Buried in Manitoba Hydro’s website in the section describing new projects is the noble statement “It’s our generation’s turn to invest”.
The investment being referred to is a $34-billion bet that two new hydroelectric dams ( Keeyask and Conawapa), the associated Bipole III transmission line, a new interconnection with the Utility’s American utility customers and a refurbishment and expansion of its existing grid.
These projects have created significant debate within the Province and it remains an open question whether they will prove out to be an investment or an expense.
Future generations of Manitobans are already slated to see their electric bills more than double over the next two decades, after that it remains uncertain whether they will enjoy some return or endure and even higher burden of higher taxes and electricity charges for many decades to come.
At its heart, the decision to spend $34-billion is based on assumptions of future energy use, demand patterns, export markets and consumer preferences.
Looking at the scenarios presented by Manitoba Hydro in the regulatory process which considered the wisdom of the new dams and the interconnection (the new Bipole line and the refurbishment were not reviewed); the rationale for committing so much taxpayer funds appears very weak.
Change one assumption and scenario and the investment quickly becomes an expense, then a liability.
The problem is that for the citizens of Manitoba if assumptions do not concur with reality, the liability will fall on taxpayers and electricity users, through even higher electricity bills than are already expected.
There are a number of reasons for questioning the underlying assumptions of investing in new dams, based on historical and international comparison that clearly illustrate the sensitivity of the project to external changes.
Firstly, forecasts of electricity demand growth in Manitoba have usually been over-stated.
When predicting the demand for electricity, based on population growth, forecasters expected Winnipeg to reach 750,000 citizens by 1948.
Some 66 years later, this target still has not been reached.
Secondly, how much reliance for demand forecasting should be placed on the assumption that electricity use in Manitoba is projected to grow by 1.6 percent annually (over the next two decades) when in a number of other similar jurisdictions demand is flat, and, in some cases, declining?
Thirdly, even with the best governance models, governments set overall electricity policy frameworks and corporations (including government-owned Crown entities) must respond accordingly.
The costs of cancelled natural gas plants in Ontario, a failed renewable subsidy model in Spain and the German mandate to phase out nuclear plants have all resulted in taxpayers and consumers facing a higher burden.
What is different in Manitoba when an electricity policy of building new dams drives the process, rather than the needs of electricity consumers?
Fourthly, gas and electricity markets are interacting on a scale not expected as recently as five or ten years ago.
Being just north of the shale gas revolution will impact the size, value and length of electricity export contracts.
With the rapid shift to new natural gas sources occurring in the American Midwest, how long will there be an export market?
Fifthly, the potential for a disruptive new technology to radically change electricity demand and use patterns remains significant.
Be it a breakthrough in electric vehicles; cheap batteries; mini-generators; household insulation; or energy conservation, the domestic market could shrink or morph into something very different.
Consider that the first iPhone was released in 2007 and on July 26, 2000, the Nortel stock price was $124.50.
Such rapid change is not confined to the telecommunications industry.
In nearly every decade in the development of power systems there has been a development which has changed the outlook for the electricity industry in the following decade.
The 2020s will likely be no different.
Returning to the upcoming decision to invest $34-billion, a bet based on questionable assumptions, rising bills for ratepayers and billions in new debt, one should ask the end purpose of the dams and what they will achieve.
Merriam-Webster’s online dictionary defines “pipe dream” as “an illusory or fantastic plan, hope, or story.”
It would be unkind to refer to Keeyask and Conawapa dams and the Bipole III transmission line as pipe dreams, as they are technically feasible, but they still pose some build challenges.
However, the economics underpinning their development may place them closer to pipe dreams than to prudent investments.
On June 20, 2014, when the Public Utilities Board panel provides its report to the Manitoban Government on the proposed Keeyask and Conawapa dams and a new US interconnection, it should include alternative options to proceeding with these projects, including doing nothing at all.