Manitoba Committee Hansard — Public Utilities Committee, Sitting 7 (31st Legislature, 3rd Session)

31-3-pu7

Manitoba — Debates (Hansard)

ISSN 0542-5492 Legislative Assembly of Manitoba STANDING COMMITTEE ON PUBLIC UTILITIES AND NATURAL RESOURCES Chairman Mr. Warren Steen Constituency of Crescentwood Saturday, June 9, 1979 2:30 P.M. Printed by the Office of the Queens Printer, Province of Manitoba

rime: 2:30 p.m. Hearing Of The Standing Committee On Public Utilities and Natural Resources Saturday, June 9, 1979 :HAIRMAN, Mr. Warren Steen. lnR. CHAIRMAN: Members of the committee, we have a quorum. Prior to the noon break, Mr. ::: herniack had the floor. Does he wish to cont inue on? lnR. CHERNIACK: Yes, I would lik e permission to continue on, Mr. Chairman. I had ind icated my lesire to try to trace the impact on Hydro of the loan, the Swiss franc loan which falls due next lune, which the government refinan ced or fina nced afresh this June.

I was asking whether Hydro 1ad a study available to show the cost to Hydro, let us say for this year from Jun e to next Ju ne, mder the loan as it stood a few months ago. Then I would want to say, however, the government .. No, I'm sorry, then I would say, wel l, now, suppose Hydro took advantage of the opportunity o borrow money at a much lower in terest rate for one year in Swiss francs and thus roll over his loan and pay the % percent penalty, how much would tha t cost, and I'm sure it would be a aving from this June to next Jun e?

Then I want to know, what would happen with tha t loan under he government's proposed measure, and tha t is that the government will have taken over the loan s of April 1, 19 79, charging Hydro with the interest rate in Canadian funds and at the Canadian ate which would have been payable, in its es tima tion, as of the date the loan was taken out, which think was 19 75? And what will then be the cost to Hydro from June of this year to Jun e of next ear on the basis of paying Manitoba whatever that rate is, which I'm guessing would be 9 or 0 ercent or maybe more, I'm not sure, but about 10 percent?

What would that cost Hydro as ompared with the fact that the government is borrowing tha t money at 3-% percent? Now, it's clear in my mind what I want. I hope it's clear to Hydro officials so tha t they can in ome way respond to my enquir y, which is not speculative. I think it's a practical approach. IR. CHAIRMAN: Dr. Wedepohl. IR. WEDEPOHL: Thank you, Mr. Chairman. I think, on a matter of principle before I ask for the )ecific detail from Mr . Fraser and Mr. McKean , thi s does raise a point.

We are operating under 1is new rule which you know about, in which the government assumes the respo nsibili t y for our ebt. Now, that was the rule effective at the time that the government did this for us. Now, there ere some questions this morning and we discussed thi s and we have some specific information hich may help you a bit, and that is that we do in aact pick up this int erest. I think it was you · Mr. Green asked me some questions about the in terest charges. One has to make assumptions 3cause we don't know what the int erest rates are going to be, and so on, or what the exchange ttes are going to be.

But making some assumptions of relative constancy over the next period five years, what this means is that we would have to repay debts in which the incr eased nnterest, e exchange rate fluctuations would be in the region of $125 million. This has been assumed by e government of Manitoba. They will pay tha t money. it's hard cash tha t they will pay, which 3 otherwise would have to have paid.

To offset tha t however there will be something, and we have to speculate about the interest, Jt making a rea sonable assessment it would probably be offset to the tune of about $15 million, 1ich we might otherwise have got on lower int erest rates, so the net effect would be $1 10 million lvantageous to the corpora tion. Now having said that, 1 think in answer to your specific question about the Swiss loan, we can 't ,rt of keep changing the rules to optimi ze our situa tion.

We are working under the new arrangement 1ereby the government assumes the resp onsi bili ty, so that while there might well be some fference, in reply to your question, if we'd done somet hing else, I think that is really not - I ay be wrong, but I don't think it's really relevant, because we are working under this new rule. will cost us a little bit in in creased charges, but at the same time the government is going to 163

Public Utilit ies and Natural Resources Saturday, June 9, 1979 assume the resp onsi bili ty for the repayments when they become due. MR. CHERNIACK: I apprecia te Dr. Wedepoh l's attempt to summarize, which I think is what hE has done. But I must point out to him that in my opinion, the rule he speaks of, the new rule hE speaks of is not a rule, it's a statement of inten tion. We have yet to de bate the entire proposa in the Legislature, and the Doctor does not have the right to assume that the situation has beer changed, but only the government which has majority control of Legislature intends so to do.

So what I'm asking is not specula ting, and not guessi ng. The only unk nown that I can foresee is what will be the change in rate as between the date when the government takes over the Swis loan, and Jun e 1, 19 80, and th erefore, the only intelligent way to approach it in my way of thinkin� is to assume no change in rate between June 1, 19 79, and June 1, 19 80. And on that basis, assu min' no change in rate for that one year period, then we should be able to have a very realistic assessmen of the dif ferent alternative costs, or benefits.

I'm zero ing in on tha t one because it's, I hope, the most understandable one for us to foll01 thr ough so that we will und erstand the impact on Hydro of the over al l. MR. WEDEPOHL: I apologize, Mr. Cherniack, I did ... Mr . Chairman, may I then confer with m colleagues. MR. McKEAN: I'm not sure this answers your question exactly, but I think the best way I ea do is describe what in my opinion would have happened if this had not taken place, and what w happen with the freeze.

If the freeze had not taken place, as far as our records were concerne 1 because of the call of this debt in June of 19 79, we would absorb a realized loss of approxima te $27 million, I think, about that time. Agai n, I'm guessing c:�t what the exchange rate was going 1 be, but that was the amount it would cost to pay back that original loan, as compared to whi we realized when it was first bo rrowed in 19 75. Now, at the same time the new loan would be at the lower rate and so, from our in terest eo point of view, we would have had the lower rate from June onward.

I think I saw somewhere th: somebody calcu lated that to be $2 million less than the old loan, and I haven' t checked the fig ur but we 'll say for argument's sake it was a $2 million savi ng. So that $2 million, as far as the ne fiscal year is concerned, would have partially offset this loss that we would have recorded in 01 records at tha t point. Now, as far as the new position is concerned, that debt, or the inter est cost to us starting tl first of Apr il, 19 79, will be at the equivalent Canadian rate at the time the money was borrowe which I think you were right was in 1975.

Now again, I haven't got that exact figure with me, b le t's assume, I think the debt is about 8 percent, and let's say for argument's sake the equiv ale Canadian rate at that time was 9 percent - and I'm just guessing qu ite blu ntly - and under tl new setup, if it's assigned to us at 9 percent, we will pay 9 percent in terest starting the first Apr il, 19 79 - and I might say that rate will continue until the date of the original maturity, whi< is June of 19 81, at which time we will be reassigned in advance by the Min ister of Finance, the Finance Department, at the then equivalent Canadian rates that are in force at that point.

No that's qu ickly how I attribute what is the dif ference in the two handlings, but I'm not sure if tll answers your question, Mr. Cherniack. MR. CHERNIACK: Well, Mr. Chairman, Mr. McKean assumes tha t Hydro will have had the benE from 19 75 until 19 79 of paying a rate of interest less than it would have paid had the money be borrowed in Canada. MR. McKEAN: We will have had that advantage. MR. CHERNIACK: And that Hydro will now have the benefit of transferring its li abili ty of $67 milli at a cost of $40 million. MR.

McKEAN: We will take over a debt, or loan, based upon $40 million at this point, based ur:; Canadian in terest rates ... MR. CHERNIACK: So Hydro is now being told, ins tead of owing $67 million, you will only o $40 million ... MR. McKEAN: That's right. MR. CHERNIACK: . . . and the taxpayers of Manitoba will assume the liability of $27 mill 164

MR. McKEAN: Right. MR. CHERNIACK: until next year. Public Utilities and Natural Resources Saturday, June 9, 1979 . and you will be charged a higher int erest rate only from April 1s t, 19 79, MR. McKEAN: Until the original maturity of the loan, which I think is June of 19 80. VIR. CHERNIACK: That's right. VIR. McKEAN: And at which time any refinancing of that loan will be at the Canadian rate at that )Oint. III R.

CHERNIACK: Which means that if the Manitoba taxpayer, through the Minis ter, is able to oil over that Swiss loan at - it was 3 % I think, or something lik e that, again next year at $67 nillion, assu ming it has already payed off the $27 million, then the differential between the 3 % 1nd the 9 or 10, or whatever they're charging to Hydro, will be of benefit, future benefit over the 1umber of years that the new loan will take to the taxpayers. �R. McKEAN: And will offset, you might say, the $27 million that they've taken over in other 1ords. •R.

CHERNIACK: lt's bound to offset that unle ss the rate drops even further. IR. McKEAN: Un less it goes the other way, yes. IR. CHERNIACK: So that, when Dr. Wedepohl said that engine ers don't lik e to speculate, he really 1eant, doesn't really like to speculate on the foreign market, but does speculate on flows of river, 1d on demands, and on oil pricing and all the other features that relate to cost and sale price. think tha t's clear; I think it's sel f-apparent. All this is in order to trade off, acco rding to them, the potential rate incr ease of Hydro for a eeze for the next five years. R.

WEDEPOHL: I can 't comment on what their . . . R. CHERNIACK: What their intention is. You can only comment on its impact on Hydro. Dr. edep ohl, you mention the figure of $15 million juxtaposed against the figure of $1 25 million. Is at a calculation tha t was made on the dif feren tial in rate in some average way between all the ttes of these renewed types of in terest rates for dif ferent loans, Canadian versus the foreign loans? that really a guesstimate or is it calculated in some way? R. WEDEPOHL: No, it has to be an assu mption, Mr.

Cherniack, because you have to make some sumption; we can 't know what the exchange rate is going to be for the next five years, we don't ow that. So the first assumption is we assumed , I think, effect ive around about April this year tha t that 1S the exchange rate and there wou ldn't be any major fluctuations.

And then an assumption was tde about the Canadian interest rate, tha t it was going to incr ease by a certain amount, tha t's ere the 15 million came from, so the 125 million is real money that is going to have to be back the next five years, and the 125 represents that loss due to exchange rate fluctu ation; the 15 llion represents an assumed in crease in the rate of in terest in Canada. If it's greater, it will be 1re than 15 million; if it's less, it will be less. Furthermore, the 12 5 wo n't be accurate, because � exchange rate won't be what it was on the 1s t of April. So those were the two ;umptions. I.

CHERNIACK: Well, that's helpful. Thank you, Mr . Chairman. That's helpful. I under stand the 1cess that Mr. Wedepohl is descri bing. Let me try and describe it in my way, and that is tha t government's announc ed intention is to freeze the rates for the next five years.

I believe, and �lieve tha t so far the figur es I've presented and that we've discussed will support the speculation t a rate incr ease in the next five years would be most unlikely, and if at all would be very low ·ate incr ease, unless the dollar drops more drastically than now; and the trade-off for that is t the taxpa yer of Mani toba is being asked to buy out the debt of the Hydro to the extent of, said $125 million, I think the Mi nis ter said $15 0 million, something li ke that, buy off the debt, 165

Public Utilities and Natural Resources Saturday, June 9, 1979 give Hydro the benefit of the inter est rate dif ferential over the period of any existing loan tha t th ey\ had up to April 19 79, and burden the Manitoba taxpa yer with tha t dif fer ential, all in order to achie\ a rate freeze. Is tha t a correct descri ption? MR. WEDEPOHL: Mr. Chairman, I'm not sure that. .. I'm being asked to speculate on what tt govern ment's intentions are. · MR. CHERNIACK: No. MR. WEDEPOHL: Were you asking me a question, or are you asking me to speculate on wh the govern ment 's position is? MR. CHERNIACK: No.

I was sayi ng, the government has annou nced that its intention is to free: the rates. MR. WEDEPOHL: Yes, tha t is so. MR. CHERNIACK: And to do that, it has annou nced that it will take over the ind ebtedne ss Hydro, apparently reduced by some $15 0 million. In other words, they will assume a liabil ity of sor $15 0 million more than it lends to Hydro, and thus transfer - Mr. Chairman, Dr. Wedepohl appea to me to be not un derstan di ng what I am saying so ... MR. WEDEPOHL: I am a little bit confused, I must admit. MR. CHERNIACK: Let me start aga in. And I don't have the figur es. Mr .

Chairman, I don' t knc the amount - I guess I should know it, it's here somewhere - what the total foreign cu rren debt is of Hydro. But whatever it is, ... MR. WEDEPOHL: it's about $1. 5 billi on. MR. CHERNIACK: $1. 5 billion, and I belie ve that the fluctuation exchange rate, as at the presE time, or last Apr il, would add how much to it? MR. WEDEPOHL: 372 million. MR. CHERNIACK: All right. So I am under the impres sion, and I don't have clarification but I wo1 assume Hydro does, that the government will len d to Hydro tha t same. . . How much? MR. WEDEPOHL: 372 million, or $1. 5 billion. MR.

