538 1 MANITOBA CLEAN ENVIRONMENT COMMISSION 2 3 VERBATIM TRANSCRIPT 4 Volume 3 5 6 Including List of Participants 7 8 9 10 Hearing 11 12 Wuskwatim Generation and Transmission Project 13 14 Presiding: 15 Gerard Lecuyer, Chair 16 Kathi Kinew 17 Harvey Nepinak 18 Robert Mayer 19 Terry Sargeant 20 21 Wednesday, March 3, 2004 22 Radisson Hotel 23 288 Portage Avenue 24 Winnipeg, Manitoba 25 539 1 LIST OF PARTICIPANTS 2 3 Clean Environment Commission: 4 Gerard Lecuyer Chairman 5 Terry Sargeant Member 6 Harvey Nepinak Member 7 Kathi Avery Kinew Member 8 Doug Abra Counsel to Commission 9 Rory Grewar Staff 10 CEC Advisors: 11 Mel Falk 12 Dave Farlinger 13 Jack Scriven 14 Jim Sandison 15 Jean McClellan 16 Brent McLean 17 Kyla Gibson 18 19 Nisichawayasihk Cree Nation: 20 Chief Jerry Primrose 21 Elvis Thomas 22 Campbell MacInnes 23 24 25 540 1 LIST OF PARTICIPANTS 2 3 Manitoba Conservation: 4 Larry Strachan 5 6 7 8 Manitoba Hydro/NCN: 9 Ed Wojczynski 10 Ken Adams 11 Carolyn Wray 12 Ron Mazur 13 Lloyd Kuczek 14 Cam Osler 15 Stuart Davies 16 David Hicks 17 George Rempel 18 David Cormie 19 20 21 22 23 24 25 541 1 INDEX OF EXHIBITS 2 3 Number Page 4 5 MH/NCN 1001: TREE rebuttal 813 6 7 MH/NCN 1002: CV's for Alex Flemming 8 and Marvin Schaffer 813 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 542 1 INDEX OF UNDERTAKINGS 2 3 UNDERTAKING NO. PAGE 4 MH-10: Advise what sort of capital 5 costs would be involved in building 6 63 turbines necessary to get 7 100 megawatts 584 8 MH-11: Provide the supporting 9 calculations for the 6.1 IRR as 10 shown on page 24 of 11 Mr. Wojczynski's submission 622 12 MH-12: Advise specifically what 13 the technologies were, re 46(c) 14 and (d) from CAC/MSOS/MH/NCN.2, 15 and why the decision was made to 16 eliminate them or not to proceed 17 with them 644 18 MH-13: Check where cost of hearings 19 are filed 732 20 MH-14: Advise which line NCN portion 21 of the revenue is deducted from 751 22 23 24 25 INDEX OF UNDERTAKINGS 543 1 UNDERTAKING NO. PAGE 2 3 MH-15: Identify where in accounts 4 receivable NCN component is broken 5 down 753 6 MH-16: Provide projected financial 7 statements under scenario assuming 8 Wuskwatim, plus 200 megawatts 9 of wind and two times DSM 765 10 MH-17: Provide financial statement 11 for worst case scenario 767 12 MH-18: Provide documentation 13 of comparison of run-of-the-river 14 mode re three fixed blade turbines 15 as opposed to use of Kaplan 16 turbine 790 17 MH-19: Advise reason for change from 18 guyed tubular steel to guyed lattice 19 steel 802 20 MH-20: Advise re precautions taken 21 in construction in order to overcome 22 difficulties arising as result of 23 permafrost 805 24 25 544 1 WEDNESDAY, MARCH 3, 2004 2 Upon commencing at 1:00 p.m. 3 4 THE CHAIRMAN: Ladies and gentlemen, it is 5 just a few seconds past one o'clock according to my 6 watch and time to reconvene the hearing as per our 7 schedule. I trust everybody has had a long night's 8 sleep. And I hear about people having gone to the 9 gym, some went to swim. I don't know if any went 10 skating and stuff like that but I gather that was the 11 first break in a number of days and everybody must be 12 feeling chirpy and alive. So we'll carry on. 13 And at this point, I think we carry on with 14 the cross-examination on the NFAAT features of the 15 proposal. So just as he gets to his chair, I'll turn 16 the ball over to Doug Abra. 17 MR. ABRA: Thank you, Mr. Chairman. 18 MR. ADAMS: Mr. Chairman, we have two 19 undertakings we'd like to respond to. 20 THE CHAIRMAN: Yes. 21 MR. ADAMS: Undertaking MH-7, page 472 in 22 yesterday's transcript. We undertook to clarify the 23 expenditures related to pre-project training. 24 Manitoba Hydro has allocated $5 million of project 25 funds to the Wuskwatim project, 75 per cent of that 545 1 will be to the NCN and 25 per cent is to other 2 Northern Aboriginal people. To date, NCN has been 3 provided $1,065,420 and no money has yet been 4 expended with respect to other Northern Aboriginals. 5 The Province of Manitoba has allocated $2.5 6 million to the pre-project training for Wuskwatim, 75 7 per cent to go to NCN, 25 per cent to go to other 8 Northern Aboriginal people. To date, NCN has been 9 provided $760,200. And no money has been provided to 10 other Northern Aboriginals. 11 From Canada that we know of, and there may 12 be -- Canada may have other arrangements that we're 13 not aware of, Indian and Northern Affairs has 14 allocated and paid $3.26 million to NCN to help in 15 the construction of the ATEC facility. 16 Western Economic Diversification has 17 allocated $5 million to the Northern Training 18 Initiatives but without a specific split between 19 Wuskwatim and other projects. To date, none of that 20 has been disbursed. And as we mentioned yesterday, 21 we're working -- we are all partners with Human 22 Resources and Skill Development in an attempt to 23 raise another $22 million from the federal 24 government. 25 THE CHAIRMAN: So the total of that, Mr. 546 1 Adams, if you have. We'll figure it out. 2 MR. ADAMS: I can get the total. 3 THE CHAIRMAN: It's okay. 4 MR. MAYER: We all have calculators. 5 THE CHAIRMAN: I just thought you had it. Mr. 6 Mazur? 7 MR. MAZUR: Undertaking number 7, I was to 8 verify that the transmission development fund is $7.8 9 million. And in fact that is the number. Thank you. 10 THE CHAIRMAN: All right. Those were the two 11 points you wished to put on the record at this time. 12 Thank you. Mr. Abra. 13 MR. ABRA: Thank you, Mr. Chairman. I'd like 14 to move now to still under the alternatives portion 15 of the cross-examination to thermal alternatives. 16 And I understand, and correct me if I'm wrong, that 17 in essence, there are two thermal alternatives that 18 are available to Manitoba Hydro. One of them is the 19 simple cycle combustion turbine, or as it's often 20 referred to as SCCT which couples an electric 21 generator directly to a turbine shaft. Am I correct 22 in that basically? 23 MR. WOJCZYNSKI: Yes. 24 MR. ABRA: And then there's a combined cycle 25 combustion turbine which is a CCCT which adds a 547 1 second generating cycle by capturing the waste 2 exhaust heat; is that correct. 3 MR. WOJCZYNSKI: Yes. 4 MR. ABRA: Is it fair to say, is it a more 5 efficient system than the SCCT? 6 MR. WOJCZYNSKI: Yes. 7 MR. ABRA: Okay. Now I gather there's a more 8 capital cost inherent though in the CCCT as opposed 9 to the SCCT? 10 MR. WOJCZYNSKI: Yes. 11 MR. ABRA: We're moving quickly. 12 MR. WOJCZYNSKI: Yes. 13 MR. ABRA: I understand that you, at present, 14 do have two simple cycle combustion turbines, one in 15 Brandon and one in Selkirk? 16 MR. WOJCZYNSKI: Not quite. 17 MR. ABRA: Okay. 18 MR. WOJCZYNSKI: We have two simple cycle gas 19 turbines of the kind you were referring to earlier 20 at Brandon that we put in a couple of years ago. And 21 then what we did also more or less in the same time 22 frame recently is converted the Selkirk generating 23 station from coal-based operation to gas-fuelled 24 operation. So we have two simple cycle turbines at 25 Brandon, brand new ones. And then we have the two 548 1 old steam turbine units at Selkirk but also fuelled 2 on natural gas. So we have a total of four units on 3 natural gas on our system now. 4 MR. ABRA: So there's no coal in the system 5 now? 6 MR. WOJCZYNSKI: There is one unit at Brandon, 7 number 5, 105 megawatts approximately. That is a 8 coal unit and it's a unit that is quite valuable to 9 us and we are still using. 10 MR. ABRA: So do I understand you to be saying 11 there's three then in Brandon and one in Selkirk? 12 MR. WOJCZYNSKI: There are two simple cycle 13 turbines with that technology. 14 MR. ABRA: In Brandon? 15 MR. WOJCZYNSKI: At Brandon. 16 MR. ABRA: And they are operated by natural 17 gas? 18 MR. WOJCZYNSKI: And they are operated by 19 natural gas. And then the third unit that's 20 operational at Brandon is the different technology 21 which is the steam turbine fuelled by coal. 22 MR. ABRA: Okay. And then Selkirk has just 23 been converted from coal to natural gas? 24 MR. WOJCZYNSKI: Yes. 25 MR. SARGEANT: Is that a steam turbine? 549 1 MR. WOJCZYNSKI: It is a steam turbine at 2 Selkirk. 3 MR. ABRA: Now, in your original filing in 4 chapter 4 at page 6, you indicated in the original 5 filing that often your competitors and export 6 customers find the two turbine system options very 7 attractive, that being the SCCT and the CCCT. And 8 yet, you have not indicated in any of your planning 9 that you intend upon implementing any more of those 10 types of systems, at least if the foreseeable future. 11 What I assume from that that you don't find it 12 as attractive as your other areas or options that 13 you're presently investigating. What's the reason 14 that it's not attractive to Manitoba Hydro if it 15 seems to be attractive, as you've indicated in the 16 original filing, to customers or potential customers? 17 MR. WOJCZYNSKI: The fundamental reason and I 18 can expand on it if you want, but the fundamental 19 reason is that we have alternative resources that are 20 more overall attractive than the gas turbines. And I 21 should explain one thing right now. You can use 22 particularly the simple cycle turbines in a very 23 peaking mode where you just run them occasionally 24 when you're short of capacity. Or in the case of us 25 if you had a bad drought, you run them. But it means 550 1 you use them relatively infrequently. 2 This conversation I think is probably more 3 focused on our export market where they would be 4 running, for instance, combined cycle gas turbines on 5 a more higher operational use, more hours use. And 6 so they would use it more for energy than just 7 back-up. So there's different roles they can play. 8 But aside from that, our options that we have are 9 generally right now more attractive to us than 10 putting in gas turbines in Manitoba. 11 MR. ABRA: So a number of those that you 12 export to do use them but you don't prefer to use 13 them? 14 MR. WOJCZYNSKI: Generally, yes. 15 MR. ABRA: And the reason for that is what, 16 I'm sorry? 17 MR. WOJCZYNSKI: Okay. Because we have in 18 Manitoba other options which are lower costs and more 19 attractive overall, the ones we have talked about 20 yesterday. 21 MR. ABRA: Okay. 22 MR. MAYER: Part of the attraction, if I 23 thought I heard you correctly yesterday, was you have 24 no control over the price of gas and gas is a 25 non-renewable resource? 551 1 MR. WOJCZYNSKI: That is correct. Those are 2 two of the factors. Natural gas is expected to be 3 relatively costly in the future. I had indicated 4 yesterday, or was it perhaps Monday, but over the 5 last two days, that natural gas price forecasts are 6 increasing. So even what was in our original 7 submission is understating the cost of natural gas. 8 So even the average price of natural gas into the 9 future is going to be higher than the current 10 forecast. 11 The second issue is there's a volatility in 12 gas prices. So you can get gas price spikes that 13 expose anybody who is using them to all of a sudden 14 huge increases in their cost that they can't control 15 as pointed out by Mr. Mayer. 16 Other features such as it's not renewable. 17 And another reason that if environmental requirements 18 increase for greenhouse gases or for nitrous oxide, 19 those would increase the cost of the gas turbines. 