Dam-nation: Why Man. plan is too costly

Many Manitoba residents are aware of the provincial government’s planned massive expansion of Manitoba Hydro’s northern hydroelectric generation and transmission facilities, but few understand the negative implications for their own pocketbooks.

The government’s plans for Hydro were developed before 2008, when the economic environment was different. At that time, premier Gary Doer said: “Hydroelectricity is Manitoba’s oil”.

Hydro and government expected:

  • Natural gas prices would stay high and increase. Not $4 per gigajoule but $10 or more.
  • There would be a price on carbon, providing for a premium price for hydro power.
  • Rather than industrial closures, new and expanded industry would develop to drive demand growth.
  • Higher spot and fixed export prices would develop, rather than the less than three cents for spot sales of recent years.
  • Construction costs to increase with inflation. The initial forecasts are now recognized as being far too low.
  • An eastern route for BiPole III would save $1 billion and reduce troublesome engineering concerns.
  • A lower Canadian dollar.
  • A much higher rate would be in place for new or expanded energy intensive industry.

The global credit crisis and recession has since led to an industrial slow down, with the Americans focusing on their economy rather than on climate change.

As well, Americans began using more renewable energy by subsidizing wind and solar power, while new technology reduced the cost of wind and solar power. Americans also moved to generate jobs in the United States.

New production technology un-locked a torrent of shale gas, which drove natural gas prices much lower, providing increased use of gas turbine generating stations.

The Canadian dollar is at or near par, construction costs have skyrocketed, the model first dam, Wuskwatim, has proved an economic disaster, and the government forces a western BiPole III route while ignoring opportunities to diversify supply.

The strategy that is unfolding involves spending a considerable amount of money ahead of final approval of the projects, which will force up rates to keep Hydro’s bottom line in the black.…

BiPole III will require either new net revenue or a 30 percent rate hike when it comes into service.

So, regardless of the weakness of Hydro’s new revenue forecast, it counts on more export revenue to justify the building of the Keeyask and Conawapa dams while also planning to rebuild Pointe de Bois, “doubling down” the bet.

To assist these plans, the government has allowed Hydro to withhold critical information from the Public Utilities Board as the costs and risks of its development plan grows.

In essence, the strategy appears to be one hiding the real rate cost to consumers by gradually increasing rates.

We are already seeing the plan unfold: rates are climbing and forecasts of further rate increases are gradually being accepted while costs incurred are being deferred, allowing for the “feathering in” of the rate increases to consumers.

Who backstops the risk for Hydro blunders? Only ratepayers. Who protects ratepayers? Not Hydro, not the Public Utilities Board, not the auditor general and certainly not the provincial government.…

The development bus needs to slow down. The party that is truly at risk is required to be brought to a full understanding of the merits and risks of the present plans.

Reviews and audits need to be undertaken, options need to be examined and risks need to be adequately addressed.

Proceeding without a truly adequate dialogue represents an unnecessary and foolhardy process, one that could well bring economic and social pain to a province that lacks the financial base to gamble.

This article is excerpted from a Frontier Public Policy paper entitled DamNation: Rolling the Dice on Manitoba’s Future by Graham Lane. The full report can be found at www.fcpp.org/files/5/PS153_DamNation_JN04F2.pdf. Lane is a retired chartered accountant and former chair of the Public Utilities Board.

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