Conversations on the Frontier – With Peter Miller, number 85
Frontier Centre: What’s your opinion of the policy of “power at cost,” the formula by which Manitoba Hydro subsidizes the consumption of electricity?
Peter Miller: Actually that’s not accurate. It’s “power below cost,” as I tried to point out. There’s about a $300-million annual subsidy to domestic rates. I think it’s a crazy policy. It’s understandable historically, and there’s a certain lag time in changing practices. But given the current level of export earnings and our knowledge of efficiency, it’s a crazy policy. That’s why I’m advocating a “PowerSmart” alternative.
FC: You describe the dual policy of subsidizing power and simultaneously exhorting citizens to be PowerSmart as “stepping on the brakes and the accelerator at the same time.” Can you discuss that?
PM: Manitoba Hydro has certainly expanded its PowerSmart programs in the last few years and I’d like to think that we’ve had some role in that. There are positive incentives to buy compact fluorescents, for example. But if no one is feeling the pinch from energy prices, why bother?
FC: When you say that artificially low electricity rates are inequitable, what do you mean?
PM: The province gets a lot of wealth from Minnesotans and Ontarians through our export sales. The question is, “How is that wealth distributed?” The answer to that is that it goes to people in proportion to their consumption of electricity and that is inequitable. If Manitoba Hydro is a common asset for us all, why should the biggest “piggies” get the most subsidies?
FC: Or the most “slop,” as you’ve said more colourfully. You’ve spoken in favour of an inverted rate structure, especially the system in use in Seattle. Can you describe how it works?
PM: In Manitoba, a residential consumer has a declining rate structure. The first quantity consumed, 175 kw/h per month, is charged at one rate and then anything beyond that at a lower rate. Inverted rates simply turn that upside down. Recognizing that people have basic energy needs, they start out at a lower rate, but if they go beyond that basic amount then the rate escalates. Seattle’s rate more than doubles from the first block to the second block. That inverted structure encourages consumers to use less overall power and solves the equity problem.
FC: Are you familiar with the system of tradable power permits suggested by Tom Adams at Energy Probe? Under that regime, the amount of energy that consumers historically have used would come to them at what you described as “vintage” rates. But then anything that they saved beyond that they could sell back into the system at market rates. Could that be a successful tool for conservation?
PM: It might be successful, but to my mind it’s unfair. It doesn’t meet the equity requirement. Why should we give ownership to those low prices? For reasons of industrial policy, you recognize that some firms have made major investments and located a plant on the basis on certain assumptions about electricity prices. There may be some equity argument if we suddenly flipped higher rates on them. But if we do it gradually, as an alternative, you let the people know what the target’s going to be in the future and you move slowly in that direction.
FC: What about peak-load pricing?
PM: Time of use is one of the things that the Public Utilities Board has asked Hydro to look at. I think for industry you could do it because they have fancier meters. But in residential pricing, our meters don’t record the time of day when you use it, it’s just checked once a month or once every other month. The total consumption in that period is recorded but you don’t know when you used it.
FC: What other incentives for conservation do you like?
PM: There are carrots and sticks. Manitoba Hydro’s policy is to dangle a number of carrots, or subsidies for certain measures. For instance, if you insulate your home they will pay the cost of the insulation. If we had a higher rate, or an inverted rate, you’re paying more for electricity. That would be a stick. You need to combine incentives with public awareness, education and technical knowledge. In many cases, particularly amongst the poor, you may just have a neighbourhood with certain experts who would go in and assess the house and do the retro-fits and so on. For more affluent neighbourhoods, let them do their own contracting.
FC: Do you think that, if Manitobans reduced our profligate rates of electricity use, we would have to build the Conawapa dam at all?
PM: I’ve tried to show that you’re in the ball park of the projected output from Conawapa if you were to charge market rates plus a charge for the potential of conserved electricity to displace CO² elsewhere. You could save close to the equivalent of Conawapa from that degree of price increase. Whether that is politically acceptable is another question. Basically, I have nothing against the building of Conawapa, subject to a determination of environmental and social acceptability, if you’re not going to waste the energy.
