Good afternoon, Mr. Chair, and committee members.
It's a pleasure to appear before you today. I am video conferencing from my office in Winnipeg this afternoon. I appreciate the opportunity to provide input for your study on the value of electricity interties.
My qualifications in this area are that I am a practising, registered, professional engineer in Manitoba, and I am employed at Manitoba Hydro in the position of director of wholesale power and operations. I've held that position for the last 17 years. I've been involved in the operation of the Manitoba hydro system for the last 38 years.
My main responsibilities at Manitoba Hydro include directing the activities of Manitoba Hydro in the wholesale electricity markets, including marketing, sales, and training activities outside of Manitoba, both in Canada and in the United States. I'm involved in Manitoba Hydro's wind procurement program in contracts in Manitoba, and I am involved in the day-to-day management of our electricity supply, including the production and planning that involves the regulation of the Manitoba hydro system of rivers and reservoirs for hydro power purposes.
I have participated as an expert witness in many rate, environmental, and regulatory hearings in Manitoba, where I have provided evidence on matters under my responsibility.
My involvement in Manitoba Hydro's transmission and development plans includes the responsibility for the commercial arrangements that underpin our new 500,000-volt interconnection to the United States, and the proposed new 230-kilovolt interconnection between Manitoba and Saskatchewan.
In addition, I am involved in discussions with SaskPower on exports of surplus hydroelectricity, and I provide oversight to Manitoba Hydro's contribution to the NRCan regional electricity cooperation and strategic infrastructure initiative.
By nature, large Canadian hydro utilities like Manitoba Hydro have the potential to produce surplus electricity beyond that required by their customers, and routinely do so. The amount of surplus varies depending on the water supply and the amount of available reservoir storage. In high rainfall years, the hydro surplus can be very large. In drought years, there may be no surplus, and other generation sources must be used to meet the power demand.
In Manitoba, over the past few years, our surplus supply has been about 30% of our production, or about 10 billion to 11 billion kilowatt hours. Manitoba Hydro has been able to create value from this surplus by selling the electricity in the wholesale electricity markets in Canada and the United States. Revenue from these out-of-province sales reduces the cost of supplying Manitobans with electricity and is the major factor in Manitoba Hydro having some of the lowest electricity rates in North America.
However, none of these economic benefits or other benefits such as increased grid reliability and energy security would be possible without the interties that were built by Manitoba Hydro and its neighbours over the past 50 years. These interties connect us to those utilities and to the wholesale electricity markets of North America.
With that introduction, I want to provide a few comments today that address the following questions: regional electricity independence, low-carbon energy distribution, opportunities for alignment with the Canadian energy strategy, Canada-U.S. energy trade and relations, and employment and economic impacts.
On the first topic of regional electricity independence, to date, generation and transmission planning, and development across Canada has been largely focused within provincial boundaries. This is a consequence of geographic and political barriers. The exception to this is provinces with large hydro utilities such as Manitoba Hydro, BC Hydro, Hydro-Québec, and—in the past—Ontario Hydro. These utilities, which usually have large hydro surpluses to market, have optimized the development of their systems in conjunction with investments in large interconnections to the United States. Because of cost and small market size, it has not been economically viable to build, on a similar scale, east-west transmission in western Canada.
Transmission projects to interconnect Calgary with Winnipeg, or Winnipeg with Sudbury have been studied but haven't proceeded. To date, other lower cost alternatives have been found. That's not to say that no transmission has been built, but the existing interconnections between the western prairie provinces are, at most, modest when compared to the existing north-south capability we have with the United States. Utility benefits from large east-west interties just haven't been sufficient, to date, to justify the huge cost of building long-distance transmission lines.
Generation portfolios of utilities across Canada usually have had a low-cost, dominant fuel that's been exploited. The exception is Ontario, which has a diversified portfolio of hydro, nuclear, wind, natural gas, and—previously—coal. In Manitoba, B.C., and Quebec, the dominant supply source remains hydroelectricity. In Alberta, Saskatchewan, and the Maritimes, historically it's been low-cost coal.
A barrier to coordinated cross-jurisdictional resource development is time. Cross-jurisdictional co-operation involving major infrastructure investments like transmission interconnections require long-term planning and commitment on time frames measured in decades. These commitment times exceed the lifetimes of most provincial governments and potentially their policy priorities. As such, generation portfolios, with the exception of Ontario, lack diversity, and this makes them vulnerable to economic and political change, commodity price fluctuations, fuel availability, and technological and climate change risks.
For those jurisdictions that have relied on carbon-based fuels, transitioning to a low-carbon economy and renewable-energy technologies has additional challenges. The most widely available new, renewable-generation resource, such as wind generation, is intermittent and variable, whereas customers require a continuous, reliable supply of electricity. As a result, widespread use of wind and solar technologies is only feasible in conjunction with dispatchable resources such as hydro turbines, natural gas turbines, or battery technology that can adjust output quickly so that the supply and demand always remain in balance.
