LEGISLATIVE ASSEMBLY OF MANITOBA THE STANDING COMMITTEE ON PUBLIC UTILITIES AND NATURAL RESOURCES Thursday, 6 June, 1985 �E - 10:00 a.m. CATION - Winnipeg, Manitoba IAIRMAN - Mr. C. Santos TENDANCE - QUORUM - 6 Members of the Committee present: Hon. Messrs. Cowan, Harapiak, Parasi uk, Plohman Messrs. Ash ton, Enns, Filmon, Fox, Manness, Ransom , Santos 1PEARING: Manitoba Energy Authority: Marc Eliesen, Chairman and Exec utive Director Manitoba Hyd ro-Elect ric Board: Marc El iesen , Chairman J.J. Arnaso n, President and Chief Executive Officer R.M. Fraser , Exe cut ive Vice- Pre sident, Corporate Services C.J.

Go odwi n, Execu tiv e Manager , Corporate Planning �TTERS UNDER DISCU SSION: 19 84 Annual Reports of the Manitoba Energy Authority and Manitoba Hyd ro-Electric Board .ERK OF COMMITTEES, Ms. T. Manikel: Committee, •me to order. Our former chairman, Ms. Phillips, is 1 longer a member of this committee, ther efore, we JSt elect a new chairman. Are there any nominations? Mr. Harapiak? )N. H. HARAPI AK: I nominate Conrad Santos, the ember for Burrows. S. CLERK: Are there any further nominations? S. CLERK: Seei ng none, Mr. Santos, will you please ke the chair? R. CHAIRMAN, C.

Santos: This is like a banana public, we elect by coup. Committee, please come to order. MANITOBA ENERGY AUTHORIT Y R. CHAIRMAN: The Mem ber for Lakeside. R. H. ENN S: Mr. Chairman, I think wit h th at 1derstanding we had not concluded, when last we 101 met with the Manitoba Energy Authority, that there would be some further ques tions put to the Authority; indeed, there might even be some cross -flowing of questions later on.

But, at this particular time, jus t before we conclude with the Man itoba Energy Authority, in the chairman's brief he lists, of cou rse, the numb er of ongoing negotiations - the annou ncement with Ontario, a potential interest shown by Saskatche wan , the Minnesota-Wisconsin group, the Wism intoba group, the WAPA group - and using your maximum figures that were applied in the report that is, of course, a substantial amount of power.

I further unders tand, and further on in his add ress, the chairman seems to ind icate that it's the intention of the Authority to conclude at least one, or possi bly two, further sales. Is that a correct reading of what the Authority is proceeding with? MR. CHAIRMAN: Mr. El iesen . MR. M. ELIESEN: Mr. Chairman , to ans wer the ques tion, I will simply repeat what I had indicated to the committee last Tuesd ay.

After I had summ arized the five particular options that the Autho rity was pursu ing, I did ind icate "that Manitoba is purs uing a number of options and, in this way, we have sought to avoid putting all our eggs in one basket. We have kept each potential buyer informed of the other negotiations and of the fact the province will conclude one and, at most, two more deals. We feel that by having a number of comp e ting sales options in play Manitoba has es tablis hed a solid bargaining posit ion that will bring the largest possi ble benefits to the utility and to the province.

We expect that a contract will be signed with one of the se pote ntial buyers within the next 12 to 18 months." That is the end of my quotation provided last Tuesday from my address. Our objective, at least the objective that was handed do wn to us by the gover nment, was to try to achieve a decade of hydro devel opment, a minimum at least, of a decade of hydro devel opment taking place within the province. We believe that one, or possi bly two, mor e deals will resu lt in the construc tion of the Conawapa Generating Station.

I have expressed in the form of one or two more deals because there are possi bilities that we could strike deals for, let's say, two 500-megawatt deals, as opposed to one major 1,0 00 or 1,100 or 1,20 0-meg awatt deals. But it is in that context that my remarks should be looked at. I hope that answers the intent of the que stion. MR. H. ENNS: Would any of these deals be possi ble without the necessity for additiona l transmis sion capacity to be dev eloped?

I'm particularly referring to the indication last week of the Letter of Intent or the dis cussions going on with Ontario Hydro with whom we have some transm ission capacity. So my question is: could any of these nego tiations follow without the

Thursday, 6 June, 1985 involvement of substantial transmission facilities having to be constructed? MR. M. ELIESEN: Mr. Chairman, yes. MR. H. ENNS: Would the chairman indicate where and how? MR. M. ELIESEN: Mr.· Chairman, I think it would be a bit premature to get into any of the specifics related to our ongoing negotiations except to indicate that, for example, with regard to our interconnections to the United States, we do have three lines going into the U.S. area, two 230 kV lines and one 500 kV line all the way to Minneapolis, capacity of approximately 1,500 to 1 ,600 megawatts.

So there is obviously capacity on some of our interconnections which could facilitate some arrangements alon g our firm basis without involving additional construction. Now clearly in some other are as, for example, Wisconsin , that would necessitate a new line. To the degree that Ontario Hydro is interested in consummating a sale the equivalent of the output from Conawapa, that would require a new transmission requirement, although some of the other considerations that they have asked us to look into with them perhaps could be accommodated given the existin g interconnections.

The same kind of remarks can be applied to the Saskatchewan area. MR. H. ENNS: Thank you, Mr. Chairman. MR. CHAIRMAN: The Leader of the Opposition. MR. G. FILMON: Mr. Chairman, we are not opposed necessarily to having the Manitoba Hydro development made. Is it the choice of the Minister to have Hydro make their introduction and then, beyond that point, we can vary back and forth between MEA questions and Hydro questions? We aren't finished with the MEA questions. I have quite a few backlogged from the other day, but I am quite happy to let the Hydro presentation go ahead and then look at them both. MR.

CHAIRMAN: The Honourable Minist er. HON. YL PARASIUK: Well, at the end of the last committee meeting, we had thought that we would go with the Manitoba Hydro. I was prepared to have the MEA people come back in today, more of the MEA people. As you know, for these presentations you have large conglomerations of staff. These are primarily Hydro people today. MR. G. FILMON: Yes, fine. Well, we're happy to go along with that as long as we're not restricted from going back to the MEA questions at some point in time. HON. YL PARASIUK: No, you're not. MR. G. FILMON: Okay, good. MANITOBA HYDRO-ELECTRIC BOARD HON.

YL PARASIUK: With that, I think we could proceed now to make the Hydro presentation. I would then call 102 on Mr. Eliesen who will then make an introductio� gather, and policy statement. MR. M. ELIESEN: This is the first time that I' ve cor before this committee as the Chairperson of t Manitoba Hydro-Electric Board after assuming t position in October of last year. I look forward reviewing with the committee the corporation's Anm Report for the year ending March 31, 1984, and ho that we will be able to provide members with a bet1 understanding of the report and Hydro's operatio during the past year.

I would first like to, on behalf of the Manitoba Hyd Board, express our thanks . . . MR. G. FILMON: Mr. Chairman, do we have a co of Mr. Eliesen's opening remarks? We have fl Arnason's I think, but I don't think we have Mr. Eliesen MR. M. ELIESEN : I would first like to, on behalf the Manitoba Hydro Board, express our thanks ar appreciation to Mr. Saul Cherniack for the guidan and dedicated service he has provided throughout tl tenure of his chairmanship. The bright future Manitoba Hydro owes much to his hard work ar leadership. I am grateful that Mr.

Cherniack has agre1 to stay on as a board member so that we can contin1 to rely on his counsel. Mr. Chairman, the Manitoba Hydro-Electric Boa has two new members: Mr. Rochmond Beaudry ar Mr. William Cheat er. They are the first employ • representatives to be appointed to the board and � welcome them. Other members of the board lnclud the Deputy Chairm an, Mr. Charlie Curtis, Depu Minister of Finance; Mr. Peter Fox, an engineer ar member of the Provincial Legislature; Dr. Edmur Kuffel, Dean of Engine ering at the University Manitoba; Mr. Jack London, a lawyer; Dr.

Nora LosE Associate Dean of Scien ces at the University Man itoba; Mr. Clyde McBain, an engin eer ar businessman from Winnipeg; and Mr. Roy Minish, businessman from Swan River. Manitoba Hydro is on the threshold of a decade hydro-electric development which promises widespre� benefits for the people of Manitoba. During the pa year, the utility has improved its economic performanr in a nu mber of importan t areas. I expect the1 favourable trends to continue with the result th Manitobans will continue to pay for their electricity rates that are the envy of other jurisdictions.

In June of 1984, Manitoba Hydro, together with t1 Manitoba Energy Authori ty, signed a 12-year contra for the sale of 500 megawatts of power with Norther States Power of Minneapolis, beginning in 1993. Tt National Energy Board has approved the sale. The sa will bring in total revenues of $3.2 billion, of which $1 billion will be profit. These profits will be used, in par to maintain Manitoba Hydro's rate structure below thm of nearly every other utility in North America.

In addition to the profits that will accrue fro expanded export sales, economic benefits will flow fror the construction of the Limestone Generating Statior stimulating business activity and creating thousanc of jobs for Manitobans. First power from Limestone would have been require in 1992 to meet Manitoba's own electrical needs. Tt

Thursday, 6 June, 1985 :;p export sale advanced start-up by one year and rdro economic studies, confirmed independently by e National Energy Board, show that the most ofitable in-service date to be 1990. The cornerstone of our policy on Limestone is that, e the other generating stations in our sequence, it 11 be built to the most exacting standards of quality. 1 in the past, limited discretion will be exercised to mefit Manitoba firms and industry while competitive icing remains the first principle of Manitoba Hydro 1rchasing and tendering around Limestone.

Manitoba t'dro, recognizing its responsibilities to its 1areholders, the people of Manitoba, is actively orking with government and community presentatives to fulfill broader social, economic and wi ronmental goals on major projects such as mestone. In line with the utility's focus on maximum northern 1101vement in Limestone construction, Manitoba Hydro lS stre ngthened its efforts to provide equal nployment opportunities in the organization for omen, Native people, and handicapped persons. !Cent Hydro organizational changes will facilitate the lvelopment and implementation of affirmative action 'Ograms.