CHERNIACK: $1. 5 billion. MR. WEDEPOHL: $1. 5 billion. MR. CHERNIACK: Lend them the same $1.5 billion, and assume a liabili ty of $1. 5 billion p 300-some million. Am I not visualizing what the government has inf ormed Hydro it intends do? MR. WEDEPOHL: Yes. They haven't assumed the $1. 5 billion, I don't think. That'S on our bo1 as Hydro. We assumed the loans as we negoti ated them at the then exchange rate. The governm will assume the re sponsi bil ity for the 372 million. MR.

CHERNIACK: We ll, in effect, it's conver tin g the foreign loans owed by Hydro into Canad dolla rs retroactively, and is assu ming the liabili ty of having to pay off at a higher exchange n which means to me that the people of Manitoba are now being committed by the governmenl take a loss, a whopping loss of some $300 million at the expense of the Manitoba taxpayer the benefit of Hydro. As against that from April 1s t on, the Mani toba government will be char� Hydro a greater in terest rate than it will be payi ng, exclusive of the exchange rate. MR. WEDEPOHL: That is my unde rs tanding, yes. MR. CHERNIACK: Yes.

And that means to me, that Hydro would be the beneficiary of the excha 166

Public Utilities and Natural Resources Saturday, June 9, 1979 ates retroactively assumed by the Manitoba taxpayer, and will be liable on behalf of its ratepayers, vho are the only ones who I belie ve pay Hydro's costs, for the in creased in terest rate. And there's hat trade-off. ,R. WEDEPOHL: Yes. ,R. CHERNIACK: And the trade-off is all in the name of a freeze in rates, as far as Hydro nows. �R. WEDEPOHL: Mr.

Cherniack, I think I can 't fully agree with you there because we are missing ur reve nue from export sales, and as I and I'll say again what I said this morning, the thing that as really pushed us, not pushed us, but encou raged us to go this way, is the fact tha t our export �venue so far exceeded our expecta tions, and I bel ieve will continue to do so, because that is ot frozen, and as the price of oil goes up, we may be, la st February exporting $9.3 million of lectricity, with what is happen ing, we've now gone to nearly $2 1 a barrel for oil. lt might well be 1at tha t figure next year is goin g to be $10 or $1 1 million.

IR. CHERNIACK: Yes. R. WEDEPOHL: So I don't think one can forget the export situation because that was a crucial 3.rt of our discussions earlier in the year, when Mr. McKean and Mr. Fraser first all alerted me 1 this possi bilit y. lt was the very very buoyant export situation which is the thing tha t encour aged ; to go to the Manitoba government and start the discussions. R. CHERNIACK: Mr. Chairm an, I di dn't know that the discussions were ini tia ted by Hydro. R.

WEDEPOHL: No, if I could then go back and tell you, as my unders tan ding, exactly how this trticular method came about; the first reference to it was in the Spivak Task Force Report on :onomy and Ef ficiency. lt was proposed at that point. This was discussed, I belie ve at Hydro, and hink Mr. McKean made some reference to it in his appearance before the Tritschler Commission, e formula, not the method. Sub sequently, we at Hydro discussed this - I think it was in March this year, Mr. McKean, Mr .

Fraser and myself had a discussion about this - and I subsequently ;cussed the same thing with the Mi nis ter who was also int erested , and I think it was at that stage 3.t the Min ister discussed the matter with Mr. Fraser and Mr . McKean. :t.

CHERNIACK: That then means that at the time the government made its decision it was fully rare of the in creased rev enue that one could expect from the export of Hydro power to Un ited 3.tes. �- WEDEPOHL: Yes, tha t is correct. t CHERNIACK: And that, therefore, means that the Mini ster and the government was fu lly aware a tremendously improved position vis-a-vis potential rate in creases, I say improved, over the lSentat ion made by Hydro to the Utili ty Board a year ago. That's a fair statement, isn't it? I. WEDEPOHL: Yes. t. CHERNIACK: Mr.

Chairman, I just want at this stage to ask if Hydro will be able now, or the very near future, lik e in the next couple of days, let us know the various proposals or lrnatives which Hydro presented to government on this entire que stion of rate freeze, because Chairman, the Chairman of Hydro told us tha t there were various alternat ives presented to rernment, government chose the one that has been announced. And I think it would be helpful this committee and to the Legisla tur e to know what the alternatives were . . CHAIRMAN: Dr. Wedepohl. . WEDEPOHL: Yes, Mr . Chairman, could I just confer with ... .

CHAIRMAN: Whil e Dr. Wedepohl is conferring with members of the Hydro staff, Mr . Domino told me tha t the Lion's Club are wanting to use the front steps for a ceremony and many of as members, have our cars parked nearby. 167

Public Utilities and Natural Resources Saturday, June 9, 1979 MR. CHERNIACK: Real adminis trative kerfuffle, isn't it? MR. CHAIRMAN: Well, we won't have a quorum, so we'll take a five minute adjournment. Committee come to order again. We have our quorum again and we can proceed. Or Wedepohl. MR. WEDEPOHL: In response to Mr. Cherniack's question, I have to make a correction here. had the situation reversed . The proposals were in fact from the government and Mr. Kean an1 Mr. Fraser were supplying information relative to those proposals, so we did not in fact make th proposals and I stand corrected.

I apologize for that. But one other point, Mr. Cherniack. I have a memo here which I would like to have read int the reco rd, together with a page of figures which might provide you with some of the inf ormatio relative to these alternatives. The memo is dated the 23rd of February of 19 79, that's this yea1 from Mr. Fraser to Mr . John Burns, and the associated table of figur es is dated the day beforE the 22nd of February, 19 79. This covers the period from 19 79 to 19 83 and gives a lot of th inf ormation that might help you to see how these projections were made. (See end of sitting fc memo.) MR.

CHERNIACK: If you will permit an int erru ption, if that is complicated, I'm wondering if "" could have a copy for the committee in sufficient time so tha t we could study it by Monday c Tuesday? Would tha t be possible? MR. CHAIRMAN: I was just going to say to the members of the committee, perhaps there photocopying equip ment on Saturda ys that is avai lable to .u s in the building and perhaps the cle1 can get them photocopied. But it's my un derstan ding that the pages referred to by Dr. Wedepo will be included in Hansard. Is tha t what you wish? MR. WEDEPOHL: This is what I had asked, yes. MR.

CHERNIACK: That's fine, Mr. Chairman, I'm just think ing tha t we may be coming Suppl ementary Su pply before Hansard comes to us and I think it would be helpful to have th before that. MR. WEDEPOHL: Mr. Cherniack, I'm not sure now where I have got to, I apologize. Have I finishE answering your question or not? MR. CHERNIACK: I would guess that with the inf orma tion being supplied to us, that we may ha• the answer, depending on what is contained, but that was intended to be my last que stion for tt series, Mr. Chairman. I want to thank Dr.

Wedepohl and other members of Hydro for their qui1 response to my questions. MR. CHAIRMAN: The next person on my list is Mr. Corri n. MR. BRIAN CORRIN: Thank yo u. Mr. Chair man, I think that I am probably about to reduce t level of discussion. As a noviti ate I would describe as being somewhat esoteric, and I might a1 that I have learned a great deal toda y in listening to the questions and responses made.

But I going to bring things down to perhaps a more practical level in that I want to ask some questio and stimula te some discussion relative to a situation which has come to light in the commun of North Kildo nan in the City of Winnip eg . I might add, Mr. Chairman, tha t it is qui te possblle t� this situation exists in other communities throughout the province. it's just tha t, because of recE circumstances that this particular situation has been dr amatized by a number of rather unfortun< events. This inv olves, Mr.

Chairman, the Manitoba Hydro arrangement to bring power to a cent transformer in the subd ivision located in the vicinity ff Molson Road in North Kild onan. I'm advis from newspaper reports and some discussions with people who are investigating the situation, t1 an agreement was signed in September of 19 75 between Ma nitoba Hydro and Engi neered Hom which company was the developer of this particular subd ivis ion. I would lik e to add, Mr. Chai rm; that this subdivision was buil t und er the auspic es of the Assisted Home Ownersh ip Program a is popula ted by people who quali fied for assistance thereunder.

I only say that to ind icate that thE people are not of a privileged financial status and are therefore, as a result of the situation tl has arisen, put in very difficult circumstances. 1 am advised that the agreement I referred to, and one of the first th ings I would lik e to a 168

Public Utilities and Natural Resources Saturday, June 9, 1979 Mr. Chairman, altho ugh it is surrounded with other remarks, is that consideration be given to presenting a copy of thi s agreement so that it can be perused and stu died . But I am advised tha t the terms of the agreement provided tha t Manitoba Hydro would simply bring power to a central transformer and that the dev eloper, Engi neered Homes, would th ereafter be responsible for provision of transmission of that power from the central transformer to the households in que stio n, right to the meter.

Apparently, because of a shif t in the ground within the subdivision, a central underground cable ruptured or broke, causing some sort of shor tage in the circuit, and apparently a complete power failure evolved from that particular situation. I'm told that resultant on that, because of the nature of the contractual arrangement between the developer of the subdi vision, whom I'm advised now owns no property wit hin the subdivis ion, and Manitoba Hydro, it was necessary that a private company install an above-g rou nd cable in order to afford restorat ion of the service to the affected homes.

Now, I am further advised that the people in the subdivision have been told that Manitoba Hydro is not responsible, which well may be the case under the terms of this contract, are not resp onsible for the repair of the cable line and I would in dicate that they have received an estimate ind icating that the repair will be in the approxima te amount of $4,000.00. Now, Mr . Chairman, this may seem ike a small amount, if we contem plate the size of the entire sub-div ision , but I'm told that currently )nly some six household units are actually affected by the cable's breakage.

So we have a situation Nhere six people really have an imminently vested in terest are put in a situation where they are Jeing asked to sustain the cost of repairs in the amount of $4, 000.00. As I ind icated earlier, Mr . :;hairman, these people are of limited financial means, and I am advised and inf ormed that some >f these people are simply not able to do that, they simply can 't afford to put forward the capital hat will put thi ngs back in normal working order. Now, having said all that, Mr.

Chairman, I have some very real concerns about this sort of trrangement, the contr actual arrangement that has been negotia ted between Hydro and this »art icular developer, and one of my concerns is very simply whether or not this arrangement is :ommon, whether or not this arrangement has been in duced in other communities and other .ituations. If that is the case, I must say I would be moved to suggest tha t Hydro consider the evision of its current policy in that regard. lt seems to me, Mr.

Chairman, from my read ing of his situation, tha t these people were not informed, or so it seems they would maintai n, they were ot informed by the developer or by Hydro, tha t the transmission of electricity to their homes would •e a personal respo nsibil ity. These people seem to be of the mind and impression tha t they were J be serviced in the normal fashion and in the usual course of affairs by Hydro.

Now, I'm further told that the developer has strenuously resisted any such inte rpretation and as ind icated tha t no repres entations were fraudulently made to these people in that regard, that 1e developer at no time ind icated that there would be hydro service direct to their homes beyond 1e transformer, the central transformer. But be that as it may, Mr.

Chairman, it would appear that, •hile there was no actual frau du lent misrepresentation there was simply no representa tions made t all, so that the people, having failed to ask the fundamental question, got no response, and terefore worked on an assumption and a premise which proved to be fallacious. So Mr.

Chairman, I was going to ask, and I have asked, that the Chairman unde rtake to table copy of the Hydro contract with the developer in order that we can see whether or IJOt - well, ·st of all , we can see what terms and provisions were inc luded therein - and whether or not 1e developer was un der an onus to inform and notify the residents of the subd ivision of thi s situation. would hope, as a matter of public polic y, Mr . Chairman, and I hope that the Chairman of the vdro Board, Dr.

Wedepohl, would agree, tha t it is important tha t the Util ity, being a public util ity, ·otect and safeguard the inter ests of the public in these sorts of situations.

And it occurred to e tha t one of the ways that could be effected and most efficiently done would be to simplyrrequire, the head cont ract between the Utility and the developer, that overt declarations must be made all prospective homeowners, to all prospective pu rchasers. lt seems to me that that would have forded these people the opportunity to kno w the situation and therefore, they well might not have 1en in duced to pur chase these particular homes. Mr .

Chairman, I would also indic ate tha t I am qu ite concerned about these sorts of arrangements ,ing negotia ted between Hydro and developers in any event, and perhaps it would be of inter est, d it would certa inl y be of in terest to me, Mr. Chairman, if some explanation cou ld be given by . Wedepohl, or any staff members present, as to why these sorts of contractual agreements are 1de with developers, and perhaps we could be advised in tha t regard as to the frequency of such ·angements in this regard as well. lt seems to me, Mr .

Chairman, that sou nd public policy dictates that the Utility should bear ;ponsibility for this sort of aff air. They should be resp onsible for the maintenance of li nes right the householder's door in these sorts of situations, situations involving new buildin g and 169

Public Utilities and Natural Resources Saturday, June 9, 19 79 wit hin urban areas, and I don't unde rstand why the Utili ty would negle ct to maintain that sort c respons ibili ty when dealing with developers inv olved in the construction of new subd ivisio areas. Having said that, I don't know if Dr. Wedepohl was able to chronicle the questions tha t wer int erspersed with the observa tions, but if he were so able, Mr .

Chairman, I would ask tha t he respon and try and give us some idea of what has been the case in the past and what pol icy dir ection and ini tia tives may be taken in the future to rectify this particular type of situation, prevent it fror happen ing again? MR. CHAIRMAN: Dr. Wedepohl. MR. WEDEPOHL: Thank you, Mr. Chairman . I'd like to make a few comments, and then I'd lik to ask our legal counsel, Mr . Funnel!, to give you the technical situation as it is.

