A Dam Shame

Energy, Frontier Centre, Uncategorized, Water, Worth A Look

Two recent announcements have focused on Manitoba Hydro’s ability to bring wealth to Manitoba from export earnings. We need to look equally at how that wealth is produced, how it is distributed, and how power is priced to Manitobans.

Several weeks ago, the province announced a $2.2-billion agreement to sell 375 megawatts (MW) of electricity to Minnesota’s Northern States Power from 2015 to 2025. If completed, this sale will fulfil the promise of firm export sales at a favourable price that justified the construction of Wuskwatim.

Note, though, that despite the addition of 200 MW from Wuskwatim, “aggressive” conservation programs, and 100 MW of new wind generation (with another 1,000 MW of wind planned), this new contract is for 25 per cent less power than the current $1.7 billion 500 MW contract running to 2015. As Hydro CEO Bob Brennan observed, it is more money for less power.

The good news is that the price is right. The bad news is that all of Manitoba’s conservation and wind development are not yet sufficient to offset a domestic load growth of 80 MW a year gnawing steadily into our capacity for energy exports that bring millions of dollars into the Manitoba economy each year.

So how can the flow of golden eggs from the Hydro goose be maintained? Government’s answer in last week’s throne speech is: Build Conawapa.

But how will these earnings be distributed? Except for a small portion to fund conservation, the bulk will subsidize our electricity rates. Manitobans pay significantly less than the depreciated costs of supplying them power and much less than market value. Indeed, perversely, the more valuable electricity is in the marketplace, the less Manitobans pay for and thus value it, because the subsidy increases. What’s wrong with artificially low electricity rates? The short answer is that it undermines conservation, costs money, harms the economy, is inequitable, and harms the environment.

* Low rates discourage conservation investments because payback is too low. Subsidizing inefficient usage while promoting PowerSmart is like stepping on the brakes and the accelerator at the same time.

* Dollars dissipated on wasted energy are unproductive, and higher-than-needed electricity consumption reduces power available to earn export dollars. Jobs and business opportunities in retrofit and energy-efficiency industries are also lost.

* University of Winnipeg economist Michael Benarroch reckons that Manitoba could be debt-free if we had sold power at Saskatchewan’s rates and used the extra income to retire debt.

* Those who consume more power grab more subsidy (or, less politely, the biggest piggy gets the most slop). This is inequitable.

* Wasted electrical power produces environmental costs by accelerating the construction of new generation and transmission like Conawapa and removing the option of displacing electricity generated from GHG-emitting coal and gas in Ontario and the U.S.

In testimony before the Public Utilities Board earlier this year, energy economist Jim Lazar estimated that Manitobans would reduce their electrical consumption by a third if faced with full-value electrical rates, thereby freeing up for export additional power approximating the yield expected from Conawapa. Whatever was taken from Manitoba citizens as a whole in higher rates could be returned to them in conservation assistance, lower taxes and additional social services. The significant extra export earnings enabled by more efficient energy usage at home would be gravy.

It is time for the province and Manitoba Hydro to consider replacing the current lowest rate goal with a power smart rate goal, i.e., one that reflects the full value of Manitoba’s electricity, at least in the tail block rates. A good example is Seattle City Light, which charges only four cents a kilowatt hour for the first block of energy and more than doubles the rate thereafter. Special lower rates and extra conservation assistance are available for low-income, elderly, and disabled persons.

In addition, our strong export earnings, if not squandered on rate subsidies, could support a sizable dividend to the province (as occurs, for example, in B.C. and Saskatchewan) available for social investments, debt retirement and tax reduction. The Manitoba Hydro Act might require amendment for this to happen.

Let’s stop wasting our hydro wealth in unfair ways subsidizing rates that promote inefficient energy usage. We can better preserve “the Manitoba advantage” with power smart rates that provide a modest amount of power to address basic needs efficiently but escalate thereafter to full value. A power smart rate policy would simultaneously enrich Manitoba and increase global environmental benefits by freeing exportable power to displace coal and gas generation in other jurisdictions. It could do so without building Conawapa.

Once we’ve taken that step, we can debate the merits of Conawapa and optimize the value of new generation.

Peter Miller is a senior scholar at the University of Winnipeg and frequent intervener before the Public Utilities Board on behalf of Resource Conservation Manitoba (RCM) and Time to Respect Earth’s Ecosystems (TREE).