Inexpensive hydro-electricity is a birthright enjoyed r Manitobans. As Manitoba Hydro positions itself to eet future challenges, the citizens of Manitoba will mtinue to enjoy low hydro rates while sharing in the 1cio-economic benefits that come with the prudent !v elopment of Manitoba 's vast hydro-electric sources. Mr. Chairman, I'd like now to call on Mr. John Arnason, e President and Chief Executive Officer of Manitoba rdro, who will report to you on the utility's operations 1d activities over the past year. R. CHAI RMAN: Mr. Arnason. R. J. ARNASON: Thank you, Mr.

Chairman and 1mmittee members. lt is that time of year again when I, as President and reief Executive Officer of Manitoba Hydro, have the >portunity to come before this committee to review 1e corporati on's activities. lt is the objective of anagement and staff at Manitoba Hydro to provide 1 economical and reliable utility service to the people Manitoba. The process of reviewing the corporation 's :tivities will assist us in doing our job better. I have with me a number of staff members who will 1sist with the presentation and help with the questions at may arise during this session.

Murray Fraser, <ecutive Vice- President of Corporate Services, will ·ovide information on rates and financial forecasts as part of my presentation. Chris Goodwin, Executive anager of Corporate Planning, will provide an overview ' activity related to the Northern Flood Agreement. lSt year, this report was tabled, and this procedure m be followed again with your concurrence.

In addition, with us today is Don Duncan, Vice­ ·esident, Engineering and Construction; Will Tishinski, ea-President of System Planning and Operations; alph Lambert, Vice-President, Customer Service; Art erry, Senior Department Manager in the Power Supply lanning Group; Paul Thompson, Interconnection 103 Planning Engineer , Power Supply Planning; Bob Brennan, Divisional Manager, Financial Services; and Verne Prior, Manager of Public Affairs. We will do our best to respond to your questions when they are asked.

If we do not have all the information with us, it will be provided either at a later meeting of the committee or by way of a written response. The purpose of the committee meeting, as I understand it, is the consideration of the 33rd Annual Report of the Manitoba Hydro-Electric Board for the year ending March 31, 1984. As has been the custom, however, the committee will be provided with preliminary results from the fiscal year just ended on March 31, 1985. Manitoba Hydro, being primarily a hydro-electric utility, relies heavily on water flows for generating the bulk of the customer s' energy requirements.

Consequent ly, the financial results of the utility 's operations are substantially influenced by weather conditions. Fiscal year 1984-85 was an average year for hydro generation, with water conditions being close to the long-term average. The average water conditions provided an opportunity to produce about 21 billion kilowatt hours of energy per year from the hydro-electric plants. The fiscal year ended with total hydraulic generation of 21 billion kilowatt hours, compared to the record 21.9 billion kilowatt hours established in fiscal year 1983-84.

The corporation 's revenue is enhanced through the ability of the utility to sell to extra-provincial markets. Increased demand within Manitoba and somewhat reduced water conditions still allowed significant surplus energy sales to neighbouring utilities in Saskatchewan, Ontario and the United States for the fiscal year just ended for a revenue of $103 million. This is the third year in succession that extra-provincial sales yielded revenue of more than $100 million. The increased unit price offset the lower volume of export energy this year.

The major export market was the United States, which accounted for over 80 percent of the total exports of approximately 5.8 billion kilowatt hours for the fiscal year just ended. Adequate water conditions resulted in over 99 percent of all energy for the integrated system having been generated from hydraulic sources. At the year-end, the Nelson River plants had contributed approximately 75 percent of the total hydraulic energy. Of the total energy generated in Manitoba, 63 percent was transmitted over the high voltage direct current transmission system.

With the implementation of a 7.9 percent rate increase last year, Manitoba Hydro had forecast a small surplus for the 1984-85 fiscal year after four consecutive years of expenses exceeding revenue. I am pleased to announce that preliminary financial results for the fiscal year ending March 31, 1985, indicate revenues of approximately $506 million and expenses of approximately $495 million. That is an excess of revenue over expenses of about $11 million.

Two years ago, I established the objective of matching revenue and expenses by March 31, 1985, and this has been accomplished by: 1. a continuation of management's efforts to control expenditures; 2. continued adequate water conditions; 3. continued growth in the domestic load; and

Thursday, 6 June, 1985 4. improved prices in the export market. While our reserves will increase to $93.4 million, they are substantially below the $142 million level reached in the 1979-80 fiscal year. I am concerned that the current level of reserves is not sufficient to withstand a period of low water conditions.

Prudent management and fiscal responsibility require us to gradually build up reserves to meet our minimum criterion which is to absorb the financial impact of two consecutive years of drought, and to gradually increase this minimum to main tain rate stability durin g periods when major generation and transmission facilities are added to the system. With the approval of a managemen t recommendation of a 5 percent rate increase in general consumers' revenues effective April 1, 1985, we are forecasting a $5 million net revenue for the 1985-86 fiscal year after allowing for the recent increase in water rentals.

Energy generated to serve Manitoba customers was 15. 0 billion kilowatt hours compared to 14. 4 billion kilowatt hours in the fiscal year ended March 31, 1984, an increase of 4.2 percent. A year ago, the increase was 8.5 percent, and the average increase over the past five years was 3.2 percent. Our present forecast of future load growth at 2.8 percent per year is the lowest rate of increase ever projected. Load growth over the last two years has averaged 6.3 percent each year and, when adjusted to reflect average weather conditions, the growth would have been 5.2 percent each year.

The system peak deman d to supply Man itoba customers durin g fiscal year 1984-85 was 2, 952 megawatts which occurred on Saturday , January 19, 1985. This was an increase of 2.2 percent over the 1983-84 fiscal year's peak. The extreme weather conditions on that Saturday caused this peak demand. We estimate that, if it had occurred on a weekday , industrial demands would have caused a substantially greater peak demand. We are pleased with the ruling of the National Energy Board which was received in March.

This ruling will enable Manitoba Hydro to fulfil! all of its obligations in the con tract with Northern States Power of Minneapolis for the supply of 500 megawatts of firm power from 1993 to the year 2005. More specifical ly, net revenues from this sale will enable Manitoba Hydro to have lower rates to its customers than without the sale taking place. Based on our forecast of increasing power demands, together with the 500 megawatt sale to Northern States Power, it has been decided that the in-service date of Limestone should be 1990. This requires an immediate start on construction.

Our current budget estimate for the Limestone project is slightly over $2.5 billion for first power fn 19 90 and completion by 1993. The final cost will depend on such factors as cost escalation and interest rates in the next eight years. Prices on recent major contracts have been excellent and below our estimates. Should this trend continue, there could be a reduction in the current budget estima te of $2.5 billion.

Even with the addition of the first unit of Limestone in-service in 1990, our projections indicate that annual rate increases at or below the projected long term rate of inflation will be sufficient to ensure an annual positive net revenue. This means that the "real" price of 104 electricity in Manitoba will further decrease in the futu and help to maintain our position in having the lowe electricity rate structures in Canada and the Unit� States.

Consistent with the overall thrust of Limeston Manitoba Hydro has undertaken the following maj steps related to local opportunities for business ar employment at Limestone.

A) Requirements for apprentices, trainees and northern Native employment preference have been ne gotiated with the unions an d employers and included in the Nelson­ Burnt wood Ag reemen t. This agreement covers all contracts at Limestone.

B) Purchasing guidelines have been developed for use on the project which, while maintaining the general principle of competitive tendering, will assist Man itoba busin esses, and in particular no rthern and northern Native businesses to compete for the work.

C) Where possible work has been broken into packages to permit more and smaller companies to bid on them.

D) Manitoba Hydro has awarded a contract to Canadian General Electric Company for the supply of turbines and generators for Limestone. This company has supplied most of the turbines and generators for the Manitoba Hydro system, including the Long Spruce project. These negotiati ons were initiated in 1977, using experience at Long Spruce as the basis. Negotiat ions are a consequence of the March 1977 Federal­ Provincial Agreement and will ensure that the business remains in Canada.

Man itoba Hydro has extended these gener principles to apply to all other northern projects, order to enhance local business and employme1 opportunities. Within Maitoba we presently operate 17 diesel electr installations serving isolated communities which a1 primarily located in the northern part of the provinc Construction of a 70 kilometre extension from the Laur River to Fox Lake tran smission line enabled 1E customers at Pukatawagan to be supplied with centr service on March 20, 1985; also 25 customers : Granville Lake were connected to the central syste in March.

In addition, conversion to central service w continue up the east side of Lake Winnipeg eliminatir diesel installations at Poplar River by March 19 86 ar at Little Grand Rapids and Pauingassi by March 198 Manitoba Hydro is constructing a 270 kilometc transmission line from Gillam to Churchill to provic central station power to that community. Clearing ' the northern

section of the right-of-way was complete early in 1985. The scheduled in-service date for tt line is 1987. Expansion of the high voltage direct cur rec tran smission system at Dorsey and Henday h� continued during the year. The first

section was place in commercial service last fall and the work will t completed this year. This will improve the capacit performance and reliability of the high voltage direc current transmission facilities which are vital to tr security of the system. This facility will be capable c transmitting the output of the Limestone Station withm further addition.

Thursday, 6 June, 1985 At last year's meeting of this committee I reported at Manitoba Hydro had experienced the worst ice orm in its history during the month of April 1984. The 1al cost of that ice storm was $5.2 million and final pairs resulting from it were not completed until ecember 1984. I reported on this in detail last year. s a result of repeated experience with ice storms with total cost of approximately $8 million in the past two !ars, a special task force was set up to report on the easures which should be taken in future to lessen 1e impact of ice storms.

Its report has been approved f management and new measures will be implemented �follows: - Imp roved response time - resulting from improved weather information. - Replacement of overhead distribution lines with underground lines and reinforcement of primary supply lines. - Advancement of previously planned new lines. - Additional facilities to improve ice melting from lines.

Implementation of these recommendations will take lace over a five-year period beginning in 1985, at pending levels of approximately $5 million per year. ,pproxi mately $5 million of the total is for the dvancement of the in-service date of presently planned talion and transmission facilities which will reinforce 1e supply into ice prone areas. lt is expected that in the long term at least 50 percent f future storm damage costs in the ice prone areas 1ould be eliminated, and the longest service 1terruptions in major towns reduced to the 20 hour ange from the 72 hours experienced during the 1984 torm.