I am aware of the particular problem you mention here, and as I under stand it, discussions ar tak ing pla ce between Engi neered Homes, Manitoba Hydro, and the people who are living in th; particular sub-division. But having said that, I would like to ask Mr. Funnel! if he cou ld respon to the contr actual side of the thing. MR. CHAIRMAN: Mr. Funnel!. MR. FUNN ELL: Wel l, Mr. Chairman, first of all, the arrangement that Mr . Corrin refers to is n1 unusual, as a matter of fact, it's very common.

With every one of its customers there is an agreemer or un derstan ding, as to the point at which the utility's res ponsibil ities end and the customer's begi and these resp onsi bili ties may vary from situation to situation, but th ere's alwa ys an unde rstandir as to where we fin ish and where somebody else begins.

In the particular instance, the contract that we had with the build er was qu ite clear, that t1 utili ty's responsibility ended at a particular spot - tha t is, the terminals of a transformer - ar from tha t point onward the construction of the facil ities thems elves was undertaken, not by Hydr but by the build er, using their methods, and so on, so forth, through their own property in fo llo wir the route and method that they wanted to. So it's in accordance with the normal routine that plant pla ced on a customer's pro perty normally belongs to the customer, and the customer lool after it. MR. CORRIN: Mr.

Chairman, through you to Mr. Funnel! then, I wou ld ask Mr. Funnel! if he wou ldr agree with me that the customer that he refers to in this case was not, in deed, the ulti mate custom1 being tha t it was the develo per, the buildin g contractor, Engi neered Homes. And Hydro, of cours presumably would have been aware tha t this particular customer was shortly to be in the proce of divesting title to all the parcels of land it owned within the subdivision to ulti mate residen ulti mate pu rchasers of the various plots. On that basis, if Mr. Funnel! would agree, Mr.

Chairman , that tha t was the case, I would a whether Mr. Funnel! wou ldn't agree with me that there shouldn't have been some provision, in t contract, whereby Engi neered Ho mes, being the prim ary consumer, no thing more, had to descri and give detailed information relative to this situation to the ulti mate consumers, the residen You see, Mr. Funnel!, throug h you, Mr. Chairman, my concern is that these particular homeowne and I suppo se many others in similar situations, are not aware when they pu rchase their properti that they will have this res ponsibil ity. it's in a sense a hidden cost.

And when there is an incidE such as has taken place in the Mo lson Road Subdi vision they're very hard pressed to make t necessary repairs very often by their financial situations, or could be very often hard pressed becaL of their financial situations to make the repairs. Now, these people are very obviously in tha t posit ion. As I ind icated, this is an AHOP proje all these people are to some extent su bsidiz ed with respect to their home ownersh ip, and < th erefore of limited financial means.

We also have a situation where, because the cable's breakB relates only to six properties, I'm told all the other residents in the area are sayi ng, well, tha your problem, you six homeowners are going to have to look after that yourself. And as I se $4,000 for people who are in this situation is a lot of money. And moreover, Mr. Chairman, I wo1 ind icate tha t there have been some expressions of concern by city off icials, CMH C offi cials, as v as the residents, of course, as to the safety of the present temp orary power situa tion.

TherE apparently, as I ind icated earlier, an above-grou nd cable that's been run to the houses, and t apparently is not consistent with national reg ulations, or for that matter, city reg ulations. I'm t it's in herently dangerous to have an above-grou nd cable servicing homes in these sorts circumstances. So on that basis, Mr . Chairman, I would ask why it wo uldn't be possi ble, for ins tance, for Hy1 170

Public Utilities and Natural Resources Saturday, June 9, 1979 to go in and effect the necessary repairs, if for no other reason than to safeguard the well-being of the adults and childr en who live in the subdi vision, and then perhaps we can sort out the legal problem later. Now, I know that as a lawyer I can say that tha t's not perhaps a solution within the confines of legal paramaters, and perhaps, being a lawyer I could suggest it would set a bad prece dent.

But nevertheless, as a legislator and as a person whose resp onsi bil ity is to protect people in jeopardy, I would sugge st that it seems to be imminently suitable, as at least a short term solution to a precarious situation. We can't have this go on much longer. lt just seems preposterous that thse people should be )Ut in this position with all these people, CMHC, the Engi neered Homes Development Company, l!lanitoba Hydro, the City of Winnip eg In spection Depar tment, all fighting and having meetings, while hey're living in jeopardy.

As I said earlier, I think that Hydro should simply make it a matter of pol icy tha t any such mangements as this tha t are unde rtaken with developers, building contractors, be subject to the ;ond ition that notice be passed on, dir ectly passed on to all prospective consumers. These people 1re forcibly arguing tha t they did not know this to be the situation, and frankly, Mr . Chairman, would tend to bel ieve them. IIR. CHAIRMAN: Could I interrupt you now and try and get an ans wer from the Hydro people tnd Dr. Wedepohl to a fairly lengthy question? IIR. CORRIN: Yes, I'm sorry, Mr. Chairman. tR. WEDEPOHL: Mr .

Chairman, while I have every sympathy with the points Mr. Corri n's making, e is a lawyer after all, and there are a considerable number of matters that he's ignoring when e says that we ought to be doin g thi s. We are discussing with Engi neered Homes this problem; •e're concerned about it; it is a serious problem. Fir stly, the re's a law of trespass. You can 't just go along and do this. We've got to look into 1at.

The second point is tha t the city of Winnip eg is resp onsible for inspections within the city f Winnip eg , not Manitoba Hydro, and so it seems to me that we have qu ite a complex situation are, which has to be solved in two parts. The one situation is to find out what has to be done :>out this particular problem, but I don't think it's particularly relevant tha t they are poor people. here is a proper process for ooing things, and while I feel very sorry for them and I do think s a sad situation tha t's happened here, it has to be properly looked at.

We can't just go along 1d repair that cable without properly discussing thi s thing and finding out who is re sponsi ble for hat. The second part of it surely must be dealt with as a future matter; that in future householde rs ust be informed what their responsibil ities and obl igations are, what the developer's is, and so 1. But I think in this case, in effect, Mr. Corrin is asking Manitoba Hydro to repair somet hing 1ich at this moment in time, I don't think is Manitoba Hydro's problem .

Now, that doesn't mean �·re going to ignore the problem, we are discussing it with Engi neered Homes, but I think that's much as we need say at the moment. R. CORRIN: In that regard and in response to Dr. Wedep ohl, I would indic ate that insofar as a possi bil ity of being charged, for instance, with trespass goes I can 't imagine that Engi neered >mes would be able to do that, simply because they, I am advised, have divested thems elves all in terest in this subd ivis ion; they have sold off all the parcels.

The only other proper ty owner the city of Winn ipeg who has imminent domain by way of public rig ht-of-way and so on. I'm vised that the proper ty owners would be delig hted if Manitoba Hydro trespassed and came on their properties for the pu rpose of fixing the underground cable. So I don't think tha t's a real ncern, Dr. Wedepohl, and I say that with respect. I do agree with you, for he the reco rd, Mr. airman, I do agree with Dr.

Wedepohl tha t the ultima te solution is one of policy and certainly ! only rea sonable policy is to make sure that through force of contractual law, that all such Ja tions in the future are made su bject to informa tion, thr ough the developer to the prospective ·chasers of the subd ivision uni ts. I didn't hear, Mr. Chairman, whether Dr. Wedepohl or Hydro or the util ity's legal counsel were ling to table thispp articular contract, the contract between Engi neered Homes and the utility made 'ltive to Mo lson Road and that subdivision. I'm advised that that was signed in September of rs, Mr. Chairman . .

CHAIRMAN: Perhaps we could get an answer from Dr. Wedepohl on that question now as whether they are in a position to table such a document. Dr. Wedepohl. ' 171

Public Utilities and Natural Resources Saturday, June 9, 19 79 MR. WEDEPOHL: Mr. Chairman, this is a private contract. I have to say I don't un derstand the protocol here today. Would you be requesting of us to table this contract, or what? I'm not qui te sur e what it is. MR. CHAIRMAN: The minister, Mr. Craik, resp onsible for Hydro suggests that we refer to Mr. Funnel!, legal counsel for Hydro, for an opinion. Mr. Funne ll. MR. FUNNE LL: Well, Mr.

Chairman, the contract is between Manitoba Hydro and another party, and normally we don' t make private contracts public without the consent either of the other party, or an order of a court, or other proper party. Now, if we're ordered so to do, tha t's one thi ng; but to volunt eer to make private contracts available is not proper. And, I think we would decline to do so unl ess the other party also approved of making this avai lable. MR. CORRIN: Mr.

Chairman, I'm fully aware that the Member for Fort Rouge was uns uccessful in his efforts to bring to the Province of Manitoba, through its Legislature, freedom of informatior legislation, and this particular matter is apropos of his and other members concerns in the pasl few years, in tha t regard, Mr. Chairman, but I would ind icate that it was my impr ession tha t Manitob� Hydro was a public utili ty, and in tha t impr ession I know that I am reinforced with some certaint) by the knowledge that tha t is in deed its stature and status. And, in that regard, Mr.

Chairman, I would indic ate that I thought that the pro cesses of review as they are currently proce eding, were designed and constructed to effect the very purpose, thE very pu rpose of freedom of information; and that they were designed to facilita te the expressior of that concept. And so, Mr.

Chairman, when I, as a public representative, ask the Chairman of the Board o that publi c Utility tO disclose a COntract Which bears COnSiderable relevance in tha t it inv olves thE well-being of taxpayers of this province, citizens of this province, I wou ld have thought tha t tha particular document would have been disclosed, and that we would have been appr ised of it: contents. And in so doing we wou ld be assisted in our efforts to secure the well-being of the peopl4 whom we represent. MR. CHAIRMAN: May I interrupt, Mr. Corri n? Mr. Green, were you wanting to discuss thi s specifir su bject? MR. GREEN: Yes.

MR. CHAIRMAN: Because I have two of your colleagues names ahead of you. MR. GREEN: Just on thi s su bject, Mr. Chairman, I just wondered whether there isn't a way i which the document could be given to the minister, and the minister prssent it to the member This wou ld have no thing to do with Mr . Funne ll's then position vis-a-vis the document being lE out by Hydro. lt would be given to the resp onsible minister and the minister would be able to giv it to the member, and I think he would give it to the member.

I gather tha t there is a contract where a supply of electricity with a private contractor, a developE who's now left the scene, which shows the terms upon which tha t Hydro and that developE developed this program electrically. The citizens are in trouble, and they are trying to recover, I gather. I'm sure tha t if Hydro · respons ib le they won't want to avoid payment. I don't think tha t they are respon sible from wh< Mr. Funnell said, but avai labi lity of the contract might help the citizens recover, and I would real urge that ther e doesn't appear to be any reason.

If Hydro's re sponsible to those citizens then thE should even be willing to say: "We are not respo nsible, but if you sue us here is the material 1 would expect that Hydro would do tha t with citizens, but I would think that Mr. Funnell can ma� the contract avai lable to the minister, and Mr. Chairman, I would hope that the minister would ma� it available to the member. My whole position on freedom of information is based on the fact tha t he will do so; if he doesn my friend Mr.

Corrin is going to raise hell with me and I'm going to raise hell with the governmer I really don' t see why the government would want to keep from these citizens the terms ar conditions upon which hydro was supplied to that developer. I can un derstand Hydro not wish in perhaps, to give it to the member on the spot, but the minister re sponsi ble can get it and I wou urge him to get it and see whether he cannot give it to the member who wants it. MR. WEDEPOHL: Mr . Chairman, for the reco rd, I will ask Mr. Funnell to make this available the minister on Monda y, make the contract available to the minister. 172

Public Utilities and Natural Resources Saturday, June 9, 1979 MR. CRAIK: Mr. Chairman, there's only one reservat ion about it and it would be the same one I would have to honour that Mr . Funne ll's concerned about. If it inv olves a second party, the time honour ed procedure in government has always been to ask for the consent of the third party MR. GREEN: No, sir, only when it's the government, Mr.

Chairman, only when it's the government; the government will have the authority to make that document available, or not wait upon it, on its respon sibili ty, and it will be able to look at that document and see whether it wants to make it avai lable, and then we will argue about it. But the rule re quir ing consent of the other party - I'm sure Jarmoc would not have given consent to the release of his document - relates to another gover nment, relates to the Government of Canada or another government. MR. CHAIRMAN: To Mr. Green and Mr. Corri n, Dr.

We depo.hl has sa id, for the record, that Hydro will release the document to the Min ister responsible for Hydro, and perhaps the two of you can take up issue with the minister at the next sitting of the Legislature. Shall we move on from that topic? Mr. Cor rin, do you have any further ... ? MR. CORRIN: No, Mr . Chairman. Thank you very much. MR. CHAIRMAN: Mr. Wal ding. MR. WALDING: Thank you, Mr. Chairman. I have one or two questions to ask. Firstly, I just wanted to get qu ite clear in my mind this matter of reserves tha t we were speaking of this morning.