20 MR. ABRA: Now, with respect to coal-fired, 21 Mr. Wojczynski, we recognize that there are 22 significant environmental regulations that have come 23 into place over the last number of years related to 24 them and probably more in the future. Was it for 25 that reason that you converted the Selkirk plant? I 552 1 remember there being some publicity about that a few 2 years ago about concern there being coal emission. 3 You converted as a result of that? 4 MR. WOJCZYNSKI: With respect to the Selkirk 5 plant, we were in the process of reviewing the future 6 of the Selkirk plant when a public controversy arose 7 as to whether or not the Selkirk plant emissions were 8 causing problems in a region adjoining to it. There 9 were a lot of concerns by some residents. Our 10 studies were able to demonstrate that there were no 11 significant impacts but that did raise the profile of 12 the issue. 13 We already were in the process of reviewing 14 what we were going to do with the Selkirk Generating 15 Station. And the public controversy that arose with 16 that and the concerns by the public and the questions 17 from our regulator as well caused us to accelerate 18 our planning considerations. And so we decided to 19 convert from coal to gas in part because of public 20 controversy but more fundamentally because of concern 21 about the long-term regulation of coal generation at 22 Brandon at that time -- sorry, at Selkirk. We did 23 not have the most modern particulate controls. We do 24 have them at Brandon. We didn't have them at 25 Selkirk. There was a lot of use of the land adjacent 553 1 to the station. So you've got people close by. And 2 so you've got fugitive emissions, dust, for instance, 3 off the coal pile. And there were other concerns 4 about, in the long run, the regulations will increase 5 for the very fine particulates out of coal stations, 6 concerns about other emissions. 7 So when we did an overall analysis of the 8 future of Selkirk, we decided it was better to switch 9 from coal to natural gas. 10 I draw a distinction between that and what we 11 want to do at Brandon because Brandon, it's a more 12 modern unit, a larger unit, more efficient and 13 already has a number of environmental enhancements in 14 it. So we decided to switch Selkirk and not Brandon 15 because of the different circumstances there. 16 MR. ABRA: Is there any possibility in the 17 future or the foreseeable future of increased 18 technology to the point that coal might be a viable 19 alternative or are the regulations going to continue 20 to get more stringent and the technology simply not 21 be capable of keeping up to them? 22 MR. WOJCZYNSKI: That's an excellent question. 23 MR. ABRA: Well, thank you. 24 MR. WOJCZYNSKI: I mean all the questions are 25 good but some are more excellent than others. 554 1 The technologies for all the various types of 2 energy, electrical energy sources are continually 3 improving whether it's Hydro, coal, natural gas, 4 wind, nuclear, whatever you want to talk about. So 5 as you put in your question, there's almost a race 6 between the technology improving and the 7 environmental requirements becoming more stringent. 8 So there are technologies that are 9 increasingly being used. Fluidized bed is on example 10 which is an incremental improvement to the technology 11 which helps somewhat but doesn't overall increase the 12 capital cost. But our assessment is in the long term 13 that those kind of incremental technology 14 improvements will not be able to keep pace with the 15 environmental requirements. 16 There are some more dramatic changes that one 17 can do with coal technology and there's two types 18 that I'm thinking of here. One is that you have a 19 dramatically different form of coal generation 20 burning. And there's a lot of research, particularly 21 in the United States, going on into that but right 22 now it's not clear that that would be economically 23 feasible. And one of those is integrated coal 24 combined cycle gasification which is like you put in 25 a huge chemical plant. 555 1 But the second area of possibly moving to a 2 clean coal technology is rather than just changing 3 the technology is you could go to what's called 4 sequestration. And by that what we're saying is you 5 have a coal combustion process of some kind. It 6 produces NOx SOx, mercury and cadmium and other heavy 7 metals particulates, greenhouse gases. And one thing 8 you could do is take all of those emissions or a 9 large portion of those and take the emissions out of 10 the plant, pipe them to an injection site where you 11 have drilled wells into the ground 1,000 feet, two 12 miles, whatever, down. And you inject the emissions 13 from the coal into the formation, the subground 14 formation. And then in effect, you store them 15 hopefully forever down there. 16 And there's been a lot of work done. And 17 Canada is actually one of the leaders in that but 18 it's quite costly. 19 MR. ABRA: I was going to say that would be 20 costly I would assume? 21 MR. WOJCZYNSKI: Yes, it's very costly. So 22 there's a whole bunch of different possibilities but 23 when we look at them in the long term, we think the 24 coal won't just die away as an option but will become 25 increasingly costly and probably less prevalent as 556 1 well. 2 MR. MAYER: I know that we have to explore 3 needs and alternatives. But from Manitoba Hydro's 4 point of view, last I heard we didn't have a whole 5 pile of coal in Manitoba and, therefore, there's got 6 to be some significant transportation cost. 7 Secondly, last I heard, we didn't have a whole pile 8 of natural gas in Canada because we keeping having to 9 ship it over those pipelines that periodically blow 10 up. 11 We do have what appears to be an abundance of 12 eminently of renewable resource. And it would appear 13 to be the case that to date, we've already done 14 whatever damage, as bad as that may be, the fact is 15 it's already been done in terms of whatever the 16 building of the older style generating stations have 17 been. Why would Manitoba Hydro even consider looking 18 at any of those other alternatives other than the 19 fact that we require you to do so at this hearing? 20 MR. WOJCZYNSKI: I would say you're right in 21 your overall statement there but you are asking a 22 question. So the simple answer is yes but it wasn't 23 a yes/no question. 24 We always look at all the alternatives just to 25 be sure we're going to be doing the right thing. 557 1 Secondly, we do need it as part of the requirements 2 for this process, but we would have done it anyways. 3 We would have looked at these alternatives anyways. 4 A third reason is that we look at what happens at our 5 export markets. 6 Part of our ability to be confident that we're 7 going to get a good price is to know what are all of 8 the other technologies, what are their costs, what 9 are their characteristics, what are their 10 capabilities so that we have a handle on the export 11 market. So that's a part of the need for 12 alternatives is what can we build in Manitoba but 13 also what happens in the export market. 14 We do need some resources to back us up in 15 drought. So even though we aren't generally looking 16 at gas or coal as a very attractive resource, we do 17 need something to have the most optimal operation is 18 to have some back-up in droughts. 19 MR. MAYER: It is also my understanding, sir, 20 that at least, if my recollection is correct, when 21 you built limestone and your original long-term 22 contract that I think was with Northern States Power 23 actually tied the cost of your -- tied the price of 24 your power to the price of coal? 25 MR. WOJCZYNSKI: Yes. And it was 80 per cent 558 1 of the incremental cost, yes. So this is part of our 2 knowledge that what our exports are doing. We know 3 what our competitors are doing and we know what our 4 customers are doing or thinking of doing. And the 5 majority of the time when we are arranging long-term 6 firm exports particularly but also in the short-term, 7 the alternative normally for our customers is thermal 8 generation. And most often historically it's been 9 coal, sometimes gas. It's still both of those most 10 of the time. 11 MR. ABRA: Mr. Chairman, I am finished my 12 questions with respect to the thermal alternative. 13 Unless any of the Commission members have any 14 questions, I'll move on to wind. 15 THE CHAIRMAN: Carry on. 16 MR. ABRA: Which is apropos because many 17 people accuse we lawyers of having bags of it. 18 It's my understanding, sir, that the federal 19 and state governments in the United States have 20 budgeted significant grants and are bringing in 21 subsidies, favourable tax treatments and green power 22 premiums to spur the development of wind in that 23 country. And also bio energy and fuel sales and 24 solar systems and so on. 25 Assuming for a moment that if the U.S. was 559 1 able to develop its own clean energy by the use of 2 solar systems or fuel cells or wind, is that going to 3 impact on your ability to export your water 4 generation power? 5 MR. WOJCZYNSKI: We fully expect that in our 6 export markets, particularly in the U.S. but also 7 Canada, that there will be a continuing effort by the 8 governments to have subsidies, research programs, tax 9 treatments, other things, will take the uneconomic 10 resources and make them more economic and accelerate 11 their technological advancement and commercial 12 development. And so we do expect that there will be 13 an increasing use of what one might want to call 14 alternative technologies. And we fully anticipate 15 that and look forward to that. And so do the 16 forecasts that we utilize as our basis for our export 17 market forecasts. 18 Even though with all those kinds of programs 19 in Canada, the U.S., internationally, because 20 development of alternative technology is not just -- 21 it's a worldwide effort, we do not anticipate that 22 there will be a significant impact on -- significant 23 in terms of a dominant impact in our markets that 24 they will displace the coal and gas options so that 25 they are only small amounts and insignificant 560 1 amounts. We expect that in any of the realistic 2 scenarios looking into the future that there will be 3 major amounts of thermal resources still being used 4 and still being added. And that what we will be 5 displacing are those in the main. 6 MR. ABRA: In the U.S. primarily? 7 MR. WOJCZYNSKI: In the U.S. primarily but 8 also in the Canadian markets. But our focus is 9 mainly in the U.S. 10 MR. ABRA: Now you said that you've taken a 11 look at this issue and spent significant time on it 12 in your forecast. What sort of steps had you taken 13 to satisfy yourselves that indeed your export market 14 won't be affected by the alternatives that are being 15 developed in the United States? 16 MR. WOJCZYNSKI: Briefly what we do is we 17 in-house maintain a number of staff who are engineers 18 and others but who are very capable engineers who 19 enthusiastically look at all these options and have 20 our own in-house capability. We are involved in a 21 number of organizations and members, whether it's the 22 U.S. agencies like EPRI, Electric Power Research 23 Institute, or other organizations in Canada, 24 coalitions where -- and we subscribe, we buy research 25 from others. So we're always staying on top of the 561 1 evolving technologies. 2 Second thing we do is we interact with our 3 peers in other jurisdictions to know what we are 4 doing and thinking. And so make sure that we have 5 regional knowledge and know what the other generators 6 are thinking and doing. 