Manitoba Hydro The Long View - AUGUST 2019 - Canadian Centre for Policy
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CANADIAN CENTRE FOR POLICY ALTERNATIVES
MANITOBA
Manitoba
Hydro
The Long View
AUGUST
By Lynne Fernandez
2019
Manitoba Hydro – The Long View About the Author
isbn 978-1-77125-470-0 Lynne Fernandez holds the Errol Black Chair in
Labour Issues at the Canadian Centre for Policy
august 2019 Alternatives.
This report is available free of charge from the CCPA Acknowledgements
website at www.policyalternatives.ca. Printed The author would like to thank the three reviewers
copies may be ordered through the Manitoba Office who provided corrections and improvements to the
for a $10 fee. first draft.
This research was supported by Manitoba’s labour
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em ail ccpamb@policyalternatives.caTable of Contents
1 Introduction
3 The Engine that Keeps the Province Going
MH Finances
7 Keeyask Generating Station and Bipole III: A Short History
Keeyask Generating System and the Need For and Alternatives To
Hearings and Report – 2014
Demand Side Management
765 MW US Transmission Line
First Nations Partners
Bipole III
Why Build Bipole III?
Approval of Bipole III
13 A Response to the Critics of Keeyask and Bipole III
Specific Project Risks
Cost over runs
Market prices
Favouring high capital costs
Magnitude of debt
19 A New Way of Doing Business
First Nation – Manitoba Hydro Relations
Training and hiring
Northern Flood Agreement
Bipole III and First Nations
First Nation on-Reserve residential class
Manitoba-Minnesota power line
25 Manitoba Hydro and Party Politics — Coming Full Circle
The Tritschler Report
Privatization
29 Conclusion
31 Endnotes
M anitoba Hydro – The Long View iiiiv c anadian centre for polic y alternatives —
M ANITOBAIntroduction
In fall 2018 the Manitoba government announced The intense concentration on just a few of the
it had hired former BC premier Gordon Campbell many moving parts of Manitoba Hydro (MH) can
to head a $2.5 million inquiry into Manitoba Hy- give us a distorted picture. We may learn from
dro’s more recent projects: specifically, Keeyask such reports about cost overruns and debt, but
Generating Station and the Bipole III transmis- if that’s all we see, we miss important contextual
sion line.1 The question that needed answering elements found in a more complete view. In the
was whether or not the projects were “based on case of MH, the picture is so big, involving both
sound economics.” 2 At issue specifically was past and future considerations, that it’s hard to
“whether the projects were built long before put it in focus.
domestic demand required them, and on over- MH is a mammoth corporation operating in
ly optimistic projections of export prices.” The an arcane world of continental exports, imports,
announcement came on the heels of a previous spot pricing, future pricing and domestic and for-
inquiry by the same government into the same eign demands. It competes with other forms of
projects. The Boston Consulting Group (BCG) energy — like fracked gas, wind, solar and coal-
report came to an overall conclusion that the fired plants — that come and go at ever faster rates.
government was keen to publicize: that Keeyask The importance and complexity of the cor-
and Bipole III should not have gone ahead and poration make it ripe for controversy — contro-
that the previous NDP government had been less versy that is an integral part of politics in this
than prudent in allowing them to proceed.3 It province. The utility has been painted as a jewel
concluded, however, that both projects were too in Manitoba’s crown corporations — a publically
far along to be cancelled. Closer examination of owned gem which provides reliable, affordable
that report will show that BCG conceded some energy. It has also been portrayed as an inefficient
important points in favour of the Keeyask pro- government monopoly which, by virtue of it be-
ject that have not been highlighted, and that it ing publically, not privately owned, is susceptible
failed to adequately include environmental and to questionable manipulation by government.4
social considerations in its analysis, particularly Manitoba Hydro has also long been involved in
around Bipole III. a complicated and painful relationship with First
M anitoba Hydro – The Long View 1Nation and Métis communities.5 No comprehen- Keeyask and Bipole III, and respond to the criti-
sive report could ignore the damage that has been cisms of these decisions. Extensive citation of a
done to entire communities, or pretend that mak- plethora of media articles will demonstrate the
ing amends will be easy or even fully completed. high-profile nature and tone of the debate, and
In an age of reconciliation, forging a healthier re- consider the slow, painful evolution of relations
lationship with Indigenous people should be any with Indigenous communities. It will then ex-
government’s most pressing issue. In Manitoba, amine some of the past political debate, showing
MH must be at the forefront of this effort. that what we’re witnessing today is a continua-
Other considerations include the volatile tion of how parties use Hydro to position them-
times in which we live in. Climate change, spe- selves in the public sphere.
cies extinction, new sources of fossil fuels such Finally, given the propensity to partially and/
as fracking, the rapidly decreasing cost of wind or fully privatize crown corporations in Cana-
and solar power and economic and political un- da (BC Hydro; Ontario’s Hydro One; Manitoba
certainty affect hydro development in complex Telephone Services; Alberta Liquor Commis-
ways that need to be carefully analysed. This re- sion — for example) it is not unreasonable to ask
port will begin that long conversation. if much of the bad publicity Manitoba Hydro is
It will first offer an overview of MH’s oper- facing is meant to build an argument in favour
ations, its role as a crown corporation, and fi- of privatization. It is certainly a strategy we have
nancial performance. It will then discuss how seen before,6 and if it’s being contemplated, it has
and why the decision was made to proceed with to be called out so that the public can respond.