We intervened on Wuskwatim and the stance we took was not that we should never contemplate building another dam. But when you’re analyzing the need for Wuskwatim and the alternatives to it, how about a more intense conservation program and what about wind power? I think we do have that potential. There are only so many places you can build dams on the Nelson and squeeze power out. But I haven’t taken a stand against that unless the other conservation measures are ignored.
FC: One might ask, “What’s wrong with building it even if we didn’t use any of the power domestically, but just exported it all?” Our Aboriginal Policy Fellow reminds us of a point you made, that we need full-cost accounting for these dams. There are social and environmental impacts.
PM: That’s right. Hydro is trying to do a lot of that in its dam construction by creating equity and compensation programs and so on, but of course it’s a matter of debate and negotiations with our First Nations as to whether they think it’s an acceptable level of compensation. Many say, “No, it isn’t enough.” But those costs, if they are negotiated and paid by Hydro, should then become incorporated into the cost of building the dam and should find their way into rates.
FC: If the Province used the provisions of its own Sustainable Development Act, wouldn’t they include those impacts in their accounting?
PM: Manitoba Hydro argues that they do a full-cost accounting when it comes to building a dam, and you can debate that. Where it’s very clear that they don’t do it is in setting rates and so that’s been our focus. Their rate policy is not based on full-cost accounting principles.
FC: Isn’t the schizoid nature of Manitoba’s power policy at least partly a function of the utility’s crown corporation status? How can one be the owner and regulator of an enterprise at the same time? Isn’t that a conflict of interest?
PM: I’m not sure how that applies in this case. That might apply more if you were doing straight environmental considerations. The Province licenses forest operations, for instance, in the Whiteshell and other places. But they don’t do the same environmental impact analysis that they require from a large company like Tembec or LP. There is a double standard between crown-administered lands and ones where they have a tenured agreement with a company, and I think they do hold somewhat different standards there. I’m not sure the same thing applies in this case. I guess I’d have to see the case made.
FC: Let me press it from another angle. Do you think there is any connection between Manitoba Hydro’s publicly owned status and subsidized rates for selling power?
PM: Clearly, they have created a public expectation that Manitoba Hydro is all about low rates. It is difficult to reverse that. I’m not sure how a sale of the company would make a difference in that. Basically any rate change has to be approved by the Public Utilities Board; they can keep the lid on it. I think there’s a chance that rates would go higher by privatizing. For one, there would be an allowable dividend to shareholders that’s taken into account at rate proceedings. Another would be the additional taxes they would have to pay. So those things would find their way into rates. There may be a few points on balance.
But the problem is that you’re losing the public benefit that the corporation could potentially give. It is giving a public benefit, low rates are a benefit in a sense, but it’s a costly benefit and there are better ways to spend the money. I’d rather see Manitobans reap the benefits of the dividends that Hydro could pay than sending the money off to shareholders elsewhere.
FC: Many have complained about the Public Utilities Board’s hearing process as too cumbersome and too complex. You’ve intervened many times. Do you think it’s working well? Is there any way to make it more efficient or speed it up?
PM: It is intimidating to come into this formal process with huge amounts of technical information. A lay person like myself who is not familiar with it has had to undergo a fast education. There are still tons of that stuff that I’ve never understood. There’s no question that it’s intimidating. There may be ways to improve the process. On the other hand, I was on Manitoba’s Round Table for Sustainable Development and I wasn’t really able to get any traction there in exploring these issues. I have gotten traction with the Public Utilities Board, because it is a deliberative body that considers evidence. It’s a fabulous opportunity to get in there and try to argue a case on the basis of evidence and principles, and that’s what we’ve been doing. I haven’t found that opportunity elsewhere on this particular issue.