7 Third thing we do is we develop export market 8 forecasts utilizing some of the best and I would say 9 the best consulting expertise in North America in 10 this area who each, independently of each other and 11 independent of us, are familiar with these 12 technologies and are at the forefront of thinking 13 about what their impacts are going to be and we look 14 at the range of forecast and incorporate them into 15 our long-range forecasts. 16 MR. ABRA: Okay. The Canadian federal 17 government I understand has a subsidy program itself 18 of .8 cents per kilowatt hour nominal and .5 cents 19 per kilowatt hour real with respect to wind; am I 20 correct? 21 MR. WOJCZYNSKI: I'm sorry, Mr. Abra, could 22 you please repeat that? 23 MR. ABRA: Sure. I understand that the 24 Federal Government of Canada has a subsidy program 25 for wind of .8 cents per kilowatt hour nominal and .5 562 1 cents per kilowatt hour real. Firstly, what do the 2 terms "nominal" and "real" mean? 3 MR. WOJCZYNSKI: First nominal and real. By 4 nominal dollars, we are talking about before you 5 subtract inflation. You will remember there was a 6 discussion with Ms. Wray yesterday and with myself 7 the day before where nominal dollars are the dollars 8 that you and I see when we go to the store and pay it 9 and we pay the next year and we pay the next year 10 when we go to the store, or whatever, and inflation 11 occurs, let's say it's 2 per cent per year. And so 12 the price of something $1.00 today and $1.02 the next 13 year and $1.04 the second year, those are nominal 14 dollars. So the real dollars are saying we don't 15 want to get mixed up with all this inflation stuff. 16 It's easier to just work what we call in real 17 dollars so we subtract the inflation out. So if an 18 item costs $1.00 this year, in real dollars, it will 19 still be a dollar next year and a dollar in the third 20 year. And so it always stays at the same as long as 21 the price increase in that item is the same as 22 inflation. 23 So the .8 cents is before you take out the 24 inflation and .5 cents is after you subtract that 25 out. 563 1 MR. ABRA: Is that the present level as far as 2 you are aware, Mr. Wojczynski? 3 MR. WOJCZYNSKI: Yeah. First of all, it's a 4 levelized price over a number of years and it's what 5 would be available if someone were to put in a new 6 wind generator and get from the federal program. If 7 they met all the requirements and were successful at 8 that, there's a large oversubscription in the federal 9 program nationally. They are only allocating 1,000 10 megawatts of wind. If memory serves me right, it's 11 in the order of around 10,000 megawatts. That may 12 not be exactly right but it's many thousands of 13 megawatts. It's many thousands of megawatts anyways 14 of oversubscription meaning more people are trying to 15 get subsidy than is available. 16 MR. ABRA: Than the amount that's available? 17 MR. WOJCZYNSKI: Yes. And so generally that 18 would be available if they were successful at getting 19 that and they have to put it in pretty quickly 20 because the program dies out in a few years. 21 MR. ABRA: I was just going to ask you that. 22 Is it intended to continue in the future or is it 23 not? 24 MR. WOJCZYNSKI: The federal government plan, 25 and there's been a lot of lobbying by the Canadian 564 1 Wind Energy Association and others, to try and have 2 the federal government extend it. But so far, their 3 stated plan is to have it ramp down. There's a very 4 specific set of dates and time frames. And they have 5 indicated so far, the Federal Government has 6 indicated it doesn't plan to extend that but that's 7 always possible. One does not know for sure what's 8 going to happen. 9 Maybe I could add a slight thing to that. The 10 intent for the federal government and other 11 governments with these subsidies is they look at a 12 technology and say it's not economic. Let's put in a 13 subsidy to help make it economic, to move it along. 14 If there's going to be a subsidy down the road, it's 15 because the conclusion is it's not economic without 16 it. 17 MR. MAYER: And by economic, in light of the 18 fact that they use wind generation I understand 19 relatively significantly in the Scandinavian 20 countries, the issue is economic as compared to what? 21 MR. WOJCZYNSKI: You're right. A big issue is 22 what is your alternative. The main cost for wind 23 generation is not very site specific. It's 24 technology available anywhere in the world. And so 25 if you're in an area of the world that has high 565 1 energy cost, then wind is quickly going to be 2 economic. You're absolutely right. 3 The other element though that has to be 4 recalled is that in Europe, there are very large 5 subsidies for wind, much larger than anything in 6 Canada or the U.S. So it's a combination of those 7 two factors. For instance France, I can't remember 8 Germany, but France, energy costs, wholesale costs 9 are something like three times what they are in 10 Canada. Retail is in that order, higher two to three 11 times. So you are talking about in Europe, there's a 12 much higher likelihood of those kind of resources 13 being found to be economic. 14 MR. SARGEANT: Mr. Wojczynski, a month or two 15 ago, I read a story in the Free Press about some new 16 technology in wind generation. I believe it came out 17 of California. Part of the story was also -- part of 18 the hook in the story was also that this new 19 technology was much less destructive of birds which 20 apparently the current wind farms in California kill 21 a huge amount of birds. 22 But I think this story said that or I seem to 23 recall that the story indicated that the new 24 technology was about twice as efficient as the 35 per 25 cent that you were speaking of the other day. Are 566 1 you familiar with that? 2 MR. WOJCZYNSKI: Yeah, I'm not sure of the 3 specifics of the technology you're referring to. One 4 comment is that the technology is evolving and there 5 are a whole bunch of changes that have happened. And 6 I think perhaps probably what you're referring to is 7 that we've got -- that the industry has moved to 8 bigger turbines with blades that are larger. The 9 whole wind turbine height is increasing. So you are 10 higher up, you're going to have bigger blades and 11 then they can turn more slowly and so it's easier for 12 birds to get out of the way. 13 The second is it used to be lattice towers 14 where you used for wind generation. And raptors 15 particularly used to like sitting on them because 16 then they can perch and look for their prey. But the 17 unfortunate part is when they would go to get their 18 prey, they would be preyed upon by the blades and 19 that was a huge problem. Now there's the smooth 20 towers and pretty well all the modern ones use those. 21 So there's those kind of actions which have 22 reduced the killing of birds and also increase the 23 ability for the turbine to use the wind. But those 24 technologies, kind of technologies are the ones we're 25 using, assuming, pardon me, in our analysis. 567 1 MR. SARGEANT: The most efficient technology? 2 MR. WOJCZYNSKI: Yes, that's right. And as a 3 matter of fact, I didn't expand on this on Monday in 4 the presentation but I could explain very briefly 5 that as we indicated in our interrogatories, we 6 continually collect more information. After the 7 initial submission, we had commissioned two 8 consultants to get for us additional information on 9 how will the technology evolve over time. And they 10 gave us their best information as to what will happen 11 by 2009 or 10 or 11 with efficiency increases, cost 12 decreases. And that's what's been incorporated into 13 the update that I presented on Monday. However, the 14 general sense is that while we presented our best 15 guess, there's a greater likelihood that the cost of 16 wind will be higher than we're indicating than lower 17 because our forecast is assuming a 16 to 19 per cent 18 cost decrease and it's not certain that that will 19 happen. And so there's a greater likelihood that 20 those cost projection decreases will not occur than 21 will occur. But we're using those optimistic 22 assumptions as the basis of our work. 23 MR. SARGEANT: Thank you. 24 MR. ABRA: In the original filing, your NFAAT 25 filing in chapter 4, page 10, lines 23 through 28, 568 1 you gave various alternatives that Manitoba Hydro 2 might consider with respect to wind development. And 3 the three alternatives that you gave were Hydro doing 4 it on its own or doing it as a joint venture or 5 purchasing wind from a NUG as you referred to it or 6 as a Non Utility Generation company. 7 And it's specifically, as I say, at lines 23 8 through 28 where you said, and I quote, 9 "Such a development could include one 10 or more of Manitoba Hydro solely 11 owning the wind development; 12 2. Manitoba Hydro owning the 13 development in conjunction with 14 another developer such as contemplated 15 in the January 2003 Joint Venture 16 Agreement with Shell Canada; and/or 17 3. Manitoba Hydro purchasing the wind 18 power through Power Purchase 19 Agreements with NUGs." 20 Now, I assume there are pros and cons to each 21 of these alternatives and is there a preferred option 22 that Manitoba Hydro is sort of aiming in the 23 direction of at the present time? 24 MR. ADAMS: Each option would have different 25 characteristics and there are benefits associated 569 1 with each one that may or may not be associated with 2 the other ones. For example, Manitoba Hydro does not 3 pay income tax. Therefore accelerated capital cost 4 allowances which can be very attractive to somebody, 5 a company who is paying a lot of income tax somewhere 6 don't create any value for us. 7 So when a technology needs that sort of 8 assistance to get it over the hump to make it 9 economic, it's more beneficial to a private company 10 to do that than it is for us. 11 So the opportunity that's likely to present 12 itself first from our perspective is one or more 13 private companies operating as a NUG, generating the 14 wind, taking advantage of all the federal subsidies 15 that are available, the income tax subsidies -- or 16 not subsidies, income tax -- 17 MR. ABRA: Depreciation. I was going to say 18 avoidance. I'm not too sure that's the right word. 19 This time of year it's attractive to all of us. 20 Where they have the opportunity to take 21 advantage of some of these sort of things and we 22 can't. And in those circumstances, it makes sense 23 for us to purchase the energy from them at fair value 24 for us. And it's more likely that they will be able 25 to make a go of it than we can. 570 1 The advantage of us developing ourselves in 2 the long-run is basically we get to keep all the 3 profit, assuming there is some. We can usually 4 borrow money at a price that's as low or lower than 5 private people, particularly in the long term. 6 Short-term money, sometimes other people can do 7 better. So once the technology becomes mature, it's 8 fairly economic. At that point, it probably makes 9 sense for us to do it on our own. 10 The third option doing it as a joint venture 11 is, as we discussed yesterday, we've had lots of 12 experience building and operating Hydro plants. We 13 don't have any experience building and operating wind 14 farms. And so doing it a joint venture with somebody 15 who is in that business is a good opportunity for us 16 to partly benefit from their ability to take 17 advantage of the income tax and the subsidy programs 18 and partly to learn and develop our own skill set. 19 So unfortunately, the world never comes in 20 nice tidy chunks. But if you could organize things, 21 the way to do it in our minds is, first, buy from a 22 NUG. Secondly, get into joint ventures with NUGs. 23 And then as we get more and more comfortable with the 24 whole process, then we become the wind developers. 