The report showed, I believe, general reserves, I suppo se these are rate st abili zation reserves of some $50 million which you said had been incr eased by another $8 or $10 million over the year. I'd lik e to ask in what form are those reserves? Is it simply cash in the ban k in a particular acco unt? MR. McKEAN: I n most cases, the reserves are inv ested in plant, in other words, what we realize in reserves we decrease our borrowings so, to all intents and pur poses, we don't try and claim reserves. Now, I don't know whether tha t exactly ans wers your question or not. MR. WALDING: I belie ve it does.

And I'd lik e to know whether that is different from the reserve that you had set up for foreign debt amor tiza tion. III R. McKEAN: Yes. First of all, to amort ize the foreign debt what we intended to do, and we didn't :Jo it because of what happened, would be to gradually incr ease our liabil ity over the remaining erm of the debt in order to get it up to the figure that's got to be paid off the debt. So to that Joint of view, really our liabil ity for debt is stated at the amount we borrowed at the date we Jorrowed.

The amount we've actually got to pay will depend upon the amount that's payable at naturity, depending on what the exchange rate is, and this question of amortizing this over the ife was a proviso to try to gradually in crease tha t liabili ty. So I think I would call the amortization >f debt is a rec ognition of an uns tated liabili ty and, as such, I cou ldn't call it reserve, a general eserve of the corporation. Now, I obviously haven't made myself completely clear, but IIR. WALDING: No, there was an amount of $10 0 million appr oximately given ... IIR.

McKEAN: Yes, the $1 00 million that we wer talking about is in the statement you have before ou, at 31s t Mar ch, 19 78, you 'll notice that our reserves amounted to $50,350,000 at that point. Ve have est imated that our addition to reserves for the cu rrent fiscal year that just ended at 31s t �arch, 19 79 would be an additional $45 million. So tha t 45 added to that 50 comes to just over 95 million, which is roughly the 10 0 millio n that is being talked about. IR.

WALDING: But I want to know where tha t $45 million the form in which it was - is it simply n entr y on your statement, is it cash in the ban k, is it the same form of reserve as the other �serve tha t you mention? IR. McKEAN: it's ... 173

Public Utilities and Natural Resources Saturday, June 9, 1979 MR. CHAIRMAN: Perhaps for the betterment of all concerned, we could take a shor t recess un less Mr . Walding wants to compete with the band. MR. WALDING: it's a conspi racy, Mr. Chairman. MR. CHAIRMAN: ... and hope that we don't have too many more band practices this afternoor at the back part of this building. Mr. Wal ding, you were in the midst of a question. Would you like to continue? MR. WALPING: Mr. Chairman, I'll rephrase it and try again. The two reserves that you mentionec to us, Mr.

McKean, one being a rate stabilization reserve and the other one a reserve requi rec for foreign debt amortiza tion. Are those fu nds in the same form? MR. McKEAN: They're in the same form at that point. I think the difference is that the genera reserves I'm talking about are the reserves that are avai lable for the general well-being of Hydro the amortization of foreign debt would have been the setting aside of funds for the futur e repaymen of debt at maturity on the expectation tha t it would cost us more to pay back that debt at tha point than the amount tha t was recorded in our . . . MR.

WALDING: I realize tha t you have them for different pur poses, but they are presumably bott an asset, and I wanted to know in what form was that asset? Is it simply cash sitting in the bank' You've told us that one is not. MR. McKEAN: lt would be to a large extent an excess of cash, which we don't leave in the banl ordinarily because of the fact that we are carrying on on going borrowings.

Mo st of our reserves instead of putting in in the bank we decrease our borrowing, so in effect, it's in vested in plant In order to turn it into cash at a later date yo u've got to go out and borrow, but we do not tunc our reserves as such, we decrease our borrowings. MR. WALDING: That doesn't su rprise me. MTS does the same thing, I unde rs tand. A slightl different topic. it's been suggested tha t there is an excess capacity by Hydro, and that is one reason why th, Limestone plant has been, not cancelled, but frozen ir you like.

Can you tell me if there is exces capacity, how is it measured and what is the amount? MR. WEDEPOHL: Mr. Chairman, by excess capacity, are you talking about power or energy becaus there's a difference? MR. WALDING: Perhaps you can explain the difference. I've only seen it lis ted as excess capacit for Manitoba, and I've seen figu res like 20 and 25 per cent, but Ontario has 42 percent. MR. WEDEPOHL: Wel l, there's a difference.

If you take a motor car, by way of analogy, a mote car might have an engine rated at 300 horsepower, and tha t is its power capacity; but the amour of energy you can get depends on how many times you fill the gas ta nk. In other words, if th gas tank is empty you can 't get any energy out of it, but you've got a power capacity. And yo can talk about srrplus power capacity, or you can talk about surplus energy capacity, or defic of both those quantities.

Now, I think the current situation is that we probably, in terms of capacity - let's talk abOL power capacity first of all - the reason tha t you need a certain capacity is that at peak time: wintertime usually for Manitoba, people want energy, but they all want it at the same time, so yo have to have the power to provide that energy. This means in the summer time you might we have a surplus power capa city. I'll ask Mr . Fraser in a moment to tell you what the cu rrent situatic is there.

The energy situation is very much more complex because you might well find tha t th year w� have got a surplus energy capacity, but two years ago we were in deficit; we were actual ru nning thermal power stations and importing nuclear electricity. So there we are, dependent c the vagaries of the weather. So it's very difficult to talk about an ongoing surplus energy capaci without coupling it with the prevailing water conditions at that particular time. But having said tha I'll ask Mr. Fraser who will probably have some specific nu mbers to give you to explain just whe1 we're at at the moment. MR.

FRASER: Yes, Mr. Chairman, I have just been handed the sheet that shows that as of tt 31s t of March, 19 79, the total winter capacity in Manitoba was 3, 657 megawatts, and the pe< 174

Public Utilities and Natural Resources Saturday, June 9, 1979 demand last winter was 2,419. This refers in Dr. Wedepohl's analogy to the housepower of the automobile. MR. WEDEPOHL: Mr . Fraser, was that the Manitoba peaked amount? -(Int erjection)- Yes, that figure of 2,4 00 refers to the Manitoba peak. On top of that, we would have had the export prev ailing at that time to Ontario, Saskatchewan and the U.S .A. MR. CHAIRMAN: Mr. Wa lding. MR. WALDING: So would it then be true to say that there is an excess capacity in Hydro, but that they are able to sell most of that excess in export markets? MR.

WEDEPOHL: I think the ans wer to tha t is yes, in the main. I'm sorry, 1 stand corrected, the tie line is li mited in capacity, it's 530 megawatts at the moment, but from next year onwards, that rest rictions will be removed because we pick up another 1, 000 megawatts of tie line capacity to Minn eap olis. MR. WALDING: Is the reason for the holding of the construction on the Limestone Dam tied in with this excess capacity? MR. WEDEPOHL: Yes, the load forecast for a period of years was relativ ely stationary. lt was growing very very slowly.

Now, when you plan a power system, you work on a 10- year forecast, so if because of the length of time to plan and construct and get into operation in your plant, so, if du ringthat period, once you have committed, you have ordered the plant and your load stops growing, which is what happened to us, you are then going to have a surplus capacity. This is exactly what happened to Manitoba Hydro. We experienced a number of years of very low load growth. MR. WALDING: Could you put tha t excess capacity into percentage terms for me? MR. WEDEPOHL: This would be the power capacity now? MR. WALDING: Yes. MR.

WEDEPOHL: Our surplus is about 800 in a total of 3,600. -(Interject ion)- Yes, our peak demand was 2,4 00, just over 2,4 00, and our capacity was 3,600. Now, of course, you would never want a situation where your peak demand was equal to your capacity, because you would then have no contingencies for outages, maintenance, various other unforeseen factors, and you do need some reserve capacity always. Every power system needs that and it depends on the utili ty; it can vary between 12 and 15 percent as a normal design target. We'r e somewhat beyond that. ""'R.

WALDING: Twelve to 15 percent is considered the sort of safety margin; would that be a ·eas onable term? ""'R. WEDEPOHL: Well, it's one that you try to design to, but it's almost impossible to achieve, )ecause either your load growth tends to be too high or too low. lt's almost impossi ble to forecast )recisely what your load is going to be at a particular time. But that would be a sort of in itial design igure. III R. WALDING: What figure would Hydro be sitting at above that? How much higher than the 12 to 15 percent? IIR.

WEDEPOHL: Well, I haven't got it calculated, but it's about what? 25 percent -(l nterject ion) 'es, it depends how you do the calculation. Percentages are funny thi ngs. lt's a surplus of 1, 200. I you take it of our peak demand, it's 50 percent, and if you take it of our total in -store capacity, 's 33 percent. In other words, you can either take 1, 200 as a percentage of 3,600 or 3,400. If ou'r e taking it as our peak demand this year, then it's 50 percent. ,R. WALDING: Are you familia r with the Ontario figur e tha t I quo ted to you of 42 percent? IR.

WEDEPOHL: I had heard it; I didn't know it as explicitly as that. 175

Public Utilities and Natural Resources Saturday, June 9, 1979 MR. WALDING: How would the Ontario figure compare with Manitoba's figur es, on which basi� of calculation? MR. WEDEPOHL: I don't know how they did their calculation. MR. WALDING: I assume that that excess capacity might be good as of this year, but as timE goes on, that it would become a lesser figure until you have to build a new dam to ... MR. WEDEPOHL: Yes, indeed, our load is now definitely showing signs - our domestic load i� showing signs of growing. I mentioned the figure of 9 percent.

Now, we have to watch that becausE tha t's a figure for one month specifically and it might turn out to be an aberra tion, but if then is an upturn in the economy, the in dustrial sector, then our load will gro w qu ickly. MR. WALDING: You mentioned tha t Limestone's completion date had been put forward from - I've lost the note that I made - from 1981 to ... MR. WEDEPOHL: From '84 to '87. MR. WALDING: The '84 completion date, was tha t before the project was froz en? MR. WEDEPOHL: Yes, that's correct. The present forecast of '87 meant no further work for th1 time being. MR.

WALDING: lt would indic ate th ree years when there is no work done on the project. MR. WEDEPOHL: Yes, that's right. MR. WALDING: What was the total cost of Limestone on the '84 date of completion? Do you hav' a round figure? MR. WEDEPOHL: Mr. Chairman, could I ask Mr. McKean or Mr. Arnason. MR. CHAIRMAN: Mr. Arnason. MR. ARNASON: Mr. Chairman, it would be $1. 2 billi on, based on 19 84-85 in -service date. MR. WALDING: And do you have an estimate on the cost of the same project for the '87 completio date? MR. ARNASON: $1. 5 bill ion. MR. WALDING: Is that in constant dolla rs? MR.

ARNASON: That's in 19 87 dol lars, actual dolla rs. MR. WALDING: So we are looking then at an additional cost of $300 million for delaying the proje< by three years? MR. ARNASON: Yes. MR. WALDING: Perhaps I can ask your personal opm1on, Dr. Wede pohl, after your remarks 1 us this morning about in creasing the capacity and exporting all that we could, whether this is rea sonable cost to assume or whether Hydro should be going ahead and saving the $300 millic and exporting the additional electricity as an earlier time? MR. WEDEPOHL: I think you know what my sentiment is.

I would be in favo ur of committing now because of my certainty of the political situation with regard to oil and nuclear. The fact, howeve is that as Chairman of the Board of Manitoba, and the-Board looking at the Act as it current stands, we have no commitment to export power and we would be breaking the Act if we, as Board, were to co mmit this power station when we didn't need the power in Mani toba. So it wou have to be a decision ... If we're ahead of our load demand in Manitoba we were to comrr Limestone Power Station, it would have to be on dir ection from the government because that pow 176

Public Utilities and Natural Resources Saturday, June 9, 1979 could only . be used, at the moment, could only be exported to the U. S. A. or to other provinces and we are not covered in the Act by that. MR. WALDING: Do you have requests from American power compan ies now to supply more power, if i were available? MR. WEDEPOHL: I think the answer to that is probably yes. The current situation - but I don't know at what price because thi s is the $50.00 question. I do know that on several occasions when I have been to the States they have been a serious deficit position.

On the most recent visit I made to Minn eapolis, Chicago was short, Minn eapolis was short, and so was Nebraska. So I think that the politics is such, but this is something I can't determine. I'm expressing an opinion now as a person rather than expressing Boad Board policy. I belie ve that the politics in the States will be such that from henc eforth, if they can keep a barrel of oil in the ground, they will do it, and the action of us se nding them electricity is keeping oil in the ground. MR. WALDING: I follo w the argument. I think it's a good one.

I would like to ask also, st ill with limestone, do you have an estimate of the cost of stopping the project there? Are there direct costs in volved in mothb alling the project, to use that expression? MR. WEDEPOHL: I think there are di rect costs, Mr. Chairman. May I again confer with my ::: olle agues? I'm sorry, Mr. Chairman, wesd on't have figures on that.

There is definitely a direct cost att ributable to freezi ng the project because, as you may know, we did in ititally start some prepar atory Norks in the form of the coffer dam, so there has to be a cost associated with the stoppage, but 'm not sure how much it would be. VIR. WALDING: The cofferdam is in pla ce, is it? VIR. WEDEPOHL: Yes, it's not complete thoug h. The first off coff erdam, I think, is more of less :omplete. Mr. Fraser has just alerted me that probably the most important direct cost would be he in terest on the work that has already been committed, in other words, the mone y tha t's been :pent.