Du ring the fiscal year ended March 31, 1985, �anitoba Hydro purchased approximately $87.7 million 10rth of goods and services of which 68.6 percent was 1laced with Manitoba companies. In 1984 the utility ranked first of 14 major electrical 1tilities in Canada in safety for electric utility operations. =or the combination of operations and hea vy :on struction we ranked second. This is the 21st :onsecutive year in which Manitoba Hydro has ranked 1mongst the top three best utilities. Manitoba Hydro anked first in vehicle safety amongst the 12 reporting 1tilities.

The above safety particulars are based on the :alendar year statistics which are published by the :;anadian Electrical Association. Employment during the fiscal year just ended peaked lt 3,805 in July, 1984, including temporary employees 1110rking on ice storm repairs. The maximum was 3, 778 or the previous fiscal year. Minimum staff levels of lbout 3,600 occurred in January 1985. Staffing levels ue now essentially steady at approximately 25 percent )elow the level of the mid-1970s. I expect an increase )f approximately 220 in staffing during the next few (ears as a result of increased construction activity.

We are making steady progress with the development )f an Affirmative Action Program. We have made a �ommitment to modify existing systemic discriminatory t>arriers that affect women, Native people and the ::lisabled.

A Corporate Affairs Department has been set 11p to implement the Affirmative Action Program, and to develop policies for major northern projects in the areas of community relations, resource impact and business development. 105 For many years, Manitoba Hydro has provided occasional assistance to electric utilities in other countries in connection with projects where we have skills and the people that they require.

These have often been paid for by the Canadian International Development Agency. lt is now evident that there is a significant export market for such skills and steps have been taken to promote this service. I expect this business to gradually develop, and it will provide additional challenges to our staff. We intend to work with local businesses and to support their endeavours in the export market. Recently , we have been negotiating with our three official bargaining units.

I am pleased to report that negotiations with two of these bargaining groups, namely, IBEW, Local 2034 and AMH SSE have been satisfactori ly completed, subject to ratifications by their members and our board. Negotiations with CUPE Local 998 are in progress. Mr. Fraser will now make his presentation on rates and financial forecasts as a part of my presentation, Mr. Chairman. MR. CHAIRMAN: Mr. Fraser. MR. M. FRASER: Thank you, Mr. Chairman. I would like to start with a number of bill comparisons, similar to those displayed the past few years.

Then I would like to touch on some of the factors that impact our financial projections and the results of those considerations. Slide 1 Residential 750 kW.h This first chart compares monthly bills of residential customers using 750 kW.h hours in a month in nine different provinces. The province not shown here is Prince Edward Island where there is no cit y of comparable size. A bill in Charlottetown would be higher than any of those that are shown here. Manitoba Hydro is at the low end of the chart.

This level of consumption is average for a residential customer who does not have electric heat as a primary source. Slide 2 Residential 5,000 kW.h The second chart again refers to resid ential customers. This level of consumption is intended to rep resent an average ·monthly consumption of a customer using electric heat. Again, we're at the low end of the chart and by a significant margin. Now the next few charts represent monthly bills of non-residentia l customers. Basically,· customers are classified either as residential or non-residential.

The non-residentia l are then subdivided into those whose demand does not exceed 50 kilovolt amperes and those with greater levels of demand. The smaller demand customers are referred to as General Service, the larger customers are referred to as Power Customers. Slide 3 General Service 750 kW.h The first of the non-residential charts represents the monthly bill of a low usage, 750 kW.h per month, General Service customer. Here, as was the case last year, we are not low, we're in this position.

Slide 4 General Service 10,000 kW.h However, when we compare the bills of relatively high usage General Service customer in the same class,

Thursday, 6 June, 1985 you'll see that we . are again low, and again by a significant margin. This chart is comparing bills at a consumption of 10,000 kW.h in a month. Slide 5 Power 111 kVa, 25,000 kW.h A comparison of monthly bills for a relatively small consumer in the Power category shows Manito ba Hydro at the low end. Slide 6 Power 1 111 kVa, 400,000 kW.h A comparison of monthly bills for larger customers in the same class shows us again in the same position.

Slid e 7 Canada and USA Residential A comparison of residential bills with some from major United States cities, at a monthly consumption of 1,000 kW.h, sh ows the Ca nadian ut ilities in generall y favourable positions, here, and here, and here. As we have seen from earlier slides, Winnipeg is at the low end of the major Canadian cities. lt shows New York. There are east coast and west coast cities, New York being the highest.

Slide 8 Grand Forks/ M inneapolis Residential Perhaps a little closer to home, a comparison of the Grand Forks and Minneapolis residential bills with those of Man itoba cities indicates the spread between rates in Manitoba and in our adjacent United States. Now; I would like to review a few of the assumptions used in the financial forecast.

These assumptions are important because a change in any one of them could have a significant impact on the forecast of operating results. lri fact, it is virtually ce rtain that actual condi tions will differ from some of our assumptions and the financial forecast will have to be adjusted according ly. Because we recognize actual conditions will differ from assumptions, we do a considerable amount of sensitivity analysis as a part of our financial forecast process to determine the impact of changes in these assumptions.

Slide 9 Integrated System Load Growth One of your basic assumptions is always the forecast of growth in our own system. This is important, because it's a major factor in determining the need for capacity . Growth has moderated since the sixties and early seventies when we experienced growth rates between 6 percen t and 12 percent every year. Over the past 10 years, there have been quite significant year-to�year fluctuations, as you can see from the cha rt, but the growth can be argUed as having averaged 3.2 perce nt, as is shown by the red line.

The energy growth of 8.5 percen t that we spoke of last year represented a recov l:iry from the previous year when actually a decline in demand was experienced. In 1984-85, load growth was 4.2. Over the next 1 0 years, ioad growth is forecast to av erage 2.8 percent per year, as shown by the black line. The Federal Department of Energy and some others have noted that, despite the growth experienced in 1984, most utilities have reduced their long-range demand forecasts. The department's own forecast is somewhat higher than that of the utilities.

Another extremely important factor is our ability to generate hyd raulically , and Mr. Arnason referred to this a few moments ago. Slide 10 Hydraulic Generation - Integrated System This slide shows the Ma nitoba firm energy requirement hi terms of millions of kilowatt hours per 106 year, and that's the blue-shaded portion of the bar also shows the amount of energy available for exp under actual and forecast water conditi ons a generating capacity , that's the red portion. In the fiscal years of 1977-78, drought conditic were experienced and very little hydraulic energy � available for export.

The followi ng two years, river fl, conditions were close to optimum and additional ener was available from Long Spruce, which start commercial generation in October, 1977. In 1981-l these were again low water condition years and expo were curtailed. The purpo Se of reviewing the history is to demonstn how dramatically Mani toba Hydro's fortunes can affected by weather conditions and to point out tt although we forecast the future, that is from this po onward, assuming average water flow condition s, • can see from the early part of the cha rt that there � be significant year-to-year exceptions.

The lar increase in 1991-92 is due to Limestone coming ir production. Slide 11 Potential Range of Net Interchange Reven To further demonstrate the significant impact of wal conditions on our financial results, this graph, whi is called "potential range of net interchange revenuE has been prepared. In 1985-86, the first bar s, t difference between the average flow, as indicated the red bar, and minimum flows, that little black piec is approximately $90 million.

That differenc e betwe average and minimum flows increases to approximatt $150 million when Limestone is added to the syste1 Slide 12 total Capital Expenditures This char t indicates 10 years of actual capil expenditures and 10 years of forecast expenditurE Expenditures are expressed in current dollars, that the red bars; and in constant 1984-85 dollars, the bl1 bars. As you will see, expenditures are expected increa se sha rply as Limes tone construction commenced.

However , in terms of constant dollars, tl expenditures will not reach the levels of the mid-7( Slide 13 Interest and Escalation Rates Interest and escalation rates are important and tb are impossible to predict with any degree of certain The financi al forecast incorporat es iong-term intere and escalation rates of 7 percent and 12 perce respectively . Again, I should point out that this is just or combination of interest and escalation rates that v consider , and that we do consider other coi'nbinatiol in order to determine the financial impact of alternati' assumptions.

Slide 14 Net Revenue at Alternative Rate IncreasE This chart shows net revenues for the past 10 year as well as forecasted net revenues at alternative regul annual rate increases. Similar to the earlie r chart c hydraulic generation, this chart clearly shows the effe of two years of good water flows in 1979 and 19 8 followed by two years of below normal water condition By that time, we were in the third year of the rate free; and in the midst of an economic downturn whic negatively affected net revenue. Rate increases of 9.5 percent in May of 1983; 7 percent in April of 19B4: and 5 percent in April of 19f

Thursday, 6 June, 1985 ing us to where we are today with revenues slightly ceeding expenses right at this point. In the future, it is quite obvious that annual rate �reases will be required. The red line indicates how astically net revenues would be affected without any lditional rate increases. With 4 percent rate increases, e black line, there are years where revenue deficiences Juld be incurred. Annual rate increases of 5 percent e represented by the green line on this chart. lt should l noted that that 5 percent is 2 percentage points llow the annual rate of escalation assumed in the recast.

Our requirement for rate increases is reviewed mually , based on current conditions, and with the :tual rate of inflation taken into consideration. lide 15 Reserve Balances The cumulative effects on reserve balances of the ternate net revenues is indicated on this graph. One jditional line has been added. That orange line is belied "target minimum reserves." The purpose of 10wing this line is to indicate the minimum desired lServe level.

That minimum level is calculated as the 11ount necessary to withstand two consecutive years f drought. lt amounts to approximately $200 million ntil Limestone comes into service, after which it radually increases to approximately $400 million by 994. I should emphasize that this is a minimum level nd reserves should be increased beyond that point >r reasons other than protection against low water onditions. I thank you, Mr. Chairman. That completes the points 1at I wish to draw to the committee's attention. Please see Charts at end of transcript.) �R. CHAIRMAN: Thank you, Mr. Fraser . Mr. Eliesen. IIR. M.