25 Following pretty much what happened with the Hydro 571 1 technology 100 years ago. 2 MR. ABRA: Is there any move towards any of 3 the three at the present time or the sort of the 4 order that you've just referred to them, Mr. Adams, 5 or is it still in the planning stages? 6 MR. ADAMS: We are actively negotiating with 7 one NUG that we -- or rather, as I said yesterday, I 8 hate to predict the outcome of any negotiation. 9 MR. ABRA: No, I understand. 10 MR. ADAMS: We're hoping that we'll come to an 11 agreement in the very near future. 12 MR. ABRA: That would be the first such 13 agreement that you would have negotiated? 14 MR. ADAMS: Yes. 15 MR. ABRA: Okay. And that's with a NUG? 16 MR. ADAMS: That's with a NUG. 17 MR. ABRA: Thank you. 18 MR. ADAMS: There are several other potential 19 NUGs that we are discussing with. I wouldn't use the 20 term negotiating at this point but presumably the 21 discussions. If it maintains the attractiveness for 22 both parties, we'll evolve into negotiations. 23 We do have a joint venture agreement with 24 Shell, with Shell Canada. There's not a lot of 25 activity on that one and my expectation is that 572 1 nothing will come of it in the very near future. 2 Now having said that, having been in the joint 3 venture negotiations for the best part of the year, 4 we've learned an awful lot that we would not have 5 learned otherwise. So we got part of the benefit 6 even though we didn't do the developing. 7 MR. SARGEANT: This NUG that you said you were 8 close to concluding an agreement, is that with wind? 9 MR. ADAMS: Yes. The other thing is we do 10 have a very extensive wind monitoring program in the 11 Province. I think Mr. Wojczynski mentioned it on 12 Monday. It's coming up for, well, over nine months 13 now. And once we've got a year's wind record, then 14 we can start to correlate that with the longer term 15 records that we have, that Environment Canada has at 16 monitoring stations. We're developing wind maps and 17 we'll be in a good position to fully understand the 18 wind resource in Manitoba the same way as we 19 understand the hydraulic resource. 20 And then, as Mr. Wojczynski says, as we start 21 to gain more knowledge about the engineering 22 facilities required to convert it to electricity and 23 these facilities become more economic, at that point 24 we'll be in a position to move forward and invest. 25 The third issue, and this one is critically 573 1 important to us is there is a limit to how much wind 2 you can put in any system. I go from a physical 3 perspective before the system becomes unstable and 4 from an economic perspective before you just can't 5 management the variability. And we are undertaking a 6 huge amount of work in those areas to ensure that, 7 firstly, we can continue to operate with the degree 8 of reliability that we've become accustomed to and 9 for which we have to maintain under the various 10 interconnection agreements that we have. And 11 secondly, that we can price the product properly so 12 as we can, well, firstly don't degrade our existing 13 product and secondly, make a decent margin in the 14 wind energy itself. 15 THE CHAIRMAN: There are some communities in 16 Northern Manitoba that are not currently served by 17 hydroelectricity. Rather I believe they are served 18 with diesel fuel, diesel generated electricity. How 19 close are we to providing an alternate source of 20 electricity to these communities at this present time 21 in terms of the planning Manitoba Hydro has been 22 doing? 23 MR. ADAMS: We and the communities in some 24 cases themselves have done an awful lot of study of 25 alternative energy sources. Most of the studies 574 1 conclude that -- well, all of the studies that we 2 have seen conclude that the wind is not an economic 3 alternative in these communities. In some cases, it 4 does look attractive to build a Hydro plant, small 5 mini Hydro type of thing and run the electricity into 6 the community. In others, the most viable 7 alternative appears to be to build a transmission 8 line from the main grid. 9 And the difficulty is that in relative terms, 10 it's still very very expensive. And we have an 11 ongoing issue between us and the federal government 12 as to who pays for it. And that is an issue that was 13 discussed fairly rigorously at the Public Utilities 14 Board. I wasn't involved in that but it was very 15 recently. 16 MR. MAYER: We were. 17 MR. ADAMS: You were, I appreciate that. So a 18 major concern for Manitoba Hydro is if we were to put 19 out the capital investment that's required to build 20 either a transmission line or a Hydro plant, we would 21 need to be assured that we would get reimbursed 22 particularly when, in our opinion, the primary 23 responsibility lays with the federal government. 24 THE CHAIRMAN: That begs the question, are 25 there negotiations and discussions to that effect 575 1 ongoing? 2 MR. ADAMS: I hesitate to answer that one 3 because I'm not personally involved and I honestly 4 don't know the current state of the negotiations. I 5 can undertake to find out and get back to you. 6 THE CHAIRMAN: I am surprised that you say 7 that the wind generation is more or less out of the 8 question because a number of scientific reviews have 9 lately been talking about that as an alternative or 10 as a wind generated electricity as having potential 11 for various locations in the Arctic. And if that is 12 the case, why can it not apply or what makes it 13 different for places like Shamattawa or other 14 locations in Manitoba? 15 MR. ADAMS: It's a good question, and as Mr. 16 Wojczynski said, they are all good questions. 17 The key issue, well there are several key 18 issues. With a wind -- firstly, believe it or not, 19 these are not particularly good wind regimes. The 20 best wind regime in Manitoba is actually in the 21 south, south central part of the Province in the 22 Letellier, Morden area. As you go into the central 23 parts of the Province in the north, Brochet, Lac 24 Brochet, Shamattawa, the wind resource is not really 25 as good. So wind generation there is very expensive. 576 1 Second thing is you still need the diesel 2 generators or some other mechanism to provide the 3 electricity when the wind is not blowing. So the 4 saving is merely, and I don't use the term in a 5 derogatory sense, all you save with the wind is the 6 diesel fuel itself. You don't save the storage 7 facilities, you don't save the winter road 8 activities, you don't save capital cost of the 9 generation itself. 10 So when these things are studied in detail and 11 aggressively, the wind just doesn't start to look 12 attractive. What starts to look attractive in 13 relative terms, particularly for places like 14 Shamattawa, is building a transmission line. But 15 it's still a difficult one to finance. 16 THE CHAIRMAN: Thank you. 17 MR. ADAMS: I forget myself. The one thing 18 that does look reasonably attractive, not at 19 Shamattawa but Brochet and Lac Brochet is the 20 potential for a small Hydro plant. And we've worked 21 quite closely with the First Nations and the 22 communities in the area and they actually have 23 engaged their own consultants and work with us to 24 find out what is possible, what can be done and how 25 could it be financed. 577 1 THE CHAIRMAN: Hydroelectric? 2 MR. ADAMS: Yeah, hydroelectric. Mini Hydro 3 plant. 4 MR. WOJCZYNSKI: There are a couple of other 5 just details that might be helpful that if you're 6 looking at these small sites, the wind generation 7 becomes much more expensive on a per-kilowatt hour or 8 per-kilowatt basis when you go for the smaller 9 facilities. You're talking about relatively small 10 communities. So for each tiny little community, the 11 relative cost of the wind generation is much higher 12 because you're putting in a small turbine in addition 13 to all the factors already mentioned. 14 Another awkward incident, if you're talking 15 about communities that don't have road access, you 16 need to generally have cranes, fairly big cranes. 17 And most of the communities that we're referring to 18 here don't have road access so that makes it 19 immediately much more difficult whereas some of the 20 Arctic communities, not along the Bay coast, for 21 example, but in other places that may very well have 22 road access. So there are many issues. 23 MR. MAYER: None of the four diesel 24 communities have all weather road access. 25 MR. WOJCZYNSKI: That's right. 578 1 MR. ABRA: In your original NFAAT filing at 2 pages 12 and 13, you discussed uncertainties that 3 exist with respect to wind generation. And they 4 included things such as economies of scale, wind 5 capacity factor, need for transmission upgrades, 6 ability of Hydro to firm and shape wind, the export 7 capability and the availability of Government 8 subsidies. Now you already covered a couple of 9 those, Mr. Wojczynski, already. But do those 10 uncertainties still exist? And the ones that you 11 haven't canvassed already, if you can just comment on 12 them. For example, the economies of scale and the 13 need for transmission upgrades, the firming and 14 shaping and the export capability are topics I don't 15 believe you have touched on so far as far as the 16 uncertainties are concerned with respect to wind 17 generation. 18 MR. WOJCZYNSKI: I'm sorry, could you repeat 19 the ones that you felt I hadn't touched on? I'm sure 20 I hadn't. 21 MR. ABRA: Yes, the economies of scale, the 22 wind capacity factor Mr. Adams has commented upon 23 somewhat but you might expand on it. The need for 24 transmission upgrades I don't believe you've 25 discussed so far. The ability of Manitoba Hydro to 579 1 firm and shape wind. Now, you did describe what 2 shaping and firming was yesterday but I don't think 3 you discussed the ability. And the export capability 4 you really haven't discussed. And then you have 5 discussed of course the government subsidies and you 6 said that program is coming to an end. 7 MR. WOJCZYNSKI: So I'll go through those five 8 and let me say on the very last one, it's really 9 common to any new resources whether it's wind or 10 putting in Wuskwatim or putting in fuel cells or 11 whatever, like the export capability is common to all 12 of the resources we had looked at. So let me deal 13 with that one first and let me say it's a common 14 factor. And as Mr. Adams had indicated, we have -- 15 there is a limit as to how much you can eventually 16 put in of a resource for a number of reasons. And at 17 some point, we will run into the transmission limits 18 of various kinds. So let's leave the export 19 capability as being just a common factor. I could 20 deal with the other four. 21 Economies of scale I just touched on when we 22 were talking about the northern communities and the 23 capital cost per kilowatt. So if you think about it, 24 that would be the best way to compare the cost of 25 building a facility. It goes up dramatically as you 580 1 get to smaller sized units. If you think of the kind 2 of units that traditionally people like to have 3 thought about wind power that every farmer can have 4 their own little wind generator in their backyard to 5 produce electricity for themselves and maybe there's 6 a little bit left over to sell somewhere else. You 7 are talking about a micro wind turbine facility and 8 the costs on per kilowatt basis are a number of times 9 higher than the large utility grade size which would 10 be in the order of 50 to 100 megawatts say. 11 THE CHAIRMAN: Mr. Wojczynski, my two 12 neighbours, when I was a small kid, had that. 13 MR. WOJCZYNSKI: Yes. 14 THE CHAIRMAN: Fifty years ago. 15 MR. WOJCZYNSKI: Did they have access to 16 central supply? 