Can you improve the process, or are there alternative ways? Seattle City Light is a publicly owned utility and basically the approval of rates occurs by their legislative body, city council. They approve it after considerable analysis. They don’t have this kind of review process, but I think there are probably public consultations that precede city council’s decisions on rates. So there are other avenues. The point is we need access, and we need to be able to make our case, not just in sloganeering ways but with more sophisticated ways of looking at the evidence. The PUB provides that.
FC: Ed Schreyer described Manitoba’s hydro-electric resources – and the fact that the dams are low-silt – as the “gold standard” for renewable power. To be a “have” province, shouldn’t we be gung-ho about exploiting it to the limit?
PM: First of all, it’s not damage-free. The diversion of the Churchill River, which uses South Indian Lake to increase flows on the Nelson River and get more bang for your power buck, has done major damage to some communities and to the environment. And because of ever-changing water flows under hydro regimes, there continues to be bank erosion and unstable ice in places like Cross Lake. If you’re thinking “cost-benefit,” the largest costs have been incurred, and the question is whether you are getting sufficient benefit from it. So you could argue that further dams on the Nelson River could produce more power with much less incremental damage then was done historically in setting up the system. There is a case to be made.
But I have an important reservation. There seems to be a view that, if you live in Alberta and have coal-fired electricity, you should practice conservation, but in Manitoba with clean hydro-electric power you don’t need to, at least not to the same extent. But I think everyone has to practice conservation because what gets conserved here gets exported to other jurisdictions. I think a case can be made for the development of our potential, but it’s been relied on too excessively by the province. Only in the last couple of years have they begun to get on the conservation bandwagon.
FC: Do you think it would make sense for us to remove Manitoba Hydro’s tax exemptions?
PM: Yes, or require payment in lieu of taxes. When Centra Gas was purchased by Manitoba Hydro, a certain tax stream going to the feds and the provincial government was cut off because of its change in status to a Crown corporation. But the contract negotiated had a provision for a continued stream of payments in lieu of taxes, which unfortunately has since been dropped. This is often what Hydro does with a municipality instead of paying property tax. All the costs of power, including a fair share of the tax burden, should be included in the utility’s pricing. Some of that may be used for social purposes, whether it be for certain industries seen as strategic in the economy or addressing the social needs of people, and so on.
FC: Does the same argument apply in the case of dividends? You mentioned today that on one occasion Manitoba’s government took a dividend from Manitoba Hydro and applied it for a specific purpose. What about dividends directly to the public, to shareholders? Should something like that be built into the cost structure of Manitoba Hydro? Would that be a way of getting prices up?
PM: There are different alternatives. One is just to incorporate a regular dividend to government. Another is to create a special fund out of Hydro export profits that can be used for strategic social purposes. It could become the “rainy-day fund” for special investments that are seen as important. Or, like Alaska does with the Alaska Permanent Fund, give $1,000 to every citizen once a year.
FC: You said increasing the price of power to consumers by 10% would reduce the consumption by somewhere between 3 and 29%. Can you summarize the advantages of price increases in terms of reducing local consumption?
PM: This is part of the rationale for PowerSmart. If we could get domestic consumers to reduce their consumption, we will be helping the environment and will be helping the economy by freeing up more for export. I’m simply saying that the one instrument they’re not using is jacking up rates. It’s fine to supply free compact fluorescent light bulbs. But as the National Round Table said, the strongest policy tool, higher rates, is the “road not taken.” Another tool is to up your building standards and codes. That’s easiest for new construction. Instead of trying to entice people to build an energy-efficient home, you say they’ve got to build one that meets these higher codes. Over time, as buildings are replaced, it works well.
FC: Even to carry the power from Wuskwatim, never mind Conawapa, Manitoba Hydro needs another transmission line from the north. It would cost half a billion dollars less to run it down the east side of Lake Winnipeg, but the government has ruled that out. Do you agree with their position?
PM: Actually, Manitoba Hydro’s position is that they don’t need another bipole coming all the way south for Wuskwatim – just a connection into the northern grid. They nonetheless have been exploring another bipole to enhance system reliability and reduce line-loss as well as anticipate new dams after Wuskwatim. I don’t agree with the government’s decision being taken unilaterally. They did set up a process – the east-side consultation process that I am a part of – and a number of Chiefs in that process were very upset at that unilateral decision. They had their eye on negotiating with Manitoba Hydro for jobs.