ELIESEN: Mr. Chairman, as I indicated earlier, te have a report on the Northern Flood Agreement. .1r. Goodwin is prepared to cover that in detail. Last ·ear this was provided to the members and tabled. I vill leave it to your decision as to how you want to 1andle that. III R. H. ENNS: If copies are available it would certainly >e appreciated, Mr. Chairman. III R. CHAIRMAN: Can we ask the Minister? iON. W. PARASIUK: Yes, I think that it's possible with -lansard, if we agree, to have this report incorporated nto Hansard. MR. CHAIRMAN: Is that agreed? Agreed. Mr. Arnason. MR. J. ARNASON: Mr.

Chairman, this concludes my presentation, and I take this opportunity to thank all the employees of Manitoba Hydro for their record of dedicated service to the people of Manitoba. MR. CHAIRMAN: Thank you, Mr. Arnason. The Leader of the Opposition. 107 MR. G. FILMON: Thank you, Mr. Chairman. I will begin by echoing Mr. Arnason's words of thanks to the dedicated employees of Manitoba Hydro for their continued loyal service to Manitobans. I will also take the opportunity to congratulate the corporation on the continuing excellent record of safety in utility operations that's pointed to in Mr. Arnason's report.

I wonder if Mr. Arnason could indicate for me if there was any way of quantifying the terms that are referred to, both in his statement and in the chairman of the board's statement, with reference to the limited discretion to be exercised to benefit Manitoba firms and industry outside of the principle of competitive pricing for work on Limestone and other Hydro work. I guess what I am looking for is a statement of policy that lays out the limits of discretion that can be exercised on awarded tender contracts, whatever have you, that goes beyond the principle of competitive pricing. MR. J. ARNASON: Mr.

Chairman, we are not publishing any specific premiums relative to work that is allocated to northern firms, or northern Native firms. We will be reviewing these on a special-circumstance situation. As we indicated, our basic approach is a competitive tendering system and there will be rare occasions when we will deviate from that where we feel that it is in the interest of pursuing our policy of affirmative action and enhancing the opportunity of people in the North to get involved in the Limestone project. MR. M. ELIESEN: Mr. Chairman, if I can simply add to what Mr.

Arnason indicated, the policy of the Board of Manitoba Hydro is basically to follow a policy that has been in place for many many years over many other Hydro boards, and that is to use limited discretion in the awarding of contracts where Manitoba firms are involved.

But the main principle of price competitiveness has been the main orientation for Manitoba Hydro purchasing with or without Limestone and the board certainly , with regards to Manitoba firms, while we are making a very significant effort this time around as I indicated in my remarks on Tuesday, to attempt to ma ximize the Manitoba content with regards to Limestone purchasing, we are still looking at the price factors to assist us in our final determination. MR. G. FILMON: Mr.

Chairman, while the chairman spoke of this policy prevails and exists with or without Limestone, I wonder if the president of Manitoba Hydro could indicate any circumstances not relate d to Limestone, other normal contracts and work that Hydro has been doing over the past four or five years in which tenders were awarded based on sQmething other than the principle of competitive pricing. MR. M. ELIESEN: Mr.

Chairman, we, without being specific about citing cases, there has been the odd situation where the management of Manitoba Hydro has reviewed with the board and made recommendation where some preference be given to local manufacturers for reasons other than low prices; for example, the ability to supply the equipment or the services on an excellent

schedule and factors such as inspection, where the cost of inspection might be relatively minimal for

Thursday, 6 June, 1985 Manitoba manufacture compared to inspection services outside the province. MR. G. FILMON: Those are quantifiable costs.

When it costs you more money to inspect the work in progress, those are quantifiable and that still becomes a matter of competitive pricing and that schedules of supply in competitive price tenders, in sealed bid tenders, there's alw ays the aspect of schedule; and obviously corporations and clients want to be able to achieve the purchase or the construction in a shorter period of time, and that's a quantifiable savings in order to have it done in a shorter period of time; savings in supervision and contract administration, all sorts of things.

Looking at other factors because we're talking about awarding based on something other than competitive pricing and those factors that the president referred to can, in fact, be termed as part of the competitive pricing process. I'm looking for something outside of that that he's referring to obviously in his remarks and wanting to know when and under what circumstances and if he can give us examples over the past half dozen years of Hydro awarding it on some other basis, other than competitive pricing. MR. M. ELIE SEN: Mr. Chairman, at the moment cannot give you specific examples of that situation. HON. W.

PARASIUK: Yes, I've asked the Hydro maybe for the next Session to look through the files and determine whether in fact any line clearing jobs, brush cutting, clean up of land, was done on that basis over the last 10 years. I think there were instances where that might have been done along the Burntwood River and supply of poles, those types of things. Maybe if that could be looked at and we could see if they would bring back material for you at the next meeting. MR. G.

FILMON: Aside from the normal disclaimer that goes on tenders that any and all tenders not necessarily accepted, are the suppliers to Manitoba Hydro generally aware of the fact that Hydro is operating on principles other than competitive bid pricing now and that they normally expect to have to qualify on other bases for supply of material or services, or construction to Manitoba Hydro? MR. M. ELIESEN: Mr.

Chairman, I want to state emphatically and certainly we wouldn't want to give the impression, and as I indicated in my opening remarks which it may be helpful to repeat, as in the past limited discretion will be exercised to benefit Manitoba firms and industry while competitive pricing remains the first principle of Manitoba Hydro purchasing and tendering around Limestone.

We do not believe it is useful for the utility and the Board of Manitoba Hydro would go further, is it useful for the Province of Manitoba to get· involved in what has been referred to as beggar my neighbour policies by awarding Manitoba firms with contracts for goods or services by having to pay higher costs. lt is our conviction that Manitoba depends, given the limited market that we have domestically here in the province, we depend extensively on trade and we 108 require access to outside markets.

In fact, Manitob Hydro for some time now has deplored the practice by other utilities in Canada, as well as othE governments, which have established very significar preferential in-house purchasing policies, which ha caused Manitoba firms tremendous difficulties c gaining access to those markets. In fact, we have lm extensive markets as a result of that. So for our pa1 we certainly don't want to get engaged in that kind c practice. At the same time while we are reviewing the variou bids, and there are some factors as has been pointe that can be quantified and others cannot be quantifie and we do take a look.

Let us assume hypotheticall: you have two low bids coming in and a Manitoba bi is, let's say, 1 or 2 percent higher than an outside bic we'd look very seriously at whether or not a pruder judgment can be exercised with regard to maximizin the benefits to the Manitoba firm. In that sense, I woul, apply the limited discretion, but we still rely, as in th past, on the competitive pricing system as th determinant in our purchasing and tendering policy. MR. G. FILMON: Mr.

Chairman, I am well aware of th concerns that have been expressed and the example that have been raised by members of the Canadia Manufacturers' Association located in Manitoba aboL their inability to obtain contracts from utilities elsewher in the country because of their policies that dictat local preference purchase clauses. The chairman ha indicated 1 percent or 2 percent. Is 2 percent the limi upon which discretion will be used for this locf preference form of purchase that is referred to botl in the chairman's opening statement and the president' opening statement? MR. M. ELIESEN: Mr.

Chairman, emphatically no, an1 I referred specifically to a kind of hypothetical examplE There are no figures that are specifically spelled ou1 We look at each particular contract that comes in anc with the guideline that the competitive pricing objectiv, is the determinant, we do evaluate the various bids i1 front of us and try to exercise that judgment using ver limited discretion. I am emphasizing the limite • discretion.

We feel it is incumbent upon ourselves, that is th< Board of Manitoba Hydro, to try to maximize where i can be economically justified the Manitoba content tha goes into the goods and services. Obviously, it woul1 be our preference if the price is right for firms an1 industry in Manitoba to be awarded with contracts a: compared to those outside. But we still look at th1 bottom line, and we seek various ways and means This is reflected in the purchasing policies for Limeston1 that we are trying to maximize the Manitoba conten1 MR. G. FILMON: Mr.

Chairman, the Minister o Government Services across the table says to me, that': part of the Buy Manitoba policy that was instituted b• this government for the past three years. Well, th; chairman says that 2 percent isn't the limitation, so guess we must assume that it is greater than 2 percen1 So what is the limitation upon which discretion will b1 utilized to give contracts, award contracts, on a loca preference basis to improve Manitoba content o Northern or Native Manitoba content on the project'

Thursday, 6 June, 1985 WIA. M. ELIESEN: Mr. Chairman, yes indeed, that would >e an incorrect assumption that it is higher. As I stated, md I repeat, where we look at bid prices that come n for particular goods or services, our main objective s the pricing and competitive system. At the same time :hough, we do exercise a limited discretion in evaluating the various bids between a Manitoba-based bid and that outside. Only in limited and exceptional =ircumstances, as I mentioned earli er, do we exercise that kind of limited discretion.

The limited discretion, we believe, is in keeping with our corporate responsibility to the citizens of Manitoba and to the firms and industries which operate here in the province. That is no different today than it has been for many many years at Manitoba Hydro. MA. G. FILMON: Mr. Chairman, that's precisely what I am trying to get at. What are the limits to this limited discretion? What are the limits and the exceptions to these limited and exceptional circumstances?

I was at a gathering just the night before last with the Minister of Government Services, the Minister of Energy and Mines and the Minister of Finance, attended by people primarily in the construction industry of Manitoba, none of whom are in a position to have bid on the major civil contracts, for instance, of this Manitoba Hydro Limestone Generating Station Project; almost all of whom though, in one way or another, are going to be smaller players, hopefully, in this project, because they are entering in on a sub-contract or a consortium basis with various of the different major bidders from outside of this province.

They have no idea what will be the guidelines used in deciding Manitoba content and what form Manitoba content will take in the discretionary powers going to be used. lt seemed as though all of them were trying to better quantify and better present their positions in an effort to try and determine just exactly what would be motivating the decision makers in Manitoba Hydro when they chose the best bid for Manitoba's purposes for the Limestone Generating Station. They all had the distinct impression, of course, that it wasn't necessarily the low bid.

The one who had succeeded in trying to get more Manitoba content apparent in the way in which it structured its bid would have the inside track. lt was a very confusing situation that they presented, saying that they had absolutely no idea and no confidence that the bids would be awarded on the basis of what was the best price for the ratepayers of Manitoba Hydro and the shareholders of Manitoba Hydro. HON. W. PAAASIUK: Mr. Chairman, I was at the same function and, I must say, I never heard those concerns, and I met with virtually all the contractors.