17 THE CHAIRMAN: No, that's all they had. 18 MR. WOJCZYNSKI: That's all they had. And if 19 that's all you've got, you're going to do what you 20 can. But if today someone were to be looking at 21 putting it in their backyard, and we're talking about 22 a relatively small thing here then, it will be much 23 more costly than obviously buying off the network or 24 of putting in a diesel generator. 25 So you're talking about 50 to 100 megawatts 581 1 large-scale size before you can get the economies of 2 scale that we have consumed in all of our work here. 3 MR. MAYER: While we're talking about small 4 generators, when we're travelling from Thompson to 5 The Pas at the back end of these hearings, it's my 6 intention to show the Board what I believe was the 7 last water wheel to generate power in Manitoba at 8 Wekusko Falls. 9 MR. WOJCZYNSKI: After the hearings maybe you 10 can give us all a tour there. 11 Let me give you an example of what might be a 12 large scale size utility size that you would need to 13 get the kind of economies of scale that we are 14 assuming in here and that you would have to be 15 talking about to get the lowest cost. If you wanted 16 to have a 100 megawatt facility using the latest 17 technologies that developers are looking at, you 18 would be putting in, for example, 63 units, 63 19 individual wind turbine plants, each one with a road 20 up to it or stub of a road, each with its underground 21 cabling from it. And each tower would, from the base 22 to the top of the blade, be something like 100 metres 23 high, or actually more than that. Over 100 metres 24 high. And so you'd need 63 of those to get 100 25 megawatts. And that would be the kind of facility 582 1 we're talking about. So that's a large kind of 2 facility and that's the economy of scale issue. 3 MR. SARGEANT: Each one is only putting out 4 about one and a half megawatts? 5 MR. WOJCZYNSKI: That's correct. And that's 6 sort of the state of the art or the sort of the most 7 modern design. There are designs that are being 8 looked at to go to even let's say five megawatts 9 each. But these are the kind where you're going 10 offshore. If you look at Denmark, you look at 11 Britain, now Holland and Germany, there's increasing 12 concern about having all of these on the land. 13 And so as a matter of fact in Denmark, the 14 rules are now that you are not allowed to build on 15 the land and you have to build offshore, out of site, 16 over the horizon. That does two things for you. It 17 gets it away from the competition for land use and 18 there's an aesthetic issue that increasingly people 19 are concerned about. But the other thing it does is 20 there's a much better wind resource when you're in a 21 flat area like in the ocean or in the middle of Lake 22 Winnipeg than if you're on land generally speaking, 23 and so you get a better wind resource. But if you're 24 building a facility in deep water, whatever depth, 25 more than just a few feet, now the base, the 583 1 foundation has become very expensive. So you'd much 2 rather have a single big facility than lots of little 3 ones. So that's why it's worthwhile putting in more 4 cost to have a bigger single facility like five 5 megawatts than four or three smaller ones. 6 When you're talking about on land right now, 7 it's more normal, if you're thinking of building a 8 new one, more like megawatt, megawatt and a half, 9 something like that. So that's the economy of scale. 10 Now if I should move onto the second question, 11 Mr. Abra, or second part of that? 12 MR. ABRA: Yes, I was just wondering. You 13 used the example of 63 turbines that would be 14 necessary to get 100 megawatts. 15 MR. WOJCZYNSKI: Yes. 16 MR. ABRA: What sort of capital costs would 17 there be involved in building that? 18 MR. WOJCZYNSKI: I have known and I know we 19 have it. Can I take an undertaking on that? I think 20 it's in the order of $180 million but if I could just 21 have an undertaking on that, get back to you to 22 confirm that? 23 THE CHAIRMAN: Yes. 24 MR. WOJCZYNSKI: We're talking about something 25 in that order. 584 1 (UNDERTAKING MH-10: Advise what sort of capital 2 costs would be involved in building 63 turbines 3 necessary to get 100 megawatts) 4 5 MR. WOJCZYNSKI: Moving on, the second issue 6 would be the capacity factor. 7 MR. ABRA: Wind capacity factor, yes, you 8 touched on somewhat or Mr. Adams did. 9 MR. WOJCZYNSKI: So if I could just explain 10 what we even mean by that first of all. It's 11 intuitively obvious that the windier a place is, the 12 better the wind generation is going to be and the 13 more economic. That's obvious. The way we measure 14 the windiness, there's different ways you can do it. 15 But the simplest way, and this isn't how the 16 technical specialists would do it but I think it's 17 the best for our discussions here today, is what we 18 call capacity factor. And that is, very simply put, 19 if you think of there being 365 days of the year and 20 you think of a 35 per cent capacity factor, what that 21 means out of the 365 days of the year, just over 100 22 of those days, call it 130 days, let's say 130 days 23 of the year, it's like that wind turbine would be 24 running non-stop at the full amount. And then at the 25 end of the 130 days of the year, it would stop 585 1 producing and go to zero and produce zero for the 2 rest the year. And that's the simplest way of 3 explaining the capacity factor. 4 I can give you a more technical explanation. 5 It's the average energy production over the total 6 potential energy production if it would be running 7 flat out all days of the year. You can choose 8 whichever explanation. 9 So now, the amount of wind is critical to the 10 economics of wind, the speed of the wind, the average 11 speed of the wind. 12 And perhaps a good explanation also in this 13 capacity factor is that you look at something like 14 Wuskwatim with its 200 megawatts, its average 15 capacity factor is 85 per cent. Our best guess in 16 Manitoba for the best wind resource is probably in 17 the order of 35 per cent capacity factor. Wuskwatim 18 is 85 in the order of. So you get a lot more energy 19 output from the Hydro plant. 20 MR. ABRA: In essence, what you're saying is 21 the efficiency is significantly less, or is it? 22 MR. WOJCZYNSKI: You could think of it as 23 efficiency. 24 MR. SARGEANT: In our simple terms. 25 MR. WOJCZYNSKI: In the basic terms, one could 586 1 choose to think of it that way, yes. 2 MR. MAYER: What kind of wind velocity do you 3 need to move one of these wind turbines? I think 4 that's what I'm having trouble understanding this. 5 You always have some wind but you don't always 6 have -- 7 MR. WOJCZYNSKI: That's a good point. I tried 8 to give perhaps the overly simple explanation to say 9 that it's 130 days flat out and then it goes to zero. 10 That isn't how it really works. In reality, what 11 would happen for that same 35 per cent capacity 12 factor is, I'm making this up, for 30 days it might 13 be flat out full at 100 megawatts. And then at 30 14 days, it would be at 80 megawatts, and then another 15 30 days it would be at 30 megawatts. But if you have 16 very very light winds, and I offhand don't know the 17 number where that happens, but at some point there's 18 no wind. Even though there's a little bit of wind, 19 it's not enough for it to produce. 20 Ironically, for most of the technologies, if 21 the wind is too high, they have to shut down the wind 22 turbine because the potential for mechanical damage. 23 So the extreme example if you had a hurricane or 24 tornado, those wind turbines shut themselves down 25 because of the danger of mechanical damage. You 587 1 know, so it's actually -- you know, there's a lot of 2 considerations there. 3 And the other factor, if you go back to our 4 Mathematics for a minute, the wind energy output in 5 terms of electricity is the cube function of the wind 6 speed. So in other words, if your wind doubles, you 7 get eight times as much power. So it's not the wind 8 speed doubles, you get twice as much power. It's the 9 cube function. So you get eight times the power. 10 So the amount of wind you get at the lower 11 speeds is not that important, it's more how much of 12 the time are you at the higher end. 13 So in Manitoba, we're getting more information 14 as to what the wind resource in Manitoba is. The 15 best guess generally right now with all the 16 information we have. And there's a certain amount of 17 commercial confidentiality on this but I think we can 18 just say that it's in the order of around 35 per cent 19 is the best wind resource we could get in the 20 Province. And that's actually a very good wind 21 resource. 22 There are some areas on land that are better 23 than that but it's actually one of the better ones in 24 Canada probably. But it's going to be restricted to 25 a few areas. It's not widespread. As Mr. Adams 588 1 indicated, some in the south central area, it's not 2 just throughout the Province. 3 So that was the second item. I hope that 4 covers it in sufficient detail. 5 MS. AVERY KINEW: I was wondering you have an 6 extensive wind monitoring program that's nine months 7 old? Is that Manitoba Hydro's program? It's the one 8 that the NUG is doing or? 9 MR. WOJCZYNSKI: Good point. We have seven 10 wind turbine monitoring stations or wind monitoring 11 stations and those are the ones that have been up for 12 nine months. There are others. 13 MS. AVERY KINEW: The Shell? 14 MR. WOJCZYNSKI: No, this is Manitoba Hydro's 15 own. Shell has had some up as well for more or less 16 the same kind of time frame. Another wind developer 17 Sequoia is one name that's used or St. Leon Energy, 18 they have had some monitoring stations up a little 19 bit longer than we have had. It could be there are 20 others as well but we're not privy to that. 21 MS. AVERY KINEW: How many do you have? 22 MR. WOJCZYNSKI: The seven are strictly 23 Manitoba Hydro's and we have full access to that data 24 obviously and we are analysing that and looking at 25 that as we speak. And we are looking forward to 589 1 getting more of the data. 2 MS. AVERY KINEW: And the co-venture with 3 Shell is another seven? 4 MR. WOJCZYNSKI: No, there were less from 5 Shell. I don't know if I'm allowed to say. I don't 6 know that they would want us to say how many they had 7 but I think it's probably safe to say they had less 8 than seven but I think I should probably not go any 9 further than that. 10 MS. AVERY KINEW: And there are none in the 11 north? 12 MR. WOJCZYNSKI: We have one wind monitoring 13 station not in the far north but just north of Lake 14 Manitoba we have one and then we have another one 15 just north of Cedar Lake. We had hoped by placing it 16 there that we were going to capture the wind coming 17 off of Cedar Lake. And there's a little bit of a 18 ridge of land there. So that's as far north as we've 19 gotten. 