Manitoba Hydro proposes to spend more than $17 billion -- or $17,000 per Manitoban -- on new generation over the next two decades. The Bipole III transmission line is expected to cost $3 billion more.
The merits of these investments have been the subject of an acrimonious yet often confusing public debate. Important questions remain unanswered:
What does Hydro expansion mean for Manitoba ratepayers? When do we need a new supply of electricity to meet domestic needs?
Four years ago, the answers seemed so much easier. In January 2010, Manitoba Hydro presented a 20-year financial forecast and a claim the 2020s would bring a "decade of returns" to ratepayers.
Hydro portrayed the time between 2010 and 2025 as a golden era of expansion. Three new generating stations would be built in Manitoba's north. The Bipole III transmission line would help link northern generation to Manitoba's south while providing additional reliability benefits.
Underlying the scenario was Hydro's faith lucrative export contracts would cover much of the cost of new construction. A new transmission line would facilitate expanded U.S. access while providing backup in the event of an emergency.
At the heart of the 2010 scenario was the suggestion rates would rise faster than inflation until 2020 to pay for the new projects. However, a "decade of returns" would follow, with rate increases at or below the rate of inflation. Hydro's retained earnings were forecast to be in excess of $11 billion by 2029, raising the prospect of further consumer rate relief.
Fast forward to February 2014, when Manitoba Hydro presented a much more sombre forecast. In just four years, the 2020s had undergone a metamorphosis from the "decade of returns" to the decade of rate increases at double the rate of inflation. Projected retained earnings for 2029 had dropped by about $7 billion.
What happened to the "decade of returns?"
Hydro officials are quick to point out rates are also under pressure in B.C., Saskatchewan, Nova Scotia and Ontario and utilities across Canada are facing cost pressures to "support investments in aging generation, transmission and distribution infrastructure."
Hydro also would concede lower than expected export prices and lower forecasts of future prices have contributed to projections of rapid rate increases. As just one example, between 2008/09 and the spring of 2013, spot export market prices fell from eight cents to 3.5 cents per kilowatt hour.
Dramatic increases in the actual and projected costs of new Hydro projects are another critical factor in the evisceration of the "decade of returns." Cost overruns associated with the Wuskwatim hydroelectric station are already notorious. However, it is adverse cost developments associated with the larger Keeyask and Conawapa projects that are placing the greatest pressure on Hydro's ambitions.
Less than 10 years ago, Hydro estimated the costs for the two generating stations to be less than $9 billion. Hydro's current estimates suggest a $17-billion price tag.
During the recently completed Need For and Alternatives To (NFAT) review of Hydro's $17-billion plan, the deterioration in the plan's economics led La Capra Associates, an independent expert retained by Manitoba's Public Utilities Board (PUB), to conclude: "it is uneconomic to add Conawapa to plans with Keeyask; plans with Keeyask will take 40-50 years to break even" compared with building new supply through all-gas combustion.
Recognizing the deterioration in the economics of Hydro's plan, what can we say about its alternatives?
First, a word of caution about the alternatives. Despite the best efforts of the PUB, there was still a substantial information gap at the end of the NFAT hearing.
Many of these gaps were highlighted by La Capra, which concluded: "new resource development plans without or with much later development of Keeyask need to be evaluated in earnest by (Hydro)."
As La Capra points out, a major alternative for which the record is less than satisfactory is the potential for deferring construction of new generation.
Until recently, Hydro has been adamant major new generation was necessary for domestic reasons by 2023 or 2024. During the NFAT, this claim was refuted both by La Capra and by Philippe Dunsky, one of North America's foremost experts on energy efficiency.
La Capra described Hydro's "need" date for domestic energy supply as "very conservative." It suggested enhanced energy efficiency "allows for time" to look more closely at all alternatives. Dunsky suggested bringing energy efficiency efforts in line with North American good practice could move the domestic need date to 2030 or beyond.
To its credit, Manitoba Hydro has conceded more energy efficiency is possible and expanded efforts may have a big impact on when new generation is needed. However, Hydro's confidence in energy efficiency is not as robust as that of leading experts. While acknowledging the possibility for a later need date, Hydro continues to suggest there is a risk domestic demand will necessitate new resources by the mid-2020s.
What lessons can we draw amidst the confusing twists and turns of forecasts?
First, there appear to be alternatives to Hydro's $17-billion plan that may have lower rate impacts.
Whatever the alternative, ratepayers should brace for increases that may be well in excess of inflation. Aging infrastructure still needs to be upgraded, and Manitoba Hydro has already committed to the $3-billion Bipole III project and sunk roughly $1.6 billion into Keeyask and Conawapa that must be recovered whether or not these projects proceed.
Second, there are many unanswered questions about Manitoba's energy future. There is an emerging consensus energy efficiency must be a key player. But the timing and role to be played by energy sources such as hydro, wind and solar are unclear and inadequately studied.
Finally, it is clear expanded energy efficiency can create breathing space to more carefully consider our energy future.
At a time of unprecedented uncertainty, the commitment to expanded energy efficiency can buy Manitoba the time it needs to make the best possible choice for current and future ratepayers.
Byron Williams represented the Consumers Association of Canada-Manitoba before the recently concluded Need For and Alternatives To (NFAT) review of Hydro's development plans at the Public Utilities Board. Gloria Desorcy is the executive director of CAC-Manitoba.