Hydro plan a costly NDP legacy

Hey there, time traveller!
This article was published 3/7/2014 (1180 days ago), so information in it may no longer be current.

A dispassionate reading of the Public Utilities Board's review of Manitoba Hydro's massive construction plans would conclude the Crown utility has lost credibility as stewards of Manitoba's energy interests. It has incurred billions of dollars in early costs for proposed capital projects — Bipole III and the Keeyask dam — that could have been deferred a long time and, for the proposed Conawapa dam, avoided altogether.

The PUB, in a report this week, says Hydro has not served Manitoba ratepayers interests because it has not sought better alternatives to expensive new hydro generation, mainly alternative-energy sources and increased conservation. That's why the PUB recommended the province set up a new, independent energy authority to guide such explorations in the future.

Such efforts might have avoided the need for constructing Keeyask for a very long time.

And it told Hydro to scrap plans for the $11-billion Conawapa dam — the panel found the business case is entirely absent. That heeded the advice of numerous experts who warned, at the PUB review of the Crown utility's plans, that they were fraught with risk given the shifting, unpredictable future energy market.

But Manitoba Hydro, led by its nose for new hydroelectric generation, is not alone to blame. The Selinger government encouraged its ambitions, equally blind to the eroding economics of Hydro's "decade of development."

Even now as the case for Conawapa, and the $400 million already spent on it, lies gutted on the hearing room floor, the province insists that dam is "key to Manitoba's energy future." Stan Struthers, minister responsible for Hydro, told the utility to forge ahead to find export contracts that will help justify its construction.

At the root of this is the NDP's long-held desire for a legacy, built on using Hydro to turn Manitoba into a Canadian energy superpower. It remains blind to the fact the dream has been undermined by a shifting energy market that has cut demand for Hydro's power in the American market.

Pursuing Conawapa flies in the face of evidence heard by the PUB that there is too much uncertainty in the market to support expensive new capital projects, especially over the long term that Hydro needs for the economics to work. Indeed, some of those factors forced it to rework the numbers supporting its preferred development plan in the midst of the PUB hearings.

The PUB's report echoed the view of its own expert, La Capra, that the payoff for Hydro's development plan, as opposed to using gas generation to meet Manitobans' need, was marginal. The difference was $339 million, over a 78-year period. Even at that, the Keeyask plan comes out ahead only after 50 years, La Capra said.

In the end, the PUB recommended Keeyask, but central to the decision was the fact $1.2 billion has already been spent on it. (Both the Keeyask and gas plans are burdened by the costs of the $3-billion Bipole III line, which critics say was unnecessary with a gas-generation plan.)

Further, the PUB opted for Keeyask because it includes a $1-billion transmission line into Minnesota that allows Hydro to import power in times of drought and may open export opportunities. (This, despite the fact the economics on the line deteriorated when Wisconsin Public Service decided earlier this year it would not invest in the line. Now Manitoba Hydro will spend US$470 million to build the $700-million American leg of the line, for 49 per cent ownership.)

The PUB recommended to get Keeyask into service by 2019, but it must have held its nose: It found that more vigorous efforts on conservation at home might have deferred the need for the dam to the mid- or late-2020s.

That's plenty of time for a truly independent energy authority to find that new technology makes solar and wind energy cheaper options. Nonetheless, Manitobans will see their hydro bills double in the next decade to pay for an expansion supported by weak economics. Only the Selinger government could see that as a legacy.