20 I should add that one of the things that we 21 did back in 1992, we took a look at wind in Manitoba 22 back in 1992 before the capital costs came down in 23 the technology and it got better. And we looked 24 around the whole Province, did an initial assessment. 25 And one of the things that's always available before 590 1 all these monitoring stations are put up is 2 Environment Canada data and we did an intensive 3 assessment of that at that time. 4 The difficulty with that, though, is their 5 measurements are lower, like 20, 30 metres off the 6 ground. The wind turbines are much higher and you 7 get a stronger wind further up. So all these 8 monitoring stations are like of 60 or 70 meters 9 height. And so that's why you put in the stations. 10 Part of it is you get higher elevation. 11 So we know from the Environment Canada data, 12 even without putting monitoring stations all over the 13 north, that generally speaking, the wind in the 14 northern locations with the possible exception of 15 Churchill is not as good as, say, around Letellier. 16 MS. AVERY KINEW: How are you going to compare 17 your data with Environment Canada's if their metres 18 are low? 19 MR. WOJCZYNSKI: What we do, and we have 20 experts who are better at -- well, we hire the 21 experts to do that. And we did a request for 22 proposals and we hired the best consultant we could 23 get who has done that themselves and for others. And 24 they've got meteorological experts and experienced 25 experts who take advance statistical techniques and 591 1 take our wind data and take the wind data from all 2 the local stations including the Winnipeg airport, 3 but there's closer by ones, Glenboro for example. 4 And they do statistical correlations on a 5 minute-by-minute, hour-by-hour, day-by-day, 6 week-by-week, year-by-year basis and they use all 7 kind of techniques that only statisticians can 8 understand to determine the correlation and use that 9 information. 10 So it's not strictly just the wind station 11 itself. We correlate into the other information and 12 we get some long-term reliability into the data. 13 MS. AVERY KINEW: Okay, thank you. 14 MR. WOJCZYNSKI: Thank you. That was item two 15 on your list, Mr. Abra. 16 MR. ABRA: Yes. 17 MR. WOJCZYNSKI: Shall I move onto item 3? 18 MR. ABRA: Yes, just the transmission 19 upgrades. 20 MR. WOJCZYNSKI: There are two aspects to the 21 transmission upgrade issue. One aspect is what we 22 call the project, what I will call the project 23 transmission cost. And we have discussed this in our 24 second round interrogatories but I'll just do it 25 without reference to that right now. 592 1 The project transmissions costs are you build 2 a wind facility and you obviously have to hook up 3 from that wind facility. Let's talk about this 100 4 megawatt one. Hypothetical 100 megawatt one at 5 Letellier, which nobody is looking at Letellier right 6 now but let's just say they were. You would have to 7 build a transmission line to go from the wind turbine 8 facility to the nearest high voltage network. And 9 that would be a 230,000 volt, 230 KV network. 10 So the project would have to immediately pay 11 for the cost of a substation at the wind site and 12 then a transmission line overhead with the towers and 13 everything. Hook into the station, a local station 14 or into the 230 KV network and there's the direct 15 cost of the line and all the switch gear and breakers 16 and station equipment and transformers and all of 17 that. 18 So those are fairly straightforward actually 19 to estimate because it's pretty clear what has to be 20 put in. And that is included normally in the project 21 cost, for instance, what we put in our submission for 22 the project cost and the levelized cost. 23 The second part of it though, and this is what 24 Mr. Ron Mazur at the end of the table is an expert at 25 and one of the things he does and his whole group 593 1 does is when you add a new facility into a network, 2 in addition to the project transmission that I just 3 talked about, depending on the specifics of the 4 network and how much you are trying to add, you may 5 have to reinforce other places in the network not 6 just in the local area. And you may have to add more 7 transmission lines, you may have to upgrade the 8 transmission lines. You may have to add new 9 equipment. And Mr. Mazur could explain more if you 10 wanted to get into more detail on that. 11 I'll just call those network upgrades for the 12 moment. And so when we talk about uncertainty on the 13 transmission, if you are adding one, let me use the 14 hypothetical example again, adding one 100 megawatt 15 facility in an area, it could be that you've just got 16 to add the local project transmission cost and that 17 it happens to be that there are no or negligible 18 network upgrades required and that's what we add into 19 the project transmission costs. 20 But it could be, on the other hand, that the 21 local network is already fully loaded up. And if you 22 add that 100 megawatts, not only do you have to do 23 the project transmission, you have to add all kinds 24 of transmission all over the place to be able to 25 reliably have that flow out to the rest of the 594 1 system. So there is uncertainty as to what the 2 overall transmission will cost depending on the 3 circumstances. 4 The last point here is that if you are adding 5 only one 100 megawatts in one region, that's fairly 6 straightforward except for what I just finished 7 saying. But if you go and add 200, 300, 400, 700 8 megawatts, never mind 1,000 megawatts in a region, 9 it's clear you're going to have to add a lot more 10 transmission. And so the amount of transmission cost 11 is going to depend on the circumstances and how much 12 wind you are adding. 13 MR. ABRA: Sorry, I didn't mean to interrupt 14 you. But these uncertainties that you're talking 15 about, and you've given an excellent description of 16 them, but are they unique to wind or do they not 17 exist with any form of generation? 18 MR. WOJCZYNSKI: Yes, the same issues arise 19 that we've just talked about arise for all forms of 20 generation. And for instance, when we look at the 21 Hydro system, that's one of the first things we look 22 at. For Wuskwatim or Conawapa or Gull or whatever, 23 what is the transmission you have to put in for that? 24 The reason we're emphasizing the uncertainty 25 in the wind here is that if a person looks at the 595 1 cost of putting in wind and says what is the cost of 2 putting in wind, 100 megawatts of wind, it should 3 only be this. You say no, no, no, no. It depends on 4 the circumstances. 5 And so it's the same if you're putting in a 6 gas generating station or a coal station, you can't 7 just look at the cost of that, you would have to look 8 at where you put it. But the advantage of the coal 9 station or, in particular, natural gas station is you 10 can sort of locate it wherever it's convenient for 11 the transmission system. That may not be the case 12 for the wind. 13 The wind is going to be speedy where the wind 14 is going to be speedy and you can't force it to be 15 somewhere else. Whereas a gas generation station, 16 you can relatively simply put a gas pipeline where 17 you want and then pick the best location, optimize 18 your location where it's not that easy to do that for 19 the wind. 20 MR. ABRA: No, I understand. But that kind of 21 uncertainty would similarly exist though for 22 hydroelectric generation, would it not? I mean you 23 can only build the generator where you've got a fast 24 enough running water and so on. 25 MR. WOJCZYNSKI: Yes. The issue here is if 596 1 you go back to that levelized cost chart that I 2 presented, the hydraulic cost, let's say for 3 Wuskwatim, exactly includes the transmission cost 4 that's been required because we know exactly where 5 Wuskwatim is going to be and we studied it for years. 6 And the transmission planning people know exactly 7 what they are going to have to do. 8 When I presented the wind levelized cost in 9 that chart, to be fair or to be conservative about or 10 optimistic, let me use that phrase, to be the most 11 optimistic about the wind and not be accused of being 12 biased against the wind, what we put in there was the 13 levelized cost assuming there aren't these big 14 transmission upgrade costs. So that was at the very 15 first instance. 16 We're moving beyond that and saying if you're 17 going to look at wind that is an alternative to 18 Wuskwatim, and it's a true alternative. Like some 19 people have proposed that, well, you should look at 20 putting in wind instead of Wuskwatim. Take that same 21 amount of money and put it into wind. So as soon as 22 you do that, we're talking about 450 megawatts of 23 wind, not 100 megawatts or 50 or 200. 24 The second issue is Manitoba Hydro has already 25 indicated that in its plans, we're going to put in 597 1 250 megawatts of wind. The alternative to Wuskwatim 2 is not that first 250. It's saying, okay, given that 3 Manitoba Hydro is going to put in 250 megawatts of 4 wind, the alternative now to Wuskwatim is to put in 5 another 450 for a total of 700 megawatts of wind. 6 Now, issues like your transmission costs are going to 7 be a lot more important. 8 MR. ABRA: The chart that you were referring 9 to that you prepared, is that under tab 8 of the book 10 of documents that I gave you yesterday? Is that the 11 chart you're talking about? 12 MR. WOJCZYNSKI: No, sir. It is -- 13 MR. ABRA: Because I was going to ask you some 14 questions actually related to tab 8. 15 MR. WOJCZYNSKI: What I was referring to 16 actually was in chapter 4, page 36, figure 4.5 is 17 what I was referring to. 18 MR. ABRA: Oh right, okay. The one that was 19 up yesterday? 20 MR. WOJCZYNSKI: Yes, yes. Yes, that's right. 21 In that one, we did not include what I'm calling this 22 network transmission. We only included project 23 transmission for the reasons I've already mentioned. 24 MR. ABRA: Yes, yes. 25 MR. MAZUR: Mr. Chairman, if I can just add 598 1 something to Mr. Wojczynski. 2 THE CHAIRMAN: Mr. Mazur. 3 MR. MAZUR: There is one aspect of wind that 4 is far different than at least some of the 5 conventional and that's what I will call voltage 6 control. We hear turning up the dimmer switch to get 7 the lighting level. Most of the wind machines do not 8 have that and the wind suppliers will tell you yes, 9 we can address it and I fully agree they can but 10 there is a cost and that cost is significant because 11 you address it with external devices which, as Mr. 12 Wojczynski explained, are part of the network costs. 13 MR. ABRA: And this is unique to wind, Mr. 14 Mazur? 15 MR. MAZUR: It's unique to -- well, there are 16 other forms of new technologies may also have it but 17 it's certainly one of the challenges for wind 18 generation. 19 MR. ABRA: Okay. Just at page 24 of your 20 NFAAT presentation from the other day, Mr. 21 Wojczynski, is the comparison of the internal rate of 22 return for Wuskwatim versus wind. 23 MR. WOJCZYNSKI: Yes, sir? 24 MR. ABRA: Now, does this include the concerns 25 that you have expressed and so on with respect to 599 1 wind generation? Is it for that reason that the 2 internal rate of return is lower? 