2 c anadian centre for polic y alternatives —
M ANITOBAThe Engine that Keeps the Province Going
Manitoba Hydro (MH) is arguably the most im- our ability to provide reasonable levels of ser-
portant corporation in the province. It is one of vice to our customers.” 10
Canada’s largest integrated electricity/natural MH has 16 generating stations located through-
gas distribution utilities, and it trades electric- out the province. Two of them are thermal gen-
ity in wholesale markets in the US and Canada. erating (in Brandon and Selkirk) and the others
According to its 2017–18 annual report,7 it pro- are hydro generated.
vides electricity to more than 580,000 custom- The following table on page four lists the util-
ers and employs close to 6,000 workers (1,026 of ity’s in-service hydro generating stations, their
whom are Indigenous). MH jobs are good jobs, capacity and their location.
whether they be in administration, financing, The Keeyask Generating Station is slated to
engineering, human resources, IT, legal or asset come into service in 2020, and will increase ca-
maintenance and repair. The utility offers decent pacity by 695 megawatts (MW). This system of
wages, benefits and permanent employment that generating stations allow MH to provide reliable
allows employees throughout the province to electricity and customer service to its residential
raise a family and support the local economy. and business customers at comparably lower rates
It is of great concern that this workforce is be- than other jurisdictions, as demonstrated by the
ing reduced. In April, 2019 the Pallister govern- following charts from a Hydro Quebec 2018 study.12
ment delivered mandate letters to all Manitoba’s The same advantage can be seen for larger,
crown corporations instructing them to reduce industrial users.13
staff.8 MH has been told to reduce its manage- It should be noted that while Montreal has
ment workforce an additional 15 per cent, and a lower rate than Winnipeg, all Manitoba com-
its regular staff an additional 8 per cent from munities pay the same rate per kilowatt hour.
earlier cuts, including the loss of 900 positions Outside Montreal, Quebecers pay higher rates
in 2017.9 The corporation’s Bruce Owens stated than Manitobans.
“We believe that further staff reductions would Public ownership of large utilities in the form
significantly increase the risk of public and em- of crown corporations is common in Canada, and
ployee safety, of system reliability, and as well they have served the public well. Governments,
M anitoba Hydro – The Long View 3Table 1 Manitoba In-service Hydro Generating Stations as of 2018 11
Generating Station Date completed Vicinity Generating Capacity (megawatts)
Grand Rapids 1968 The Pas/Saskatchewan River 479 MW
Great Falls 1928 Lac du Bonnet/Winnipeg River 129MW
Jenpeg 1979 Thompson/Nelson River 115MW
Kelsey 1961 Thompson/Nelson River 286MW
Kettle 1974 Lower Nelson River/York Factory 1,220MW
Laurie River I and II 1952/1958 Lynn Lake 10MW
Limestone 1992 Churchill/Nelson River 1,350MW
Long Spruce 1979 York Factory/Nelson River 980MW
McArthur Falls 1955 Winnipeg/Winnipeg River 56MW
Pine Falls 1952 Traverse Bay/Winnipeg River 84MW
Pointe du Bois 1926 Lac du Bonnet/Winnipeg River 75MW
Seven Sisters 1952 Winnipeg/Winnipeg River 165MW
Slave Falls 1948 Lac du Bonnet/Winnipeg River 68MW
Wuskwatim 2012 NCN/Thompson/Burntwood River 211MW
Figure 1 Comparative Index of Residential Electricity Prices
500
Consumption – 1,000 Kilowatts/hour/month.
Montreal = 100.
450
Monthy bill excluding tax: April, 2018.
400
350
300
$/month
250
200
150
100
50
0
Montreal
Winnipeg
Vancouver
St. John’s
Ottawa
Miami FL
Moncton NB
Toronto
Houston TX
Portland OR
Edmonton
Seattle
Nashville
Calgary
Halifax
Regina
Chicago
Charlottetown
San Francisco
New York
Boston
Detroit
source: Hydro Quebec
including Manitoba’s, have used hydro-electric governments to act as risk takers, ensuring that
resources as an instrument of economic devel- large rural areas are served, it has allowed them
opment. Not only has public ownership allowed to attract and develop electric-intensive indus-
4 c anadian centre for polic y alternatives —
M ANITOBAFigure 2 Comparative Index of Electricity Prices. Large-power Customers.
500
Consumption – 30,600,000 Kilowatts/hour/month.
Power Demand: 50,000kW. Voltage: 120kV.
450
Hydro-Quebec = 100.
Monthly bill excluding tax: April, 2018.
400
350
300
$/month
250
200
150
100
50
0
Winnipeg
Montreal
St. John’s
Chicago
Vancouver
Edmonton
Nashville
Miami
Moncton
Regina
Detroit
Portland OR
Calgary
Seattle
Houston
Charlottetown
Halifax
Ottawa
Toronto
New York
San Francisco
Boston
source: Hydro Quebec
tries like metal refining. Certainly no private MH is also governed by The Crown Corporation
corporation would have had the resources to Governance and Accountability Act.16
build and maintain the infrastructure owned Retail electricity rates are overseen by The Mani-
by MH.14 Furthermore, a private corporation toba Public Utilities Board (PUB) — in accordance
would not want to provide electricity to small, with The Manitoba Public Utilities Act. MH ac-
remote communities at the same price as it does tivities are also monitored by the Clean Environ-
for Winnipeg. A private entity would want high- ment Commission and Manitoba Conservation.
er overall rates for their return on investment Canadian public-owned electric utilities have
and would not want the responsibility of serv- engaged in leading edge research and develop-
ing remote communities the way that MH does. ment, especially in long-distance transmission.
As a provincial crown corporation, MH is MH and Hydro Quebec are world leaders in high
responsible to the government of Manitoba and voltage transmission technology, with Manitoba
Manitobans. A board, appointed by order of the leading the way in DC transmission and Que-
Lieutenant Governor in Council, oversees MH’S bec in AC.17
affairs and ensures government control. There Crown corporations have an added advantage:
is also legislative oversight by way of The Mani- they contribute revenue to government coffers.
toba Hydro Act, providing oversight of capital
borrowing, the requirement that cabinet must
approve extra-provincial electricity sales and MH Finances
provincial licensing requirements for certain According to the MH 2017/18 annual report,18
activities. Various activities of the corporation the utility paid $126 million in water rentals
require appearances at legislative committees.15 and $130 million in capital and other taxes to
M anitoba Hydro – The Long View 5the province. Most of the utility’s revenue from few years has been its debt/equity ratio which
electricity comes from domestic sales, in the has declined from 27 per cent in 2010 to 15 per
amount of $1.494 billion. Extra-provincial sales cent in 2018 (this issue is dealt with later in this
for the same period were $437 million. Sales of report). The reason for the decline is the large,
natural gas totalled $346 million.19 debt-financed, capital investment in two major
The utility’s retained earnings have steadily projects: Keeyask Generating Station and Bipole
increased from $2.076 billion in 2009 to $2.936 III. It is these investments that are attracting the
billion as of March 31, 2018.20 The indicator that ire of the ruling Conservatives and which have
has attracted so much attention over the past received so much media attention.
