This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 04 OTTAWA 000412
SIPDIS
STATE FOR EB/ESC (MCMANUS AND ERVITI), WHA/CAN
(MASON AND RUNNING), OES/EGC (REIFSNYDER AND
DEROSA)
WHITE HOUSE FOR NSC (SAMMIS and BROCK), OVP
(KNUTSON) AND EOP (MCNALLY)
DOE FOR S (HUDOME), IA A/S BAILEY, PUMPHREY, DE
VITO AND DEUTSCH
E.O. 12958: N/A
TAGS: ENRG SENV CA
SUBJECT: MANITOBA: NEW ELECTRICITY OPTIONS
THIS IS A PRODUCT OF AMERICAN PRESENCE
POST WINNIPEG.
1. Summary and introduction. The Province of
Manitoba and its state-owned hydroelectricity
utility, Manitoba Hydro, seek to greatly expand
hydroelectricity exports to the United States
from the already considerable level of 8.8
terawatt hours, with a value of C$495 million
per anum. Officials estimate that an
additional 5000 mw of electricity - equal to
its total existing capacity - could be
developed in Manitoba without significant local
political, legal or social disruption. Most of
this new capacity could be made available for
the U.S. market, helping to guarantee energy
security for U.S. consumers from a close-by,
clean, secure and relatively inexpensive source
of power. Two challenges have prevented this
from coming to fruition: 1) A lack of
transmission capability to get the electricity
to the large U.S. markets of the Midwest, and
2) The current uncertainty and price
instability caused by industry restructuring in
the United States and Canada, which makes
Manitoba Hydro and outside investors reluctant
to make the large capital investment in
hydroelectricity infrastructure. End Summary
and Introduction.
2. Manitoba sees tremendous potential in the
vast demand for energy in the U.S. Midwest.
Chicago and Milwaukee are physically much
closer to Manitoba than Ontario's industrial
heartland, cutting down the distance required
to transport the electricity, and the demand is
far greater than in Manitoba's western
neighbors of Saskatchewan and Alberta. In a
meeting with Embassy Energy Officer and
Winnipeg Econ Assistant, Manitoba Hydro
President and CEO Bob Brennan indicated that
his company has estimated that Wisconsin alone
will need close to 7000 mw of power in the next
few years, an amount greater than all of
Manitoba's potential development. (Note:
Medium-term in the construction of
hydroelectric facilities means at least 10
years).
"Tell us what we have to do"
---------------------------
3. Manitoba is clearly very interested in
supplying new demand in the U.S. Midwest, but
there is no way to get the power there.
Manitoba Energy Minister Sale put it best when
he said, "Tell us what we have to do." The
lack of east-west transmission capability in
the upper Midwest is one of the most
significant problems Manitoba faces in
exporting large quantities of power to the
United States. The energy Minister explained
that the North American electricity market is
divided into largely self-sufficient clusters,
with only a minimum amount of interconnection
between them. The upper Midwest (including
Minnesota and the Dakotas) is one "cluster"
while Wisconsin, Illinois and Indiana is
another. Interconnectivity is weak between the
two, and as a result it is impossible to move
electricity - in any great quantities - to
Milwaukee and Chicago. Manitoba Hydro began
full operations in February 2002 with the
Midwest Independent System Operator (MISO)
organization, permitting open wholesale
transmission access to the Midwest market.
Although MISO holds out the promise of expanded
access to Midwest markets, Manitoba is
disappointed with the lack of any progress to
date in expanding transmission facilities
between the upper Midwest (Minnesota and the
Dakotas) and the adjacent markets to the south
and east.
4. Manitoba Hydro has been exporting
electricity to the United States since 1970,
and consistently ranks among the top three
exporters of electricity among Canadian
provinces (behind Quebec and British Columbia),
exporting over 8.8 terawatt hours in 2001-2002.
Currently, Manitoba Hydro has nine long-term
export trade agreements with six electric
utilities and numerous short-term agreements
with more than 30 electric utilities and
marketers in the Midwestern United States, as
well as the Canadian provinces of Ontario and
Saskatchewan. In July 2002, Manitoba Hydro
contracted with Northern States Power (Xcel
Energy) of Minnesota to sell 500 megawatts of
power over 10 years, beginning in 2006, which
replaces a similar 12-year deal between the two
utilities that expires in 2005.