But I’m not sure how many jobs would be generated just from the construction of transmission lines. There might be brush-clearing jobs, but beyond that the work is pretty technical, you have to have special training for that. Building the dam itself takes longer and there are various trades involved. I also heard an interest in collecting rent on the transmission line, perhaps through First Nation development and ownership. The interim east-side report, “Promises to Keep…” didn’t rule a bipole on the east side of Lake Winnipeg in or out, but laid down certain conditions, including the consideration of other options elsewhere in the province and various mitigative measures and social and economic benefits to local communities if it were on the east side.
In my view, there is a pressing need for a public review of a power resource plan for Manitoba Hydro that includes an analysis of the need for power, alternative means of acquiring new power resources, including both conservation and generation alternatives, and related transmission requirements and alternatives. The alternatives in turn would be subject to absolute and comparative assessments in terms of environmental, social and economic criteria. In addition to alternative land routes for a bipole, partial underwater routing in Lake Winnipeg should be considered.
FC: How can Canada have a rational energy policy without a national power grid? Shouldn’t we be linking the different markets in Canada?
PM: That’s seen as a solution for the energy deficits of Ontario in particular and to carbon displacement issues in Alberta and Saskatchewan. To meet national greenhouse gas standards, that makes a lot of sense, and it provides an export market for Manitoba that’s internal to Canada. So for purposes of national Kyoto accounting, it makes sense. Exports to the States move a shorter distance but they don’t provide the same national benefits. They could provide equivalent climate change benefits; it’s just that we wouldn’t get the credit for it.
FC: How can wind power be considered economical if we must have backup systems to generate the power if the wind doesn’t blow? Doesn’t that mean that we pay twice for the same power?
PM: No, it’s a very good complement to hydro power because basically each backs up the other. Hydro has a problem of dry and wet years. In our recent history, in one dry year we had low water-flows through the dams and we had to import tremendous amounts from the U.S. at much higher rates than we were charging because we had to pay market rates. If there had been wind generation available at that time, we would not have had to import so much. Hydro backs up wind by increasing the flow through the turbines when the wind is not blowing. Wind backs up or extends hydro by allowing more water retention in the reservoirs when the wind is blowing, thus increasing the generation potential. There’s more for export and for dry-year insurance.
FC: You’ve spoken eloquently about the need for “biological integrity” in planning resource development, but your concept of integrity seems to remove humans from the equation by making that synonymous with “wild.” Isn’t our species as much a part of the natural order as any other?
PM: Yes and no. Certainly we’re part of nature and are subject to natural principles. What is distinctive about modern, technological human beings is the extent of the ability to exploit our environment. That can be done wisely or destructively. Basically, when we’re dealing with fossil fuels, we’re living off natural capital that’s already been accumulated. What we are doing is using up a finite supply, especially when you talk about what’s accessible with the least environmental damage.
Nature can produce species which destroy their own habitats. Our footprints just happen to be larger than any other species and our destructive power is greater. Nature has various checks and balances. Insect infestations are a good example of that. They can be very destructive, but once they’ve destroyed their habitat, they are reduced. They may increase the predator population that lives off them, and eventually it swings back the balance. We are a natural species and could be subject to the similar swings. We could cause major catastrophes with our ecosystems and be subject to massive self-destruction. Why would we want to do that?
FC: Do you believe that Canada should impose carbon taxes to meet our Kyoto commitments?
PM: I believe we should use economic instruments, and carbon taxes are one form of that. A somewhat more sophisticated one is “cap and trade,” in which you make anyone who’s going to use more than a quota of carbon emissions find someone else who’s going to use less than their quota and pay them for that credit. It’s argued that this is the economically less costly way to bring down carbon emissions and, depending on the system that’s set up, the faster way.