I heard a number of other statements made to me - well I could get into other statements, but I'd rather not. I'd rather keep it to the particular subject at hand. They have been clearly informed through consultation process that price is the major factor. The material that's gone out to them says that: "Manitoba Hydro is committed to an open competitive tendering system.

Where technically and economically feasible, Manitoba Hydro will develop work packages which are within the scope of Manitoba firms." We had discussions with the Manitoba firms about whether, in fact, it was possible to break down that 109 general civil contract. The advice from them was that it would be best not to break down the general civil contract, that you are going to have to go with the big contract. They wouldn't be the bidder by themselves, but they might be part of a consortium.

Attempts were made and, I think, genuine attempts on out-of-province firms and Manitoba firms to develop consortium whereby proposals could be made. lt says: "Where price and quality are comparable, Manitoba Hydro will show preference to those tenders which have greater Manitoba conten t." lt defines Manitoba content, and it says that: "Potential tenderers will be told in advance that Manitoba content is an important factor in the evaluation of their bid. Companies wishing to bid on Limestone contracts will be encouraged to consider how Native and northern firms might be included.

All firms will be required to list the names and addresses of all sub-contractors and suppliers contained in their tender. In some cases, tenderers may be invited to submit an alternative bid, one which increases the level of Manitoba content by including additional Manitoba firms that are acceptable to the tenderer. These local content provisions will encourage companies to search out local firms to perform some of the subcontract work. "If you wish, you may contact the Win nipeg Construction Association or Manitoba Hydro to find out which companies have received tender documents.

With this information, you can contact these companies directly and offer to participate with them as a subcontract or. lt also indicates that there is assistance to small business. So that whole process was geared to have people search out Manitoba firms to the best of their ability and not indeed, as might have been done in the past, follow the path of least restraint. The big companies have their own network of suppliers, equipment dealers, and it's very easy to get a bid.

I mean, we could have conceivably received a turnkey bid from a Korean firm and then fly everyone in, do it completely on a turnkey basis as they did in Saudi Arabia. But we think that within this type of competitive tendering process, say that Manitoba content is important, that the companies should search out Manitoba content, we believe that we will in fact achieve the objective of an excellent price. We will see what happens over the course of the next month, month-and-a-half, as the general civil contract is evaluated.

The indications are, as the president indicated, that the costs are very good; also, it would appear that the Manitoba content is very very good. So the objectives are indeed being met. I have had cases where out-of-province contractors have indicated that they came to Winnipeg for a couple of days thinking that they might talk to Manitoba suppliers or Manitoba subcontractors, and spent weeks because they found a lot more than they anticipated.

I have been told by contractors, again from out of the province, that they went up to Thompson to spend the day talking to local contractors, and spent a week because they didn't realize there were as many northern contractors or suppliers and subcontractors as there was. All of that has taken place in a competitive tendering process. We think it's increased the knowledge of Manitoba potential by these firms. it's not just Hydro jobs that are going to be taking place up North, or in

Thursday, 6 June, 1985 Manitoba; there are a Jot of other jobs. We think that all augurs well for the long-term development in the province and it's not being done at any premium as such. The firms that I have talked to, I have asked them, how has this process worked? They have been interested to ensure that there will be training programs and people will be supplied. That's our responsibility; we certainly intend to meet our responsibility in terms of the training programs. They were concerned about that and rightly so. But we believe that there will be a qualified pool of workers.

Secondly , we were anxious that they came to realize that Manitoba does have a lot of very good construction skills, or construction suppliers or subcontractors, and they have come to that conclusion themselves. But it still is the competitive tendering process where price will be the major factor. MR. G. FILMON: Mr. Chairman, did I understand the Minister to say that the process would be, and they were informed that after the bids are open they might be invited to submit an alternate bid that would increase the Manitoba content? HON. W.

PARASIUK: In the tender document, it said, "In some cases, tenderers may be invited to submit an alternate bid ." MR. G. FILMON: Would that be before or after? HON. W. PARASIUK: That's before, because all of these contractors have had detailed discussions with Manitoba Hydro in the course of their developing their tenders. MR. G. FILMON: So did anybody submit dual bids; in other words, a bid based on their lowest best price and a bid based on more Manitoba content? I wonder if I could ask Mr. Arnason that because you may not be aware of that. MR. J. ARNASON: Mr. Chairman, I haven't analyzed the bids myself.

I am aware of the range of prices that came in. I think possibly we should ask Don Duncan who is more intimately involved in the analysis of the bids to see whether he can elaborate a bit on that question. MR. CHAIRMAN: Mr. Duncan. MR. D. DUNCAN: We are analyzing the bids at this time, and it's not public information. I might say that in the tendering process, in the call for tender, we asked all tenderers to provide any alternates that they might wish, including possible financing packages.

We asked them to list all the Manitoba content that they employed within their bids and additional Manitoba content that was not contained in their tender but might be optional. All that information has been received from the tenderers and is currently being analyzed. MR. G. FILMON: Mr. Chairman, if I may . clarify with Mr. Duncan, then some of them did submit alternates that indicated what their best price would be and what their alternative price would be to increase the Manitoba content. 110 MR. D. DUNCAN: Yes, there was a provision in tt specifications for them to do that and some of the have done it. MR. G.

FILIION: In that case, does that not therefo1 say that it would be done at a premium if you had 1 accept the alternate price for additional Manitot content? MR. CHAIRMAN: Mr. Eliesen. MR. G. FILMON: Mr. Chairman, could I ask the contra< manager to answer that? That's his job; it isn't � Eliesen's job to answe r that. MR. CHAIRMAN: The Chairman recognizes who w speak. Mr. Eliesen. MR. M. ELIESEN: Mr. Chairman, I thought it would ll helpful if I could focus in on the question. Certain! Mr.

Duncan can easily answer those questions, but thought it would be useful in the context of the questic to repeat a statement which I made on Tuesday to sho the relationship between the tendering document an any possible Mani toba premiums that may b considered in the context of the Limestone job wi1 the Provincial Government.

If you recall, I indicated on Tuesday, "In certain limite circumstances where social and economic benefi1 outweigh costs, the Provincial Government, throug the Manitoba Jobs Fund, is prepared to pay a pric differential on contracts to enhance Manitoba content. lt's. in that context where, if there is a premium relate to a Manitoba-source job, it is not the Manitoba Hydr who would consider paying such a premium. There i a mechanism for limited circumstances where th Provincial Government may, if they desire, to do so Now Mr. Duncan can add, if you would like, to m remarks. MR. D. DUNCAN: The chairman is correct.

MR. G. FILMON: The chairman is always correct, I ar sure, Mr. Duncan. Mr. Chairman, in that case, then, the chairman i acknowledging that there would be premiums despit the fact that the Minister said there wouldn't b premiums. lt's just that it would come out of a differer pocket. HON. W. PARASIUK: Well, you know, I don't like havin words put in my mouth by the Leader of the Oppositior Let's make it clear. The Manitoba Government is tryin to maximize spinoffs for Manitobans.

We will do thE within a competitive tendering process, by and largE We will identify what those extra costs are if extra cost will be incurred, and they will be paid by the Manitob people to encourage the extra benefit. 1t may total, we in fact can increase the Manitoba content frorr say, 45 percent to 85 percent, we can have an increas, and a spinoff to Manitobans of something in the orde of $500 or $600 million. Now this govern ment i prepared to do that. What I'm hearing from the Leade of the Opposition, he's saying that this is a premiur

Thursday, 6 June, 1985 to pay; we shouldn't look at this; we shouldn't do this; this is confusing; we shouldn't try to do that. Now, let's make it clear. We will try to do that; we will do it. MR. G. FILMON: Mr. Chairman, I just want the Minister to put his comments on the record in an accurate form. Earlier when he was speaking and Hansard will verify it, he said it's not being done at any premium. That was his words; not mine. I'm not putting them in his mouth. I'm saying that it's now being acknowledged that it is being done at a premium.

I'm not arguing whether it should or it should not, but it shouldn't be said on a basis that it's not being done at any premium and now we find it is being done at a premium, but it's a premium that we're prepared to pay through the Jobs Fund. As long as that's on the record, I'll accept it. HON. W.

PARASIUK: What we are talking about, this is the interesting thing, we're talking about tendering process; we've talked about no specific instance yet where that's been brought to the government because the Hydro is still assessing it; we think that through the competitive process we should be able to achieve this because of all the things that have happened over the course of the last nine months. My expectation is that will be achieved within the pricing process. If there are instances they will be identified.

But for someone then to somehow say, well this is being done and that there will be premiums and there will be extra costs, is jumping to a conclusion before the assessment of the tenders has been made and before that information is made public. Ali i can say though, because some of this arose out of what the Leader of the Opposition said he heard as hearsay , we spent a lot of time working with the construction associations and with other groups trying to work towards maximizing content. We've worked with them very very closely .

They, themselves, are saying that they think this is the best approach to go, the right approach, and what they are trying to do to ensure that we go beyond that. I'm getting letters from businessmen saying, your creative program to translate Hydro brings credit to Canada and jobs to Winnipeg in plants such as our facility. They have been part of this process; they're very supportive.

They know and if the Leader of the Opposition will say, yes this is a more difficult process; one has to work harder to try and achieve the spinoffs to Manitobans and that it's not as simple a tendering process as the past, we can see that is the truth. We can see that that is so.

We have said when we went out to deal with the various construction groups and business groups we said to them, we have to be like Avis, we have to try harder to achieve these objectives; that people might have mouthed some of the objectives in the past but unless one went the extra mile, tried to do these things, the success rate wouldn't be that high. We thought that was a legitimate objective. We asked the companies, is it a legitimate objective? They said yes. We said to them, we do not believe we need price preferences to do this.

We believe that it can be done, by and large through the competitive process apart from instances where it won't be, and 111 we will identify that to you. And their response was, that is the way to go about it. They acknowledged that there will be instances where we might not go as a tender. But by and large, it's going to take place within a competitive tendering process. They all said this is a legitimate approach, the right ' way to go about it.

