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Cablegate: Manitoba Hydro Announces Electricity Deal With

VZCZCXRO3602
RR RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHOT #0553/01 1121525
ZNR UUUUU ZZH
R 211525Z APR 08
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC 7730
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEAEPA/EPA WASHDC

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

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