IIR. WALDING: Which amounts to how much? IIR. WEDEPOHL: I belie ve it is $94 million. We 'll check that but I belie ve it's somewhere in that �R. WALDING: A further question along thos e same li nes. You mentioned that the townsite .ssociated with that project had been abandoned or ... ? �R. WEDEPOHL: No, it's being mo th balled . tR. WALDING: Mothballed. What would that consist of? IR. WEDEPOHL: Again, I'll have to ask advice on that. IR. WALDING: Are we speaking of permanent buildi ngs or trailers? IR. WEDEPOHL: Permanent. I think they have just been boarded up, just generally protected 1sofar as we can . IR.

WALDING: Is Hydro assu ming the maintenance costs of the townsite, fire protect ion, vandalism 1d this sort of thing? R. WEDEPOHL: Yes, well, it's our property. I don't know in what respect; there's going to be ini mal staf fing there in any case. R. WALDING: What is the extent of fire protect ion on the townsite? R .. WEDEPOHL: I'd have to take tha t ... We are just going to check on that. Mr. Wa lding, the rure is $96,41 6,000.00. 177

Public Utilities and Natural Resources Saturday, June 9, 1979 MR. WALDING: That's the cost of mothb allin g the project? MR. WEDEPOHL: No, tha t's what has been paid out so far in the cofferdam downsite, and variou� other works that have to be put in place there. MR. WALDING: And what are the annual costs associated with that freeze, other thar in terest? MR. WEDEPOHL: May I just confer for a moment? MR. WALDING: If you don't have it available ... MR. WEDEPOHL: I think I've got a rea sonable figure here. The annual cost - this is apart fron int erest - is $300,000 a year, in tha t order.

There is a security force there; there is a fire hal and a fire engine, and the security people would man the fire engine if it was needed. MR. WALDING: On a dif ferent topic, Dr. Wedep ohl, I would lik e to ask you about the exports o power to the Un ited States and ask whether the contracts or agreements with those power companie: are in American dol lars or in Canadian dol lars? MR. WEDEPOHL: They are in American dolla rs. MR. WALDING: So you would expect to receive about 20 percent more than that in Canadia1 dolla rs? MR. WEDEPOHL: Ind eed, and that's what's happen ing. MR.

WALDING: So in that particular ins tance the exchange rate is working in your favo ur, a oppo sed to working agains t you as far as the bonds are concerned. MR. WEDEPOHL: This is qu ite correct. Yes. MR. WALDING: One of ymur col leagues said that he would lik e to have it both ways. I'd like t ask you whether the government is taking over the gain in that devalua tion, in the same way th� it's taking over the cost of the borro wing. MR. WEDEPOHL: No, the money is coming back into operating ... MR. WALDING: So as far as that goes, you're get ting the best of two worlds in tha t particul� regard. MR.

WEDEPOHL: Inde ed . MR. WALDING: These sales to American power companies, are they for fixed lengths of time, c are they sold on a day-to-day or a weekto-week basis? MR. WEDEPOHL: Mo st of the money we're making is on an interrupt Mble basis. lt's an ideal fon of selling. In other words, it's negotia ted by the hour; the sale price is negotia ted early, and VI can interrupt them without notice. Now I would ask, Mr . Chairman, if Mr. Fraser cou ld add to thi because they are the sorts of agreements and can relate to diversity, and so on. MR. CHAIRMAN: Mr. Tishinski, do you wish to add some additional information.

MR. TISHINSKI: The way the system works on these extra-provincial sales is that a purchasir utili ty will make known to Manitoba Hydro approxima tely 24 hours in advance their needs for tt following day, so that we may be in a position to

schedule genera tion, or bring into line as require Now, thi s is with the full unde rs tanding tha t the supply can be curtailed, and in cases of < emergency, be at a shutdo wn in our system , or for reasons of that type. Now, the prices can also vary on an hour by hour basis, but we have a good idea 24 hou in advance what the price will be, but this is what happens in practice. Twenty-four hours in advan1 we know what it is, but we could legitima tely change the price even with an hour's notice, but usua this is not done on an hour's basis. 178

Public Utilities and Natural Resources Saturday, June 9, 1979 MR. WALDING: To refer back to all the comments that you made this morning, Dr. Wedep ohl, about tieing the cost of export power with some sort of escalated clause to the cost of oil, now how does that square with what I've just heard about a negotiation for power rates from day-to-day, or even from hour-to-hour? MR. WEDEPOHL: We're talking about two different thin gs here. What we're talking about here is, as I say, it's really in a way an ideal situation, but it's only ideal because we're in a seller's market.

The U.S. badly want our electricity and we can supply it to them, and the y'll take as much as we can get. Now, there the escalato r's in buil t because those prices are negotia ted on the basis of the cost of them bringing a thermal power station onstream, rather than buying hydroelectricity from us, and we share the advantage on the difference between the two because once we've got our system in pla ce, we don't pay for fuel. There's a small incr emental cost in raising power, say, at Kettle Rapids or Long Spruce.

They, on the other hand, may have to bring in an old, or rather in ef ficient thermal station and they've got to pay for the fuel, which is escala ting, and the price tha t is agreed is based on the average between our cost of generation and theirs. We take the mean figure. And so, if the price of oil has gone up, then the cost of bringing that power station up is going to go up, and automatically the price goes up. What I was talking about thi s morning was a fixed price contract. I think, with hindsight, it was very unwise of B.C.

Hydro, I think, to negotiate a 75 year contract to sell electricity to Portland Bonneville Power Administration fo r two mills for 75 years, and that contract's got probably more than 60 years to run. Now tha t was the kind of contract where I felt that it would be ess ential, if you were goin g to go into a firm contract for a given sale of power, that there had to be an escalated clause on the cost of electricity. Otherwise, as inflation comes along you 'd be really in a very poor situation. MR. WALDING: But you're not talking about fixed cost contr acts. MR.

WEDEPOHL: The kind we're talking about here is the kind where automatically the price is �oing to fluc tuate with the price of fuel. We do have fixed price contr acts with Ontario. I think this s for a period of - how long, Mr . Fraser? III R. FRASER: 19 82. III R. WEDEPOHL: 19 82. it's a five year contract, a five year contract. So there we negotia ted a ixed price but for a comparatively shor t period of time. III R. WALDING: Okay. I'd like to ask you about a slightly dif ferent topic now, also having to do vith rates.

There was reference in the Budg et Speech this year that one of the effects of the Hydro reeze would be that Manitoba's rates would be back around the lowest in the country. I belie ve hat was the phraseology, without any thing definite. The last figures that I heard, I think came from �ydro at a recent meeting of this Committee, which ind icated to my memory tha t in 19 65 Manitoba's ates were the thir d lowest in the country, and as of 19 75 they were the second lowest in the country.

Jow, do you have figures for more recent years than that, and can you . give me an idea of just 10w Mani toba stands in relation to other provinces? III R. WEDEPOHL: If Mr . Fraser could IIR. CHAIRMAN: Mr . Fraser, please. IIR. FRASER: Yes. Every Utility has a different

schedule of rates, and if you compare in dustrial ates from one province to another, and different size of customer, and different characteristics ,f load , you 'r e going to get a different answer. We feel that basically we're st ill about the second >west price, taking every thing into account. Now, you can find, if you make a comparison on 3Sidential you 'll get one comparison; if you make it on commercial sales, yo u'll find another one; you make it on large power, yo u'll find another, but if you average them all over, we think that re're still second place. IR. WALDING: Is that as of this year, or '78?

Which year are you ref erring to? IR. FRASER: As of today. And that's another thing. it's a good point tha t you raise, that everybody hanges rates on a dif ferent part of the year, and if you compare as of one month, it may change; 179

Public Utilities and Natural Resources Saturday, June 9, 1979 say, April might be different from August, and so on, because everybody will change and they've all been going up and one will leapfrog over the other, and so on. MR. WALDING: Yo u'r e tel ling me then that as of June of '79 that Manitoba has the second lowes· rates in the country? MR. FRASER: Without being specific, and I'm saying overall average, that's our feel ing, yes, MR. WALDING: Would Quebec Hydro be the lowest? MR. FRASER: Yes. MR.

WALDING: lt was ind icated to us when those figures were given before, that tha t was expectec to change when Quebec Hydro started paying the costs of its $3, $6, $7 bill ion of debt req uir ec to finance the Ja mes Bay project. Does Hydro st ill feel the same way? MR. FRASER: Yes. Quebec has announc ed a series of rate incr eases for the next three years I just can 't bring them to memory, but they're lik e 13 percent and 10 percent, numbers li ke that and they have announc ed that there will be these incr eases for the next th ree years. MR.

WALDING: Would you expect after tha t three years then, that their rates would be highe than Manitoba's rates? MR. FRASER: Again, I think we'll have to wait and see how they're applied, and how this overal average comes out. I really can't give you a comparison. Their structure is really quite dif feren from ours. They have a flat province-wide rate. lt doesn't have any geographic changes the wa; ours does, and the structure of their indus trial rate is somewhat differ ent, so I really can't ans we that. I'll have to see how they apply the numbers. MR.

WALDING: Is their average rate then tha t much lower than Manitoba's that it would nee< to come up, you know, by qu ite a large percentage before it comes close to us, or is there no very much dif ference at the moment? MR. FRASER: We're going to have to guess here, but we're guessing that they're some 15 t< 20 percent lower at the moment.

Now, if that holds, with the announc ements they've made, tha should support the statements tha t you've heard earlier, that at the end of five years it would no be unreasonable to expect that perhaps ours would be lower than theirs, but you have to realiz1 that there's a lot of speculation in that between now and then. MR.

WALDING: What you're telling me then is, if Manitoba is st ill the second lowest, as it wa in 1975, that all the other provinces must have been raising their rates at least the same amoun as Manitoba is, if we were to retain that position, whether or not they have a Conservative, or ' Liberal, or an NDP Government, whether they produce electricity by coal, oil, or Hydro rates. MR. FRASER: They've definitely all gone up.

Now, perhaps they've closed the gap against us, i the kind of thing that I just can 't tell you of fha nd, but definitely they have all been experiencin' a series of incr eases, and of course the unfortunate areas of the Maritimes, where the y'r e dependen on offshore suppli es of fossil fuel , theirs have gone up much more rapidly, and there has beer some dislocation, if you li ke, in the hierarchy or the sequence of rates across the country, but the have definitely all been going up, with the exception of Quebec, have gone up a very modest amoun· but then their big in crease is yet to come. MR. WALDING: M'hmm.

I have two more fairly short questions, Mr . Chairman. I'd lik e to ask aboL the migration of Hydro's computer work to Manitoba Data Services. We were told by the Telephon System tha t this migr ation should be completed by autumn of this year anyway. I would lik e t ask Dean Wedepohl if he can tell me whether it's all of Hydro's computer capacity, or is Hydr retai ning some computer capacity to handle its monitoring of its production capacity? MR. FRASER: Yes, Mr. Chairman.

The workload that will be migrated to the Manitoba Data Service is primarily what we have referred to as data proce ssing. lt does not inv olve what we would classil as process computing work, that is, having to do with our system operati on, or the actual operatio of ind ividual generating plants. That will be retained in -house. 180

Public Utilit ies and Natural Resources Saturday, June 9, 1979 MR. WALDING: I have heard that Hydro did a study on its computer capacity and its computer rates and costs recently, and the information was sent to Hydro's Board tha t there would be a cost involved in thi s migr ation of several million dol lars. Can you enlarge upon this. and tell us whether that was an accurate figure and whether it was accepted anyway? MR. WEDEPOHL: Mr . Fraser, if you could take that one, please? MR. FRASER: Yes, Mr.

Chairman, Hydro did commission a study. lt was actually done by a consultant with a good deal of in put from our people, and to a large extent this was based on projections as to what might happen , what costs we might entai l, and so on, and it did show tha t from Hydro's ind ividual point of view, it looked lik e it would be less costly to make separate arrangements and to go with Manitoba Data Services.

This was reported to the government, who have re sponsi bili ty for Manitoba Data Services and all the others, and it was further studied, in conjunction with the requirements of the other departments, and the decision then was that the migr ation would proceed, and that's what is happe ning. MR. WALDING: So the decision to proceed with that migration was not a Hydro decision, it was a government decision. Would that be correct? MR. FRASER: That's correct. MR. WALDING: I see. Thank you. I want to ask now about the work that Hydro was inv olved in as far as the Tritschler Commission Report was concerned.

I un derstand tha t Hydro produ ced a good deal of paper work, copies of reports, etc., for that Commission. I would li ke to know if Hydro has any estima te of the cost inv olved in paper work, in time, and various other requirements required by tha t Commission? MR. CHAIRMAN: Can we just take a moment and let the Hydro people confer? Mr. Wal ding, it must be your British background that brings these bands out when you're asking questions, is it? MR. WEDEPOHL: The estima te today is about $600,000.00. MR. WALDING: $600,000.00.

Do you have a breakdown of that $600,000 as to how much was in time and how much was in other materials, and can you give us an idea of what the load of paperwork was that the Commission req uir ed of Hydro. MR. CHAIRMAN: I think it would be wise if we took another, hopefully, shor t break. Could we reconvene. Mr. Wa lding, I think Dr. Wedepohl and his staff people got most of your question over the noise, so maybe he can answer it now. '-'!R. WEDEPOHL: Mr. Chairman, we don't have the figur es with us here. The cost of paper would )e relatively insigni ficant.