They all acknowledged that we are breaking new ground and that we are trying to achieve that which has not been attempted before in other provinces and of course we will see what happens over the course of the next few months or over the course of the next year or two, in terms of trying to achieve objectives which I'm happy to say, the Manitoba business co mmunity is in agreement with the government that we should try and achieve.

Secondly , I am happy to say that the Manitoba business community by and large - and there have been some instances where people have argued that we should take a different approach - some of them have come in and said, we'd like to have a whole set of negotiated contracts. Others have come in and said, we'd like to have price preferences. But by and large I am saying the very large majority have said, this is the way to try and do it. MR. G.

FILMON: I wonder if I could ask the President of Manitoba Hydro whether or not Hydro will continue its past practice of making the bids on the tender portions of the Limestone project public after they've been evaluated, assessed and a contract awarded? MR. CHAIRM AN: The president passes it on to Mr. Duncan. Mr. Duncan. MR. D. DUNCAN: Yes, we will continue to call for tenders and award on low prices as we have in the past. MR. G. FILMON: My question was whether or not the past practice of making the bids public would carry on, after they've been evaluated and the contracts awarded? MR. D.

DUNCAN: Yes, we'll continue it. Yes, we will do that. MR. G. FILMON: And would the various alternates - in other words this is the price based on maximizing Manitoba content; this is the price based on our best low price. This is based on using alternate supplies or financing, etc., etc., that if they give three different alternatives, that those three different alternative prices would be made available. MR. D. DUNCAN: Mr. Filmon, the base bid for the project is the lowest cost altern ative.

The other alternates are minimal and I think probably what we would announce in that case would be the lowest cost bid that we got, the base bid. MR. G. FILMON: So, Mr. Chairman, if the lowest price bid is accepted, it seems as though there's an intention to utilize some of the other aspects of it as a financing concerns and the Manitoba content concerns. So why

Thursday, 6 June, 198 5 wouldn't you give the three alternates that they put forward and the one that you chose? MR. D. DUNCAN: I think when you look at the alternates, there are no complete alternates, in other words, a bid on one scheme and a bid on the other scheme. Any alternates they have proposed are incremental and they are not large in proportion to the total. MR. G. FILMON: But those surely could be made public? MR. D. DUNCAN: I don't see any problem, really. HON. W. PARASI UK: Yes, certainly, I would want that to take place. I might just add one thing for the comfort of the Leader of the Opposition.

When the bids were received, they were opened in the presence of a chartered accountant and a company has a record of what those bids were so that everyone can be assured that this is what actually took place when the bids were open; there's a period of analysis and assessment and then Hydro will make its decision. If they feel that there are any instances where there might be some requirement from the Jobs Fund, the government would be contacted.

From my discussion with the contractors, they've taken the whole bidding approach very seriously and I'd like to commend their effort at trying to maximize spinoffs for Manitobans and at the same time, recognizing that it's a competitive world out there and coming in with bids that would appear to be very advantageous from the point of view of Manitoba Hydro and from the point of view of Manitobans generally. MR. G. FILMON: Mr. Chairman, I wonder if the president would indicate when they are anticipating the major civil contract will be awarded. MR. J. ARNASON: Mr. Chairman, we are, as Mr.

Duncan has indicated, deeply involved in the process of analysis. We are hopeful that we can take a recommendation to the next board meeting which is on June 20th and, if we are successful in that respect, then in due course the announcements will be made by the board. MR. G. FILMON: I wonder if the president could indicate what the latest estimate of cost of the Limestone project is. There is a figure of $2. 5 billion indicated today. I'm not sure if that includes engineering design costs, accumulated costs.

We have heard the figure, 3 billion, in the past, and I'm wondering whether there has been an update on that estimate. MR. J. ARNASON: Mr. Chairman, I'm pleased to have the opportunity to clarify these numbers that have been used in the press and other locations, everything from 2.5 billion to over 3 billion. Our estimate at the present time for Limestone is 2.52 billion. The estimates that have been used, which are 3 billion, are for a different schedule. They were used for a 1992 schedule. There was another number of 2. 7 billion that was used for a 1991 schedule.

So I 112 simply want to confirm that the estimate that we a using for a 1990 date is 2.52 billion. If we continue get the kinds of prices on competitive tendering th we've got in the last three major contracts, we'll I looking at our estimates again to determine wheth they stay at the same level or whether we'll have tl opportunity to reduce those estimates. MR. G. FILMON: Mr. Chairman, the figures utilizl then are in as-spent and in accumulated dollars wi all of the carrying charges, the interim financing ar everything till the point that it becomes in-service, l that is why the difference.

As you bring it forward service each year, you have less carrying costs to th point in time. The interest costs on that, of c ours revert then to become interest costs on the system t1 minute it becomes in-service. MR. J. ARNASON: Yes, it's an all-inclusive cost, a spent dollars. After the project is finished, then th1 become part of the operating costs. Your interpretatic is correct. MR. G.

FILMON: So that difference that keeps beir brought forward of $200 million to $300 million eac year you bring it forward is really the interest cos· that are no longer carried in the project, but no become charged to the system as it is incorporated i the overall system cost. HON. Yl PARASIUK: . Escalation as well, just . MR. G. FILMON: Yes, Mr.

Chairman, I overhear t� Minister indicating that there is some escalation of cos of course, in bringing it forward each year, some savin in escalation of costs in bringing it forward each ye1 which we know to be estimated as 6 percent or · percent a year according to the figures. Okay, so the current estimate of $2.52 billion, I wondE if the president could indicate - he didn't respond.

H can, as a part of this second question, respond as t whether or not that includes engineering, design an support costs that have gone to this point in time. wonder if he could indicate what are the accumulate costs to date, and break that down into engineerin and design and the construction that did take plac back in 1977, I guess it was, or '76-77, which led t the cofferdam and partial site preparation. MR. J. ARNASON: I'll answer part of the questior The accumulated costs to date are approximately $19 million.

The 2. 52 billion that is the total cost fc Limestone includes all of the engineering and desig costs, and will include the costs that have being sper to date. MR. G. FILMON: So that does inclu de the 19C Engineering and design costs - I should be familiar wit, this, but I presume that Hydro's project design stafl all of that goes in. lt's not just the outside consultant! lt is everything in total that goes in. MR. J. ARNASON: lt includes all of the project stafl the design people internall y that are involved in th• project, as well as our consultants.

Thursday, 6 June, 198 5 IIR. G. FILMON: What portion of the 190 million to :late is on engin eering and design costs? IIR. J. ARNASON: I do not have that breakdown . I'm looking at Don Duncan to see whether he has the detail of the breakdown or not. IIR. D. DUNCAN: I don't have a breakd own of that cost to date. We can make that available to you, if you wish. MA. CHAIRMAN: They don't have the figu re. lt will be made available. The Leader of the Opposit ion. MR. G. FILMON: What portion of the 2.52, do you have an estimate as to how much of that 2.52 billion will be engi neering and desig n costs? MR. D.

DUNCAN: We have a num ber here but it is not pu rely engi neering costs. lt include s site inspection and some site superv ision . Ho wever , that pur e engin eering cost also can be gi ven to you. MR. G. FILMON: Mr. Chairman , I think that normally in project costs, they consider site supervision of construction and all of that inspection to be part of the engi neer ing and design costs. If not, that is what I assumed it to be so, when you come forward with those figur es, if you would include all that. Mr.

Chairman, I wonder if the president of Manitoba Hydro could giv e an indication as to wha t will be the effect of the recent reduction in Manitoba's credit rating on the in terest costs dur ing the cou rse of the construction, and the overall debt servicing cost of the project on completion. MR. J. ARNASON: Mr. Chairman, I can 't gi ve a precise answer to how that will affect the costs on Limestone. I think that question is probably better answered by the Department of Finance. MR. G. FILMON: Well, is the project going to be financed by the Department of Finance or Manitoba Hydro? MR. M. ELIESEN: Mr.

Chairman, Manitoba Hydro genera ting stations in the future, as well as in the past, are financed primarily by the fiscal agent of Manitoba Hydro which is the Department of Finance. Man itoba Hydro informs the Department of Finance when we requir e cer tain funds, etc., and it really is the Department of Finance is the fiscal agent for the utility, as it is the fiscal agent for all the other Crown agencies, to determ ine the financing mechanisms and availability of the particular cash. I can thoug h, Mr.

Chairman , provide some general backgr ound, if it's of some use, to comm ittee mem bers relating to financi ng. This arose really out of the recent conference that was held here in Winnip eg where practically all of the major financial institutions in the world were atten ding. Both public and pr ivate statements made by them ind icate that there was no difficulty whatsoever in seeking very attractive financing for both Limestone and Conawapa generat ing stations. 113 They certainly didn't ind icate that there would be any difficulties in this area.

In the context of the credit rating, I simply mention that most of Manitoba Hydro's generating stations were built when the province only had an A rating, the same rating as we have today. MR. G. FILMON: Mr. Chairman, the Chairman of Hydro referred to the remarks that were made by various people duri ng that conference, and one of them was the speculation and discussion of whether or not Man itoba Hydro and the Provincial Government would be better off financing it on a project basis, in which the project itself would be, I presume, pledged as security.

Is this under consideration right at the present time by the MEA or the government or Manitoba Hydro? MR. M. ELIESEN: Mr. Chairman, yes, very much so. The province has received nu merous very interesting and creative proposals on project financing related to Limestone. Most of the financia l institutions in the world regard it as a very attractive form of financing, given the fact that we have a contract with a utility in the Un ited States which has a AAA rating.

Eith er limited or in the whole, a num ber of proposals have been put forward to the province to consider project financing the basis, as opposed to it being on the books of the province, or guaranteed by the province, which is the usual course. Just to conclude, Mr. Chairman, that is being looked at very carefully by the Department of Finance. MR. G. FILMON: Did the drop in credit ratin g change Hydro's calculations at all as to what the costs would be for financing the project? MR. M. ELIESEN: No, Mr. Chairman. MR. G.

