Manitoba's Public Utilities Board is allowing a 3.6 per cent increase for average electricity rates in 2018-19.

The rise in customers' bills, effective June 1, is nowhere near the 7.9 per cent increase the Crown corporation asked for when it made the application to the PUB last year.

Manitoba Hydro president Kelvin Shepherd told the media Tuesday the rate increase for residential customers will likely be slightly higher than 3.6 per cent and just a bit lower for large industrial users.

Shepherd says there are classifications of electricity users over which Hydro has to average the PUB's order of a 3.6 per cent increase.

"We'll have to, over the next couple of weeks, go through those calculations and present what we believe are the right rates for the different classes, and then present that to the PUB for approval," Shepherd said.

The board has also suggested the province help the utility with its beleaguered balance sheet.

The PUB made a number of recommendations and orders aimed at both Hydro and the province.

Those include suggesting the province create bill-affordability programs to assist lower-income customers, funded by revenues from the Keeyask generating station.

'Significant' costs in PUB order: Hydro

Shepherd declined to address the recommendations made to the Manitoba government, describing them as policy decisions for the province. However, Hydro's top executive acknowledged his management team had a different perspective from the PUB on the financial health of the Crown corporation and its mounting debt.

"Clearly, the PUB has a very different view of the financial situation facing Hydro and the best approach to deal with it," Shepherd said.

Shepard says there will be "significant interest costs" in taking the PUB's chosen route of smaller rate increases. A rise in the cost of borrowing, which many expect to see, could lead to what Shepherd describes as "significant financial pressures" on Hydro over the next 10 to 15 years.

Shepherd says as a manager, he would prefer to have a plan that manages the financial risk over several years, as opposed what he views as the PUB's order to deal with rates on a "year-by-year basis" and raise them as required.

PUB recommendations

The PUB also ordered the creation of a new "First Nation on-reserve residential customer class." Those Manitobans who fall into the new customer class will not receive an increase in electricity rates in 2018.

It also recommended that the Progressive Conservative provincial government suspend the collection of $900 million from the Bipole III transmission line over the next 13 years.

The PUB called a decision to move the Bipole III line from the east to the west side of Lake Winnipeg "a policy decision by the provincial government" that accrued $900 million in extra costs.

The utilities board says because it was a decision by government and not Hydro, the cost should be payed by taxpayers, not electricity ratepayers.

The PUB suggests that could be done through a 13-year suspension of debt guarantee fees and capital taxes charged by the province on the Bipole project.

The PUB also recommends that the government transfer some revenues from its soon-to-be-introduced carbon tax to Manitoba Hydro to lower potential future electricity rate increases.

Minister rejects carbon tax recommendation

Crown Services Minister Cliff Cullen said he wants time to consider the more than 30 PUB recommendations, but he rejected outright the call for the province to use carbon tax revenue to mitigate rate increases.

"The intent of the carbon tax is to put it back into the hands of Manitobans," Cullen told reporters.

The Crown Services minister was also cautious about the PUB's suggestion that the government reduce the revenue it takes out of Manitoba Hydro annually.

"That would help Manitoba Hydro for sure. It certainly wouldn't help our bottom line," Cullen said, adding the government would have "discussions" about the money it takes from the utility.

The province charges Hydro for finance charges, water rates and imposed capital taxes on the utility. Next year, those charges and rates will add up to about $406 million.

Crown Services Minister Cliff Cullen says the government will study the PUB's recommendations, but warned the province has its own deficit and its finances are 'precarious.' (Wendy Buelow/CBC)

The government will study the recommendations, said Cullen, but warned the province has its own deficit and its finances are "precarious."

"It's one thing to say if the provincial government itself was in an upstanding financial condition it would be easier to swallow those payments to Manitoba Hydro, but the government of Manitoba is facing a $500-million deficit this year," Cullen said.

Cullen did agree with Hydro president Kelvin Shepherd that the utility still faces serious financial pressures from debt and potential interest hikes.

Hydro 'on solid financial footing': NDP

The Opposition NDP, however, applauded the PUB's rate decision, saying it means Hydro is in a strong financial position and has protected ratepayers.

"Hydro is on solid financial footing," said Minto MLA Andrew Swan.

Swan brushed off the PUB's determination that the location of the Bipole III line was a political decision by the former NDP government that cost Hydro hundreds of millions of dollars. He insisted opposition by First Nations to the more direct route would have killed that option for the route.

Former Manitoba Hydro chair Sandy Riley led a mass resignation of board members over disagreements with Premier Brian Pallister on the finances of the Crown corporation. (Sean Kavanagh/CBC)

In March, almost the entire board of Manitoba Hydro resigned over issues with Premier Brian Pallister. The board and then-chair Sandy Riley said they needed to meet with Pallister to address dire financial issues at the Crown corporation but they couldn't secure a meeting.

Pallister told the media the board quit over a disagreement on a contract Hydro made with the Manitoba Metis Federation.

The PC government appointed five new members to the Hydro board, but new chair Marina James has yet to speak publicly about the condition of the Crown corporation or the direction the new board will take the company.