Introduction of Manitoba Hydro s 2017/18 and 2018/19 General Rate Application

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1 Introduction of Manitoba Hydro s 2017/18 and 2018/19 General Rate Application June 12, 2017 Kelvin Shepherd, President and Chief Executive Officer Jamie McCallum, Chief Finance and Strategy Officer

2 Manitoba Hydro is proud of the contribution we make to the development of our province Introduction Provide nearly 100% green, renewable energy to 568,000 electric customers 277,000 natural gas customers Skilled, dedicated workforce of over 6,000 people Leadership in customer satisfaction, reliability, indigenous employment and energy conservation initiatives Significant contributor to GDP through direct spending in the province on operating costs and capital investments and multiplier effect thereon Manitoba Hydro s ratepayers enjoy - and should continue to enjoy - among the lowest electricity rates in North America Meaningful discount to rates experienced in neighbouring jurisdictions However, like almost all utilities, Manitoba Hydro - and its customers will need to adapt to some significant challenges facing the electricity business 2

3 We are in the midst of a capital program that is fundamentally changing the size and financial profile of the Corporation Manitoba Hydro in Transition Investment is necessary in order to continue to offer safe, reliable energy services to Manitobans Total assets have grown from $12 billion in 2009 to $22 billion today and will reach $32 billion by 2022 Bipole III Reliability Project Keeyask Generating Station Increased investment in aging infrastructure Meanwhile, net income has had the inverse trend: $266 million in 2009 ($346 million in 2008) $39 million in 2016 Under our previous financial plan, was forecast to be $20 million in 2022 even with 3.95% per annum rate increases 3

4 Much Has Changed Since Last GRA Manitoba Hydro is on the precipice of a step function change in its operating costs when major new assets come into service and we are already absorbing the cash impacts Bipole III in August 2018 Keeyask in August 2021 Our business outlook has deteriorated: Forecasts for growth among our domestic customers have decreased Pricing in the opportunity export market remains near post-financial crisis levels Capital costs for our major projects have significantly increased On the plus side: Interest rates have continued to decline and are now at levels not seen in generations Water conditions a significant variable for Manitoba Hydro have enjoyed 13 consecutive years of above average flows; 8 years longer than the previous cycle record 4

5 In our view, it is essential that we come to terms with the current circumstances and outlook for Manitoba Hydro Before making this application, Manitoba Hydro explored every available option to mitigate impacts on revenue requirement An entirely new Board of Directors (MHEB), together with a new management team, undertook a comprehensive review of the situation and our alternatives Before making this application management, together with the MHEB: The Path to Our GRA Extensively considered whether either or both of our major capital projects could be deferred or cancelled Identified, scoped and initiated a significant operating cost reduction Explored opportunities to bolster equity via investment from the Province of Manitoba Sought to find the balance between ratepayer impacts and the need to address our current and prospective financial challenges 5

6 Our Current Application Manitoba Hydro recognizes we are requesting an unprecedented level of rate increases and the challenges this will create for some of our customers However, Manitoba Hydro together with our customers face some fundamental issues Therefore, Manitoba Hydro believes this GRA should focus on these key matters: The importance of adequate capitalization at Manitoba Hydro to manage risks to the utility, its customers, the Province and all Manitobans The appropriate measures of capital adequacy and financial strength The time frame by which to return to financial strength The appropriate earnings and cash flow targets for the Corporation in order to manage and absorb the unique risks Manitoba Hydro faces 6