6 c anadian centre for polic y alternatives —
M ANITOBAKeeyask Generating Station and Bipole III:
A Short History
The Keeyask Generation project consists of a international bond-rating agencies. The PUB also
695 MW hydroelectric generating station. It is examined the project plans through a Needs For
located on the Nelson River, near Gull Rapids. and Alternatives To (NFAT) review which con-
Planning started in the 1990s when it was deemed sidered a variety of options and concluded that
necessary to provide more power for export to Keeyask and Bipole III made the most sense.
the US market, and meet projected increases in It was well known throughout the PUB pro-
domestic demand. In order to increase trans- cess that spending on these projects would cause
mission capacity and reliability, the Bipole III MH’s debt to increase, and a sometimes heated
project was also approved. debate took place before, during and after the
It was projected that Keeyask would cost $6.5 hearings.24 Earlier on the main focus of protest
billion21 and Bipole III $3.28 billion.22 from the then-opposition Conservatives, which
Large capital projects of this nature are not did get support from affected land owners, was
approved on a whim, regardless of which party the routing of Bipole III down the west side of
is in power. They must be approved by the Pub- Lake Manitoba instead of the shorter and less
lic Utilities Board (PUB), an “independent, quasi- expensive east side of Lake Winnipeg.25 Initial
judicial administrative tribunal that has broad consultations in east-side communities found
oversight and supervisory powers over public widespread opposition to the suggestion of a bi-
utilities and designated monopolies, as set out pole being located there.
in statute.” 23 Once in power, the Conservatives continued
The PUB holds public hearings on important questioning the routing of Bipole III and added
issues, including rate increases and project ap- the decision to build Keeyask to the debate. At
provals. Interested parties, such as the Canadi- issue was whether or not there was sufficient de-
an Consumer Association and the Green Action mand to increase the amount of power gener-
Centre can participate as intervenors. Hydro’s ated, if there was a need to improve reliability,
financial staff prepares a 20-year financial fore- if too much debt was incurred and if the routing
cast which is updated every year and made public of Bipole III was changeable. Although criticism
through the PUB. This report is also reviewed by was aimed at the NDP government, it was the
M anitoba Hydro – The Long View 7PUB that conducted the public hearings, heard • A 308 MW system power sale agreement
expert testimony and ultimately made the rec- with Wisconsin Public Service (2027–2036).28
ommendation to proceed with Keeyask. The NFAT granted intervener status to five or-
ganizations, being the Manitoba Métis Federa-
tion, Manitoba Keewatinowi Okimakanak Inc.,
Keeyask Generating System and the Need the Green Action Centre, the Manitoba Indus-
For and Alternatives To Hearings and trial Power Users Group and the Consumers’
Report – 2014 Association of Canada (Manitoba). Independ-
The PUB conducted Needs for and Alternatives ent expert consultants were appointed to ex-
to (NFAT) hearings to examine 12 possible plans amine MH’s Preferred Development Plan, eight
developed by MH for capital expansion. The of whom provided evidence at the hearing. The
expert panel was to determine if the corpora- panel heard 43 days of evidence.29
tion had made the best choice and to impose The panel’s key recommendations were that:
any changes it saw necessary. As in regular PUB • The Conawapa Project and the North-
meetings, MH had to pay for the cost of both its South Transmission upgrade be terminated
own submission and the costs of the five inter-
• The Keeyask Project proceed with an in-
venors. Intervenor costs covered include legal
service date of 2019
and professional consultant fees, which can be
as high as $285/hour,26 and accordingly added • The 750 MW US transmission
up to a significant amount. interconnection project proceed
MH had put forward a preferred plan for • The Demand Side Management (DSM)
Keeyask which included the following: responsibilities be removed from MH and
• The 695 MW Keeyask Project ($6.5 billion): a new arm’s length entity be established to
in-service date of 2019 handle DSM programs
• The 1,485 MW Conawapa Project ($10.7 • The government not approve further
billion): in-service date of 2026 generation and transmission projects
• North-South transmission Upgrade ($500 without a comprehensive and regularly
million): in-service date coinciding with occurring integrated resource planning
Conawapa process.30
• The 750 MW US Transmission The NFAT panel also recognized the existing
Interconnection project to Minnesota ($1 export arrangements the corporation has with
billion).27 the Midcontinent Independent System Opera-
tor (MISO). MH exports electricity at prevailing
MH’s preferred plan was based on the following
spot-market prices that change according to de-
export contracts it had recently signed or was in
mand. Up to 60 per cent of the utility’s export
the process of negotiating:
revenue rely on these opportunity sales.31
• A 125 MW system power sale agreement
It also agreed that there was a need to increase
with Northern States Power (2021–2025)
the supply of electricity. The panel found MH’s
• A 100 MW system power sale agreement 20-year load forecast to be reasonable, although
with Wisconsin Public Service (2021–2027) the 1,700 GW of new pipeline load needed for
• A 250 MW system power sale system the Energy East pipeline did not materialize as
agreement with Minnesota Power (2020– predicted, demonstrating just how volatile fossil-
2035) fuel projects are becoming. The panel was not as
8 c anadian centre for polic y alternatives —
M ANITOBAconvinced by the utility’s long-term load forecast, dro bills on several Reserves as well as increasing
noting the difficulty in predicting future demand employment. The communities access MH’s Pay
because of how rapidly technology is changing.32 As You Save (PAYS) Financing program, allow-
ing families to finance the upfront cost of geo-
Demand Side Management thermal equipment and installation. MH then
The other factor the panel considered was the recovers the cost through an on-bill charge on
role of MH’s Demand Side Management pro- the customer’s account — over 20 years. Aki En-
gram (DSM). Its Power Smart Plan allowed cus- ergy works with MH to guarantee that energy
tomers to reduce their consumption of energy bill savings are greater than the financing charge,
to the point that they could lower their MH bill so that First Nation customers see energy sav-
even as rates increased.33 MH had been directed ings right away.37
to implement a DSM program in order to reduce Aki Energy trains First Nation geothermal
consumption and conserve energy. installers who do all the installations in the
The panel found that MH was in conflict as a communities. The role of the Band and Council
seller of electricity and as a promoter of energy in these communities (Peguis First Nation and
efficiency and that for this reason, recommended Fisher River Cree Nation) is important. Not only
carving the DSM out of MH. The Pallister gov- do they provide financial backing for the families
ernment took that recommendation to heart by guaranteeing their bill payments, but in the
when it set up a new crown corporation called case of Fisher River it has expanded geo-thermal
Efficiency Manitoba34 to handle DSM. beyond residential use. Those First Nations that
The panel’s recommendation to separate the have their own construction companies use Aki
DSM program from MH is not without criticism. Energy to train their employees so they can do
Citing conflict of interest makes more sense when the work.38
dealing with a private, for-profit corporation. A A video on the Aki Energy website explains
crown corporation is not a profit-maximizing en- how MH’s DSM program helped First Nation
tity; its mandate is to best serve the public. The communities in Manitoba play a leading role
Energy Savings Act directed MH to design its DSM in job creation, energy savings for First Nation
three-year plan in consultation with the Govern- families and transitioning to geo-thermal, bio-
ment of Manitoba.35 The Energy Efficiency Act con- mass and solar energy.39 It includes the voices of
siders the need to conserve energy for the good community members from the Chief, to workers,
of the environment and incorporates sustainable business owners and homeowners.
