Commentary, Environment, Frontier Centre

With the release of a predictable report by the Clean Environment Commission, one that criticizes elements of Manitoba Hydro’s Bipole III plans and actions while setting out ‘reachable’ conditions for Hydro moving ahead on the $4 or $5 or ? billion project, the ‘green light’ is on for the inevitable licensing of the project by the government. A Winnipeg Free Press editorial properly named CEC’s process a sham.

Coming up soon is the Public Utilities Board’s NFAT review (Needs for and Alternatives To). The outcome of that review is as predictable as was the CEC’s. Coming at least five years late, after Hydro has already spent or committed $2 billion or more, PUB’s review has been made virtually useless by the terms set by the government for it – which include accepting Bipole III as a given, no ability to review the ‘partnership’ contracts entered into with First Nations by Hydro, and restrictions on the public availability of Hydro’s actual and or projected export terms and conditions.

(Does anyone believe that the large American utilities that buy power from Hydro are not aware of the terms of various contracts? Haven’t the proposed buys of electricity by American utilities from Hydro been reviewed, in all their detail, by state public utilities board?)

The government has no intention whatsoever to even pause its development plans for Hydro. After ignoring the ‘red flags’ set out in PUB rate orders going back to 2004, whatever PUB comes up with from its NFAT will, in the end, make no difference whatsoever, however skillfully PUB’s eventual report to government is written.

For government to direct a meaningful pause would bring massive negative legal, social and financial implications for both the Province and its captive utility, Manitoba Hydro.

(One tragic victim of the farce that is and has been the government’s efforts to ram through an obviously risky development plan is Hydro itself – whatever independence from government interference Hydro had in the past is long gone. Hydro’s major union, IBEW, which represents electrical workers, is right to be concerned with what is going on. Government ownership of Hydro is not proving out to be beneficial to ratepayers, not with respect to either rates or transparency.)

Hundreds of ‘trainees’ and other employees have already been hired, with plans for hundreds more – if a pause occurred, layoffs would follow; a ‘campus’ is soon to be built in Gillam to house the hundreds of additional workers expected for the construction of Bipole III – that plan would have to be shelved; perhaps $2 billion of deferred costs sit on Hydro’s balance sheet, and would be at risk of a write-off if the development plan is paused or shelved; a massive  charge against the government’s summary accounts would follow a Hydro write-down of its development related and largely intangible ‘assets’, and that would likely affect the government’s relationship with its lenders and credit rating agencies; commitments exist with respect to First Nations and American utilities would be broken with a pause; and, hundreds of millions of revenue, billions over the years of the planned development, for the government through charges on Hydro for the debt guarantee fee, capital tax, water rentals, provincial retail sales taxes on customer bills and corporate and individual income taxes, would stand at risk of disappearing.

Pausing or shelving the present development plans would have one more negative effect for the government to deal with, a likely collapse in popular support and the probability of electoral disaster for it in 2015.  (If the government’s plans proceed to be implemented, billions of dollars would be spent and circulated in the economy ahead of and during the 2015 election, boom times, followed in time, and after the election, with the ‘bill’ and recognition of how it came about.)

With the ‘stakes’ as they are, does anyone think the government has any intention whatsoever to stop its reckless gamble on a $33 billion capital development plan that  is based on untested and likely unreliable estimates of construction costs, long-term exports and export revenues from American utilities?

So, far, this situational analysis has left one ‘party’ out, the ratepayers. While low rates and reliable service for Manitobans were Hydro’s focus over past decades they are no longer so important, at least  for Hydro’s sole ‘shareholder’, the government.

It is the ratepayers that are to meet the costs of the government’s adventure, regardless of high those costs end up being.

Hydro forecasts that rates, which have already increased by about 25% since the development plans were first publicly raised, will increase by 4% a year for the next twenty years following a decade of no increases at all.  This was a period in which exports actually did produce profits – with costs based on the much lower construction costs of the past, a lower Canadian dollar, higher natural gas prices and a better economy.  This will translate into a doubling of 2004 rates.  However others, PUB in a 2011 rate order and the former Chair of PUB, in a public presentation in June 2013, have forecast much higher rate hikes for the future.

While ‘accounting’ and ‘regulatory rate processes’ may allow Hydro to spread out its rate increases over a lengthy period of time, at least until Bipole III, Keeyask and Conawapa are in service, in the end ratepayers may be held responsible for rates three times the rates of 2004. As to the impact on lower income households, particularly those unable to access natural gas for heating, and the overall economy, one can only guess.

What If?

Publius wonders what if the government, and Hydro, had recognized that the economic conditions of 2004-2007, which seemed, at least to them, to support development, had changed for the worse in the credit crisis and developed world recession of 2008 and 2009.

What if the government had recognized that the collapse in wholesale electricity prices (particularly in the MISO market -Midwest Independent Transmission System Operator – the grid operator for midwestern USA power utilities ) was not a short term phenomena.  Rather it was one attributable to a slower economy, a collapse in natural gas prices (following the application of technology bringing on stream and in reserves massive shale gas production), an American drive for energy self-sufficiency (a drive that includes an explosion in wind generation, subsidized by the American federal government), and reduced prospects for a tax on carbon? Wholesale electricity prices remain very low, below 3 cents a kilowatt hour on average, this compares to the marginal cost of power from Hydro’s most recent dam, which exceeds 10 cents.

What if the government had fully recognized the change in the  Canadian dollar’s relationship to the American dollar, and that ‘at par or about’ could be the long term reality? What if the government had recognized that Hydro’s construction cost forecasts were habitually and massively low? What if the government had reflected on the Wuskwatim experience? Construction costs were double the estimate while export revenue from Wuskwatim’s production was half the estimate.

What if the government had recognized the risks that accompany droughts, and sought diversity of supply by the construction of a combined cycle natural gas generation station in Brandon (at 5% of the cost of Bipole III – Keeyask – Conawapa plan)? Diversity of supply is generally considered a ‘good thing’ by utilities around the world, to depend solely on hydro-electric generation is to accept the high risks associated with droughts and transmission failures, which can require high cost importer power  (power based on coal-fired generation).

What if Hydro had not spent $250 million plus negotiating contracts with First Nations ahead of entering into contract talks and commitments that depended upon the construction of Bipole III, Keeyask and Conawapa?

What if the government had not reconsidered its determination to have Bipole III run down the west side of the Province, given the costs and problematic issues that lie with a longer route, one through the most productive farmland in the Province?

What if the government had called and had held a proper, independent and expert NFAT, before it allowed or drove Hydro to make major commitments, spend a billion or two, and hire hundreds of trainees and other workers?

If government had been aware and flexible, took note of the changes in the economy, listened to knowledgeable parties outside of itself and Hydro, reflected on the experience of Wuskwatim, reflected on the exploding construction cost estimates, considered the risks that its plans had for ratepayers, and been concerned with the welfare of ratepayers rather than itself and its ideological and social goals, Manitobans, today, would not be between  ‘a rock and hard place’.

If government had acted differently, paused its plans, and truly considered options to better protect ratepayers well into the future, much money would already have been saved, useless and expensive sham regulatory hearings would have been and would be avoided, and rates would not already be higher by 25% than 2004, let alone at risk of tripling as the government’s plans unfold.