Winnipeg Free Press - PRINT EDITION

PUB boss takes hard look at dam-building plans

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The new head of Manitoba's Public Utilities Board has laid the ground rules for Manitoba Hydro's request for a 3.5 per cent rate increase April 1.

Chairman Regis Gosselin told Hydro officials last week Hydro's customers need to be confident the Crown corporation's dam-building plans over the next two decades are based on solid research.

Gosselin, who succeeded retired chairman Graham Lane last March, made his remarks during a session that delved into why the recently completed Wuskwatim generating station came in at more than twice its forecasted budget.

A 2004 estimate for Wuskwatim, on the Burntwood River southwest of Thompson, was $800 million. Its final cost is $1.7 billion.

"We are, to some extent, concerned about future costs, but clearly we're now expecting ratepayers to pay for the cost of the dam that just started operation where the costs are way higher than what had originally been projected," Gosselin said. "So, I think we need to do some soul-searching about what happened and why we are now expecting ratepayers to pay for that. I think we at least owe the ratepayers a fairly thorough explanation."

Wuskwatim has been held up as the new way of doing business in Manitoba's north. Hydro negotiated a 33 per cent ownership deal with the Nisichawayasihk Cree Nation (NCN) as a way to right past wrongs, such as the massive flooding caused by Hydro's Churchill River diversion project in the 1970s. The deal was the first of its kind in Canada, if not the world.

But its timing couldn't have been worse. Unforeseen ballooning construction costs and the sudden onset of the U.S. recession in 2009 axed what were to be big profits to Hydro from selling surplus power to the United States. Hydro is now renegotiating its 2006 profit-sharing deal with NCN so it does not have to contribute immediately to Hydro's overall losses. Under the old agreement, NCN would have to contribute $14 million in 2012 and $24 million in 2013-14.

Gosselin said he wants to avoid what happened with Wuskwatim in Hydro's planning for the new and much bigger northern Keeyask and Conawapa generating stations.

"It seems to me that we need to look back at what happened and -- and if only to -- to explain to Manitobans that we did the very best that we could under the circumstances," he said. "But I also think that we owe it to them to be in a position to say, 'OK, we've learned some lessons here and we're going to apply them in the future to make sure that we don't go off base on some of these even more significant capital projects.' "

Keeyask is projected to cost $6.2 billion and Conawapa $10.1 billion.

Hydro is also looking at replacing the aging Pointe du Bois generating station on the Winnipeg River. It started producing power for Winnipeg in 1926, but its spillway and station are in need of an overhaul. The estimated cost of the spillway replacement is $560 million and the powerhouse rebuild, to take place in 2030, is $1.5 billion.

Hydro's chief financial officer, Vince Warden, told the PUB the "situation in the export market" and dealing with Hydro's aging infrastructure is driving the requested rate increase.

"When we apply for a rate increase to this board, we're balancing fiscal responsibility of Manitoba Hydro with customer sensitivity," Warden said.

He said Wuskwatim fell victim to a "huge cost" escalation in the construction industry -- labour and materials -- that hit the entire marketplace.

"We saw the exact opposite situation with Limestone (1990), where we hit the marketplace just right," he told the PUB. "And rather than costing $3 billion, as was originally estimated, it came in at $1.5 billion or $1.4 billion. So it can go the other way."

Republished from the Winnipeg Free Press print edition January 15, 2013 B5

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