development principles. A publically-minded cor- MH collaborated with three other social en-
poration like MH, supported by legislation such terprises to provide training and work to multi-
as The Energy Savings Act, is certainly capable of barriered workers living in Winnipeg and Bran-
balancing energy conservation with the sale of don (BEEP — Brandon Energy Efficiency Program;
electricity. Indeed in an age of climate change, BUILD — Building Urban Industry for Local De-
it should be its primary concern.36 velopment; and MGR — Manitoba Green Retro-
The partnership with Aki Energy shows what fit, now Purpose Construction). Trainees tend to
MH’s DSM program can do. In collaboration with be Indigenous youth who have not had the op-
the Indigenous owned social enterprise, Aki En- portunity to learn a trade or work. Some have
ergy, MH implemented a sophisticated program been gang-involved and are hoping to turn their
for the installation of geo-thermal heating on lives around. Once again MH’s PAYS program
First Nation communities. It has been very suc- allowed workers to install insulation, energy ef-
cessful in reducing energy consumption and hy- ficient windows and energy efficient upgrades.40
M anitoba Hydro – The Long View 9The 750 MW US Transmission role in its design. For example, because of con-
Interconnection cerns raised by TCN, MH opted for a plan that
In order to meet MH’s export obligations, it has involved less flooding and therefore, less power
to increase its capacity to transmit power to the production. Aboriginal traditional knowledge,
US. The Manitoba Minnesota Transmission Pro- including the Cree worldview, was included in
ject, a $1 billion project, will connect with the US the planning of the project.
grid in Duluth, Minnesota. This project faced its More about MH partnerships with First Na-
own challenges brought on by the current gov- tions can be found in the section “A New Way of
ernment’s refusal to recognize an agreement MH Doing Business” later in this report.
made with the Manitoba Métis Federation.41 This
issue will be further considered in the upcoming
section “A New Way of Doing Business.” Bipole III
In sum, the 2014 NFAT report was an in-depth, Bipole III is a large MH project which will im-
arm’s length, transparent exercise that found the prove reliability in Manitoba’s electric grid and
Keeyask Generating Station to be an economi- increase MH’s export capacity. It adds 2,000 MWs
cally sound project. Its conclusions were based from the Keeyask Generation System.43 Sched-
on the strength of the export contracts in place uled to come into service this summer, work
and the utility’s projections for future demand. was completed on schedule. According to MH:
The inclusion of First Nations partners was
Building the HVDC transmission project was a
also an important part of the utility’s plans.
massive undertaking involving the installation
of over 3,000 steel towers and 20 specialized
converter transformers. At the project’s peak, it
First Nations Partners 42
was one of the 20 largest construction projects
The Keeyask project is the result of a partnership
in North America.44
between five partners: a general partner, being a
numbered company wholly owned by MH, and
Why Build Bipole III?
four limited partners. The limited partners are:
Approximately 75 per cent of the energy gen-
MH and three limited partnerships representing
erated in Manitoba flows to Dorsey Station in
the Keeyask Cree Nations (KCN), being Tatask-
southern Manitoba through Bipoles I and II,
weyak Cree Nation (TCN); War Lake First Na-
which run side by side though a corridor in the
tion (WLFN); York Factory Cree Nation (YFCN);
Interlake. Having the two transmission lines so
and Fox Lake Cree Nation (FLCN). All four First
close to each other means that wild fires or ex-
Nations held community ratification votes prior
treme weather events (the possibility of which
to signing on to the project.
is ever increasing with climate change), increase
All limited partners invested in the project
the probability that both lines could be affected,
have limited rights regarding the management
knocking out power to southern communities,
and operation of the project, as well as limited
including Winnipeg.45
liability for the partnership’s debts. The general
The possibility of a major power disruption
partner is responsible for the management, op-
was considered in a NFAT report prepared by
eration and debts of the partnership. MH owns at
MH. A worst-case scenario was described:
least 75 per cent of the equity in the partnership
and KCN has the right to own up to 25 per cent. The potential effects of such an event present
The partners began working on the project a risk that is unacceptable to Manitoba
in the early 1990s, and the KCN played a major customers, particularly in the very cold months
10 c anadian centre for polic y alternatives —
M ANITOBAwhen the loss of power for extended periods decision to run the route down the west side of
could have serious effects on health, safety and Manitoba, rather that the shorter and less pop-
security. The loss of Dorsey Station for up to ulated east side of Lake Winnipeg. Despite the
three years could have a disastrous impact to greater cost which was initially estimated at $690
the province and its economy. million and came in around $900 million,50 the
west side was chosen after extensive consulta-
The extensive rotating blackouts would leave
tions were conducted with stakeholders on both
affected neighbourhoods without power for
routes. Also of importance were the considera-
extended stretches of time on a daily basis
tions of export customers in the US, who were
meaning that day to day requirements such as
taking stock of First Nation concerns as well as
lighting, refrigeration, heating/cooling would
environmental issues.
