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Hydro hikes cost of northern dams

Needs generating stations to sell power to U.S. customers

The proposed Keeyask project.

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The proposed Keeyask project.

Manitoba Hydro has upgraded the cost of the proposed Keeyask generating station to $6.5 billion and added $500 million to the estimated $10.2-billion cost of the Conawapa generating station.

The new costs for the two dams were released Monday at a special hearing of the Public Utilities Board that's examining whether there are alternatives to building the dams.

The $300-million increase to Keeyask's capital costs -- the old estimate was $6.2 billion -- came on the same day Hydro announced a $1.4-billion general civil contract for the dam on the lower Nelson River. It's been awarded to a limited partnership between Bechtel Canada Co., Barnard Construction of Canada Ltd. and EllisDon Civil Ltd. for a proposed in-service date in 2019. Hydro has said it wants to begin construction of the 695-megawatt Keeyask dam this July subject to regulatory approval.

Hoping to generate more capital


Manitoba Hydro wants a 3.95 per cent general rate increase effective April 1 to generate another $56 million in 2014-15 -- money it says will help it build two new dams and two transmission lines.

Hydro filed the request to the Public Utilities Board (PUB) late Friday.

The Crown utility signalled two years ago it could need consecutive rate increases from now to 2033 as it plans to build the Keeyask and Conawapa generating stations, the Bipole III transmission line from northern Manitoba to Winnipeg and a second transmission line from Winnipeg to Duluth, Minn. That line will give Hydro a pipeline to export power to Wisconsin and import power when needed. Hydro also needs capital to upgrade its older infrastructure, such as distribution, transmission and substation assets installed up to 60 years ago.

Future proposed rate increases may change based on the energy supply and the demand for it on the export market.

The PUB is currently involved in a special Needs For and Alternatives To (NFAT) hearing, scheduled to go into late May, on Hydro's dam-building plan. For that reason, Hydro has asked the public-review process for the rate increase be conducted by way of a written process, without an oral hearing, in order to avoid resource and scheduling constraints during the NFAT hearing, and to ensure the proposed rate increase is implemented in a timely manner.

Manitoba Hydro says even with the increase, Manitobans pay some of the lowest rates in Canada depending on consumption.

In its third-quarter report, ending Dec. 31, Hydro says revenues from electricity sales within Manitoba totalled $990 million for the nine-month period, which was $84 million or nine per cent higher than the same period last year. The report says the increase in domestic revenue was due to electricity rate increases and colder winter weather resulting in higher heating loads.

— Bruce Owen

With the increased estimated costs of the two dams, Hydro has reduced its net present value, including benefits to Hydro and taxes and fees to the province, by $800 million.

Despite the higher costs, Hydro told the five-member PUB panel it wants to proceed with both dams as quickly as possible, and on a new transmission line from Winnipeg to Duluth, Minn., to take advantage of a window to sell power to Minnesota and Wisconsin. That window is open for a relatively short period as U.S. utilities close old coal plants to look to add hydro power as part of state-mandated plans to use more renewable energy.

"It's a limited opportunity," Hydro's division manager of power sales, David Cormie, told the PUB on Monday. "They are also making long-term decisions."

Cormie said lobbying by Hydro has convinced its U.S. customers to buy its hydro power rather than them building new plants to produce electricity, such as natural gas-fired combined-cycle combustion turbines.

It's that desire, Hydro says, that drives the need for Keeyask and Conawapa to be built sooner than they are needed to meet domestic demand, as export sales will offset the construction costs of the dams.

Thrown into the mix is Hydro's revised three-year plan to get more Manitobans to conserve electricity. Hydro has been criticized in the past for being too conservative in its Power Smart incentive programs -- also known as demand-side management (DSM) -- and has recently rejigged its conservation targets.

The full details of the revised three-year plan will be publicly released in late April, but has already been discussed at the PUB hearing.

Hydro says the goal of the revised Power Smart incentive program is not only to reduce energy consumption, freeing up more electricity to export to the U.S. and Saskatchewan, but to lower customer bills. Under existing PowerSmart programs,Hydro says participatingcustomerssave anadditional$45millioninelectricityandnaturalgasbillsduring2015-16.

However, questions raised at the PUB's Needs For and Alternatives To hearing is whether increased conservation could see the Keeyask's proposed in-service date pushed back by several years.

During last week's session of the hearing, Hydro's vice-president of portfolio projects, Ed Wojczynski, said under the new DSM targets, the in-service date for Keeyask would be pushed back to 2028. The dam wouldn't be needed for domestic consumption until then.

But Wojczynski cautioned the PUB Hydro does not know how much of the new DSM is going to be adopted by Manitobans, and any delay in Keeyask would further increase its cost.

"With the higher levels of the DSM, a one-year delay in Keeyask would cause at least a $250-million capital-cost increase above and beyond anything else," he said. "And the amount of DSM doesn't change that."

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