FILMON: If the Hydro chose the project financing route to go, would they have to pledge the contract with NSP as security? MR. M. ELIESEN: Mr . Chairman, it really is not Manitoba Hydro itself that is considering the financing alternatives; it is the Department of Finance primarily who are looking into · pr oject fina nci ng. Thos e alternatives are really being evaluated primarily by the Deputy Min ister of Finance. As far as I'm aware, there has been no contact directly with Manitoba Hydro.

The proposals are, I un derstand, still coming forward as a result of, in part, the conference and some of the additional information that was passed over last week. The Department of Finance, I und erstand, is presently evaluating those proposals as they come forward. HON. W:. PARASIUK: I just might add , I've had some sent to me as the Min ister which have been passed on to the Department of Finance. I have had a chance to meet with some of these fina ncial institutions.

The one thing that I was pleased with was that they, in fact, had a chance to do their own detailed analysis of the contract to determin e, in a sense, the extent to which one could finance from it. The early proposals that I have seen all basically conclude that the contract is strong , the benefits are there, the return is there.

Thursday, 6 June, 1985 The buyer is a very solid buyer, and this offers interesting possibilities. The thing is tha t there are a num ber of proposals from all parts of the world that have come forward, very reputable institutions from around the world. This process hasn't cost us anything, they have done a lot of detailed work on their own . They have spent time in Man itoba; they have gotten to kno w Manitob a.

They kn ow, not only about the hydro, but they now know a lot more about the nickel , they kno w a lot more about potash, they kn ow a lot more about all the other possibilities of Man itoba, because they spent a lot of time trying to assess Manitoba's streng th. I think that, in a minor way, is still a substantial spinoff to this exercise. I would think that, since there are a numb er of firms putting forward what they think are competitive proposals, there will be some time spent with them assessing the very detailed work that they have done at this stage.

They have ind icated that there will be a lot more work done on their part over the next months, or even years, because the big question is, what's the best time. What's the best time, if one looks at project financing, to take it in longer-term dollars? Or does one, in a sense, borrow shorter term through a period ? Those are strateg ic considerations that have to be weig hed , and are being weighed by the Department of Finance now. MR. G. FILMON: Mr.

Chairman, I have no idea why the Minis ter wou ld be surpr ised when lending institutions are interested in examining projects that require major capital borrowings. They make their profits, their mone y, based on lending money, based on making sure that their capital is utilized, emp loyed, is secure. Why would they not spend a great deal of time in evaluating that? I can 't unde rstand. I'm not surprised whatsoever that they're interested in it or they would take a go od deal of time in evaluating it.

The converse, of course, to what the Min ister says - and he's giving their interpr etations of the fact that they find it a good contract and a good deal - the converse is, of course, that one of our major credit rating agencies lowered Manitoba's cred it rating within the past month. One of two reasons cited, next to the continuing unacceptably high deficits of this province, was the commitment of major capital financing to this Limestone dev elopment project.

Since that resulted in a reduction in credit rating, one has to question whether or not everybody thinks that it's an incredibly good deal , and tha t the sequence of dev elopment and everything else is a favourable one for the province. Mr.

Chairman, here is the comment, I gu ess, from the report of Moody's on the project. lt says, and I quote: "Although low cost hydro-electric power is presently attractive, the long-term feasibility of the financing must be demonstr ated, especially when its magnitude is considered in light of the province's own borrowing needs and potential foreign exchange costs." So the Min ister's enthusia sm and exu berance for the view of the financial people of this arrangement and this province's financial circumstance is, I think, more than a little overstated.

HON. • PARASIUIC: I wo uld really hate to overstate anything, and the Leader of the Opposit ion knows that. 114 That exu berance was actually put forward c displayed by the business commun ity, the indu stri commun ity, and the international financial communit not only through the economic conference that we held in Winnip eg just last week, but in other meetill!; that we've had.

That's been shown by people in senic gover nm ent levels in the Un ited States; it has bee shown by cong ressmen; it has been shown by otru people as well and I was surprised , frankly, at tll numbe r from different parts of the world who we1 paying as much attention because there have bee instances in the last 10 years where utility deals haven gone well, so I expected; to have some companies tak a look.

What we fo und was that a num ber of companiE asked for the Information rega rding the contract, an then having looked at it and done their own analySEil they have not quite become a flood tide, but they ar certainly a substantial group far more than I thin Mani toba has really dealt with in the past. I think that' good for Manitoba and I am pleasantly surprised e that. I wasn't surprised that they would come to thos good conclusions in the analysis because we felt the last year.

We, of course, felt that when we made applicatio to the NEB, I would think that the gr oup that shoul be surprised with the analysis and with the outcome of the analysis would be the Conservative Party becaus their analysis has always indic ated that the Norther States Power deal wasn't a good deal, that ther wouldn't be profits, that those things weren't state properly, that the assumptions weren't right. They raise point after point after point after point of concern. The went on radio broadcasts saying that this wouldn't b workable and I could dig all those out, but I don't thin now is the time for it.

But I must say that the business commun ity, th ind ustrial communi ty and the financial commun ity a think that the Conservatives are gr asping at straws o this particular issue and are on the wrong side of il They're pretty hard- nosed businessmen. They're ne just looking to make a loan. They want to make sur that they'll get their loan repaid. I think cred it ratings are looked at within a conte)l of trends over a period of time and we've gone througl a period of recession as a country, as a North America1 continent.

We have gone into situations where ther• has been a transfer or a withholdin g or a cutback c fu nds on tr ansfer payments from the Federe Government to the Provincial Government that wa taking place with the last administration. Canad ians assumed that they had voted for a ne' approach, a new deal for the west and now they ar� find ing that new deal is going to cost provi ncie govern ments a lot of money, and they are also find inl that it's going to cost them a lot of money when yOl have a phi losophy that is based on the premise tha there aren't enough rich people in this .country.

So tha t's the context in which we have to look a something like a credit rating. I certainly would expec that over the course of the next few years, as Moody': does more work on this, they will in fact come to realize what a solid deal this is. MR. CHAIRMAN: The Memb er for TUrtle Mountain.

Thursday, 6 June, 198 5 MR. B. RANSOM: Thank you, Mr. Chairman. The only seemingly ind ependent appr aisal of the provinc e's position and Mani toba Hydro's position relative to the financing of this project would be Moody's Investment Rating Agency because they, of course, are not actually involved in the financing of such a project;

whereas bond dealers and financial institutions that might be expected to put money into the project, are naturally int erested in either selling the bonds or investing their money and making a profit at it. So it's not a question of whether or not the money would be available. lt's a question of what the cost will be and there may be lots of people willing to finan ce the project but at a hig her cost than might otherwise have been the case. Sinc e the only objective comment we have is the one that was read into the record by my leader, and I'll read it ag ain.

This is what Moody said on May 9, 19 85: "Although low cost hydro-electric power is presently attractive, the long -term feasibility of the financin g must be demons trated especially when its magn itude is considered in light of the province's own borrowing needs and potential foreign exchange costs." Now that would seem to ind icate at least a mild note of caution as to the financing of this project. So I guess I would have a couple of questions for the Min ister.

Firstly, have they met with Moody's since this report came out on May 9th to demons trate to them the long-term feasibility for the financing of the project; and secondly , has Hydro considered the possible impact that this rating change could have on their borrowing costs? lt's my und erstanding from discussion in the House during the Finance Es timates, that it is not generally expected that this would have much impact on the cost of borrowing either in Canada or in Europe, perhaps not in Japan , but it might well have an effect in the Un ited States.

Even a very small difference in the interest rate paid makes a tremen dous difference in the amount of money that it's going to cost. I did a calculation on what 15/100 of 1 percent interest would do on $3 billion for 12 years, that's the period of time of the Northern States Power sale and it comes to over $120 million in that period of time. So has Hydro not done any kind of analysis of the potential impact of this?

The interest costs that they assume, is there such a latitude attached to the interest cost that that kind of potential change is insign ificant, that it just falls within the range of variation that they would have assumed to beg in with? HON. W. PARASIUK: I certainly don't disclaim this statement made by the Member for Turtle Mountai n, when he says that when one und ertakes the financing of a project of the magn itude of Limestone that one approaches that with caution.

I think it is important to check out all the options and look at the difficult choices that one makes between short-term borrowing and long- term borrowing with something like this because who can predict where interest rates will end up. One might have some ideas about trends, but you always want to freeze or try and get your longe r-term freeze at the right time. There have been a num ber of discussions with people as to what is the best time. 115 Now when Moody's says the financing has to be demo nstrated, that's true.

There are a whole set of different approaches that one would unde rtake with respect to financing that are being investigated and will indeed require some investigation over some time into the future. Because they have said we put it into a catego ry, we intend to demonstrate and show that there are a lot of different ways in which this can be app roached . But it's incum bent upon us to sit down with the various institutions that have been coming forward with us, I think with interesting proposals, to assess them and to have ongoing discussions with Moody's.

We have not had the opportunity to date, and we didn't think it was necessary right now to have the discussions with Moody's when the Session ends. We cer tainl y would expect to be ha ving further di scus sions with rating agencies and with other agencies, but certainly with the rating agencies. lt's just that, you kn ow, the pressures of the House and the fact that we do this firstly, but certainly later on in the year we will be having further discussions with them.

We would expect that when we get a better idea of the cost side, and we're talking about some major contracts, that if in fact we achieve signif icant savings, will change that side of the component very dramatically. lt would be at that particular stage and one has a better handle on those costs, we're talking about the physical costs of construction costs, that I think that another set of runs should be done, although my impression is that the sensitivity analysis did have variance built in within it that would · have accommodated this type of, and I still think it's a minor change in interest-rate cost.

But I'd like to just check with the chairman just to see whether in fact that was done with the sensitivity analysis. MR. M. ELIESEN: Mr. Chairman , if I can add some additiona l information in this area related to Moody's. lt would be our intention, as soon as we can practically arrange it, to go back and have discussions with Moody's. lt would appear, notwithstanding the fact that the report by Moody's was issued May 9th, I believe, that the report had been written some time earlier because in the context of the report itself it refers to a National En ergy Report and analysis that was still forthcom ing.

As most of us are aware, the National Energy Board Report was released in March, so it would appear that the written text, at least, and the analysis had been unde rtaken prior to the release of the National Energy Board Report . Clearly, with regard to the most indepth inde pendent analysis on the Northern States Power Contract, that had been un dertaken by the National Energy Board .

