Manitoba Premier Brian Pallister does not sound like a politician whose government has just announced the completion of a C$10 billion-plus megaproject.

Instead of the usual laudatory comments about the government's good work and diligence, Pallister described the process of building the C$8.7 billion Keeyask Generating Station (Gull) hydro project and the accompanying Bipole III transmission network as "the scandal of the century" and the "largest and most significant mismanagement of taxpayers' funds that we have ever seen." Days before province-owned Manitoba Hydro placed the first unit of Keeyask into commercial operation, Pallister, who heads the right-leaning Conservative Party government, used a live-streamed address to rip the socialist New Democratic Party, or NDP, for forcing through what a government analysis has deemed an ill-conceived, overpriced and unneeded project.

"In 10 short years the NDP tripled the debt of Manitoba Hydro and now every Manitoba household owns a share of that debt to the tune of almost [C]$50,000," Pallister said. Keeyask and Bipole "were essentially built for export — built for Americans by the former NDP government — but paid for by Manitobans for generations to come."

The anticipated payoff for the 695-MW Keeyask project, which means "gull" in the Cree language, was a massive upswing in exports to central U.S. states through a link to Minnesota via a transmission system that Manitoba Hydro developed with ALLETE Inc. The project was proposed in 2007 and gained momentum as it appeared clean-air mandates aimed at removing coal from the generation mix would provide a demand windfall for Manitoba's surplus hydroelectric power. Instead those mandates created a rush of wind and solar development, which pushed down per-megawatt prices and dramatically reduced construction time. Cheaper-to-build and fuel natural gas-fired plants also sprang up in Manitoba Hydro's anticipated sales areas. ALLETE's utility subsidiary, Minnesota Power Enterprises Inc., aims to deliver carbon-free electricity by 2050.

Manitoba Hydro tried to put the best face on the Keeyask launch in a March 8 news release, noting that the first unit at Keeyask was going into service six months early and on budget according to a revised schedule. In reality, Keeyask's costs have ballooned by one-third from its original C$6.5 billion budget and was scheduled to be online 16 months earlier, in November 2019. Its assertion that Manitobans have the lowest power costs in North America is partially due to the intervention of the province's utilities regulator, which in 2018 rejected the company's plan to recover costs related to the project from ratepayers.

By contrast, the government-commissioned analysis by former Saskatchewan Premier Brad Wall a few days earlier confirmed what most Manitobans already suspected: The dream of selling power at profit to U.S. markets hungry for clean power in the Obama era had been dashed. Further complicating those predictions were overly optimistic estimates of Manitoba's domestic load growth and bargain power prices aimed at securing U.S. contracts.

Contracts do not cover costs

"Vulnerability was exacerbated by the fact that the executed export contracts would not cover costs," Wall's report said. "Future export contracts are extremely unpredictable as they are impacted by economic downturns, grid parity regarding U.S. renewables, the reality of U.S. federalism on Obama-era climate policies, and the risk of a change in U.S. decision makers in the Congress and the administration."

Manitoba Hydro's exports to the U.S. and neighboring jurisdictions did increase after the Manitoba-Minnesota export line opened in mid-2020. In its report for the nine months ended Dec. 31, 2020, the company noted that extra-provincial revenues of C$462 million were C$101 million, or 28%, higher than the same period in 2019. Manitoba was able to increase sales to the U.S. by 25%, to 9.1 TWh, through surplus power from its existing generators prior to the start of production at Keeyask. The higher sales were partially offset by lower prices caused by "the impact of COVID-19, a trend of lower natural gas prices, and an abundance of wind generation in the market," Manitoba Hydro said.

Located 275 kilometers southeast of the Hudson Bay port of Churchill, Manitoba, Keeyask required the construction of the C$4.7 billion Bipole III transmission network, which was pitched by the government as a separate reliability project, Wall's report said. The 1,400-kilometer, 500-kV system was initially developed to complement Manitoba Hydro's 200-MW Wuskwatim Generation Project, a run-of-river facility completed in 2012, and saw its price escalate amid technical and routing changes.

"The division of the two projects and the designation of Bipole III as a reliability project masked the co-dependent nature of the two projects," the report said. "While the Bipole III and Keeyask projects were disaggregated for public and regulatory consumption, they were inextricably linked and could not exist without each other."

Hydro woes

Manitoba is not the first provincial government to express regret over the hydropower-export ambitions of its predecessors. BC Hydro and Power Authority recently lifted the cost estimate of its Site C Clean Energy Project by 50% to C$16 billion, and Newfoundland and Labrador-owned Nalcor Energy's Muskrat Falls (Lower Churchill Project) required federal aid to stay afloat after construction costs doubled. The three incidents show that project boosterism is not limited to a single political stripe — the socialist NDP in British Columbia blame their centrist Liberal Party counterparts for an ill-advised start to Site C, and Newfoundland's Liberal Party claims Muskrat Falls is a "boondoggle" conceived by the right-leaning Conservative Party. Hydro-Québec, Canada's largest and most-profitable exporter of power to the U.S., has largely sidestepped the trend to building new generators and has instead focused on better export transmission infrastructure since the Obama era.

While Manitoba digests the recommendations of Wall's report, the province has already tabled legislation which "would ensure all current and future operations of our publicly owned Manitoba Hydro are transparent and fully accountable to Manitobans," according to a Feb. 26 statement.

"This review confirms that Manitobans were deliberately left in the dark regarding Bipole III and Keeyask, and provides clear recommendations to ensure this can never happen again," the statement said.