ECONOMIC REVIEW OF Bipole III and Keeyask Brad Wall Commissioner November 2020 VOLUME 1 VOLUME 2 VOLUME 3 VOLUME 4 VOLUME 5 VOLUME 6 About This Report This report is based on public documents from the Public Utilities Board and the Clean Environment Commission; internal reviews performed by Manitoba Hydro; documents from Manitoba Hydro and the Government Manitoba; and interviews and/or written submissions of past and present Manitoba Hydro executives, Government of Manitoba current and retired elected members, Government of Manitoba staff, and other stakeholders in the genesis, project plan development, approval and construction of the Keeyask Generating Station and Bipole III Transmission Line and Converter Stations. Evidence cited in this report is noted from the actual documents attached to this report (see Appendix A). Where the actual document cannot be released for reasons of either commercial sensitivity or Cabinet confidentiality, the document is identified and evidence cited in context. The documents identified in the report do not represent every document that was reviewed and considered by the Commission. Access to Manitoba Hydro-Electric Board minutes, internal Manitoba Hydro memorandums, and Cabinet and Cabinet Committee agendas and minutes was a key element of this review and though some of it cannot be released in total, the insights gained were worthy of the limited ability to publish them in their entirety. Interviews were conducted on a non-attributable basis. As a forward-looking report with a focus on the recommendations for future projects of this type, the Commissioner determined that full disclosure was more important than attribution. As such, verbatim transcripts were not made of conversations with the many stakeholders and individuals involved in the projects to identify gaps in organization structure, information flow, and influences on decisions. Citations are included throughout this report to indicate the information that the Commissioner received from those who participated through interviews and/or written submissions, but the citations do not name these participants, in accordance with the non-attributable basis of the interviews and requests for most written submissions to not be attributed. 1 ECONOMIC REVIEW OF BIPOLE III AND KEEYASK About this Report 2 Table of Contents About This Report 1 Foreword 8 Executive Summary 12 Introduction _______________________________________________________________________12 Section 1: Review of Bipole III and Keeyask Projects ______________________________________15 Were the Projects Necessary? . .15 Bipole III. 15 Keeyask . .16 Net Benefits and Best Practice. 18 Keeyask . .18 Bipole III. 19 Soundness of Export Market Forecasts . .20 The Assessment of Commercial Risk. 21 Keeyask . .22 Bipole III. 22 Post-Approval Oversight. 23 Risk Mitigation and Changing Circumstances. 24 Keeyask. .24 Bipole III . 25 Government Processes . .25 Section 2: Government Direction______________________________________________________25 Section 3: The Future ________________________________________________________________28 What Went Wrong? . .28 Integrated Resource Planning (IRP). 28 Internal Processes with Respect to Planning, Approval, Procurement, and Construction . .28 Accountability. 29 Project Review. 29 The Relationship Between Commercial and Utility-Based Decision Making . .30 The Manitoba Hydro Act . .31 Energy Policy. 31 Prudent Steps . .31 Summary. 33 Chapter 1: Domestic Need for the Projects 34 Introduction _______________________________________________________________________34 Bipole III __________________________________________________________________________34 Need for Enhanced System Reliability . .34 ECONOMIC REVIEW OF BIPOLE III AND KEEYASK Table of Contents Options to Meet Reliability Need . .37 Four Options Identified . .37 Comparison of Bipole III East and Bipole III West . .38 The Choice to Proceed with Bipole III West. 40 Keeyask ___________________________________________________________________________45 Manitoba Hydro’s Analysis of Need for New Supply to Meet Domestic Demand . .45 Variance in Manitoba Hydro’s Short-term Forecasts . .49 Inherent Unreliability in Manitoba Hydro’s Long-term Forecasts . .53 Constraints That Influenced the Outcome of the NFAT Review Process. 53 Chapter 2: Government Directions 56 Introduction _______________________________________________________________________56 Overview of Government Direction ____________________________________________________56 Decision-Making Context ____________________________________________________________56 Project Labour Agreements . .58 The Manitoba Hydro Act . .58 Constraints on Project Structure. 59 Bipole III __________________________________________________________________________61 Routing . .61 Exclusion from the NFAT . .62 Keeyask ___________________________________________________________________________63 Approval of the KIP . .63 Generation Tied to Exports. 64 Lack of Government Direction and Oversight ___________________________________________66 Government Management Structures__________________________________________________67 Statutory Mandate _________________________________________________________________69 Chapter 3: Net Benefits 71 Introduction _______________________________________________________________________71 Keeyask ___________________________________________________________________________72 Net Benefits Determined by Manitoba Hydro . .72 Economic Benefits. 72 Socio-economic Benefits. .77 Consistency with Best Practices . ..