In the Crown Corporations Committee on Monday June 25th, I asked Mr. Kelvin Shepherd the President and CEO of Manitoba Hydro about the opportunities for Manitoba Hydro for new revenue. My question and Mr. Shepherd's response is below:
Mr. Gerrard: I'd like to come back and talk a little bit more about where the risks are. We've got a circumstance where the cost of natural gas from fracking has remained low and looks like it's going to stay relatively low for some time. We've got a situation where, although people talk about the coal‑generated electricity in Saskatchewan, quite a lot of that is from Coronach in southern Saskatchewan. I was there recently. That plant will operate until 2029, so it's not going to provide a huge demand [in the near future]..
So I have a real concern. We've got a highly competitive market; [in part] because lots of states and provinces are looking very heavily at demand‑size management and it's decreasing the rate of electricity use. Where do you see–either one of you–where we're going to be able to see a window where things are going to work for Manitoba Hydro?
Mr. Shepherd: So first I should just correct–people that think Saskatchewan has 75 per cent coal are mistaken. They have substantially less coal generation, and they have substantially more natural gas generation. However, they are planning to reach a 50 per cent renewable target over the next 12 years or so. Many of their coal plants–the one you're at probably is one of the later ones. They are going to phase out coal over the next 10 to 15 years, and they are going to probably invest substantially in wind, and so they clearly are going to have to find ways to make that energy reliable.
And so we're engaged in discussions with them. We're building a new, relatively small transmission line from Birtle to Tantallon. It's required to fully support our existing 100‑megawatt sale. We're actively in discussions with Saskatchewan about how we can optimize our interconnection that we have and get the most value out of it. And I'm confident that, as we go forward, there'll be an opportunity to do that, but it's got to be a win-win. They're not what I would call dependent on having access to hydro. They could choose to build natural gas to back up their wind, and they already are building some natural gas to help them do that, and so we've got to be competitive and find ways that are win-win, that we can deliver energy that is incrementally valuable to Manitoba versus our current access into the US market.
I think you're very correct, Dr. Gerrard, that I don't see, at least in the next five years, the forecast for natural gas is continuing to show an abundant supply and low prices. And that combined with–in particular, in the US–wind subsidies, means we don't see a quick recovery in terms of export prices on the opportunity market, in particular. They've been depressed significantly from highs that would have been in the early 2000s in the $80 to $100 per megawatt, and today they're roughly about $30 a megawatt. That's a reality. That's something our business faces.
But we've contracted a significant amount of energy. The energy that'll come on from Keeyask is basically fully contracted, so it's not like we're dealing with huge surpluses of energy here to go out and sell. We have some major contracts that expire in the mid-2020s that we have to work on either renewing or finding new customers for. We have some smaller opportunities to fill in the gaps, and we're working on those. And–but ultimately, we will try to optimize and get as much out of our export capability as we can.
As you would appreciate, trying to forecast 15 or 20 years out is very difficult. Demand-side management is one of the things that will impact either how much energy we need in Manitoba or how much surplus we have to sell. And so, right now, we have a forecast. It's the best one we have because it's the approved DSM plan that Manitoba Hydro has approved, and it will achieve about a 1.2 per cent annualized saving over the next 15 years.
Now, I think, as you know, bill 19, Efficiency Manitoba, sets a target of 1.5 per cent, so higher. So if that target is achieved, that will reduce consumption in Manitoba at a cost and generate more surplus for export, which–you know, fair, we'll look at what we have to do and try to find the optimum value, but at this point, we have the plan we have. Efficiency Manitoba, when it's up and running, will be mandated and required to go to the PUB for–to review their efficiency plan, and they'll look at the cost benefit and economics of DSM and whether it should be more or less or whether it should be shaped differently to have more efficiency now or in the future.
That's just one of the things that goes into our financial plan. And it is difficult to get–the one thing I can guarantee you is the plan with all those forecasts in it is wrong. I just can't tell you what pieces of it are wrong and by how much because a forecast is just that. And the further out you get, there's more variability in it. So we update our forecasts regularly. We go through it every year. Our board reviews it. We understand the risks. The Public Utilities Board reviews these things regularly in our rate applications. And I'm confident that, you know, we'll work through and develop the best balance of plan we have between resource development, exports, adjusting to whether it's DSM or different economic conditions in Manitoba, as we always have, because, you know, you continually readjust the windage and all these things on an annual basis.
I think natural gas is going to be an important source of energy for Manitobans. I mean, it's a low‑cost solution. I know there's people that are concerned because it's greenhouse gas emitting, but, to give you a sense, I mean if you wanted to replace all of the natural gas used for residential heating in Manitoba, we would have to more than double the electrical system in the province. It's just not going to happen quickly or cost effectively, and so there's a good side to natural gas being low in that it's efficient and cost effective for what it does.
We have a climate change plan, an efficiency plan, and over the next 15 to 20 years I'm sure we'll see a transition away from more fossil fuels into electricity and we'll be there to support that.