be unavailable on a rotating schedule. Similarly,
Environmental concerns were becoming much
businesses would also be without power to
more important in shaping the decisions of com-
operate their facilities forcing them to close
panies and jurisdictions that purchase energy.51
during such outages, and causing business
The US environmental group Fresh Energy, that
disruptions.46
wanted to increase local renewable capacity, used
The possibility of disruption was driven home the grievances of those First Nations involved in
with a September 5, 1996 wind downburst which the Northern Flood Agreement — in particular
caused the failure of 19 Bipole I and II transmis- Pimicikamak (formerly Cross Lake) — as evi-
sion towers. Luckily the damage was two km dence that Minnesota should not purchase en-
north of Dorsey Station, just enough distance ergy from MH.52 In 2007, their lobbying resulted
to prevent damage to the Dorsey-Forbes 500 kV in the passing of an omnibus and energy bill in
interconnection.47 the Minnesota legislature, requiring MH to give
Bipole III, which runs down the west side of yearly reports on social and environmental indi-
the province, provides a crucial backup in the cators for those First Nation communities that
event of problems with Bipoles I and II, dra- are signatories to the Northern Flood Agreement
matically reducing the risk that the worst-case (see later section: A New Way of Doing Business
scenario occur. for more on the NFA). The legislation was subse-
Bipole III also ensures an adequate supply quently reversed, but only after intense lobbying
of power to meet the corporation’s current ex- by the Manitoba Government.53 This experience
port obligations — and more. Exports made up led to legitimate concerns that routing Bipole III
23 per cent of MH’s electric revenues between down the east side, where the majority of First
2009–18, helping to keep domestic rates low.48 Nation communities were opposed, would result
This percentage will only increase as the con- in long delays and greater expense.54
tracts come on line with US customers, and the The concerns of US customers were not just
new contract recently signed with Saskatchewan around the relationship MH had with First Na-
coming into effect in 2021.49 tions; they were, and are, also interested in pur-
chasing cleaner, renewable energy to help them
Approval Process for Bipole III transition to a carbon free system.55
The project was subject to a rigorous approval At the same time, protection of the east side
and planning process. Just choosing the route boreal forest was becoming an important local
involved substantial consultation with First Na- environmental issue, and Canadian and interna-
tions, property owners and other members of tional environmental groups were putting pres-
the public. At issue was the Doer government’s sure on the government not to go down the east
M anitoba Hydro – The Long View 11side.56 Although both routes contained environ- side of Lake Winnipeg to get feedback on pref-
mentally important areas, the east side boreal for- erences regarding measures to improve their
est is relatively untouched and there were valid economic future in the region.63 In 2009, The
arguments for keeping it that way. According to East Side Traditional Lands Planning and Spe-
the Canadian Boreal Initiative; “taken together, cial Protected Areas Act set the parameters for
the carbon and intactness values of Manitoba’s the development of the east side. The purpose
Boreal are some of the richest in the world, es- of the legislation was:
pecially in northern Manitoba and along the east (a) t o enable First Nations and aboriginal
side of Lake Winnipeg” (our italics).57 Protection communities on the east side of Lake
of the habitat of the woodland caribou and other Winnipeg to engage in land use and
wildlife also figured prominently in the decision resource management planning for
to build on the west side. designated areas of Crown land that they
The Doer government of the day also recog- have traditionally used; and
nized that preservation of the boreal forest in
(b) t o provide designated areas of Crown
eastern Manitoba would encourage travellers
land on the east side of Lake Winnipeg
to visit this part of the province and create eco-
with special protection from development
nomic benefits for local people and their commu-
and other activities that might occur on
nities. In light of these considerations, five First
that land.64
Nations and the Manitoba and Ontario govern-
ments submitted a joint request to the federal The majority of communities said that they fa-
government, asking them to apply to have 4.3 voured the construction of all-weather roads,
million hectares of virgin Boreal forest in this largely using the existing winter road routes with
region declared a UNESCO World Heritage site.58 multiple new bridges, linking the various com-
That World Heritage Site designation was munities, and the promotion of ecotourism —
granted in July, 2018 to the area called Pima- a spinoff of the World Heritage Site — to create
chiowin Aki.59 There was reason to believe that economic and employment opportunities over
the designation would not have come through the longer term.65
had Bipole III been routed down the east side.60 The east side/west side debate was long and
Further considerations into the route selec- contentious. Neither route was going to be con-
tion included a MH Site Selection and Environ- flict-free: settler land owners and First Nation
mental Assessment (SSEA). This process involved and Métis communities on the west side were
mapping “biophysical, socio-economic, techni- also affected. The decision to go down the longer,
cal and reliability criteria within the broad study more expensive west side was based on a mix of
area” that was identified in the first of 4 rounds complex issues ranging from First Nation con-
of public consultations.61 Development of Bipole cerns, environmental stewardship, and finan-
III required a Class 3 license under The Environ- cial implications that were further complicat-
ment Act. The environmental assessment includ- ed by international considerations. At the end
ed a set of community/public consultations and of day, the more pristine east side boreal forest
identification of possible impacts which were in- was protected while respecting the rights of the
cluded in an Environmental Impact Statement.62 majority of First Nations who live there. All the
MH and the government held extensive con- communities along the chosen route were finan-
sultations with Indigenous peoples on the east cially compensated.
