Export doors close for Hydro

xcel-image

Manitoba Hydro needs to ignore the past and become an innovator 

Winnipeg Free Press, Oct 26, 2016    By Will Braun

Manitoba Hydro’s largest customer has written Hydro out of its future, and that could spell problems for Manitobans down the line. Xcel Energy’s 15-year plan states the Minneapolis-based utility intends to drop 850 megawatts’ worth of hydro import contracts when they expire in 2025, filling the gap with other resources.

As big as those contracts are — roughly 15 per cent of Hydro’s production — Xcel’s decision is about something even bigger. It points to a new era.

Manitoba Hydro’s existing model relies on exports. The Hydro system is designed to meet our needs even in prolonged drought, which means that absent such a drought, we have plenty of excess power. Even greater excess exists after a new dam is built, as it takes years for domestic demand to catch up with new supply.

Some of the excess power is sold by means of firm contracts. Some is sold on the spot market, which is in a prolonged slump. Combined export sales have effectively subsidized our rates and helped pay for new dams. With its current $12 billion build-out, Hydro is leaning heavily on this model. Meanwhile, Xcel is moving on.

Of course, Xcel could still buy our excess power on the spot market, and it may be quietly hoping to do just that at prices lower than contracted power.

Xcel, and its predecessor Northern States Power, have been the dominant utility in the region and the mainstay of Hydro exports since the ’70s. It knows Hydro very well and was undoubtedly lobbied intensely. But it opted to meet its significant new requirements with wind, solar and natural gas, Hydro’s main competitor for baseload, non-intermittent power.

Natural gas is about a third the price it was in 2008 and holding steady in the basement. If those prices go up significantly, Xcel could change its mind, unless, of course, it has already built gas plants by that point.

The long term is critical. Hydro’s case for the $7.2-billion Keeyask dam — now under construction — only outpaced other options beyond the 50-year mark, according to the Public Utilities Board.

Xcel is, of course, not the only prospective buyer. The Alberta government has called for 5,000 MW of new generation by 2030 as part of a plan to phase out coal, but only Alberta-based companies qualify. Albertans are not big on exporting their energy jobs.

Saskatchewan is another possibility. SaskPower signed a 20-year, 100-MW deal with Hydro in January. While important, it represents less than two per cent of our overall generation. LikeAlberta, Saskatchewan needs to replace coal plants, but it is obviously hesitant to outsource too much new generation.

To the east, Ontario has long been the prize just out of reach. Actually, 2,000 kilometres out of reach. The province has high demand and a need for low-carbon options, but transmission is lacking.

To the south, Wisconsin Public Service is signed up for about 100 MW of our power until 2027. A 308-MW deal is supposed to kick in after that, but it is linked to construction of the Conawapa dam, which is currently on hold. Hydro had wanted a 500-MW deal and WPS partnership in new transmission. Neither materialized.

Hydro’s keenest customer is Minnesota Power (MP) which is contracted to purchase 250 MW from 2020 to 2035. But MP is a relatively small utility, and the possibility of additional contracts may be limited.

Hydro is presumably talking to other relatively small utilities.

The review commissioned by the new Hydro board noted export contracts linked to the Keeyask dam have “favourable” terms, but it also reported Hydro’s own projections of export prices over the next decade dimmed by 19 to 28 per cent since it started building Keeyask. That could mean a $2-billion hit.

Hydro costs have risen, while other sources have dropped. And the politics of energy are increasingly linked to local investment over imports.

Where does that leave us? Xcel might change its mind. Premier Brian Pallister might convince Prime Minister Justin Trudeau to build his very own Bipole from Manitoba to southern Ontario. SaskPower might supersize its order, a couple times. Manitoba Hydro might lead a revolution to electrify planes, trains and automobiles, thus creating demand for its product. Hydro might have a well-concealed ace up its sleeve.

Or we may just see our hydro rates go up and up and up as governments, CEOs and Hydro board members come and go. (And any government bailout would simply shift the burden from Hydro ratepayers to provincial taxpayers — that is, from your left pocket to the right.)

Our provincial utility may well have missed the change in eras because of its institutional bias toward building dams.

What Pallister should consider is the need for a fundamental shift away from an old-school hydro company to a nimble new energy solutions innovator. That would not get us out of the current pickle, but it would decrease the chances of us missing the next phases of evolution. We need a utility that helps create a vibrant future rather than trying recreate the past.

Will Braun works for the Interchurch Council on Hydropower.

 

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