3 MR. WOJCZYNSKI: There are a whole bunch of 4 factors we've done in the updating, as I've tried to 5 explain briefly the other day. If you'd like, I can 6 explain what all the adjustments were. 7 MR. ABRA: But does it include these 8 difficulties you've just described? 9 MR. WOJCZYNSKI: Yes, it does. 10 MR. ABRA: Along with numerous others I 11 gather? 12 MR. WOJCZYNSKI: Well, without going through 13 the full explanation. 14 MR. ABRA: Yes. 15 MR. WOJCZYNSKI: We tried to say if you want 16 to compare a wind development against a Wuskwatim 17 development and on a truly competitive basis, what 18 would those costs be, which isn't exactly what we 19 tried to do in our original levelized cost table. So 20 we said and let's take our latest information we have 21 right now including the capital costs would be lower 22 in the future. And we did a bunch of other things 23 that are updates. And all of those including the 24 transmission cost issues, the wind integration cost, 25 they are all incorporated in the 6.1. 600 1 MR. ABRA: Okay. Good. Thank you. David, I 2 don't know if I asked you or not, CNF/MH/NCN.1 3 NFAAT-356(a). Was that one I asked you to -- 4 DAVE: No. 5 MR. ABRA: In any event, it's on page 8 of the 6 book of documents I gave to you. If you're able to 7 dig that one up, you can put it up on the screen. It 8 would help those that are in the audience. It's 9 CNF/MH/NCN.1. That's the one. Thank you. 10 Now, first, was this document prepared or this 11 chart prepared either by you or under your 12 supervision, Mr. Wojczynski? 13 MR. WOJCZYNSKI: Yes. 14 MR. ABRA: Now, I gather that this analysis is 15 for wind only, is it? It's not the impact. It 16 doesn't equate to the impact to the Wuskwatim 17 project? 18 MR. WOJCZYNSKI: Yes. 19 MR. ABRA: Okay. Now, what revenue 20 assumptions are included in this document? 21 MR. WOJCZYNSKI: There are none. 22 MR. ABRA: None at all? 23 MR. WOJCZYNSKI: No. This is the, as I was 24 explaining the other day, we determined -- just wait 25 a sec. Let me step back. I retract that. 601 1 Yes, it does include the revenue assumptions. 2 This includes the revenue assumptions that we had 3 utilized back in the original submission and it's 4 consistent with the revenue assumptions, export rate 5 forecast and everything else that we had utilized in 6 the April 2003 submission that, for Wuskwatim, 7 yielded a 10.3 IRR. 8 MR. ABRA: Okay. Now you've listed the 9 capacity factors. What increases in capacity factors 10 are realistic, do you think? 11 MR. WOJCZYNSKI: What we had indicated in the 12 original submission was that our best guess was 35 13 per cent. Realistically, I think that is our best 14 guess and it would be unrealistic to expect it to go 15 significantly higher. In theory, it would be 16 possible in Manitoba to find something that might be 17 40 per cent but we think that's unlikely. And if we 18 did find some 40 per cent, you wouldn't find 700 19 megawatts of it in one place. You might find a 20 little bit here or there but not 700 megawatts. 21 MR. ABRA: Okay. What capital cost reduction 22 factors are realistic do you think? 23 MR. WOJCZYNSKI: Our best estimate today to 24 2009 is that there will be a 16 per cent reduction 25 from 2002 estimates. And if you went to 2010 602 1 inservice date, a 19 per cent reduction. 2 MR. ABRA: Okay. 3 MR. MAYER: Again in the interim, those 4 transmission upgrades you talked about or the lack of 5 them, it's my understanding it was the lack of them 6 that caused that rather nasty little black-out around 7 the Great Lakes last year; am I correct? 8 MR. WOJCZYNSKI: The lack of transmission was 9 a significant contributing factor. There are a whole 10 bunch of factors but transmission was a major issue 11 there. 12 MR. ABRA: I believe, although correct me if 13 I'm wrong, based on what you have said of a 35 per 14 cent capacity factor and with a 20 per cent capital 15 cost reduction, that brings us into about 10 per 16 cent, does it? 17 MR. WOJCZYNSKI: Okay. You used the 20 per 18 cent capital cost reduction. I would have -- our 19 best guess is 16 per cent to 2009. Oh, I see. If we 20 used 19 per cent, that will bring you to 10. 21 MR. ABRA: 15 per cent will be closer then? 22 MR. WOJCZYNSKI: Depends on your inservice 23 date. But anyways, 16 per cent is the best 24 information we have for the cost reduction 2009. 25 MR. ABRA: Okay. Now, how does that compare 603 1 to Wuskwatim, sir, with respect to the capacity 2 factor and the capital cost reduction? 3 MR. WOJCZYNSKI: Wuskwatim's capacity factor 4 is 85 per cent. But I think the thing we have to 5 compare against is the -- 6 MR. ABRA: I'm sorry, the IRR, as far as the 7 internal rate of return. 8 MR. WOJCZYNSKI: If you just took the 9 per 9 cent, you can compare it to the 10.3 in Wuskwatim. 10 But I think as the wording below indicates, that 11 would be inaccurate on comparison and not a 12 meaningful one because you'd have to account for 13 other factors that aren't in this table. 14 MR. ABRA: Such as, as you said, the shaping 15 and the firming of wind power? 16 MR. WOJCZYNSKI: This table assumes that there 17 will be shaping and firming required but because this 18 table was -- as requested, this was the result of a 19 request. 20 MR. ABRA: Yes, I understand. 21 MR. WOJCZYNSKI: And the request was to 22 recalculate it for the same 250 megawatts of wind 23 generation. 24 MR. ABRA: Yes? 25 MR. WOJCZYNSKI: So on that basis, we 604 1 recalculated it. But the underlying factors would 2 change if we had such a capital cost reduction. So 3 that in reality, the IRRs would be less than that. 4 And I could explain if you wanted. 5 MR. ABRA: Would that be more in line then 6 with what the IRRs are on page 24 again, the one in 7 your submission on Monday? 8 MR. WOJCZYNSKI: Yes, it would be. 9 MR. ABRA: 6.1 per cent? 10 MR. WOJCZYNSKI: Yeah. And if you want, I can 11 take you from this table to the 6.1. 12 MR. ABRA: Well, I was just about to ask you. 13 What's the reason for the difference in the 14 discrepancy? Is it things such as firming and 15 shaping and so on? 16 MR. WOJCZYNSKI: Yes, it is and I can explain 17 that if you want. 18 MR. ABRA: If you could, please. 19 MR. WOJCZYNSKI: First of all, we've got the 20 7.6. Let's just take the 35 per cent capacity factor 21 line. I think you can see it. 22 MR. ABRA: Yes. 23 MR. WOJCZYNSKI: We indicate there for a 6 per 24 cent capital cost reduction, the IRR is 7.6 per cent 25 there. 605 1 MR. ABRA: Yes? 2 MR. WOJCZYNSKI: Just for the record, the 3 original submission assumed a 5 per cent reduction 4 and this IRR there was 7.5 per cent. So I just want 5 to demonstrate that this table is consistent with the 6 original submission back in April for the 250 7 megawatts, okay. 8 So secondly then, we get -- a 6 per cent 9 reduction gives us 7.6 IRR. If we go to the 15 per 10 cent reduction, it shows a 9.0 per cent IRR on this 11 table. Our best guess is that it's a 16 per cent 12 reduction, not 15. So that gives you a 9.2 per cent 13 IRR, okay. So I'm just doing this step by step. 14 The next thing is we used, in that original 15 work, an integration cost for the transmission and 16 generation operation of about .9 cents a kilowatt 17 hour. And if you go to these lower capital costs and 18 you go to 700 megawatts of wind in Manitoba, meaning 19 250 that we are planning on doing regardless, 450 20 megawatts to compete with Wuskwatim, and now you're 21 talking about up to 700 megawatts of wind in Manitoba 22 plus we're talking about more wind elsewhere because 23 of these capital cost reductions, our best estimate 24 is that the wind integration cost should be about one 25 and a half cents instead of .9 cents that we assumed 606 1 in the submission. That takes us to 7.8 cents per 2 kilowatt hour. 3 The other factor is if you're talking about 4 700 megawatts of wind generation in south central 5 Manitoba and it's not spread out for the Province 6 necessarily, it's going to be relatively focused, our 7 best guess is that we'll have to put in significant 8 additional network transmission that I was referring 9 to. That adds another .8 -- reduces the IRR by 10 another .8 per cent taking the overall IRR down to 11 7.0 per cent now. 12 Then we said, well, let's take our latest 13 updated information, our latest information on 14 everything and let's also assume that Wuskwatim isn't 15 in the base case. So it's a true Wuskwatim versus 16 wind comparison. And let's also assume, to be a fair 17 comparison to Wuskwatim, that at the end of the 20 18 year life of the wind, we keep some of the facilities 19 that will replace the worn-out equipment and you 20 extend the life of the wind facility by another 20 21 years but you don't replace all the equipment, just 22 three-quarters of it, that makes the wind look 23 better. You add all that up together and the IRR 24 goes up .2 per cent. So that takes you to 7.2 per 25 cent. 607 1 Now that we've got more experience than others 2 do, the land lease and O&M costs were slightly 3 understated in the original submission. That takes 4 off a .1 per cent. 5 Then the last item is we don't think that if 6 you're talking about these cost reductions, 16 per 7 cent, and that the federal subsidy would be 8 applicable for going from 250 megawatts of wind in 9 Manitoba to 700 megawatts of wind in Manitoba. We 10 don't believe that's at all a realistic assumption. 11 And that in that case, you should take the WPPI 12 incentive out of this table, out of the calculations, 13 that take us down to 6.3 per cent. 14 These are all approximate adjustments. The 15 6.3, 6.1, approximately the same. If we had more 16 time, we can do a better exact calculation. But that 17 takes you more or less to the number I presented on 18 Monday and it's contained on -- 19 MR. ABRA: On page 24? 20 MR. WOJCZYNSKI: Page 24, yes. 21 MR. ABRA: Okay. Thank you very much, sir. 22 MR. WOJCZYNSKI: All right. 23 MR. ABRA: Mr. Chairman, that ends the 24 questions with respect to wind unless the Members of 25 the Commission have any questions? 608 1 THE CHAIRMAN: No more questions here. 2 MR. ABRA: Okay. Thank you. I'd like to turn 3 briefly to non utility generation or NUGs as 4 everybody has been referring them to. 5 In your original submission, you indicated 6 that there had been many inquiries about NUGs. And 7 so far, I think as you've testified already, Mr. 8 Adams, you haven't entered into any NUG arrangements 9 with anyone. And you've also indicated at 10 CAC/MSOS/MH/NCN.1 NFAAT-34(a), you've given a list of 11 the conditions that would attach to NUGs. 12 MR. ADAMS: Sorry, I didn't get the number. 13 MR. ABRA: It was CAC/MSOS/MH/NCN.1 14 NFAAT-34(a). And basically what you said in that 15 information request that Manitoba Hydro will offer to 16 purchase electricity produced by NUG if the NUG 17 satisfies the following requirements. 18 "NUG in Manitoba will be required to 19 supply their own load first. 20 NUG accepts the pricing as determined 21 by Manitoba Hydro. 22 NUG must meet the Manitoba Hydro 23 connection criteria. 24 NUG must not degrade Manitoba Hydro 25 system reliability. 609 1 NUG must satisfy Manitoba Hydro that 2 they will obtain the required 3 licences, permits and approvals. 4 For a NUG greater than two megawatts, 5 this also includes obtaining an Order 6 in Council from the Provincial 7 Government and a legally binding 8 contractual agreement must be 9 secured." 10 And then you go on the next page, 11 "For a NUG less than 2 megawatts, the 12 duration of the contract must be 13 specified; however, the duration is 14 flexible and left to the NUG's 15 discretion. 