic demand Export markets 12
Our Plan Balanced, Prudent Annual 7.9 per cent rate increases each year from 2019 to 2024 4.54 per cent rate increase in 2025 A return to inflationary (or lower) rate increases by 2028 Over 800 employee reductions by Jan. 31, 2018 30% of senior management and 25% of middle management reduced 13
Average Retail Cost of Electricity Cents / kw.h (Canadian) 12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0 6.48 Manitoba 6.81 Quebec 9.88 9.89 9.22 8.31 B.C. Louisianna Saskatchewa Washington 10.84 11.01 10.30 10.48 New Oklahoma Wyoming Kentucky Source: US Dept of Energy (June 2016) & Edison Electric Survey (June 2016) (Exchange rate as of February 13, 2017: 1 US$ = 1.3071 Cdn) 14
Why Don t You Do This? Stop construction of Keeyask and Bipole? Too far along; least worst choice Sell more power to export markets? We don t set the spot price; transmission limitations Cut more costs? Capital problem, not operating costs Do nothing? Hope is not a strategy 15
Equity Ratio 16
Benefits in the End Plan for 7.9% increases is a responsible, balanced approach for Manitoba s future Flexibility after MH returns to financial health 120.0% 100.0% 108% Cumulative Rate Increase 80.0% 60.0% 40.0% 20.0% 44% 0.0% 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 FISCAL YEAR ENDING PUB/MH II 21b: Rates to Maintain 25% Equity in 2027 On 3.95% to 2036 17
Regulatory Process Critical Public Utilities Board review process underway Extensive scrutiny of rate application and major capital projects 220 minimum filing requirements 2,139 information requests answered by MH staff 26,000 pages of of documents filed This process is crucial to the future of Manitoba 18
Manitoba Hydro committed to a strong future for our customers and for all Manitobans 19