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Premier's damned if he does...

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Is Premier Greg Selinger facing his Conawapa moment?

In the early 1990s, former Manitoba premier Gary Filmon had to decide whether to forge ahead with the Conawapa generating station after a $13-billion deal with Ontario to buy the electricity it would have generated fell apart. Filmon decided the enormous cost of the project, coupled with uncertainty about who would buy the electricity, was too risky. Plans were put into limbo.

Fast-forward to 2012, where Selinger is facing a similar scenario. Manitoba Hydro is committed to billions of dollars in new capital projects, including the Conawapa generating station, the smaller Keeyask dam and Bipole III, the new transmission line needed to carry all that juice south to domestic and export customers. And just as Filmon did in the early 1990s, Selinger is watching his potential customers evaporate.

For Filmon, it was Ontario's decision to pull out of a three-decades long power deal. For Selinger, the problem is that customers in the north-central United States, Manitoba's most profitable export region, have lost their appetite for our electricity. Instead, they are generating increasing amounts of their own electricity with super-cheap natural gas that has flooded U.S. energy markets and completely changed the continental energy debate.

The gas is being produced with a controversial process called fracking, where millions of litres of high-pressure water and chemicals are used to blast the gas loose from shale formations. It is highly doubtful the combined value of the products of fracking are worth the toll on the environment. No matter, cheap natural gas is here and is being used to fire generating stations all over the U.S. In the process, it has driven spot prices for Manitoba electricity down to unforeseen depths, undermining Hydro's viability and raising questions about proceeding with capital projects.

Right now, Hydro is under siege at parallel hearings before the Clean Environment Commission (which is studying the environmental impact of Conawapa, Keeyask and Bipole III) and the Public Utilities Board, which has raised red flags about the capital projects. Those rates are steadily increasing as a result of declining export revenues and escalating capital expenses. The combination has created a political dilemma the likes of which Manitoba hasn't seen since Filmon pulled the plug on Conawapa.

Filmon never waited to see if forging ahead with Conawapa would lead to increased electricity rates. As soon as Ontario balked, he put the brakes on expansion. However, there is no consensus on whether he did the right thing. Although Filmon protected domestic customers from possible price shock, not starting Conawapa in the early '90s had negative consequences.

First, Manitoba missed out on a decade of economic activity and government revenues that would have been sparked by the dam's construction. That would have been valuable to Filmon during the austere 1990s, when he was forced to cut expenditures to tame the deficit. And had Conawapa come on line in the early 2000s, it would have provided a new source of electricity for export at a time when contract and spot prices were robust.

Does that mean Selinger should forge ahead now? Not necessarily. Manitoba's gross domestic product is benefiting from the dam construction activity, again at a time when economic growth is at a premium. And while export prices are low, in energy markets it is understood what goes down (or up) will in all likelihood go up (or down) at some point in the future.

However, Hydro just brought a new generating station on line (Wuskwatim) to produce electricity for a depressed export market. So Manitobans are paying more for electricity just to support the existing system.

Rather than pulling the plug on all three projects, it may be necessary for Selinger to proceed with only one or two. Perhaps Keeyask could be pushed back. As for Bipole III, a major political headache because of the NDP's decision to run the line down a longer and more costly route, Selinger must ensure this is a project ratepayers can afford now to help the utility later on.

There are no right or wrong answers, only decisions and consequences. The emphasis will be on Selinger's ability to commit to a course of action, and then convince citizens he's doing the right thing. And, if he plans to hold firm while facing his Conawapa moment, we need to know why.

Republished from the Winnipeg Free Press print edition September 4, 2012 A5

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