The Manitoba Public Utilities Board dropped its biggest bombshell yet and it hasn't made a peep in the mainstream media.
It turns out that Manitoba Hydro may not need to build the immensely expensive and bitterly controversial Bipole III transmission line after all.
You read that right.
NOT. BUILD. BIPOLE III.
How can that be?
Manitoba Hydro, which has been frantically hiding the cost, insists Bipole III is absolutely, positively necessary for mankind and must be built or the sky will fall and the seas turn to blood.
Just as fiercely, Her Majesty's Loyal Opposition insists the 832 mile line is a great big boondoggle that's being reeled out on the orders of the NDP on the wrong side of Lake Winnipeg, the west instead of the east, at an inflated cost for degraded efficiency.
Unelected Premier Greg Selinger says Bipole III is being built for free -- Americans will pay the full cost of construction when they buy electricity from new power plants that will pass through the transmission wires and across the border.
But Opposition leader Hugh McFadyen says its going to cost every Manitoban $13,000 and change by the time the the 'on' switch is flipped.
The PUB spent days poking and prodding for the truth and published its conclusions in a ruling issued last Friday (which we've translated into English where necessary).
"During the proceeding, MH modelled only two alternatives: a) build (MH’s preferred approach - the construction of Wuskwatim, Keeyask, Conawapa and Bipole III, a plan that requires new export contract commitments); and, b) “no build”, i.e. the development of Wuskwatim, Conawapa and Bipole III, to service domestic load when required and sell excess generation through opportunity export sales)."
Translation: Hydro wants to build three power plants, one after the other, to churn out elecricity that can be sold to American buyers for a profit until its needed in Manitoba. But the profit can only be assured by signing contracts on a fixed price. The alternative is waiting until local demand is strong enough to warrant each new power project. As each power plant comes into service, any surplus electricity can be sold on the spot market (where prices are lower than firm sales.)
"MH also advised that it had, earlier, considered an alternative approach beyond that of the “no build” option, one relying on the construction and use of Combined Cycle Combustion Turbine (CCCT) thermal generation (refer to MH’s 2008/09 and 2009/10 Alternative Development Sequences), MH did not, in the end, consider employing CCCT generation as a means to defer new hydro generation, and possibly transmission, as is now proposed for in its capital development plan."
Translation: Hydro rejected a third option---to build a natural gas powered plant that would postpone the need for expensive new power plants and Bipole III.
"The deferral of new hydro-electric generation in favour of the diversification of supply through the construction of CCCT generation would represent an approach that may not require additional firm export contracts."
Translation: A gas plant would mean Manitoba Hydro won't get stuck with long-term contracts. The PUB found elsewhere that construction costs are exploding while power prices are sliding and Manitoba Hydro may find itself delivering power at subsidized prices by the time all the megaprojects are finished. And that means higher rates for Manitoba customers who will get stuck with the construction costs; all the pain and none of the gain.
"Overall, the Board does not accept MH’s export revenue forecasts to-date as representing a realistic basis for determining the economic viability of MH’s proposed new major generation and transmission facilities, to be supported by export sales in advance of domestic load requirements."
Translation: We don't trust Hydro.
"In particular, the Board finds it troubling that MH has not explored in any depth natural gas (CCCT) thermal generation supply alternatives to the new major hydraulic generation and transmission projects now planned for by MH."
"With the considerable escalation of project costs for Keeyask G.S., Conawapa G.S. and Bipole III, the Board would prefer MH justify (on a Net Present Value basis) the need for and alternatives to each of these three projects."
Translation: Don't believe Hydro when it says there's no choice but to plow ahead.
"With respect to alternate capital development scenarios (models providing forecasts of financial results out twenty years) not provided by MH, one scenario among others that the Board wants to be modelled involves the deferral (potentially partial, and potentially to represent a “staggering” of elements of MH’s current capital development plan) of the Corporation’s current major capital development plan along with the modelling of the expected consequences of the construction of a combined cycle natural gas generation plant in southern Manitoba."
Recognizing the defiant attitude that Manitoba Hydro has to the PUB and its orders, the board recommended putting some muscle into the review of Hydro's high-cost plans.
"Accordingly, the Board strongly believes a thorough ‘Needs For and Alternative To’ (NFAAT) process, presided over by a quasi judicial panel with independent adjudicative authority and evidence based process should address these issues far in advance of MH making final commitments to enter into its proposed export contracts, and as soon as possible to avoid further massive new investments in MH’s preferred development plan ahead of a thorough NFAAT proceeding."