16 For a NUG greater than 2 megawatts, 17 the duration of the contract must be 18 specified and mutually agreeable 19 between Manitoba Hydro and the NUG. 20 And special consideration may be 21 provided to the NUG that support or 22 increase industrial and economic 23 development in Manitoba." 24 Now, those are the requirements that you've 25 laid down to date apparently. Are they too 610 1 stringent? Is that the reason that you have not 2 entered into any NUG contracts to date or what's the 3 reason for having as many requirements as you do? 4 MR. ADAMS: Most of these requirements are 5 pretty standard in the electricity industry. There 6 is nothing in, other than the commercial issues, 7 which I'll come back to, there's nothing in here that 8 is not equally applicable to a generating station 9 built by Manitoba Hydro, whether it's a thermal 10 station, a Hydro station or a wind station or 11 anything else. 12 There's a couple that are of a commercial 13 nature. Firstly, as we are all aware, we do not need 14 more energy in Manitoba for 15 years, probably more, 15 for Manitoba requirements. So any energy that we buy 16 or manufacture, we've got to be able to sell. 17 And so the pricing issue, as determined by 18 Manitoba Hydro, is this is the value of the energy to 19 us. We can't afford to give you any more. We're not 20 going to subsidize it. 21 The one that may be a little interesting is 22 that we say you've got to satisfy your own load 23 first. That is a feature of the fact that the prices 24 that we charge customers in Manitoba are below market 25 value. And we have taken the position, after 611 1 considerable discussion inside the company, that we 2 will not sell you electricity for 3 cents on the one 3 hand and then buy it back from you on the other hand 4 at 5 cents. 5 MR. ABRA: I think we can understand that. 6 MR. ADAMS: We've had people make a reasonable 7 argument that you could consider an alternative 8 approach. The connection criteria are the sorts of 9 things that Mr. Mazur gets into, safety. At the one 10 extreme, we need to be able to control the output of 11 the station. So if we've got people on the line, 12 they don't get electrocuted by back-feeding. That 13 the harmonics and all the other nasty things that 14 large electrical machines can put into the system are 15 filtered out before they start blowing up the 16 computer in your home and those sorts of things. 17 System reliability, it's not an option for us, 18 it's an obligation of our interconnection agreements 19 and our membership and the NUG. And so anybody 20 joining the system has got to meet those criteria. 21 You've got to get the licences whether it's an 22 environmental licence, a permit, a municipal 23 requirement. And the lower the province is, if it's 24 more than 2 megawatts, you've got to get an Order in 25 Council just the same as we do. 612 1 MR. ABRA: So those are standard then? 2 MR. ADAMS: They are standard. We're not 3 going to hook up anything unless we've got a legally 4 binding contract. These contracts are complex. I 5 hate to say this but we're getting as many lawyers as 6 we've got engineers working for us now. 7 MR. MAYER: Maybe if you had them when you 8 dealt with those diesel contracts, we wouldn't be 9 having this problem. 10 MR. ADAMS: Mr. Mayer, I agree. 11 MR. ABRA: There's an old saying. If you 12 don't have one lawyer, you don't need three. 13 THE CHAIRMAN: Now, this panel hearing was 14 going along fine so let's keep this that way, please. 15 MR. ADAMS: We're certainly not going to enter 16 into an agreement with somebody that is not legally 17 bound. Part of the reason for that is the value that 18 we can attribute to the project is our ability to 19 sell the energy forward. Mr. Cormie can get a lot 20 better price for selling it next summer than selling 21 it tomorrow. So if we're selling it on the 22 expectation it's going to be delivered, it better be 23 delivered. So we need a contract with penalties and 24 all sorts of things in there. 25 The one concession we do make is for a NUG 613 1 less than 2 megawatts. And I would comment that a 2 2 megawatt generating station is a very very large 3 machine. It's not the sort of thing that one would 4 put in his basement or in his garage. 5 We basically run the metre backwards. Now we 6 still, we don't have any of them. But in those 7 cases, we don't find ourselves commercially exposed 8 and we're prepared to take a lot more risk in terms 9 of contractual arrangements. And so we don't fix the 10 duration. 11 For large machines over 2 megawatts then, 12 clearly we've got to do all sorts of complicated 13 issues and we want durations times, renewal of 14 agreements. As I said, all the normal ramifications 15 associated with a large contract. 16 The last bullet is we will work hard with 17 somebody, particularly who has the municipal waste, 18 hog fuel at a forestry industry where they have a 19 waste disposal problem. We will work hard with them. 20 And within the framework that we set it out, see if 21 there's a way we can arrange things that makes it 22 possible for them to generate electricity basically 23 out of waste products. 24 The reason why there are none in the Province 25 today is primarily that we don't pay enough. We pay 614 1 what it's worth to us on the export market. And as I 2 said yesterday I think it was, to date, we have not 3 discounted that in any way to create a profit margin 4 for us. And the price simply isn't high enough to 5 cover the expense of generating it. 6 MR. ABRA: If those conditions are standard or 7 at least from the answer that you've given, what's 8 the reason that there aren't any NUG agreements up to 9 the present time or are there? 10 MR. ADAMS: I think I just said the reason 11 that we haven't been able to consummate an agreement 12 with anybody is they can't afford to do it at the 13 price that we can offer. 14 MR. ABRA: Okay. Thank you, sir. I'm sorry, 15 I misunderstood. If you go to CEC/MH/NCN.1 16 NFAAT-16(a), that's a question that was asked by us 17 of you during the first interrogatory stage. And in 18 that one, you've described, in further detail, the 19 NUG policy. And basically you've indicated, and I 20 quote, 21 "Manitoba Hydro will cooperate with 22 potential NUG to maximize the value of 23 their generation in conjunction with 24 the added benefit of shaping and 25 firming supplied by the Manitoba Hydro 615 1 hydraulic generation system. Manitoba 2 Hydro will offer the NUG a price based 3 on reselling the NUG power in the most 4 lucrative export market incrementally. 5 No profits will be taken by Manitoba 6 Hydro from the first 250 megawatts 7 assuming a 35 per cent capacity factor 8 for wind generation. Manitoba Hydro 9 offers this NUG price as either a 10 levelized price or a market price. 11 For a NUG less than 2 megawatts, 12 Manitoba Hydro utilizes a net billing 13 approach allowing the kilowatt hour 14 metre to essentially run backward to 15 credit the inflow of electricity to 16 Manitoba Hydro." 17 Do you have that in front of you, sir? 18 MR. ADAMS: Um-hum. 19 MR. ABRA: Now, these are the incentives that 20 you are offering, at least that's the way we 21 interpreted them is you considered those to be 22 incentives. Would it make sense to offer further 23 financial incentives to the NUGs in order to generate 24 cleaner sources of energy such as wind and solar? 25 MR. ADAMS: We don't believe that wind or 616 1 solar is any more environmentally preferable than 2 Hydro. We appreciate that others have different 3 opinions. But only way we can offer an incentive to 4 encourage further development of these source of 5 energies would be at the expense of our customers. 6 MR. ABRA: Okay. Now, the two megawatt 7 running the metre backwards, does that apply to the 8 tail block rate which, at present, is the lowest? 9 MR. ADAMS: It depends upon the rate class and 10 the specific characteristics which that customer 11 would otherwise be involved in. 12 MR. ABRA: So what, it depends on the manner 13 in which the rate is set for the customer? 14 MR. ADAMS: There would be both a demand and 15 an energy component of it. 16 MR. ABRA: Okay. So depending upon who the 17 customer is, it would be the tail block rate or the 18 initial block rate? 19 MR. ADAMS: It would start off as the tail 20 rate and depends -- tail block rate and depends how 21 far up the chain they moved. 22 MR. ABRA: Now, the tail block rate is the 23 lower of the two; is it not? 24 MR. ADAMS: Yes. 25 MR. ABRA: In some cases? 617 1 MR. ADAMS: Yes. 2 MR. ABRA: And that depends on who the 3 customer is? 4 MR. ADAMS: Not so much who the customer is 5 but what classification. 6 MR. ABRA: What class the customer is as to 7 whether or not they get the tail block rate or the 8 initial block rate? 9 MR. ADAMS: Yes, and how much they are 10 consuming. 11 MR. ABRA: Okay. If I might just have a 12 moment, Mr. Chairman? That completes my questions at 13 this point with respect to non utility generation. 14 I'm going onto demand-side management unless the 15 Panel have any questions? 16 MR. SARGEANT: Is it possible for a NUG to 17 pose any kind of a threat to the Hydro network? I 18 ask this largely out of ignorance. But based on some 19 of my reading of the new stories about the blackout 20 in Eastern North America last year and, you know, 21 what a failure in one part of a network caused this 22 huge massive failure all over the place. Is there 23 any risk of this sort of thing? 24 MR. MAZUR: If the protection systems and the 25 transmission interconnection is designed to adequate 618 1 standards, I don't believe there is. The issue with 2 things like the blackout are issues of multiple 3 failures, people not doing the things they should be 4 doing with regard to monitoring the power system and 5 protecting the liability. And typically, these 6 black-outs have always been the result of several 7 events occurring altogether at the wrong time. 8 And so I don't think one could make a general 9 statement that says a NUG could black out your 10 system. 11 MR. SARGEANT: Thank you. 12 MR. ADAMS: Mr. Sargeant, maybe I could expand 13 upon that. That refers back to Mr. Abra's question 14 twice removed that we will not allow somebody to hook 15 up to the system unless they meet those connection 16 criteria. 17 MR. SARGEANT: It was actually that response 18 that sort of prompted my thought on this. Thank you. 19 THE CHAIRMAN: While Mr. Abra is looking, a 20 while ago, Mr. Adams, I believe you made the comment 21 that you did not consider wind or other forms of 22 alternate energy as environmentally friendlier. I 23 wonder when we were listening to IRR information a 24 while ago, if that was taken into consideration, for 25 instance, physical environmental impacts and so 619 1 forth, aquatic impacts, et cetera? And when you made 2 those comparisons, did you take those factors in? 3 MR. ADAMS: Yes, we did. 4 THE CHAIRMAN: So when you're talking about 5 wind, and I know we're not talking about the 6 environmental impact at this point, but you're saying 7 you're taking into consideration such environmental 8 impact as you would for Wuskwatim or you're taking 9 that on an average? 10 MR. ADAMS: No, we're looking for -- at the 11 Hydro stations, it really doesn't make sense to treat 12 them generally, you really have to treat them 13 specifically. So