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Drought and Manitoba Hydro - What are the risks?

On Monday June 25th, at the Crown Corporations Committee of the Manitoba Legislature, I asked the President and CEO of Manitoba Hydro, Kelvin Shepherd, what the corporation's plans are if we have a drought.   My question and his response is below. (From Hansard).
Mr. Gerrard: Okay, one of the key factors in terms of being able to run a corporation is to understand and mitigate risks, and one of our jobs as MLAs is to have some understanding of the risk and the mitigation. I think, back in 2003, there was significant risk related to a drought, and what my concern is that we may well have another drought at some point, and it could be more than one year. How well is Manitoba Hydro positioned now compared to 2003 to be able to mitigate the risk of a drought?
Mr. Shepherd: I have to admit I recall, in 2003, a drought followed shortly thereafter, so your very question makes me nervous. However, what I will tell you is that there's two aspects to that question. One is the operational aspect of maintaining service to customers and ensuring that service is reliable. And we are extremely well equipped to deal with that. We will be better equipped to deal with it with Bipole III coming into service here shortly because that will eliminate one of the system risks or help mitigate one of the system risks. We'll be even better equipped down the road when the MMTP and GNTL line is in place because that will double our import capability, which is going to help us further mitigate the risk.
      But I would tell you I'm confident that today, if we entered into a period of drought, we're well equipped to ensure that service to Manitobans is maintained. The major risk associated with a drought is financial, and the reason it's financial is twofold. One is that we, first of all, in the event of a drought, won't have that opportunity energy to export. So last year there was over $200 million of revenue come from export energy on the opportunity market; without water, you can't generate that energy, so there's an immediate financial impact. Furthermore, if the drought is prolonged or extensive, we may have to suspend other export activities, which further impact your financials. We have the ability in most of our contracts to undertake actions where required. And then the third thing is that–and this is another impact–is that we–if we get to the stage where we have to meet–generally to meet peak requirements, we either have to generate that electricity by running our combustion turbines, our natural gas turbines. Up until this year, we will have had the coal unit in Brandon available, but that unit is going to be shut down at the end of this year, and so we will rely on imports from the US market.
      So all of those things–it's the combination of lost export revenue plus the cost to import that impacts us financially and can have a fairly significant financial impact in the event of a prolonged drought, but I'd reassure you that operationally, we have the capability and plans in place to ensure service continuity to Manitobans.


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