Manitoba Hydro, pressured by the provincial government, continues to spend and make commitments for its $22-billion "preferred development plan."
The plan involves the construction of Bipole III, down the extreme west side of the province and through prime agricultural land, and two new northern dams, Keeyask and Conawapa (the dams in partnership with First Nations, their investments largely borrowed from Hydro).
If, instead of implementing its plan, the utility built a 850-megawatt gas-fired generating plant in Brandon, as advocated by Len Evans, a former NDP cabinet minister, Hydro could shelve Bipole III and Keeyask and, when the time came, decommission rather than replace Pointe du Bois, while increasing its overall capacity and diversifying its power generation, thereby reducing risks due to drought.
The cost of such a plant would likely be no more than $1.25-billion, five per cent of what Hydro plans to spend on its current plans. No need to borrow $20 billion, thus less capital tax, debt guarantee fees and interest costs for ratepayers to bear. As well, with a gas-fired plant there would be no water rental fees levied by the province, further reducing the cost loaded on to ratepayers, and no need for partners.
The construction of the plant in Brandon would involve about 800 construction and 50 ongoing, well-paying jobs for the area. It would also provide an opportunity to extract natural gas from southwestern Manitoba's share of the Bakken field, which is already producing oil and more resource jobs, along with pipeline construction to carry the gas to Brandon. The economic boost to the area would be in the hundreds of millions.
The demand for electricity in Manitoba is nowhere near high enough to justify the current plan. There has been no new major industry for Manitoba in years, with some operations either shut down (Tembec) or reduced (Vale and HudBay). Recently, despite Manitoba's low electricity prices and central geographic location in Canada, Rogers and Facebook took their expansions elsewhere.
Rather than counting on increased industrial activity, Hydro plans to export more power to largely American utilities, and boost Manitoba rates by more than 100 per cent over the next 20 years.
The known problems associated with Hydro's plans include a history of bad forecasts, including ever-increasing construction cost projections. Low natural gas prices and sluggish growth in industrial demand have led to low wholesale spot electricity prices. Adding to these concerns, there is increasing opposition from landowners to the Bipole III route and the risk of a substantial jump in interest rates.
And, there is growing recognition of needed repairs, upgrades and expansions to Hydro's infrastructure, adding another $12 billion to the capital expenditure bill.
Under the current plan, future challenges would be met by a system for electricity generation that lacks diversity -- the next drought could devastate Hydro's financial position and require even higher rate increases.
In aggregate, Hydro's current forecast calls for large-scale borrowing by the provincial government. Governments have only so much room to borrow before credit agencies downgrade their credit rating, potentially bringing sharp increases in interest rates on the province's growing debt.
Let's summarize some of the advantages of adding a Brandon gas-fired plant to Manitoba Hydro's generation mix:
- Ability to develop Manitoba's own natural gas resources.
- Generating new jobs in Brandon for construction and continuing operation.
- Reducing the risks that lie with borrowing tens of billions of dollars.
- Eliminating the need for complex partnerships.
- Reducing the current forecast of four per cent annual increases in rates for Manitobans.
- Reducing the volumes of imported electricity required in times of drought.
- Increasing security of supply, a reduced dependency on lengthy power lines.
- Eliminating transmission line damage to Manitoba's prime agricultural lands.
The Selinger government has stated it has no interest in a gas-fired generation, yet Manitoba Hydro has had inefficient gas-fired turbines for a decade or more to provide the surplus capacity required to meet export rules.
Does the loss of revenue for government that would occur with a Brandon gas-fired plant -- due to the loss of water rentals and much reduced levies on Hydro for capital tax and debt guarantee fees -- play a role in its opposition to such a plant?
The building of new northern dams, with the additional transmission required for conveying the power south, west or east, should await a different day. Deferral would allow time for improved market opportunities to develop, reducing risks now present.
Let's re-evaluate the situation, put away ideologically based blinders and take a serious look at what likely would be the safest and most economical way to meet Manitoba's current power needs. Hydro's objectives used to be reliability and lowest possible rates, let's go back to them.
Graham Lane is a retired chartered accountant and former chair of the Public Utilities Board.
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