"That proceeding should examine not only MH’s preferred development plans, but also consider alternative development scenarios including the potential construction of a combined cycle natural gas generation plant, that to diversify supply, reduce drought risk and, potentially defer Keeyask, if not Bipole III."
Translation: If you build a gas plant you can save yourself almost $10 billion in up front expense by not building the $5.6 billion Keeyask generating station and the $3.9 billion Bipole III line.
The PUB crunched the numbers (don't worry, we won't bore you with them) and determined the size of a gas plant we would need in a worst case scenario.
Manitoba Hydro says it needs to build Bipole III to guarantee reliability of power delivery from the plants in the north to customers in the south in the event that weather knocks out the existing transmission system.
The PUB says a gas plant, likely to be in Brandon, could cover the risk very well.
"... to completely meet Manitoba’s peak domestic loads in the winter, if Bipole III were not available Manitoba would need a gas plant having a capacity of approximately 1500 MW."
The cost? The PUB spitballs it at a million dollars a megawatt, or roughly $1.5 billion. Which, the PUB pointed out, would leave plenty from the $3.9 billion saved on Bipole III to buy natural gas to run the Brandon plant.
Its important to remember this ruling came out of a lengthy hearing into the risk management of Manitoba Hydro, a hearing sparked in part as a result of the huge losses Hydro suffered from a drought in 2003-4.
The PUB has a lot to say about Hydro's drought plans, and little of it was complimentary.
"The Board is aware that ICF/KPMG/Independent Experts reports alluded to the ability to gain domestic rate increases (if approved by the Board) as a risk mitigation factor. This is not inconsistent with what happened after both 2003/04 drought and the 2006/07 mini-drought, where rate increases were provided to MH; increases that have provided ongoing revenues that, as a present value, has provided well in excess of the specific revenue shortfalls experienced. Ratepayers have not seen any subsequent rate relief."
Translation: We boosted rates after two droughts hit Hydro's finances hard, but now that they made up their losses and are flush again, ratepayers aren't seeing any relief. Why's that?
"... annual post-mortems (back-testing of decisions) should be normal practice. (The Board, in its 2004 GRA Order directed MH to provide such a post-mortem of its actions through the drought of 2003/04, that report was never filed.)"
Translation: What's Hydro hiding?
"In a response to an interrogatory submitted by the Board, MH responded that it would file a written Drought Preparedness Plan by April 1, 2011; MH did not."
"In cross-examination, MH suggested that a written plan was not needed as MH reacts “everyday” on the basis that a drought could be starting, and it would be difficult to reduce all of MH’s experiences into a written plan, when MH has to plan given an infinite number of variables."
"MH was disingenuous in its response to the Board’s interrogatory and it remains to be seen if the Corporation will follow through on its written evidence and oral testimony by a Vice-President. The Board recommends MH act to meet the urgent need for such a document."
The single bright note for Manitoba Hydro came in what the PUB concluded about the most alarming allegations of the Hydro consultant known as the Hydro Whistleblower. Coming at the very end of the ruling, it reads:
Concluding Note
"On a positive note, and recognizing that the in-depth risk assessment explored in this hearing (limited by MH’s refusal to provide its export contracts, fully updated 20-year financial forecasts and alternative development scenarios, as requested by the Board) was partially stimulated by the dire predictions of bankruptcy and blackouts by NYC, the Board is satisfied by the unanimous evidence of all the experts heard from that such dire predictions are without merit."
"On a positive note, and recognizing that the in-depth risk assessment explored in this hearing (limited by MH’s refusal to provide its export contracts, fully updated 20-year financial forecasts and alternative development scenarios, as requested by the Board) was partially stimulated by the dire predictions of bankruptcy and blackouts by NYC, the Board is satisfied by the unanimous evidence of all the experts heard from that such dire predictions are without merit."
How they reached that conclusion is a total mystery, given as how the 111-pages are peppered with confirmation of the Whistleblower's observations and criticisms of Hydro, as well as the public acknowledgements by Hydro's hired consultants ICF and KPMG that they DID NOT examine her report or the issues she raised with Manitoba Hydro or the provincial Ombudsman's office when filing a whistleblower complaint.