12 c anadian centre for polic y alternatives —
M ANITOBAA Response to the Critics of Keeyask
and Bipole III
By the time the Conservatives were elected in debt, and was arguing for a large infusion of eq-
2016, the Bipole III debate had faded, although uity to shore up the utility’s finances.69
the Premier did have one last stab at it, possi- In the interest of improving MH’s finances,
bly to appease those who were adamantly op- the new provincial government cut 900 positions,
posed to the west-side route.66 As late as June, all in the spirit of calling “all hands on deck” as
2016, Premier Pallister warned the Canadian Premier Pallister framed it. The loss of so many
delegation to the World Heritage Committee decent positions in a small economy like Mani-
that it was still possible that Bipole III could be toba’s was significant.70
routed down the east side and a Bipole IV, if ever It was the BCG report that would become the
built, could also take that route.67 If the Com- bulwark of the government’s campaign to dis-
mittee received that message, it obviously did credit the decisions made by the previous NDP
not take it too seriously as the designation was government, with Premier Pallister going so far
approved two years later. It was highly unlikely as to claim that Keeyask had not gone through
at this point that the route for Bipole III could a proper approval process.71 It wasn’t clear if he
have been changed: $1.8 billion had already been meant that the PUB process had been skirted or
spent on the west side.68 tampered with, or if he felt the Board hadn’t done
Keeyask construction was also well under a proper job. The BCG concluded that somehow,
way, but the newly elected Pallister government despite the extensive process described above,
still thought it necessary to investigate how both the PUB had not adequately assessed the risks
projects were approved and examine the conse- associated with building Keeyask and that the
quences of undertaking such large scale projects. long, detailed and multi-stakeholder process to
As well as commissioning a high-priced report approve Bipole III didn’t count. Specifically it
from the Boston Consulting Group, MH’s newly found: 72
appointed board chair Sandy Riley — who later • “Financial modelling that did not fully
would suddenly quit the board along with all reflect the specific project risks (e.g.
but Progressive Conservative MLA Cliff Gray- construction execution, market prices,
don — was proving to be a loud critic of MH’s domestic demand)
M anitoba Hydro – The Long View 13• Discount rates that favored high capital puts the project’s costs some $1.3 billion over the
projects over lower upfront cost projects 2014 estimate. If we convert the comparison to
• The magnitude of the overall level of real dollars, the original estimate comes in at
debt that both Hydro and the Province of $7.06 billion in 2019 dollars, making the overrun
Manitoba would ultimately be exposed to. $740,000 million in real terms, or 10.5 per cent.
This is especially true given the concurrent Current projections have the project coming into
build of Bipole III, which is required for service in 2020, one year later than the original
reliability purposes”. plan.78 Delays and cost increases were caused
by unexpected conditions with the bedrock.79
Each of these points will be discussed below.
The new in-service date compares favourably
with Flyvbjerg’s finding that the average delay
for dam construction is 45 per cent.80
Specific Project Risks
Bipole III’s total cost was $4.7 billion,81 up
Cost Over-runs $1.4 billion from the 2011 estimate of $3.3 bil-
Bent Flyvbjerg of Oxford University analysed lion. Converting the 2011 estimate to 2018 dol-
mega infrastructure projects in his 2014 report lars (when the project was completed) puts it
“What You Should Know About Megaprojects, at $3.65 billion, bringing the real cost over-run
and Why: An Overview.” 73 Although the study down to $1.05 billion — or 29 per cent.
is critical of most large infrastructure projects, Certainly MH’s should always endeavour
according to Flyvbjerg when mega projects are to stick to project estimates, but these over-
properly designed, they can create and sustain runs are not as egregious as reported.82 The
employment, improve competitiveness by lower- over-run for Bipole III is higher in percentage
ing producer costs, benefit consumers with better terms, but it needs to be compared to the cost
products and/or service, and make environmen- over-runs which would have been incurred if
tal improvements by replacing environmentally it had been routed down the east side — as the
unsound structure with infrastructure that is BCG concluded it should, despite credible con-
sound.74 Certainly the above benefits have been cerns that local First Nation and environmen-
realized by Manitoba’s settler community from talists never would have allowed the project to
past hydro development, and we are far from be- get off the ground. Their report did consider
ing able to say that the same benefits will not be the hypothetical costs of shifting to the east
realized over time from Keeyask. side in 2016, putting them between $12 and $18
The issue of cost over-runs for mega-projects billion by 2022. Their calculations included the
is also considered in Flyvbjerg’s report in which cost of loss of export revenue and damaged rela-
he notes that “Megaprojects are inherently risky tionships with US partners and First Nations,83
due to long planning horizons and complex in- but they did not contemplate the value of keep-
terfaces.” 75 He finds that nine out of ten projects ing the east side boreal forest intact, or of the
have cost over-runs, with over-runs of up to 50 UNESCO World Heritage Site.
per cent in real terms not unusual.76
There have been cost over-runs for both Market Prices
Keeyask and Bipole III, with the estimates ris- To a large degree the validity of the BCG conclu-
ing and falling as construction progressed. The sions depends on future revenues flowing from
2014 NFAT estimate for Keeyask was $6.5 bil- export and domestic demand. At the time of the
lion. In 2016, MH raised the estimate to $7.8 bil- report, it found export prices had deteriorated
lion, an estimate it confirmed it will meet.77 This and domestic demand was in flux.84 Changes to
14 c anadian centre for polic y alternatives —
M ANITOBAthe global energy sector are occurring so fast that Favouring High Capital Cost Projects Over
it is difficult to establish lasting projections of Lower Upfront Cost Projects
prices for hydro power. No one knows what the This criticism is in reference to Hydro’s pre-
energy sector will look like five, ten or twenty ferred development plan which beat out other
years from now, so trying to establish a trend options including gas-fired turbines that had a
from a particular moment in time is tricky, no shorter amortization period. But MH’s submis-
matter how sophisticated the computer model- sion to the NFAT included varied and detailed
ling being used. modeling of thermal gas, and the NFAT panel of
Accordingly the PUB, when questioning MH’s experts found that:
future demand forecast, argued that future de-
The Panel does not believe that thermal gas
mand depended on what technology was adopt-
generation provides a reasonable alternative,
ed: something it felt was more volatile than MH
especially when considered against the future
acknowledged.85 It is still too soon to know, but
potential of solar and wind power. The Panel
if some technology develops in such a way as
is very concerned about the environmental
to reduce demand for hydro power, there is no
implications of gas generation as a baseload
reason why MH and the provincial government
resource, especially with respect to Simple
have to passively accept this situation.
