Following a four month review, the Keeyask hydroelectric generating station in Manitoba, Canada, together with the Bipole III transmission project, have been described as politically motivated ‘mistakes’ that would be too costly to cancel at this stage of construction, with both schemes still likely to be over budget and over schedule.
Chair of the Manitoba Hydro-Electric Board, Sanford Riley, yesterday presented the results of a review conducted at the request of the Government of Manitoba. The review, which began in May, included a mandate to assess the current financial situation of Manitoba Hydro and determine whether the Bipole III project should proceed as planned or if the corporation's current fiscal situation warrants the immediate delay, rerouting or cancellation of the project.
To assist with its review, the Board retained the Boston Consulting Group (BCG) to provide the Board with independent analysis and support.
"Our review began with a primary focus on the Bipole III project but quickly expanded in scope to include the Keeyask Generating Station, Manitoba Hydro's capital program, and ultimately, the overall financial situation and operation of the utility corporation," said Riley. "Manitoba Hydro's mounting and unprecedented levels of debt, the decision by the previous government to exclude Bipole III from the Public Utilities Board's NFAT (Needs For and Alternatives To) hearings and the direct connection drawn by Manitoba's credit rating agencies between Hydro's financial situation and the province of Manitoba's bottom line, were all cause for significant concern and a broader more intensive review."
Riley confirmed that the review showed 95% of the contracts for the construction of Bipole III are in place, with $2.9 billion of project funding having been committed or expended to date.
The review further confirmed that rerouting the line down the east side of Lake Winnipeg is no longer an option. It also determined that any delay or cancellation of Bipole III would make it impossible to carry the power from the Keeyask Generating Station that is required to deliver upon committed export contracts. In total a cancellation of Bipole III at this late stage of construction would result in a cost to Manitoba ratepayers of over $7 billion.
"Our review concluded that Manitoba Hydro's decision to pursue Bipole III while simultaneously advancing the construction of Keeyask, in the absence of domestic demand for new generation, placed significant financial strain on the corporation," said Riley. "However, it is also clear that Bipole III is essential to reducing the significant risk of blackouts and service disruptions should there be a failure of the existing Bipole I and Bipole II transmission lines which currently carry over 70 per cent of the electricity produced in the province."
"Rerouting the Bipole III transmission line down the west side of the province was obviously a wrong decision, one forced on Hydro by the previous government, and has cost Manitobans an additional $900 million. However, the review concluded that if construction is not completed, Keeyask's export contracts will not be filled, making the new generating station an asset incapable of generating revenues for many years. The Board has been left with no choice but to move forward."
The Keeyask generating station is a 695MW hydroelectric project being developed by the Keeyask Hydropower Limited Partnership, a venture between Manitoba Hydro and four Manitoba First Nations. Manitoba Hydro has signed export contracts worth $4.5 billion that are dependent on Keeyask.
Riley also noted a number of additional challenges identified in the review. Neither Bipole III nor Keeyask are on track to meet their target completion dates, with Manitoba Hydro now projecting delays of between 12 and 15 months for Bipole III and between 21 and 31 months for Keeyask. The cost for Bipole III is also expected to rise from the current budget of $4.65 billion to between $4.9 and $5 billion, whereas Keeyask is expected to rise from the current budget of $6.5 billion to between $7.2 and $7.8 billion. Manitoba Hydro's debt is also expected to grow from its current level of $13 billion to $25 billion within the next three to four years.
"This imprudent, some would say, reckless, capital spending program has created a severe debt load which is not just placing an incredible strain on the financial stability of Manitoba Hydro but also threatening the bottom line of the entire province," said Riley. "Going forward, the new Board will work on a plan that will allow us to confront the significant financial challenges Manitoba Hydro faces and put the utility back on a solid foundation, rather than continuing down its current path of huge financial risk."
Manitoba Hydro's Board said it will now:
- Focus on the completion of the Bipole III and Keeyask projects with minimal delay and the least possible incremental cost;
- Direct the corporation to find significant cost savings from within its own operations;
- Complete a revised updated financial forecast that addresses the risks facing the utility, including updated estimates for Bipole III and Keeyask and a plan to minimize any additional costs. The new plan, once approved, will be filed with the Manitoba Public Utilities Board as part of the utility's next General Rate Application, and
- Develop a detailed plan to set Hydro on a path to financial stability which will include financing to strengthen the balance sheet of Hydro.
- Over the next few weeks Manitoba Hydro will conduct public information sessions on the financial situation facing Manitoba Hydro and the past decisions that have created the current financial instability within the corporation.
