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Efficiency Manitoba inefficient

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20Apr

By: Dennis Woodford, Garland Laliberte and Will Tishinski
Published: April 20, 2017, Winnipeg Free Press

The Pallister government is on entirely the wrong track in advancing Bill 19 to create a new Crown corporation, Efficiency Manitoba.

The new Crown will be responsible for demand-side management of electricity (DSM). Until now, DSM has been delivered in Manitoba under Hydro’s Power Smart program.

Efficiency Manitoba will be a stand-alone agency. It is mystifying to understand why such a drastic step is being taken, apparently without in-depth expert review of the concept.

The idea of divesting the Power Smart program from Hydro was proposed formally by the Public Utilities Board (PUB) in a report issued in June 2014. The PUB proposed this action after reviewing Hydro’s development plan earlier that year. The PUB concluded in that review that Hydro was not giving sufficient priority to DSM in planning its power generation. The then-NDP government voiced its support for the idea, but took no action.

In the interim, Hydro announced that a stepped-up Power Smart program could save 1,288 MW of power in the next 15 years at a cost of $2 billion. This was a surprising action, given the announcement was made the day after the April 2016 election, well before Pallister’s transition team could begin its work.

More importantly, it revealed that DSM was far more cost-effective than proceeding with the 695-MW Keeyask generating station at a cost that is now closing in on $9 billion. Stated bluntly, the announcement signalled that Power Smart could replace two Keeyasks at a quarter of the cost of a single one.

Undeterred, the new Hydro board decided in September 2016 that Hydro’s plans could not be changed because of the advanced stage of the work on Keeyask and Bipole III.

The creation of Efficiency Manitoba presents an interesting dilemma, given Hydro’s decision to barrel ahead with expanded generation and transmission capacity.

Bill 19 spells out that, each year for the next 15 years and beyond, Manitoba must reduce electrical demand by 1.5 per cent per year. At the same time, Hydro has been forecasting that new electrical demand, separate from any DSM measures, will grow by 1.5 per cent per year. This means that the two measures will cancel each other and the growth in the need for electricity in Manitoba will be zero over this timeline. So Manitoba will have no need for Keeyask for years to come.

Predicting electrical demand (Hydro’s responsibility) and power reduction (Efficiency Manitoba’s responsibility) will require very close co-ordination. Common sense indicates it will be more efficient if both activities are conducted within the same organization. DSM is technically complex work. It involves not only evaluating the merits of wind generation and solar power, but also complex engineering actions such as replacing conductors, aging transformers and hydraulic turbine blades, all of which reduce losses and free up new power. Only Hydro can carry out these functions.

There will be substantial administrative and operational inefficiencies with the creation of the new Crown corporation. Hydro currently has all the information, expertise and equipment to manage the Power Smart program. Transferring this function and duplicating, where necessary, will be costly. Staffing requirements will grow, which is inconvenient at a time when Hydro is downsizing.

The appointment of eight new board members will be needed to lead the new corporation along with the usual bureaucracy that follows such measures. If there is conflict in determining which DSM measure should be adopted, who will arbitrate? The common element for both Crown corporations is the minister of Crown Services, who cannot be expected to arbitrate such issues.

The claim that the new agency will mitigate the impact of rate increases on customer bills does not bear scrutiny. In an overbuilt system, every kilowatt-hour saved by a Manitoba resident will have to be sold outside the province. Right now, a residential kilowatt-hour generates revenue approaching 10 cents, a figure expected to at least double over the next 15 years. If the saved kilowatt-hour is sold today on the surplus energy market, it generates little more than three cents.

The difference will be an incremental cost to Hydro and will have to be made up by rate increases to all customer classes. At best, the initiative will redistribute the cost of electricity from those who can afford to implement DSM measures to those who cannot.

The entire process of creating a new DSM entity has not been given sufficient review. We are confident that if such a review were conducted, it would clearly establish that DSM should remain with Hydro and the creation of Efficiency Manitoba is a waste of resources.

Dennis Woodford is president of Electranix Corporation, Garland Laliberte is dean emeritus of engineering at the University of Manitoba and Will Tishinski is a former vice-president of Manitoba Hydro.

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