Cycle Gas Turbines that do not achieve the same
A recent Ipsos survey found that 53 per cent
efficiency as Combined Cycle Gas Turbines.
of Canadians are planning on buying an elec-
tric vehicle in the next five years,86 and more While future integrated resource planning
and more municipalities are opting for electric will have to consider all resource options, the
buses, a trend Winnipeg’s own New Flyer Indus- adverse environmental effects of gas generation
tries is exploiting as far away as New York City.87 will have to be thoroughly considered.90
Regardless of how these and other new technol-
Clearly the NFAT panel put more weight on the
ogies, such as wind and solar, evolve, there will
environment than the BCG did, a tendency we
be more and more demand for hydro power in
saw with their avoidance of the topic when eval-
an increasingly carbon constrained world. That
uating the routing of Bipole III.
demand will potentially manifest in the electri-
fication of transportation locally, nationally and
The Magnitude of the Overall Level of Debt
internationally and, as other Canadian provinc-
of Hydro and the Province
es move to cleaner energy, in a strengthening of
This criticism in particular has been amplified
the east-west electric grid. The Canadian Energy
by the Premier, his cabinet members, ex-board
Research Institute (CERI) recommended using
chair Riley, and widely reported on by media.
energy imported from Manitoba for use in the
For example, a 2018 media report explains that
oilsands sector.88
Premier Pallister wants to investigate why MH
As previously noted, Saskatchewan and Man-
is so much in debt.91 Rather than hiring expen-
itoba have already secured a contract for elec-
sive consultants to explain why, he could have
tricity sales and line extension, and the federal
reviewed the PUB’s NFAT report which predict-
government recently gave $1.6 million to a pro-
ed increasing levels of debt to finance capital-
ject feasibility project in Nunavut. The plan, if
intensive projects:
approved, is to connect five Nunavut communi-
ties to MH’s hydroelectric and fibre-optic net- The debt-to-equity ratio is a long-term target,
works. The connection would start in Gillam and which serves as a financial guideline only, not
run north to the Kivalliq region in Nunavut.89 an annual requirement. In 2013 it stood at
M anitoba Hydro – The Long View 1575/25. Manitoba Hydro expects a significant The annual rate increases have also become
deterioration in this ratio over the next 20 an issue, with MH now requesting much higher-
years to about 90/10 in the 2020s as debt levels than-usual increases, presumably in response to
increase because of Bipole III and the Preferred the government’s anxiety over debt levels. MH
Development Plan.92 has requested a 7.9 per cent increase on more
than one occasion.98 Various intervenors have
The PUB was fully aware that MH’s debt/equity
argued at PUB hearings that a 7.9 per cent in-
ratio would fall as low as 9 per cent, and that its
crease was not warranted.
development plan included “applying even annual
At the 2017 PUB hearings, when a 3.36 per
rate increases over an 18-year period to achieve
cent increase was granted rather than 7.9 per
a debt-to-equity ratio of 75/25 by 2031/32”.93 The
cent as requested, MH’s president, Kelvin Shep-
ratio is currently at 15 per cent, and is anticipated
herd, argued that the rate was required to fund
to decrease until revenues from Keeyask come
ongoing operations, replenish equity and ensure
on line, combined with planned rate increases,
MH’s debt was self-sustaining. The Public Inter-
allowing the ratio to recover. Even the BCG ac-
est Law Centre’s Byron Williams argued against
knowledged that “single digit equity ratios were
such a steep rate increase and stated that the de-
not highlighted as significant risk when project
cision for the lower increase “... sends a message
approved.” 94 The question now is why this became
that Hydro could not back up with evidence its
such an issue when the Conservatives took power.
claims of an imminent financial emergency”.99
Local economist and ex-Hydro board mem-
In 2018, MH insisted that a 7.9 per cent in-
ber Dr. John Loxley has noted that given the size
crease “could not be wrong”, based on fears of
of the capital projects, the growth in MH’s debt
interest rate increases which would, if they mate-
was expected, that the debt financing was raised
rialized, dramatically affect its finances.100 Once
in the normal manner, and that all these details
again the PUB disagreed, premising its decision
were well known long before the Conservatives
with the following:
were elected:
While the focus of Manitoba Hydro may be
“There is no magic number for the debt-equity
on the financial risks faced by the Utility, the
ratio for a Crown corporation with a 100 per
Board’s role is broader. As noted above, to set
cent debt guarantee from the province. Hydro
rates in the public interest, the Board considers
experienced single-digit equity-to-debt ratios
not only the financial health of Manitoba Hydro.
between 1970 and 1995 without the sky falling in.
Rather, the Board must balance the financial
The ratio will correct itself by the early 2030s on
health of Manitoba Hydro with the interests of
the basis of demand growth and the planned rate
ratepayers.101
increases, without additional rate increases”.95
The PUB granted MH a 3.6 per cent rate increase.
Furthermore, as highlighted in the NFAT report,
It came to this decision after it heard:
once Keeyask is completed Hydro will be paying
the province higher payments by way of water 31 days of oral evidence, including four
rental, capital tax and debt guarantee fees. They Manitoba Hydro witness panels, nine
could reach as high as $516 million by the early Intervener-retained expert witness panels, five
2030s, double what they totalled in 2014.96 The Independent Expert Consultant witness panels,
panel also recommended that these new reve- a ratepayer panel sponsored by the Consumers
nues could be used to offset the impact of rate Coalition, Manitoba Hydro’s oral rebuttal
increases on low-income customers.97 evidence, and three oral public presentation
16 c anadian centre for polic y alternatives —
M ANITOBAsessions along with three written public and predictability. This increase will contribute
presentations. 102
additional revenues to Manitoba Hydro in
2019/20 and in future years.107
The Board heard no expert evidence outside of
MH’s to suggest that the utility’s debt is caus- Year after year the PUB, after hearing substan-
ing the province to have to pay higher interest tive opinions from a variety of expert witnesses,
rates for its debt borrowing. It also did not ac- has ruled in favour of lower rate increases that
cept the argument that rate increases needed to allow MH to service its debt while expanding its
be higher so MH could retire its debt in accord- infrastructure. In other words, the warnings of
ance with its proposed debt management plan, the past MH board chair, BCG and the Premier
finding that it imposed a non-justifiable short- about MH’s debt are found wanting by the PUB.