Mo st of tha t cost will be labour and legal fees, in other words, corporation :;taff time and legal fees. �R. WALDING: I'm told that there was a lot of dupl icating work done for the Commission. �R. WEDEPOHL: 1 did ask that question of one of my colleagues, and they said tha t in fact it von't be a sign ificant cost. �R. WALDING: I'd like to ask you now whether Hydro is assu ming tha t $600,000 in cost or whether hat is to be charged to the Commission. t'IR. WEDEPOHL: Mr. Chairman, 1 don't know the answer to that question. I think we would probably tssume that. IIR. WALDING: No further questions at the moment.

IIR. CHAIRMAN: Mr. Doern. IIR. RUSSELL DOERN: Mr. Chairman, I just had a few questions. One is on the propo sed Canadian 181

Public Utilities and Natural Resources Saturday, June 9, 1979 power grid, I just wonder ed if the Chairman had any comment as to the reality of that prospect. I assume it's been talked about for at least 20 or 30 years. Given what I un derstand are Ontario power surpl uses, et c., etc., does it seem that tha t is something we can expect in the near future, or is that a long term possi bil ity? MR. WEDEPOHL: Mr. Chairman, I'd have to specula te on this, I just don't know. I've not been party to any of the detailed discussions.

I do kno w that there's been a commission studying this, and this has been reported by the Mini ster. I think there will be an east-west power grid eventually, but one has to be so speculative about this because it depends on many factors. For example, it could depend on the Al berta government as to how they view their oil. Are they going to charge it at today's prices, or are they goin g to assign a much higher cost to keeping their oil in the ground. So I just don' t know, it could happen qu ickly or it cou ld take a long time, and I think it's a matter of speculation as to when. MR.

DOERN: So when you, yourself, view the potential market in the United States, then I assume tha t that is a real thing with great prospects,

whereas the Canadian power grid is either not fea sibl e at this time or might be longer term . MR. WEDEPOHL: That's not so. Again, you're asking me to speculate. lt depends, I think, very critically on the viewpoint of various provincial governments, and how they're going to view their fossil reserves. So I think it is fea sible, but when it will take place I don't know. MR. DOERN: Is it true that Hydro in Ontario does have considerable overcapacity? MR. WEDEPOHL: Ontario Hydro? MR. DOERN: Yes. MR. WEDEPOHL: I can 't answer that. Yes, apparently so. MR. DOERN: I'm looking at an

article in Maclean's, Janu ary 29th, and they indic ate tha t they havE an excess tha t's bound to continue for a decade. Does Manitoba Hydro have any plans for nuclea1 plants? Or did you have any? MR. WEDEPOHL: We did have plans, but that was based on the forecast which started to turr down in 19 64, so that the nuclear division was disbanded for the indefinite future, now there arE no plans. If there was a sudden upswing in load, it would have to be a fairly big one, then tha! might be reactiva ted . MR.

DOERN: Would you say that the experience in the United States has even made that morE remote, the Three Island, or whatever it was called , experience or any thing? MR. WEDEPOHL: Wel l, you 'r e asking me to speculate again, Mr. Doern , but what I would say i� this, tha t there might come a time when yo u'd have to choose whether you're going to freeze tc death or have a nuclear power station. MR. DOERN: Freeze to death or try to death. MR. WEDEPOHL: Well ... MR.

DOERN: The other question I wanted to ask you was, over the years there have been variow policies in pla ce about adver tising and promoting the use of electric power in the province. At on1 time it was, 1 supp ose, promoted or highly promoted, then I belie ve there was a dir ective issue< to cease and desist. What is the present policy of Hydro in that regard? Is there an attempt bein! made to promote the gr eater use of electric power by consumers? MR. WEDEPOHL: Mr . Chairman, could I ask Mr. Fraser what the current status is? MR. FRASER: The present pol icy is as neutral as we can possibly make it.

We have been adver tisin! at countr y fairs and various other places about the benefits of adding insulation and the benefit of utili zing all forms of energy, including electricity, as ef ficiently as possible. You asked specificall' whether there was any attempt to influence the in creased use, and it isn't intended for that pu rposE 182

Public Utilities and Natural Resources Saturday, June 9, 1979 it is really,. as I say, it's as neutral as we can make it, trying to stress the benefits of using energy as wisely as possible. MR. DOERN: Does Hydro, for example, I guess at one time, as I understood it, Hydro was encouraging people to su bstitute electric heat for gas and oil. I belie ve that was a policy, or if not it was an impres sion, and I'm just wondering, in view of the oil crisis and some of Dean Wedepoh l's comments this morning, et c., whether tha t pol icy might be reviv ed, or is it jus t not economic, even at this point? MR.

FRASER: There's a fair amount of activity around the countr y towards rev1vmg it as you suggest, I think New Brunswick is probably the most active location for this, but there has been no change in Mani toba Hydro's position yet. We're sort of waiting to see what others do. At the moment we are st ill maint aining a neutral position. MR. DOERN: I wanted to ask Mr.

Wedepohl again, given his statement this mornin g where he seemed to indic ate that in the last few months or six months there's been a dramatic situation in terms of oil supplies and oil shor tages, whether you would favo ur a strong pol icy of substituting electric power for gas and oil wherever possible. MR. WEDEPOHL: I don't think so. Not at thi s time. it's going to come, by the way, there's no qu estion about it, it's a matter of when. The situation I was talking to really related to the beleaguered situation in the United States.

The current situation in Canada is tha t it appears as if our gas reserves are goin g to last a fairly long time, and the price of gas is going up but not by leaps and bounds the way oil is doing. So that in the Manitoba context, if we were to start promoting electric heat I think we might cause a certain amount of irritation at the moment, because I think if you compare like with lik e, a house that is insula ted to the same standard, same lifestyle of two families, I think it's considerably cheaper at the moment to heat by gas.

Over a period of five years, of course, gas is going to rise in price and electricity is goin g to be frozen, so that the dif ferential would close. But I think it's a matter, as Mr. Fraser sai d, of ur gin g people to use energy wisely. I wo uldn't be in favo ur of urging people to use electricity in an area where they could heat their houses more ine xpensively with gas.

I think in parts of the province, the more northerly parts, where oil transport becomes increasingly expensive and there is no natural gas and propane is very expensive, people will heat with electricity right now, and it'll turn out to be probably the most economical method of heating. But it certa inl y wo uldn't be so with people who have access to the gas pipeline. MR. DOERN: Our admin istration tried an experiment with electric vehicles, and I belie ve that over a period of time tha t experiment will be justified.

I was just wondering whether you, personally, saw any future in electric cars, or is tha t some distance down the road as you visualize it? MR. WEDEPOHL: This is a complicated one. Of course, an electric car is not the answer, it's not a un iversal pan acea because you've got to put energy into the battery and you're up against the ::: onversion efficiency to do thi s.

I belie ve that where there are abundant supplies of electrical energy and renewable resources such as we have here with Hydro, it is a way to go. it's a possibility, but it is qui te an expensive possi bili ty when you take the losses, the conversion ef ficiency of charging the batteries and so on. lt's not the cheapest possible thing to do. And there are still problems relating to the storage density. Batteries are not very energy dense �o that either you need a rather small horsepower motor or you need a very big battery, either )f which is a drawback. 111 R.

DOERN: I have an ad before me which is about Fisher Stoves. These are woo d-burning stoves, his is from one of the weekend daily paper inserts and I find this really aston ishing. I was just wondering whether you would care to express an opinio n on it. They give as an example, Hydro )ills from Nov ember 26, 19 78, to Janu ary 26, 19 79, they say these Hydro bill s were received by 1 householder of a 3,2 00 square foot house using an electric furnace for heat in the two-month )eriod, and they show, for ins tance, in December a bill or of $322.00 and in Jan uary a bill of $260.00 )er month.

Then they show another household where the bill was $8.5 0, presumably demonstrating or all time , not for all time but at this point in time, that you can heat your house for $8.5 0 if rou're using a wood stove, almost for nothing; that you have gr eat advantages in the use of wood. )o you believe ads like that, tha t it can be done so cheaply? 111R. WEDEPOHL: I must say I find that qui te surprisi ng. lt is also a fact, I think tha t there's not 183

Public Utilities and Natural Resources Saturday, June 9, 1979 enough wood for a qu arter of a million householders in Manitoba to burn wood. I think the quantit� of wood re quir ed to do this, to heat our houses, as an alternative to any other form of energy I think just isn't possible with our own resources, but I don't know, I'm not an expert. That doe� sound a rather surprising thing, and I would have thought people wou ld be scram bling madly tc get Fisher Stoves if they could heat their hous es for $8.00 a month in Janu ary or February. MR. DOERN: Do you have one in your home? MR. WEDEPOHL: No.

I will refuse to un block my chimney, Mr. Doern. I know people who ha vE put firepla ces in where their energy bills in crease because the sucking of firepl aces can be qu itE ine fficient; where they actually incr ease their bill s by having a wood fire. But I'm now not talkin� about a Fisher Stove, I'm talkin g about a normal open fireplace. MR. DOERN: Because of the chimneys, or the drafts? MR. WEDEPOHL: Yes. You're sucking huge qua ntities of hot air up and yo u'r e suck ing in col< air, and you've got to reheat it with your system , so you can actually incur a penalty.

But I'm no talkin g about a Fisher Stove because I don't know how it works. MR. DOERN: So you don't see thi s switch to wood as being a real prospect. MR. WEDEPOHL: I think it ought to be considered. I think every possi bil ity should be exploret very carefu lly, but I think it would be probably a top-up form of heating, because I just don't thinl there is enough wood in the province for thi s to be a serious alternative for a million people. MR. DOERN: You see it as a supple mentary source of heating? MR. WEDEPOHL: Yes. MR. DOERN: Do you see solar in the same way? MR. WEDEPOHL: Yes.

And again, with solar, one has to be carefu l. There have beef experiment done, but we live in a very cold climate re gion, and so solar presents problems because the sk is very cold in wintertime and you can get back radiation, so tha t the efficiency of conversion c solar is a matter of concern. MR. DOERN: My final question, Mr. Chairman, is with the Russian generators tha t were used b Hydro.

My impression is tha t this was a good deal for Hydro in that first of all there was a co� saving in purchasing them, and secondly that the Russians took a bea ting on that deal in that cost them a fortune to install those generators. I was just wondering what ob servat ions you ha• in terms of the economics of that pur chase, and whether they have been perf ormin satisfac torily? MR. WEDEPOHL: I think, Mr. Chairman, on the simple matter of the pur chase of the turbin e� what Mr. Doern says is correct.

I don't think the Russians are going to make any money out c thi s because they have to pay their subcontr actors some quite high costs and so on. But at th same time, it's not simply a matter of the pu rchase cost of the generators. I would simply say the there was a very long dela y in getting the sta tion comple te, which did impose a cost on Hydr< and one would have to look at all these parameters very care fully. I really don't whether the stud has yet been completed as to what this is. I don't think Hydro have th is, have they? MR. DOERN: What were the origin al figur es?

What were the generators pu rchased for, versus - was it General Electric? - or wh oever it was that had the comparable . . . ? MR. WEDEPOHi..: Mr. Chairman, I'll have to ask one of my colleagues. Yes, Mr. Chairman, th two costs are 16 million ini tially for the USSR generators and I think 27 for the next low bidde which 1 believe was either General Electric or Wes ting house. Both of those were su bject to escalatia and there was a cost overru n, 1 bel ieve, which was awarded as we ll. I'm sorry, Ell is-Chalmers M the number two bid. MR. DOERN: So there was a saving of $1 1 million? 184

Public Utilities and Natural Resources Saturday, June 9, 1979 MR. WEDEPOHL: Yes, but there was a cost overrun on Jenpeg; I forget how much it was, 1 belie ve the figure of 4 million-plus sticks in my mind. MR. DOERN: The other thing, Mr. Chairman, on tha t financial projection memo, there are a couple of li nes in there which maybe could be clarified and I think my colleagues want to follow up on this. "E xtra Provincial Revenue projections from 19 79 to '83 went from 78 million, then down to 72, 11 0, 10 7, 102 million.

You mentioned this morning, I think, that given the crunch in the United States right now, the gas sho rtages and oil soortages and so on, would these figu res now be different? These projections, would they now be revised? You seem to give us a glo omier American picture and a brighter Manitoba picture. Would these estima tes possibly be now revised upwards, even in the last few months? MR. WEDEPOHL: There would probably be an upward revision, I believe, and certa inl y already the very first figure is su bject to revision right now because that figure was $83 million or thereabouts. MR.

DOERN: Which is tha t for, the '79 or '80 figure? -(I nterject ion)- 83 million. I'm saying, do you see the other figures being revised upwardly? MR. WEDEPOHL: We ll, for the coming year it will probably go up somewhat, although we were exporting at a fairly produc tive rate, so we had our tie lines fairly fu ll. We will probably sell a bit more energy and probably the price could go as high as 10 0 million, or perhaps a little bit more than that, but in May of '80, the Minn eapolis tie comes in and at that stage - and this is my own personal opinion, that there would be another fairly substantial in crease then.

