09/19/2012 02:40 EDT | Updated 11/19/2012 05:12 EST

Manitoba Hydro boss says bills to increase more than rate of inflation

WINNIPEG - Manitoba Hydro's CEO says customers can expect rate increases of about 3.5 per cent a year for the foreseeable future as the Crown-owned utility builds new generating stations while export prices are soft.

"It's true that these increases are higher than the general inflation rates, and we understand this presents challenges for some of our customers, but we do expect to remain at or near the low end of rates for Canadian utilities, given the announced rate increases across the country," Scott Thomson said in a speech to the Winnipeg Chamber of Commerce on Wednesday.

Critics have questioned the utility's plan to spend $18 billion over the next dozen years to build two new generating stations — Keeyask and Conawapa — on rivers in the north, along with a new transmission line to bring the power south. A slumping U.S. economy has softened the export market and short-term spot prices have plummeted in part due to competition from low natural gas and coal prices.

The Public Utilities Board, the provincial regulator, warned last year that low prices could force Manitoba consumers to subsidize exports and see domestic prices jump by 140 per cent over the next 20 years.

Thomson told the business crowd there is a lot of uncertainty, but prices for competing sources of energy are likely to rise — which would be good for his business.

"(Some analysts) point to the fact that the aging North American fleet of coal-fired generating stations in the U.S. is being replaced largely by natural-gas-fuelled generation, and as the U.S. economy returns to growth, demand for natural gas ... will increase. These factors will affect demand and therefore price in the years to come."

Thomson also pointed to higher natural gas prices in Europe, which he said could lead to more liquid exports from North America and a higher world price.

Growing domestic demand also requires new generating stations, Thomson said. Manitoba Hydro forecasts in-province usage to grow by 1.6 per cent annually, eating up much of the power being generated by the Wuskwatim dam that opened this year.

"The capacity of the new 200-megawatt generating station at Wuskwatim will be used up in only 2 1/2 years," Thomson said.

"We require additional capacity by 2020, which is only eight years away."

Manitoba already exports power to Minnesota, Wisconsin, northwestern Ontario and other markets.

But revenues from exports have been dropping. In its latest quarterly report, the utility reported a $14-million loss in its electricity division. Export revenues dropped 14 per cent to $87 million from the same April-June period last year.