term cost on ratepayers.103 The Board also argued This would suggest that the debt levels are not
that the higher rate increase was not warranted out of line with what was planned and approved
given that MH will continue to reduce its costs by the PUB and the bond-rating agencies that re-
and maximize export revenues.104 viewed Hydro’s preferred development plan long
The Board also made recommendations around before the Conservatives were elected.
bill affordability, recognizing that even though Despite the Pallister government’s portrayal
Manitoba has amongst the lowest rates in North of Keeyask and Bipole III as serious mistakes,108
America, many low-income customers are still even its own consulting firm, BCG, found that:
energy poor. The Board recommended that the
To the credit of Hydro, several aspects of
government bring in a comprehensive bill af-
the planning and decision process were
fordability program. It argued that the govern-
conducted well. For example, the construction
ment was best positioned to implement such a
of Keeyask is an extremely complicated
program, given that it already has a comprehen-
endeavor from technical, operational, and
sive social program infrastructure in place.105
commercial perspectives. That the project was
It also recommended that MH establish a First
successfully designed and agreed to by multiple
Nations On-Reserve Residential class. This class
parties, stakeholders, and contract holders
would not face a rate increase for 2018/19.106 This
is a significant achievement that should not
recommendation will be further discussed in “A
be overlooked in assessment of the project.
New Way of Doing Business” later in this report.
Moreover, the fact that multiple highly favorable
In 2019, MH made a case for a 3.5 per cent
US export term contracts were negotiated prior
rate increase, which the PUB brought down to
to initiation demonstrates the attempts by
2.5 per cent. Once again, the PUB cited afforda-
project leadership to mitigate at least a portion
bility issues and was not convinced that a higher
of the financial and export risk associated
increase was warranted:
with the project [Exhibit 20]. Further, Hydro
The Board finds that Manitoba Hydro does not conducted several analyses regarding potential
require an increase to its revenues in 2019/20 risks to the project, including low water flows
fiscal year. All revenues from the 2.5% rate and changes to gas and CO2 prices [Exhibit 21].
increase are to be placed in a deferral account Although the ultimate acceptance of some of
for major capital projects currently under the risks identified is questionable, in particular
construction. The deferral account will partially with relation to acceptance of low equity
mitigate future rate increases required when ratios in future years, it is clear Hydro and the
new major capital projects are in-service, Province attempted to weigh several important
consistent with the principles of rate stability risks related to the project.109
M anitoba Hydro – The Long View 17BCG also notes that MH had single-digit debt once future projections have to be made on pric-
ratios between 1970–95110 but that the province’s ing, costs, demand, technology and variations in
lower debt/GDP ratio during that period made weather. PUB hearings, whether for project ap-
MH’s debt more sustainable. This point is only provals or rate increases, do provide MH with
defensible if one accepts that Manitoba’s debt valuable feedback it should consider in order to
is currently unduly high. At the time BCG was improve its performance on a variety of metrics.
making this argument, Manitoba’s debt/GDP ratio One report, for example, provided data and ad-
was at a reasonable level, around 34 per cent,111 vice on asset management that could be helpful.113
and has declined since then. The PUB also con- Nonetheless, try as we may to point to a par-
firmed that it heard no expert evidence to sub- ticular metric (such as the price of large solar
stantiate the claim that the province was being photovoltaics or fracked gas, or the debt/equity
adversely affected by MH’s debt level.112 ratio) at a particular point in time as proof that the
Examination of the expert witness testimony adopted plan was the right — or wrong — one, we
at the PUB NFAT hearings shows just how com- cannot know with certainty what the full legacy
plex the analyses are for projects of this nature. of Keeyask will be. We can, however, point with
It would be unusual not to have a difference of cautious optimism to the changing relationship
opinions on any number of variables, especially with First Nation communities.
18 c anadian centre for polic y alternatives —
M ANITOBAA New Way of Doing Business
First Nation — Manitoba Hydro Relations done on the Wuskwatim Dam), ATEC provides
Manitoba Hydro has been at the forefront of specialized training to NCN residents, many of
bringing First Nations into partnership with whom have dropped out of school and/or have
large hydro development. Completed in 2012, never held a job. The model used by ATEC has
the Wuskwatim Generating Station is owned many of the features determined to be impor-
by the Wuskwatim Power Limited Partnership tant for Indigenous jobseekers and employers
(WPLP). Nisichawayasihk Cree Nation (NCN) and who wish to hire them. It includes an extensive
Manitoba Hydro are partners in the WPLP. This intake process to determine trainees’ education
was the first partnership in Canada between a and employment interests, education levels and
First Nation and an energy utility for the devel- upgrading needs, as well as other social and cul-
opment a major hydroelectric generating station. tural needs. One of its most innovative programs
NCN held a community ratification vote before trains NCN youth to build much-needed hous-
approving the project, and was involved in the ing in NCN and puts them to work so they can
planning and construction of the station — which earn their Red Seal accreditation.115
at the insistence of the community, ended up be- NCN used MH compensation to purchase
ing significantly smaller and less damaging to the the Mystery Lake Hotel in Thompson and hires
environment. It is involved with the project’s on- NCN members to work there. They use interest
going environmental monitoring activities and earned on the trust funds to support a variety of
invested in ownership of the generation station.114 social programs including a Country Food Pro-
NCN has been able to benefit from develop- gram so NCN youth can learn traditional ways
ment agreements with Manitoba Hydro and of harvesting food to distribute to the needy.116
flood compensation funds from the Northern There are criticisms about how the Wusk-
Flood Agreement. It has developed an effective watim project unfolded, but NCN’s band leaders
job training facility at its The Atoskiwin Train- rigorously defended the community’s decision to
ing and Employment Centre (ATEC) Inc. Housed take on part ownership of Wuskwatim, arguing
in a state-of-the-art building in NCN (built as a that it was exercising its sovereignty in doing so.117
training centre by Hydro when work was being The NCN experience shows a healthier relation-
M anitoba Hydro – The Long View 19You can also read