MR. DOE RN: And then why do these figu res go up to 11 0 and 81, and then start de clining again? Why don't they continue to rise? MR. WEDEPOHL: If i cou ld ask Mr. McKean to give you that answer. MR. CHAIRMAN: Mr. McKean. MR. McKEAN: Generally, we estimate it will go down as the Ma nitoba load incr eases. In other words, as the Manitoba load in creases, we will have less to se ll. That in crease to 11 0 was assuming the line to Minn eapolis was in and that accounts for a large in crease from the 72. The 72 was prepared before we kne w what happened the last year.

The 72 was the estimate when we were estima ting Manitoba to be this year 66. You notice it's 78 here on the 22nd of February, and by the 31s t of March, it ended up better than 82. So I join in saying that 72, I hope, is low. MR. DOERN: So the underlying basis is you would fix the number of plants we have now. This assumes that the Manitoba share will in crease and therefore relatively the American will decl ine. III R. McKEAN: Yes, this is assu ming a load forecast which, as Manitoba's load goes up, we of �ourse will have less surplus to sell and the revenue would drop.

Now, that dr op in revenue can )e offset if the price goes up. So, they are projec tions, and I guess there is no projection we have �ot in these projections that has more room for variation than that one. I hope it is upwards. lt'IR. DOERN: On that other line of excess of rev enue over expenses, you have minus 10 million or this year, minus 30 in 19 80, and so on. Is that dir ectly related to this so-called guarantee by he government in relation to the exchange rates. Is that $30 million presumably reflect ing this igure? lt'IR.

McKEAN: No, this was our projection prepared on the 22nd of Febru ary before the policy >f the government. This was to inform the government at that point in time what our estimate was or the next five years. IIR. DOERN: So does thi s mean, then, that in 19 80 there might have been a $30 million deficit, >ut in '81 on, there would have been a surplus, free zing the present exchange rates? No? IIR. McKEAN: This is assu ming - you notice at the bottom we are assuming an 18 .2 percent ate in crease in 19 80. 185

Public Utilities and Natural Resources Saturday, June 9, 1979 MR. DOERN: This is exclusiv e of exchange rates. MR. McKEAN: Well, the exchange rates are assumed. There are assumptions for exchange rate in here, but the 18 .2 percent in crease, for instance, shown in 19 80 is assu ming that the rates wouli go up ther e, and do wn 14 .7. This is a hypothetical estimate. There had been no decisions on wha would be done, and the decisions on any rate in creases would be made when later informatio1 would be known. But it was to attempt to inform the government at that point of what we sa\ in the next five years. MR.

DOERN: Fine, thank yo u. MR. CHAIRMAN: Mr . Craik. MR. CRAIK: On the same ques tion, Mr. Chairman, while we're on it, as I recal l, this table wa drawn up on the basis of this production, from this being entir ely hydraulic too. I don't there ar' any thermal costs in there, is there? MR. McKEAN: There is a little bit of thermal, you will notice, under fuel, under expense therE There is some fuel in there and the only thermal is based upon the fact that we have a contractu� condition to take an amount of fu el, qu ite smal l, and of course the other part of that fuel is som diesel fuel for our remote sites.

But in general, in this period, it is expected that based upon th load growth that we were using here, that we would have surpl uses without the use of therma This is also based upon average water conditions and as we pointed out, that could vary ver dramatically, whether or not you had low water conditions or high water conditions. MR. CRAIK: If you have high water conditions, you st ill can 't get any more exports because you li nes are loaded. MR. McKEAN: Wel l, we co uld, once the line to Minn eapolis comes in. MR.

CRAIK: Once it comes in, but if you get lower water conditions, then of course you are int more thermal generation . . . MR. McKEAN: Or reduced export. You would reduce your surplus Hydro first. MR. CHAIRMAN: Mr . Green. MR. GREEN: Mr. Chairman, I would lik e to get back to 19 79, this year, and try to again mak sure that I properly under stan d. In 19 79, you projected, without any government help tha t you woul' lose $10 million and that would reduce your reserves from 50 million to 40 million. That was yOL projection when this projection was forwarded on.

Now, as a result of what we now know, not onl did you not reduce - without any government help, without any government help at all - th figure of 10. 1 million excess of revenues over expense is changed to plus 8, and we remove th brackets. MR. McKEAN: Maybe, if you look a li ne ahead o that, that 41. 7 became 45. In other words, th actual was inc reas ed, improved by $4 million. Now, that 51. 8 decreased because of the improvement in the Canadian do lla r at that point, and we estim ated that became 38. MR. GREEN: All right. MR. McKEAN: And that would be a plus 7 there ins tead of a minus 10. MR.

GREEN: All right, so tha t's a swing of $17 million . That's in two months, a swing of $17 millio in two months, so that ins tead of ... That's what happens when you speculate on money, eh So ins tead of $40 million - this is not hydroelectricity - this is . . . two thi ngs have happenec One is that your extra-provi ncial sales have gone up from the 78 to 83 and your money has change from 51 to 38, which is $13 million and therefore you are able this year, without one penny i government help, and assu ming the res ponsibil ity for the loans tha t were made on your behal to make $8 million. Is tha t right? 186

Public Utilit ies and Natural Resources Saturday, June 9, 1979 MR. WEDEPOHL: That's correct, yes. MR. GREEN: That's right. And the money that you bo rrowed at these Swiss franc rates - and that was a speculation at the time on which you earned $13 million, by the way, in two months - that also resulted in your being able to get the $83 million in export sales. That was part of the investment. And what the government has sai d, you tell us, is that you're going to have the benefit of that loan, but yo u'r e not going to have to pay the problem that results from money having changed in value. Isn't that right? MR.

WEDEPOHL: That's right. MR. GREEN: But even before they told you that, you were operating so well, that even given this horrendous change in the Canadian dol lar, you were going to be able ho absorb that and still make $8 million this year. MR. WEDEPOHL: Yes. MR. GREEN: Now, I'm going to, Mr. Chairman, not because I wou ldn't just love to keep on doing this, but I'm going to, in a minute, ask to postpone some of my questions for my colleague for St. Joh ns, who asked the questions which led to the release of thi s project ion.

And then I'd lik e to do that, and st ill have an opportunity to ask questions after the Member for St. Johns, if I may. But before I do that, because I am sure it's going to be demons trated here that there is no need for one cent in government subsidy for you to have stable rates for five years on the basis of what you've told us in 19 79, and tha t will follow through. But assu ming that you did, assu ming that you were having these great problems, and that Mr. McQu een, is it? MR. WEDEPOHL: McKean. MR.

GREEN: McKean felt qu ite properly that you should not show this figure at what you loaned it at, you had to show the figure at the present cost in Canadian dol lars to repay. That's your problem, you want the balance sheet to show the present figure at Canadian doll ars which you are required to repay on those loans. You feel tha t doing otherwise would be to hide your head in the sand. MR. McKEAN: Could I answer that? MR. CHAIRMAN: Mr. McKean. MR. McKEAN: This amortization is not to state it that way. I might say the American policy was to convert it to the amount at 31s t of Mar ch.

This amortization is a means of moving so that, by the time the debt matures, you state at that point . . . MR. GREEN: I under stand that. MR. McKEAN: ... this $5 1 million tha t is shown here is only part of the ... in fact, at this point, it was over $400 million ... MR. GREEN: Because of the change in the dollar since that day. MR. McKEAN: lt was to move in that dir ec tion, not ... MR.

GREEN: 1 unde rstand that, but really, thi s is the integrity of accounts that you're concerned with. it's not the actual payment of the money yet, although certain moneys would have to be paid - 1 think you said in June of 19 80. But right now, your you're talking about the integrity of accounts. You've bo rrowed money, which you said was going to cost you $10 0 million, you now feel it's going to cost you $12 0, and therefore you want to show it on your books as $1 20 million. I haven 't used the actual figures, I've used an example. MR.

McKEAN: 1 could maybe point out, t give you some idea of the impact of this to us, is that this identical figure that we talked about this year of 373 million, was 290 million a year ago. Now, 187

Public Utilities and Natural Resources Saturday, June 9, 1979 the deteriora tion, and in fact last October it went up to 47 1 million, so it jumps all over the pla ce. MR. GREEN: Of course, Mr. McKean. And really, if you wanted to go the full logic of your position with regard to integrity of accou nts, which I respect but which I say is impractical, you cou ld show it every day.

Hydro debt went up today by 10 million, went down tomorr ow by 10 million, went up toda y by 20 million, and really you're hiding your head in the sand un less you do it every day, maybe every hour, they've got people who do it every hour. But what you were worried about, and I respect this, is that you didn't want anybody to think that you cou ld get out of paying what you show is $10 0 million debenture, or you show it in Swiss francs it's going to cost 10 0 million, that it's now going to cost you 15 0, and tha t's what you wanted to do. And you say, Mr.

Chairman, that that was a CICA recommendation, not a rule. MR. McKEAN: Ind eed, yes. MR. GREEN: A recommendation. Not a rule. MR. WEDEPOHL: This was my unde rstanding. MR. GREEN: I belie ve it is not a rule, it is a recommendation. MR. McKEAN: What it was, Mr. Green, was it was to become a rule, as issued by the CIC A, it was to be ins tituted by all companies, starting in 19 79, in order for their aud itors to continue to say that they had been following generally accepted accounting principles. Now, what they have done is they have deferred tha t date. · MR.

GREEN: I understand tha t they have not now made that rec ommenda tion. In other words, they have not made it, the recommendation just as you have said it is deferred. MR. McKEAN: The date of implication has been deferred. MR. GREEN: So I gather tha t what they are now saying is that until this date one can do it this way, one can do it tha t way, or as we say in Yiddish, "mi ken azoy, mi ken azoy". But you can do it either way. MR. CHAIRMAN: Mr . Green, for Hansard, how are we going to spell that? MR. GREEN: Okay. What you are saying is that you prefer not to hide your head in the sand.

You prefer to show it at the figure tha t you know it to be toda y, even though next week it could go down by 13 million. You're just choosing an arbit rary day, isn't that right? MR. McKEAN: Wel l, I think the 31s t of March 19 79 is a better day than the 30th of April 1971. We had it in at . . . MR. GREEN: Mr. McKean, I think tha t June 9th is a better day than the 31s t of Mar ch. MR. McKEAN: I agree with you. MR. GREEN: But you're not putting it in your books on June 9th. You never suggested that, did you ? MR. McKEAN: We ll, we change our books monthly. MR.

GREEN: But your statement comes out, your statement comes out at the end of the yea1 and tha t's where you show tha t liabili ty. MR. WEDEPOHL: Mr. Chairman, I think in fairness to Mr. McKean, he's taking a bit of a bea tin� here, and I ought to take that because this was a board decision and Mr. McKean ... MR. GREEN: Oh, my goodness, I di dn't think it was a bea ting, I thought I was being nice t< him. 188

Public Utiliti es and Natural Resources Saturday, June 9, 1979 MR. CHAIRMAN: Mr . Green, would you let Dr. Wedepohl conclude his remarks. MR. GREEN: I have no intention of giving ... MR. CHAIRMAN: Mr. Green, would you let Dr. Wedepohl conclude his remarks? MR. WEDEPOHL: I simply wanted to say tha t I accept the point you're making. I'm simply saying tha t this was a board decision and tha t was so taken to the corporation _ .. MR. GREEN: Mr. Chairman, may I qu ickly say that I do not say that there is any thing wrong with thi s decision, I'm saying tha t it can be done either way. Now, Mr.

McKean, knowing what I do about aud itors and accountants, would it not have protected the professional integrity of Hydro if the government - not made a Budget speech and passed a bill, of all things, a bill - sent a letter to Manitoba Hydro and said, we, the government, will back you up to show your debt at the borrowed figure, rather than at the immediate rate of exchange, and that will enable you to transfer $51 million, which is the exchange rate, into the other features of your Budget which would give you the reserves that they are now giving yo u. MR. WEDEPOHL: Mr.

Green, I think, in this respect, we respond to what governments ask us to do and we request of governments. MR. GREEN: I'm not asking you that. I'm asking you, because 1 know tha t it has been done, that a simple letter from the government saying that we will accept responsi bili ty for the amount shown on your debt to be stated in the borr owed dol lars rather than showing the exchange loss, and that you will reflect that in your books, there will be a note on your statem ent.

And that if that were done in the year 19 79 what you will have shown is no in crease, based on these figur es, based on these figures you would have shown no incr ease in rates; and if you follow 19 80, 19 81, 19 82 and 19 83, you cou ld, in each case, remove the 35 million, 11 million, 17 million and 12 million, and show them in the revenue part of your ledger. MR. WEDEPOHL: Your question is tha t the government should have simply written us a letter to thi s effect, re what in effect was stated in the Budget. MR. GREEN: That's right, that you don't need a bill, you don't need legislation.

And what is more - and this my friend from St. John s will show - you don't even need the undertaking, based on the 19 79 actu al, and based on the figur es tha t you have given us in these projec tions. I'm going to yield for a moment, I want to come back, but I want to yield to my friend, the Member for St. Johns to carry this forward because I don't see that you are not having stable rates for the next five years, based on the 19 79 figures. III R. CHERNIACK: Thank you, Mr. Chairman.

