In April, the Manitoba government announced Manitoba Hydro's controversial plans to build two generating stations for export purposes would be tested in an independent public analysis, called a "need for and alternatives to" review. But one of the most contentious items in the capital plans -- the construction of the Bipole III transmission line -- will not be scrutinized. Manitoba Hydro says that while Bipole III will eventually carry electricity from the new generators, it is first needed for reliability of domestic supply. Therefore, it is not subject to review.
I disagree. I think the timing of construction of the new transmission line shows it is being built for export purposes, and it should be part of the "needs for" review.
The Bipole III Coalition, a group of people concerned about Hydro's decision to route the new transmission line on the west side of the province, has provided evidence that Bipole III can be delayed for many years if it is being built only for domestic purposes.
The distinction -- for export or domestic purposes -- is important, because of the costs involved and who will be paying them.
Delaying Bipole III's in-service date will save $300 million a year in servicing costs for each year of delay. That's $300 million a year of ratepayers' money.
Manitoba Hydro's "reliability" claim is this: The Crown utility transmits power from northern dams via two transmission lines, both running in the same corridor through the Interlake. That creates real risk in the event both lines go down, as happened in the downburst windstorm of September 1996. Further, both lines connect with the Dorsey converter station and then to lines for distribution to Hydro users. In January 2011, a portion of the Dorsey switchyard was knocked out of service. These are the only two significant outages suffered on the HVDC transmission system over the last 40 years.
The cost of the windstorm in 1996 in lost power was estimated by Hydro at $11.1 million. The cost of the 2011 outage was estimated at $6.6 million.
Building Bipole III as a "reliability initiative" is akin to paying $300 million a year in insurance premiums.
Manitoba Hydro says that to protect the power supply, it needs to build Bipole III by 2017. It plans to run the line down the west side of Manitoba and then connect it to a new converter station at Riel, east of Winnipeg. It is a $3.3-billion project. Compare just its servicing costs to the outage-costs experience and you see why Hydro's plans are being questioned in light of the fact there is an alternative, much cheaper option.
In hearings before the Clean Environment Commission in March, the Bipole III Coalition provided evidence that it was economic to instead relocate a new converter station for Bipole II at Riel and then delay the construction of Bipole III to 2025 and connect it to a converter station near LaVerendrye, southwest of Winnipeg.
This proposal is technically sound, cost-effective and provides a reliable system out to 2050.
This option holds significant savings for ratepayers.
First, it saves ratepayers the $300 million in annual servicing costs. (To put this annual cost into perspective, the $300-million annual servicing cost is greater than the projected revenue of $277 million from export sales to the U.S. in 2013-14.)
Also, connecting Bipole III at LaVerendrye, west of Winnipeg, makes more sense because Manitoba Hydro's plan would require running the western line south of Winnipeg and then northeast to the station.
The coalition believes this is a lot of expense for no good reason.
For domestic purposes alone, a new transmission line will not be needed until 2025.
The coalition's alternative plan would involve relocating the terminus of Bipole II (which requires complete refurbishment if it remains at Dorsey) to the planned Riel station. At a cost of $1.2 billion, this is one-third Bipole III's $3.3-billion tab. This provides reliability, reducing the potential loss at Dorsey to only 1,800 megawatts of converter capability rather than the current 3,800 MW. And it provides reliability out to 2025, when Bipole III should come into service.
The coalition's plan would see a total of three separate converter locations on the periphery of Winnipeg. Much more reliable.
It's a reasonable, cost-effective alternative. So why is Manitoba Hydro pushing for construction of Bipole III by 2017?
One can only assume that what Manitoba Hydro doesn't want to say is that it wants Bipole III built by 2017 so it can finalize contracts with export customers in the U.S., expected to start in 2019, and to avoid the scrutiny of the new line under the "need for and alternatives to" review.
But this means Manitoba ratepayers will subsidize transmission costs that should be borne by export customers.
And what are those costs? A recent Public Utilities Board order in April allowed Manitoba Hydro to raise rates by 3.5 per cent. It required that 1.5 per cent, or $20.6 million this year, of the hike be placed in a deferral account. This deferral account will be used to mitigate the rate increases that will be needed when Bipole III is placed in service. That 1.5 per cent each year will amount to only $112 million by 2017-18. That covers only 37 per cent of the $300 million per year that will have to be added to revenue -- and the rates -- to pay for the Bipole III project.
To make up the remaining $188 million shortfall in 2018, Manitoba Hydro consumers can anticipate another 12 per cent increase above the 3.95 per cent already projected for that year. Even with the deferral account in place, the implication is a rate increase of almost 16 per cent when Bipole III comes into service.
To make certain that Manitoba Hydro's proposed decade of major investment is economic, and technically sound, the Bipole III project should be part of the upcoming "need for and alternatives to" analysis.
This is especially important given the provincial government's decision that the Bipole III line must be built on the province's west side rather than the east at an additional cost of $1 billion to Manitoba power customers.
Let's get it right -- include Bipole III in the review.
Art Derry is retired vice-president business development Manitoba Hydro.
He participated in the first 500 MW sale to Northern States Power (1992) and the economic justification which then resulted in the restart of construction of the Limestone generating plant in the mid-1980s.