Private investment doesn’t mean privatization

The prospect of developing the Conawapa generating station on the Nelson River has returned to the news recently.

The discussion mixes together several threads that require separation. What are the relative roles of the Manitoba government, Manitoba Hydro and the private sector? Should Conawapa be in Manitoba Hydro’s development plan? Should Conawapa be built?

Manitoba owns Manitoba Hydro and must confirm that the corporation conforms to the goals/objectives of the Manitoba Hydro Act. The Public Utilities Board, another government agency, is to provide assistance by reviewing Hydro’s plans. Manitoba owns present and potential generating sites as well as the water rights. Manitoba also strives to earn income from its natural wealth.

Hydro’s role is to plan and execute to meet the province’s present and future power and energy demands at the lowest possible cost per MWh. This goal is achieved primarily through owned generating, transmission and distribution facilities. Purchased power and energy come from adjacent utilities, private and public; and from privately owned generating facilities in the province, largely wind farms and solar panel arrays. Hydro does purchase electricity from two limited partnerships it has with First Nations at the Keeyask and Wuskwatim generating sites on the Nelson River. Based on recent analysis, Conawapa is not in Hydro’s present development plan

The private sector is largely relegated to constructing generating stations and transmission/distribution facilities for Hydro.

In recent decades, Manitoba has not granted private sector leases for hydroelectric generating sites. The discussion of Conawapa restarted when it became known that the government consulted a New York-based investment bank, Rothschild & Co., last fall to see if Conawapa might be a good target for private investment to generate wealth for Manitobans. This consultation has created comment on the ‘privatization’ of Manitoba Hydro.

I think some of the discussion here is misguided. Although I don’t support the privatization of Hydro, I would support leasing a generating site to the private sector at appropriate terms. This is old hat with other natural resources: forest-management licenses, mineral leases, pasture leases, lake shore and lake bottom leases.

Why not hydraulic generating sites and associated water rights? Just as with a forest management license, the hydraulic lease could be long term and subject to renewal upon review and good performance. Leasing a generating site and water rights is not privatization of Hydro.

For small incremental damage (marginal cost), more power can be generated at an additional site by ‘recycling’ the water as it comes down the river, generating income.

A private-sector developer would be required to meet environmental and Indigenous consultation requirements, perhaps even a partnership with First Nations/Métis or Hydro itself. The terms would be spelled out in any request for leasing proposals. The consultation and engagement with Indigenous people should be robust and rigorous. Unless Hydro joins the project as a partner, it would provide no capital to it.

What to do with the electricity? Sell it to Nunavut? Generate hydrogen? Sell it to Saskatchewan or Alberta? Sell it to Hydro, if it wants it? The private sector can decide what sales to pursue based on deals available.

Manitoba would get income in the form of payments for the land lease, water rental and a royalty on energy generated. This income could be shared with the Métis and First Nations. If the sales require the use of Hydro transmission, the utility would get a fee just like a pipeline company would. Unless Hydro is a partner, these transmission fees would be the only income Hydro would receive.

This concept needs serious discussion, at least.

A note of caution is needed. The idea is like the discussion between Newfoundland and Labrador and Hydro Quebec over the Churchill Falls site in Labrador in the 1960s. The deal struck ended up being more advantageous for Hydro Quebec than N.L. There is huge sense of seller’s regret.

Manitoba must negotiate very carefully if the decision is made to pursue a private-sector tenant for a provincially owned generating site. We mustn’t appear to desperate for a deal, lest we feel future seller’s regret.

Robert Fenton is a retired professor of environmental economics at the University of Winnipeg.