With tha t introduction I guess all I have to do is �o through a little arithmetic, but it is important that we do clarif y that, and therefore, I would lik e :o go through the arithmetic deal ing with the th ird last line , that is reserved provisions which starts 111 ith the bracketed 10.1 million, and just carry it thro ugh. And I'm now starting with 7 million plus, ·ather than the negative 10 million, and I assume that that 7 million, which we have just agreed t is a gain, is to be added to the 40 million that shows up in the statement? III R. GREEN: Did you just remove the 10 and add 10? I'IR.

CHERNIACK: Could I get a clarifica tion? Is it to be added to the 40 or to the 50? IIR. CHAIRMAN: Mr . McKean, are you in a position to ans wer that? IIR. McKEAN: I've got to catch up to your question again. You 'r e talking '79 now ? �R. CHERNIACK: End of '79. •R. McKEAN: The end of '79, projection at this point, the statement is tellin g you that the 41. 7 ras not sufficient to take care of thi s unr ealized loss provision, and therefore, we would draw on ur reserves by $10 million that year. IR. GREEN: That's what this statement says. 189

Public Utilities and Natural Resources Saturday, June 9, 1979 MR. CHERNIACK: Would Mr. McKean, Mr. Chairman, upda te us to what you now know, and I think what you are telling us is that you will have 7 million extra. MR. McKEAN: Yes, yes. MR. CHERNIACK: 17 million more than the figur e and that makes this thir d line as a plus 7, rather than a negative 10, which is 17 million differ ential. MR. McKEAN: That is correct. MR. CHERNIACK: Right. Now, would you add that 7 million to 40 million from the previous year or to 50 mill ion that was stated by the Chairman. MR. McKEAN: We had 50 million the year before. MR.

CHERNIACK: Pardon. MR. McKEAN: We had 50 million the year before, so the 7 wou ld go to the 50. MR. CHERNIACK: So, may I then take you to the next column, 19 80, and assume we are starting with $57 million in reserve. MR. McKEAN: Right. MR. CHERNIAC: And may I then deduct the 30 million, on the assumption that you do not ye1 predict an incr ease in rev enue or a decrease in the deficit? MR. McKEAN: In 19 80, what it shows there is that we'd had 5.4 available before the amor tiza tion. MR. CHERNIACK: Yes. MR. McKEAN: o, if you wiped out the amortiza tion, the in crease to reserves that year is 5.4. MR.

CHERNIACK: Would you be incl ined to wipe out that 5.4 today - doing this statemen toda y? MR. McKEAN: Oh, I think the 5.4 probably will be improved. MR. CHERNIACK: Yes. MR. McKEAN: I think the bigge st impr ovement, as you pointed out earlier, is that it inc ludes ar estimate of extra provincial 72.8. MR. CHERNIACK: 72.8. All right, for simplicity's sake and for my arithmetic slowness, I will accep your figures, which I think now clearly are und erestim ates.

I might even say cons ervative in th< application of surpl uses or in exaggera ting, not deli berately but in today's date, that the reduction will be less. But taking the statement as they are, we're star ting 19 80 with 57 million - I thinl that's correct - if we deduct the 30 million, knowing tha t we would not expect to deduct tha much, but if we deduct the 30 million, we would end up that year with 18 million in the reservE Is tha t correct? MR. McKEAN: 27. MR.

CHERNIACK: I'm sorry, of course, 27 million, and then we start the next year with 27 millio and we would add 8, and we would have 35 million at the end of 19 81. Is that correc?? MR. CHAIRMAN: Mr. Crai k. MR. CRAIK: I'm sorry, Mr. Chairman, on a point of arithmetic, sho uldn't you not be changing ym top li ne by the amount of the ... the percentages are being worked in as you go along . Ra1 190

Public Utilities and Natural Resources Saturday, June 9, 1979 changes are being made. MR. CHERNIACK: There are no percentages in what I'm working at. I'm workin g on the thir d last lin e, which does not inv olve percentages - the second last brings in percentages. MR. CRAIK: Your thir d last - sorry, maybe I'm lost in the arithmetic here too - but it shouldn't by the time you get over to 19 80-8 1, the rate change that took place of 18.2 will have affected the line above and come down and affected your thir d last li ne. MR. CHERNIACK: Oh, wel l, le t's get that clear. I think what Mr.

Craik is believing is that the top line ... MR. CHAIRMAN: Mr. Cherniack, can I stop you for a moment? Mr . McKean. MR. McKEAN: I may have misled earlier, but the top line does not include rate in creases. Those are at the present appr oved rates. MR. CRAIK: Oh, I see, okay. MR. CHAIRMAN: Now, Mr. Cherniack. MR. CHERNIACK: Mr. Chairman, that's a crucial statement, I'm glad Mr.

Craik raised it because I was going on the correct assu mption that the proposed or re quir ed in crease, suggested by Hydro, is only the second last lin e and the impact is the last line, and that's why I'm deal ing with the thir d last line, which as I under stand it, is based on existing rates. So, now that I've lost my train of thought, I want to go back to the be gin ning of 19 80 with a reserve of 57 million, and I'm deducting 30 million from that, being left with 27 million reserve, and I plead with you, Mr. Chairman, to have any of the gentlemen stop me when I go wrong in my arithmetic.

I carry forward 27 million to the beginning of the 1981 fiscal year and add the 8 million for tha t year, and I've come to 35 million. I then carry forward the 35 million to the be ginnin g of the 19 82 year and I add another 7 .5, so I get 42 .5 million, and I carry 42 .5 million to 19 83 fiscal year, adding 2 I get roughly $45 million n reserve, which is in excess of the reserve shown in the statement before us at the end of last {ear. Now, is my arithmetic correct? VIR. CHAIRMAN: Mr. McKean, are you in a position to answer that? VIR. McKEAN: I think your arithmetic is correct.

I might point out that the 50 million at the end lf last year was following two years of drought. We were subject to a good deal of criticism tha t hose reserves are very ina dequa te for a utility. I went through qu ite a number of sessions on the act that our debt equity ratio was only 98.2 and all the other utilities in North America had better lebt equity ratios than ourselves. So considering the size of uur debt, I think it's fair to say that ve were in agreement that it was a very minimal figure and our plan is alwa ys in our provision hat we should be gradually in creasing our reserves, not largely, but.

IIR. CHAIRMAN: Mr. Cherniack. IIR. CHERNIACK: Mr. Chairman, I appreciate Mr. McKe an's point of view and ther efore I would ke to take him back about four or five hours to re mind him tha t one of the first questions I asked 1rought out the fact that we Manitobans have an equity in our 4 million, billion, billion busine ss ,f 2, 3, And therefore, a shuffle of $10 0 millio n in reserve compar ed with our investment and our qu ity, is as some C.D. Howes might say: "N ot too meaningful in the long run".

But in any event, I have ended the 19 83 year with a $45 million reserve and now I want to o backward and just want to see if I am co rrect in' assuming that the project ions, if they were 1ade toda y rather than in Februar y, would be considerably more in the light of what we've learned 1 the in terval and the $45 million would be substantially more than the calculation we've just arrived t Is tha t a fair statement? IR. CHAIRMAN: Dr. Wedepohl. •R. WEDEPOHLM: Mr. Chairman, if Mr. McKean could comment on tha t specific one. I think I rould agree with that last statement. 191

Public Utilities and Natural Resources Saturday, June 9, 1979 MR. CHAIRMAN: Mr, McKean, and then I'll get back ... MR. WEDEPOHL: Well no, I was going to comment on two points. I think your statement is probably correct. I think our reve nue expectat ions are bigger because it was only in March when we realized the political implications of the oil. But the other point you were making is that you were saying that we have this capital asset of some considerable number of billions of dol lars and ther efore a bit of fluctuation in the reserves doesn't matter.

I don't think that is qu ite correct; if we were looking for loans, for example, I think the U.S. inv estors would be looking very care fully at our reserves and we have heard some criticisms about this. So I think that it would be not very responsible of the Board simply to disregard this and let the reserves go down. MR. CHERNIACK: Mr.

Chairman, I do want to interrupt my train of thought to comment that have not negotia ted a loan for government or for Hydro for two or th ree years, but I was not deaf then, and I did not hear problems about Hydr o's credit standing and I lived through an in crease in Hydro in Manitoba's rating when I don' t think the situation was tha t much better than it is now.

I want to get back to my arithmetic' I have ended the five-year term with a reserve equ ivalent to the start of this five-year term, minimally and conservatively because we have not built into the subsequent four eears, the experience - what is it "expedential curve"? Maybe I shou ldn't use words I don't fully comprehend - but I do bel ieve that I have agreement that Mr . McKean would have incr eased the excessive revenue over expense by certain millions of dol lars and th erefore the $45 million would be greater.

The important point I'm making is that that line is before any rate in creases and ther efore, my conclusion, Mr. Chairman, and now I would love to hear a response, but my conclusion in any event is that there is no need on this table for an expectat ion .of a rate incr ease in the next five years in order, if one is satisfied, to maintain the reserve at approxima tely what it is now. And tha t is my conclusion that the old talk about rate freeze is meaningle ss and that Hydro, in the next five years, could well handle the fluctuation in foreign exchange rate as we kno w it today.

In other words, it would be a gr eater problem if the Canadian dollar deprecia tes or deterio rates more than it is now. But on the basis of what it is now, that Hydro in the next five years would be able to handle the present deterioration of the Canadian dol lar without having to expend a greater overall sum out of its reserve, and without having to go into deficit or borrowing position. That's on thi s table projec tions. I now want to move qui ckly and then leave it - Mr.

Green wants the floor back - to the lin e "unr ealized loss or gain on foreign debt maturities" - and where it shows $5 1. 8 million for fisca endin g 19 79, which we are told would now read about 38 million, how much of that is an actua expenditure? I bel ieve the ans wer will be "n one" but I want to know, an actual casr disbur sement. MR. CHAIRMAN: Mr. McKean. MR. McKEAN: You're correct; it's a provision to be realized as debt at maturity. MR. CHAIRMAN: Mr. Cherniack. MR. CHERNIACK: Now, Mr.

Chairman, very specifically, how much in fiscal 19 79-80 would Hydrc have to pay out in cash to take care of the foreign exchange loss from its statement of liabil itiel to payment of whatever is re quir ed to be paid in this fiscal year, which I know is in terest and somE principle? MR. CHAIRMAN: Mr. McKean. MR. McKEAN: The debt which was maturing in 197 9-80 to do with thi s was thi s Swiss issue tha we talked about earlier. MR. CHERNIACK: May I interrupt, Mr. Chairman? MR. CHAIRMAN: Mr. Cherniack. MR. CHERNIACK: To the terminology. I bel ieve the debt was maturing in Jun e 19 81. MR.

McKEAN: That's right, but the government's to retain them. 19 80. 192

Public Utilities and Natural Resources Saturday, June 9, 1979 MR. CHERNIACK: June, 19 80. Correct. MR. McKEAN: And the government has exercised the option to call it a year early. MR. CHERNIACK: Mr. Chairman, my question was on the basis of this statement: without gove rnment's in terference, how much money in cash would be needed by this Hydro in the year April 1, 19 79 to March 31, 19 80, how much in cash would Hydro have needed to take care of the loss in exchange, in cash. And I said I know that there would be bound to be in terest paid and maybe some principle I think under the uni ts of account loan . MR.

McKEAN: There's two other issues, the uni ty of account loan and also their Deutsche mark issue are serial maturities, plus this one Swiss one which as you correctly said has been called a year earlier from the original date of maturity, so there are three. MR. CHERNIACK:· Mr. Chairman, does Mr. McKean know - and he may not know - how much tha t represents in dolla rs in this current fiscal year in which we are living toda y and from which the government is asking $3 1 millio n from the taxpayers? How much in cash? MR.

McKEAN: The $3 1 million is their estimate of the difference between the exchange at maturity of those th ree issues and the book. value that they're switched into our loan. I think about 27 of it was on the Swiss issue and the other 4 is on the two serial issues. MR. CHERNIACK: Mr . Chairman, I must tell Mr .

McKean through you, I'm not asking him to tell me what the government is going to do with it, I'm just trying to compare what the government wants from the taxpa yers on its estima tes of $3 1 million, for which he's not accountable, and how that compares with the actual amount of cash that Hydro would have had to pay or would have to pay in this current fiscal year to service the li abili ties - whatever they are in capital - to the extent of the foreign exchange without government int erference. And I will now tell Mr .

McKean that I bel ieve that it's the inter est which they will be req uir ed to pay and a small amount of principle, which I bel ieve is somewhere in the neigh bourhood of less tha n $8 million - I'm sorry, $4 million - and leaving out tha t 27 million or whatever it is on the Swiss loan which would not mature in the current fiscal year. 1 am speculating - I'm more tha n specula ting, I'm pretty sure - that the actual amount in cash that Hydro would have to pay in this year in cash, in thi s current fiscal year, would be $6 millio n. Am I out; am I wrong? MR. CHAIRMAN: Mr.

McKean, are you in a position to ans wer that? MR. McKEAN: If I under stand

Document details

Collection	Manitoba — Debates (Hansard)
Citation	31-3-pu7
Type	hansard
Volume / chapter	31st 3rd hansardpdf pu7.pdf
Language	en
Format	pdf
Source	PROVINCIAL
Identifier	01017b654db94b0b0e7d6daad0b719e3af2b8d9d

Source file is stored in the law ingest library (pdf).