FREQUENTLY ASKED QUESTIONS
(Updated February 20, 2017)
1. Is domestic load (electricity use) growing in Manitoba?
Yes, Manitoba peak load grew at the rate of about 2.0% per year in the five-or-six-year period ending in 2007. Then it slowed down to about 1.0% per year and has remained there ever since. Notwithstanding that the growth in peak load is half of what it was in earlier years, Manitoba Hydro’s business plan assumes that peak load will grow at the annual rate of 1.6% during the next decade and that it will decrease only minimally to 1.5% in the decade after that. Other utilities in Manitoba Hydro’s marketing area are planning for annual load growth in the much lower range of 0.5% to 1.0%. Manitoba Hydro’s load forecasts have consistently overshot the mark for several years now. The case for a rebound in load growth to the forecast rate is weak.
2. Is there an opportunity to reduce the growth in electricity use in Manitoba?
Yes, utilities use the term Demand Side Management (DSM) to describe conservation and efficiency programs that can reduce the growth in the demand for electricity. Manitoba Hydro refers to DSM programs as its Power Smart programs. On April 20, 2016 (coincidentally the day after the provincial election), Manitoba Hydro rolled out its Power Smart programs for the next 15 years. Manitoba Hydro said that these programs could reduce growth in the use of electricity over the next 15 years by 1,288 MW (almost twice the capacity of Keeyask). This implies that Manitoba Hydro Power Smart programs could offset forecast growth entirely over the next 15 years with no new generation.
3. Would Demand Side Management (DSM) be expensive?
Manitoba Hydro announced on April 20, 2016 that its 15-year Power Smart programs would cost $2 billion. This seems expensive but if you compare it to the cost of new generation, it is a bargain. Compare it, for example to the 695-MW Keeyask generation station which at last estimate is expected to cost $6.7 billion. The cost of new generation at Keeyask will approach $10 million per MW. DSM, on the other hand, would cost only slightly more than $1.5 million per MW.
4. Given that DSM is so much less expensive than new generation, why wasn’t DSM used to offset new demand, allowing Keeyask to be mothballed?
That’s a good question. One answer often given by Manitoba Hydro is that some of its firm export sales are contingent upon the completion of Keeyask. Export sale contracts are considered by Manitoba Hydro to contain commercially sensitive information. They are treated as trade secrets and so it is impossible to gauge the validity of Manitoba Hydro’s claim. A reason given for the continuation of the Keeyask project following a consultant’s review in September 2016 is that $5 billion worth of sales would have been lost if Keeyask and Bipole III were aborted. But the consultant’s review was compromised because it did not use information gleaned independent of Manitoba Hydro.
5. Is moving DSM to an independent agency separate from Manitoba Hydro a good idea?
The Public Utilities Board (PUB) recommended that several years ago but the NDP Government took no action on it. During the election campaign, the Conservatives stated that they would create such a separate agency if they formed government. All parties including the Conservative Government cited their belief that there is an inherent conflict of interest for a single organization to be charged with both the production of electricity and its conservation. In late 2016, the Government announced that the legislation for the creation of such an agency was underway. The Coalition believes it would be a mistake to split two functions that are as interdependent functions as DSM and generation into two organizations. It believes that instead the Government should ensure that a diligent Board and committed executives are charged with coordinating these two roles responsibly.
6. Why is Manitoba Hydro building a tie line to the United States?
The tie line will serve two purposes. It will be used to fulfil export contracts in Minnesota and Wisconsin and also to export surplus electrical energy. It will also be used to import energy at peak use times and in case of a catastrophic outage in Manitoba. Because the price of electric energy in the US varies on an hourly basis, it will also be available to import energy when it is cheaper than the short-term marginal cost of generating it in Manitoba.
7. Who will pay for the tie line to the US?
Manitoba Hydro will pay for the entire cost of the line on the north side of the Canada/US border, where it is the major part of the Manitoba/Minnesota Transmission Project (MMTP) now estimated to cost CAD350 million. Manitoba Hydro will also pay more than 40% of the estimated $560 million to USD710-million cost of the line on the south side of the border where it is called the Great Northern Transmission Line.
8. Why did the Boston Consulting Group (BCG) recommend the continuation of the Bipole III, Keeyask and tie line projects and why did Manitoba Hydro accept the recommendation?
BCG estimated the cost of aborting the Bipole III and the Keeyask projects to be about $2 billion and the additional value of lost export revenue to be about $5 billion. BCG recommended after a three-month study that all three projects proceed and the Board accepted that recommendation.
9. Why is the equity:debt ratio being used to measure the financial health of Manitoba Hydro?
Manitoba Hydro’s expansion plan is entirely debt-financed, causing the equity:debt ratio to decrease, according to earlier information provided by the utility, to 0.12. New information attributed to the Hydro Board reveals that it may plunge to 0.08. An equity:debt ratio of 0.25 is regarded by Manitoba Hydro as safe for a crown corporation. BCG provided equity:capitalization information for other electrical utilities that allows for the calculation of equity:debt ratios. For four out of the five Canadian crown corporations, the equity:debt ratio ranges from 0.25 to 1.04. Only one Canadian crown corporation (New Brunswick Power) had an equity:debt ratio lower than Manitoba Hydro. For four investor-owned utilities in the US, the equity:debt ratio ranged from 1.04 to 1.63. Clearly, Manitoba Hydro is in extremely risky financial territory. Rhetoric emanating recently from Manitoba Hydro’s leadership uses terms like “ticking time bomb”, “walking on a tightrope” and “one drought away from trouble”.
10. What is the Coalition’s opinion of the review by the Boston Consulting Group?
BCG is a credible organization but, in the opinion of the Coalition, the timeline allowed for the review was inadequate. With a three-month window to complete its study, BCG did not have time to validate and verify the information it received and relied on from Manitoba Hydro. To its credit, BCG did assess the extent to which the Bipole III and Keeyask projects are likely to exceed cost estimates. But there was no time, for example, to test assumptions about domestic load growth and export revenue that are key to the business plan. As a consequence, there can be no certainty that the plan is sound or even that the decision to proceed was soundly based.
11. Why did the Premier not launch an independent review of Keeyask as the Conservatives had promised during the election campaign? And why did the Premier not request the PUB to conduct a public review of Bipole III as he had personally promised during the election campaign?
You would have to ask him. He has never explained those breaches of promise to Manitobans.