Kyoto - Fiasco to Some, Opportunities to Others
--------------------------------------------- --
5. Although Canada's petroleum industry in
Alberta and Saskatchewan, and its manufacturing
heartland of Ontario, stand to be hurt by the
emission control measures likely to flow from
GOC implementation of Kyoto, Manitoba sees
opportunities. The province views itself as
having a natural advantage in its "clean"
surplus hydro-generated electricity and in
developing peripheral energy industries in
ethanol - to capitalize on Manitoba's surplus
of feed wheat - as well as an innovative
proposal by the Ottawa-based Iogene company to
derive ethanol from straw. The GOM is also
promoting development of hydrogen and wind
energy sources, which it views as complementary
to its hydro resources.
6. Manitoba's left-of-center New Democratic
Party (NDP) government has been a staunch
supporter of the Kyoto Accord for a number of
years. Manitoba Premier Gary Doer has
consistently been the Prime Minister's
strongest advocate among the Premiers for
Canada's ratification of the deal. Manitoba
hopes to leverage the resulting goodwill into
GOC support for a C$1 billion transmission line
that would allow Manitoba to sell surplus
hydroelectricity to Ontario, Canada's
industrial heartland. (Note: There is
currently no large-scale transmission
capability between Manitoba and southern
Ontario). This possibility has been raised
repeatedly in recent years, and Manitoba Energy
Minister Tim Sale traveled to Ottawa in January
to press the GOC on the issue. Prime Minister
Chretien has at times expressed interest in
this idea, but his preference is a privately
financed new north-south connection to the U.S.
7. Although as a government-owned utility
Manitoba Hydro is exempt from taxation, the NDP
government has increasingly turned to the
utility as a revenue source, tapping it for
C$354 million this year in fees, services
charges, and a special "dividend" payment to
help the government balance its budget. The
NDP government has given strong signals that it
plans to build new generating facilities in
northern Manitoba, but must secure additional
export markets with long-term contracts to
justify the capital expense. The province has
also indicated a preference for building
smaller projects like Wuskwatim (200 mw) or
Gull (600 mw) before the large-scale Conawapa
Dam (1400 mw). The Wuskwatim project will cost
about C$1 billion and take at least 10 years to
build.
Environmental Concerns Are Muted
--------------------------------
8. Manitoba Energy Minister Sale admitted to
us that the hydro-electric generating
facilities constructed in the 1960s were built
too big and caused extensive environmental
damage to traditional Indian hunting and
fishing grounds in northern Manitoba. One of
the affected bands, Cross Lake, continues to
fight a public relations battle with Manitoba
Hydro, especially in the Minnesota market, even
after Manitoba Hydro provided Cross Lake C$70
million in compensation. Manitoba Hydro has
settled with the other four bands that were
affected by the flooding and the vast majority
of Manitoba Indian bands are supportive of
hydro-electricity development. Minister Sale
speculated that the Cross Lake band is being
"used" by U.S. environmental groups who - he
says - oppose any and all hydro-electricity
expansion as a matter of principle. He
believes that Canadian environmental groups
have more of a mixed reaction to the Cross Lake
concerns, and he is confident that the smaller
projects like Wuskwatim could proceed with
little effective opposition from domestic
groups.
What next?
----------
9. Manitoba Hydro has immense hydro-
electricity potential that could be developed
with relatively little environmental impact.
Even the construction of hundreds of miles of
transmission lines from the remote northern
generating stations to the U.S. border raises
few eyebrows here. Manitoba Hydro officials
are aware of immense opportunities for sales of
hydroelectricity in the United States, but have
not had significant success in expanding beyond
their relatively small base of supplying power
to several upper Midwest states. In addition
to the limits imposed by existing transmission
capacity, the partially de-regulated U.S.
electricity utilities are not interested in the
long-term contracts Manitoba Hydro would need
to justify the construction of new dams or
enhanced transmission cables.
10. Currently, Manitoba hopes that its support
for the Kyoto Accord will result in a federally
funded transmission line to take Manitoba's
electricity to Ontario - replacing "dirtier"
forms of energy generation there - but the
federal government has made no commitment.
Manitoba sees some opportunities for exports to
Canada's western provinces, but the quantities
are relatively small, and again the
transmission lines are inadequate to handle
much more traffic.
Comment
-------
11. Manitoba is committed to developing its
hydroelectric generation potential and will
ultimately find markets for it output, given
its low cost of generation and relatively low
barriers (compared to other jurisdictions) to
transmission line construction. The question
that remains is who will get it. There is an
open window of opportunity for border states of
the U.S. Midwest to work with Manitoba to
overcome obstacles posed by transmission
limitations and industry restructuring - and
get a guaranteed supply of potentially low-cost
electricity from a nearby source. However, if
American utilities miss this opportunity,
Canadians will find a way to get Manitoba's
abundant and inexpensive electricity to the
Canadian heartland of Ontario where the
appetite is equally large.
CELLUCCI