Bipole III just one of the costly Hydro projects you are paying for

The decision to run Hydro’s Bipole III transmission line down the costly west side of the province is just one of the serious issues facing the utility.

By Dorothy Dobbie

Image by Ayame Ulrich (uniter.ca)

Bipole III was back in the news at the hearings before the Clean Environment Commission, chaired by former NDP MP Terry Sargent, which were held in late August.

There continues to be deep concern over the route of the proposed hydro transmission line, with a growing number of proponents supporting the route, originally chosen by Hydro itself: down the relatively unpopulated east side of Lake Winnipeg. The government-mandated western route traverses many private interests and is substantially longer than the eastern route. The western route would necessitate building the line around the heavily populated flood plain south of Winnipeg to meet up with the planned converter station to be built at Riel.

Cost is another issue with some estimates putting the price at almost $3.3 billion, now about three times the cost of the eastern route, and this at a time when hydro export prices are very low.

Other reasons for favouring the eastern route for this line include the fact that the project was originally justified as a safety measure to ensure stability of supply to the population of the province. However, that reason has been somewhat swept under a rug as there is evidence to suggest that the western route is so long that it would dilute the amount of power available, making Bipole III virtually useless as a fail-safe should a catastrophic weather or other event occur to interrupt current supplies to the south.

The western route was originally justified on the grounds that the line would spoil the pristine wilderness of the eastern area and make it ineligible to be named a world heritage site, but that argument was shot down by the former chair of the United Nations committee that governs these designations when he said that the amount of disruption caused by the line would be unlikely to impact on the decision.

Are the export sales even there?
Finally, with holes shot in all the above arguments, the government leaned on the issue of export sales, which it claimed were dependent on the west side route, making vague references to more environmental mandates. Investigation showed that indeed Wisconsin, the putative buyer, had already passed a law allowing those concerns to be bypassed.

Furthermore, it now transpires that significant export sales may be a chimera as the U.S. uses new technology to exploit natural gas deposits in shale. Indeed, in 2000, shale gas represented only one per cent of natural gas production in the U.S. Today, it represents 20 per cent and by 2035 that number is expected to have grown to 46 per cent. That is just about the time that Manitoba Hydro hopes to have all its expansion plans, costing $22.5 billion, in action.

These long term plans were supposed to have been paid for in export sales, but that hope is rapidly receding.

Why? The shale gas is one reason, but economic woes in the U.S. are another. Consequently prices for export power are way down. Back in 2003, hydro exports earned the utility 6.22 cents per kilowatt hour. Last year that price had plummeted to 3.09 cents. What’s more the low domestic prices for industrial power that used to favour local investment have lost much of their luster. In 2003 domestic industrial consumers paid 3.74 cents per kilowatt hour, considerably less than the export price. Now that advantage has been reversed. Domestic industry is paying 4.2 cents per kilowatt hour, a whopping 36 per cent more than export buyers pay. It appears that we have “exported” our business development advantage.

Already Manitoba taxpayers are footing the bill for the low export sales and it will only get worse. Wuskwatim Dam, built on the Burntwood River just 45 km southwest of Thompson, is a $1.37 billion dam that came on stream this summer. It will produce 200 megawatts of power for which, currently, there are doubtful if any markets.

Will be major household cost
All this happens at a time when Manitoba Hydro appears to be in a precarious position. Its predicted profit for 2011-12 is just under $20 million on sales of $1.605 billion, a pretty sad record. And this slim margin was eked out thanks to you and me and rate hikes, which will continue to escalate, if Hydro has its way, at the rate of 3.5 per cent a year for the next 10 years. Half of that will be covered by immediate increases, already initiated with a rate hike of 4.8 per cent in 2010-11. The Public Utilities Board mandated a 1.5 per cent rollback in 2011-12, but this will be more than recovered over the next year with incremental hikes totalling 12.6 per cent in 2012-13 and a further 4.8 per cent in 2013-14 (as set out in the Manitoba Hydro Financial Statements).

So here’s the rub: Hydro continues to plan costly expansion based on obsolete projections when we are already producing more power than we can sell. Not only that, but the cost of  financing these expenditures is almost as much as Hydro’s budget for operating, maintenance and administration. Hydro bosses (the government?) continue to ignore the financial impact of the costly decision to route Bipole III down the west side of the province. Exports will rebound, they say, and Hydro must be ready.

Perhaps they are right, but the cost to Manitoba consumers right now is more than many will be able to bear. The $150 million to be taken out of our pockets in the coming year will be no small expense in a province with under 450,000 households, many of them operated by seniors. The cost per household averages about $333 per year.

Need independent look at Hydro
Hydro has a new chairman, William Fraser, a one time Manitoba assistant deputy minister of Finance (1981 to 1986 under Howard Pawley) and the former president and CEO of Manitoba Telephone System, which was privatized during his tenure. He will oversee the activities of the new president and CEO, Scott Thompson, formerly the executive vice president, finance, with FortisBC, an energy company doing business in central British Columbia.

Given the circumstances, it may well be that Hydro’s ambitious plans should be delayed until a clearer picture of the future emerges. More, it is time to bring some independent thinking to the operations of Manitoba Hydro with a view to rationalization of its activities. That does not mean privatization; it means restructuring based on the best brains available and solid, good management.

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