The questions we have in western Canada are, firstly, are there opportunities for jurisdictions like Saskatchewan and Alberta, which have to transform their generation fleets to work with their hydro-rich neighbours? Secondly, what are the benefits of improved and expanded interconnections, specifically a stronger interconnection between Manitoba and Saskatchewan, or a stronger interconnection between B.C. and Alberta? What is the value of a stronger, complete connection across the west? Do these interties help achieve the Canadian goal of the low-carbon economy at a lower cost?
To investigate these questions, NRCan is conducting the regional electricity cooperation and strategic infrastructure initiative, working with the western utilities and market operators.
With regard to the low-carbon electricity distribution, in western Canada low-carbon, renewable-resource options are not equally distributed. Alberta does have a good wind resource, but so do other western provinces. Saskatchewan has a good solar resource, but the other western prairie provinces share that same resource. All the western provinces have undeveloped hydro power potential. Thus, all western provinces have the potential of developing local, low-carbon electricity sources. However, the cost, variability, flexibility, and energy storage potential of the potential resources can vary dramatically. Developing new, low-carbon electricity supplies at least cost will require more intertie capacity so that the specific benefits of each potential energy source can be optimally utilized.
As for opportunities for alignment with the Canadian energy strategy, the strategy is a macro view of energy production, transmission, and use in Canada and in an international context. In western Canada, significantly increasing intertie capacity aligns with several of the strategy priority areas such as improving electrical interconnections, increasing connectedness, and addressing transmission constraints. Large new interconnections would facilitate the development of new, renewable-generation technologies, which would in turn help in the transition to a new low-carbon economy, another focus of the strategy.
With regard to Canada-U.S. energy trade and relationships, as I mentioned at the beginning, Manitoba Hydro has a long history of exporting its surplus electricity to the U.S. These exports occur over a large interconnection that has been developed incrementally over the last half century as Manitoba has developed its hydro potential. To put the size and significance of that interconnection in perspective, we have the capability to export approximately 50% of our hydro production into the United States. In contrast, our capability to export either east or west is only 5% of our production capability.
Given the importance of the U.S. market to Manitoba Hydro, both from an export and an import perspective, Manitoba Hydro is a coordinating member of the huge, mid-continent independent system operator, which we refer to as MISO for short. MISO is a regional transmission organization and a market operator that guides the secure and economic operation of the large portion of the North American electric grid. Its span reaches all the way from Hudson Bay in the north, to the Gulf of Mexico, across 15 states, and includes Manitoba. Access to the MISO electricity market in the United States is important to Manitoba Hydro. It is a deep, high-value, sophisticated, and open market. Manitoba Hydro, in co-operation with our neighbouring utility, Minnesota Power, is expanding our intertie capacity with MISO.
The existing Manitoba-U.S. interconnection capability will increase 50%, from 2,000 megawatts to about 3,000 megawatts in the export direction and 700 megawatts to 1,400 megawatts or a 100% increase in the import direction. This project is being done in conjunction with the development of the new hydro resources we're building in northern Manitoba.
This intertie expansion is still subject to regulatory approval in Canada, but the plan is to bring the second 500,000-volt intertie into service in 2020. It will be one of the most significant transmission developments across the Canada-U.S. border between Quebec and British Columbia.
Manitoba Hydro is just one of the Canadian utilities that are significant participants in the U.S. electricity supply. In 2014 Canadian electricity supplied 12% of retail load in Minnesota and North Dakota and 12% to 16% of electricity sales in New York and New England. In total, 30 states transact with Canada for electricity, with Michigan, California, Oregon, Washington, Montana, and Vermont being the major purchasers.
Initially, electricity trade with the U.S. developed to be largely north-south and seasonal, but in recent years Manitoba Hydro has been expanding its service offerings in the United States electricity markets. Now when the U.S. Midwest has a sudden surge or shortage of electricity due to wind power changes, electricity from Manitoba can be injected into or withdrawn from reservoir storage in Manitoba within five minutes to counteract changes in wind generation and help bring the grid back into balance. This is all done automatically, consistent with Manitoba Hydro's price and energy offers in the MISO market.
A landmark 2013 MISO study looked at the value of our proposed 500,000-volt intertie to the United States and at the way market-responsive new hydro generation in Manitoba could bring value to the MISO region. In addition to helping smooth out fluctuations in wind power in the northern midwestern states, this study showed that high-cost generators in MISO would run less often and use less fuel, resulting in emission reductions and production cost savings in the MISO footprint estimated to approach half a billion dollars per year in the 2027 study year.
The U.S. approach is to strongly encourage regional transmission planning, consistent with public policy goals. The approach exerts pressure to resolve cost allocation issues and remove barriers to the development of beneficial regional transmission.
This approach is not applicable in Canada; however, targeted federal government support to facilitate the development of expanded interties would be an appropriate made-in-Canada approach and would be consistent with optimum cross-jurisdictional transmission planning and public policy goals.
