MANITOBA HYDRO ANNOUNCES ELECTRICITY DEAL WITH

UNCLAS SECTION 01 OF 02 OTTAWA 000553 SIPDIS SIPDIS DEPT FOR WHA, EEB, AND OES USDOC FOR 4320/ITA/MAC/WH/ONIA DOE FOR POLICY AND INTERNATIONAL AFFAIRS EPA FOR INTERNATIONAL AFFAIRS E.O. 12958: N/A TAGS: ENRG SENV CA SUBJECT: MANITOBA HYDRO ANNOUNCES ELECTRICITY DEAL WITH WISCONSIN REF: OTTAWA 173 ¶1. This message originates from U.S. Consulate Winnipeg. ¶2. Summary. Following hard on the heels of a February 2008 deal to sell 250 megawatts of electricity to Minnesota Power, Manitoba Hydro announced on April 17 that it had reached agreement with Wisconsin to sell up to 500 megawatts of power to utilities in that state, beginning in 2018. The deal, announced publicly by both parties but not yet fully finalized, virtually guarantees further impetus for building hydroelectricity generating stations in Manitoba's far north, and will hasten the construction of new transmission lines to bring the power south. Manitoba Hydro estimates the province has 5000 megawatts of hydroelectricity generation potential in the north, which could provide a reliable source of electricity to the upper Midwest. End summary. ¶3. For decades, the government-owned hydroelectricity monopoly, Manitoba Hydro, has stared enviously at the large and lucrative electricity market in the upper Midwest, but had no way to get the electricity to market because of a lack of transmission capacity. February's Minnesota sale (reftel) showed the way forward: Manitoba would have to get the electricity to the border, but the Minnesota utility would take it from there. While details of the Wisconsin sale have not been released, it appears this deal will proceed in the same way. ¶4. The deal negotiated between Manitoba Hydro and Wisconsin Public Service - which serves customers in the northeastern part of the state - requires Manitoba Hydro to provide up to 500 megawatts (mw) over 15 years beginning in 2018. These electricity exports are expected to earn approximately C$2 billion for Manitoba Hydro over the period. The Manitoba and Wisconsin utilities have done business before: early last year, the two renewed a 100 megawatt export agreement. Electricity exports generated C$592 million in revenues for Manitoba Hydro last year, and projected earnings from electricity exports may reach C$5.5 billion over the next ten years. Exports already account for around 40 percent of Manitoba Hydro,s revenues from the sale of electricity. Construction Opportunities in Manitoba's North -------------- - ¶5. This sale, combined with the earlier sale to Minnesota, virtually guarantees the construction of the 600 mw Gull Lake and the 1250 mw Conawapa generating stations. Construction continues on the 200 mw Wuskwatim project, which is projected to come on-line in 2012, but has been troubled by cost overruns, a labor shortage, and difficulties in finding a willing builder. Manitoba Hydro will also need to build a C$1.1 billion converter station, and associated transmission infrastructure. Construction costs in Manitoba have skyrocketed in recent years, largely due to rapid growth in the petroleum industry in neighboring Saskatchewan and Alberta. Manitoba Hydro CEO Bob Brennan concedes, "Right now is definitely a bad time to build anything," but said the utility will space out the work to take advantage of the construction cycle. With the strength of the Canadian dollar, there will be significant opportunities over the next 10-15 years for U.S. companies with expertise in constructing hydroelectricity generating stations. The U.S. Commercial Service may wish to make interested parties aware of the opportunities that will soon be available in Manitoba. Qopportunities that will soon be available in Manitoba. Exports Shift South Rather than East -------------- ¶6. The Wisconsin deal is also further proof that the province is making more inroads into American markets than it is in the neighboring province of Ontario, long thought to be the most likely destination for Manitoba's excess hydroelectricity. While Manitoba Hydro will continue to make spot sales to Ontario - and the construction of Gull Lake and Conawapa will leave the utility with plenty of excess electricity - there does not appear to be much interest in building the long and expensive transmission line necessary to get power from northern Manitoba to the highly populated areas of southern Ontario. For now, Manitoba Hydro seems to be having more success selling smaller amounts of electricity to power utilities closer to them, and using less expensive transmission infrastructure to do so. Visit Canada,s Economy and Environment Forum at OTTAWA 00000553 002 OF 002 http://www.intelink.gov/communities/state/can ada BREESE