As I ind icated in my opening remarks on Tuesday, all the areas that had been raised and subject to discussion had been inde pendently ana lyzed by the National Energy Board , including sensitivity analysis and interest rates, and it confi rmed our own anal ysis and information. So it would be our intent clearly to go back and have discussions with Moody's and make available to them the details of the National Energy Board Report and any other factors that they would like to raise dealing with the Limestone project. MR. B. RANSOM: I agree with Mr.

El iesen that the report doesn't seem to acknowledge the receipt of the

Thursday, 6 June, 1985 National Energy Board Report, although it does make reference to the Minister's bud get and to borrowing that's been done in fiscai'BS-86.

But it seems to me that the gover nment would have wanted to and should have been in touch immediately with the rating agen cy, and if they've based their rating on any type of incomplete information, it seems to me that they would have wanted to have that corrected immed iately because of the fact that even a very small change in interest rate on $3 billion can easily run into the hund reds of millions of dollars over the life of this project, and that the expenditure of a few thousand dollars to meet with them immediately to try and correct any false impression that they have.

Perhaps their impr ession wouldn't change, but it seems to me an oversight on the part of the govern ment if they feel that Mo ody's has no t had the benefit of all the information available. lt seems to me an oversight that the gov ernment hasn't been in touch with them immediately to try and correct that. HON. W. PARASIUK: Information has indeed been sent to Moody's after their May 9th statement and we certainly intend to be meet ing with them. I think that there's sufficient time to do that. There are two rating agencie s involved. There are other budge ts coming down .

I would be wanting to try and unde rstand what that context is, because they're just not going to talk about Hydro, they'll talk about other matters as well, what is a range of bud gets within Canada. I think the Mem ber for Turtle Moun tain might have had meetings with the rating agencie s before himself to get some idea of the range of topics that they want to discuss and we certainly think that some time after the Session ends would be an appropria te time to go down and have a follow-up meeting with them. But if he disagrees on the nuanc e to the timing, fine, I'll take that as advice given. MR. H. ENNS: Mr.

Chairman, I have a series of other questions to ask on other subject matter, but I just want to go back to the one that we spent some time on last Tuesday and again this morning. I'm referring to the fact that we seem to have established Tuesday last that some of the cost, the offices, staff, most of the staff, that some of the informational material that is coming out of the informa tional offices, for instance, was being supplied and paid for by the Jobs Fund.

The chairman of Man itoba Energy Authority on Page 20 of the last Tuesday's transcript is on record as having said the following: "M adam Chai rperson, there may be limited and exceptional circumstances ... "- and I remind you this is what we are talking about, those limited and exceptional circumstances we're trying to tie down.

This is the chairperson of Manitoba Energy Auth ority and Manitoba Hydro's putting on the record last Tuesday: "Th ere may be limited and exceptional circumstances by which the go vern ment, through the Jobs Fund, are perhaps prepared to pay a premium as a result of that work being performed in Manitoba related to the Limestone Generating tendering process, but that is correct, Man itoba Hydro will not get involved. Manitoba Hydro's current practices will exist with the Lime stone Station." Well, Mr. Chairman, I think that's what my leader was trying to get at with some difficulty earlier on this 116 morning.

I think that statement by the chairman o Manitoba Hydro is perhaps a more acceptable one anc one that I hope Manitoba Hydro would pursue. lt seem! to me it would make Man itoba Hydro's job, the job o· Mr. Duncan and others, a great deal easier; they coulc do their work.

And I'm not putting on the record, l'rr not disputing the gov ernment's desire to maximize whatever other beneficial impact they want to accrue as a result of this project, but then to have that clearl� delineated so that good business practice doesn't gel fudged up with, what I call social tinkering, in mixin� up, you kno w, social engi neering and social tink erin� with what Man itoba Hydro's been able to do reasonabl� well up to now, and that is to build dams.

Now, if you have as your chairman now ind icate! and last Tuesday put on the record, and you've put il on the record and it hasn't been quarrelled with in the House on nu merous occasions, that through anothe• agen cy, such as the Jobs Fund, the government i! prepared to direct Hydro to pay a premium, and I ma} well agree with, that they ought to in circumstances I can think of a numb er of instances where, througt the direction of the Minister and through the directior of the government as a whole, under - to use the terrr tha t we often use - limi ted and exc eptions circums tanc es, maxim ized the oppor tu niti es ir Manitoba to acknowledge the particular circumstance! of our Nor thern residents, particu larly our Native residents, that that is a desirable end result that oughl to be acknowledged and ought to be included in the overall planning and building of this project.

But this morning we have had a controversy develoJ: between the questioning of my leader and the answers that he has been gett ing between mem bers of Hydrc and the Energy Authority and/or the Min ister himself. What my leader specifically asked - was there a premium to be paid? I believe he asked that question of Mr. Duncan, he didn't get a clear answer.

Yesterday, or last Tuesday, the Chairman of Manitob€ Hydro was quite prepared to acknowledge that, ye! indeed , under limited and exceptional circumstance! - and then he ind icates the source - the gov ernment through the Jobs Fund, are perhaps prepared to pa) a premium. I sugge st to you, Mr.

Minister, or to the chairman. that that seems to be an approp riate way of doing it lt ident ifies the extent to which the gove rnm ent ma} well wish to pay particular credit, take particular credil for at some future date, but it at least keeps the bookke eping a little more straightforward , and it lets Manitob ans know what the hard costs of the projecl are, and to what extent they have been added to b} an intervention, well-intent ioned as they may be, and deserving as they may be, and as acceptable as the} may be but, nonetheless, premium costs to the project which is already of substantial scale, by various forms of intervent ion, affirmative action deviating from the normal tendering practice, etc.

HON. W. PARASIUK: Well, I think that there has been no change in what was said back on Tuesday, in fact, the Chairp erson of Hydro read that back in terms o1 that being the policy. Some times on an interchange you get caught up with is there a premium, and then who is the premium. Hydro was not paying the prem ium.

Thursday, 6 June, 1985 If there is a premium, then that's an "if' at this particular stage. He said there may be instances, there may not be, it may be that the whole tend ering process has achieved all these things. But there may be instances and, in that sense, it's the government, not Hydro, it's the gove rnment. I don't disagree with what the Mem ber for Lakesi de has said at all but, in that context, again, I haven't . . .

I just got this this morning, I haven 't had a chance to go through it with as fine a tooth comb as possibly the Mem ber for Lakesi de, but I will look at that and I will look at today's transcript as we ll before we meet next time. Because I do re call last Tuesday the Leader of the Opposition raising the ques tion; wel l, why isn't Hydro paying for some of this, or why isn't this group or that group? And we said, no, it will be the Jobs Fund. I think, in that connec tion, that is identifiable.

We have said that that's what we will do, and I think we should be able to tell the people this is the cost and this is the benefit if there are instances where an extra cost is involved . Of course, obviou sly, one would hope that the benefits would far outweigh the costs, or at least equal the costs if one undertook an extra ef fort. As I said, at this particular stage tha t's hypothetical because we have said that there may be limited circumstances. MA. H. ENNS: Mr. Chairman, I don't wish to pursue that any further, I am satisfied.

I belie ve that the Minister has acknowledged that there is some value in clearly separa ting the two, and I think that's of some value to those who will be charged with the re sponsibility of running the day-to-day business of Manitoba Hydro, and those people that do business with the Manitoba Hydro who would know precisely the ground rules that are followed under which they hope to participate in this large a project. Mr. Chairman, in the chairman's message of the annual report , in the first paragraph it indicates that about 90 percent of the claims registered against the Man itoba Hydro have been sett led .

Perhaps Mr. Goodwin or somebody can be of assistance to us here. I am assuming that is 90 percent of the registered claims; can we have any idea? I noticed in Mr.

Goodwin's report that we have circulated , and will be putting into Hansard , the last page indic ates very substantial negotia tions that have yet to be concluded with respect to the damage done as a result of Hydro flooding; retroactive com pensa tion for losses to commercial trapping; com pensa tion for present and future losses; funds to construct additional trails, etc ., I am ref erring to his second last page of his report Could Manitoba Hydro give us some idea about what precisely does that 90 percent of the registered claims mean as a start?

I am not asking for indi vidual situations, to give us some idea of the scale to which these costs are and how they have to be figured into the overall Hydro dev elop ment plans in the Nor th. MA. CHAIRMAN: Mr. Go odwin. MA. C. GOODWIN: Mr.

Chairman, first, with regard to the numb er of claims filed in the statement in the last Annual Report that 90 percent were sett led, this refers, in my report of today at the top of Page 2, and to 117 update the Annual Report, it says, "To March 31, 1985, Manitob a Hydro has settled 1 ,256 of the 1 ,3 98 claims which have been filed generally by individuals." These are for, typ ically, loss of fishing nets, damage to equip ment and so on suffered by a fisherman or a trapper in the course of his work in an area that's been impacted by the Hydro project.

So, typically, we are running about 90 percent of these claims sett led . Now that does not deal with the arbitration claims. MA. H. ENNS: Can Mr. Goodwin provide the committee with a figure of costs that are involved in the settlement of these claims? MA. C. GOODWIN: During the past year the se claims, in total, would have been in the order of $200,000.00. MA. H. ENNS: Mr. Goodwin is referring to the past year. What I am ref erring to, trying to relate it to the 90 perce nt. Mr. Chairman, I would be happy to have these ques tions be taken as notice and perhaps they can be provided.

I repeat, I am not interested in any detail of it, but I would like some glob al cost estimates. MA. J. ARNASON: Mr. Chairman, if we 're looking at a global number - and I am not sure whether this will help you, but we' ll try it on for size - our costs for the Northern Flood Agreement, that goes back a number of years, to Dec emb er, 1984, the total costs have been $21.7 million. That covers all of the various communities that are affected and under control of the Norther n Flood Agreement. We can further break down into treaty groups off that totaL There was 20.2 million, and non-Treaty groups, 1.5 million.

That's a global figure, if that's what you are looking for. MA. H. ENNS: 1.2 non-Treaty? MR. J. ARNASON: 1.5 non-Treaty, and 20.2 Treaty. MR. H. ENNS: Cer tainly the Treaty group would all be signators to the Northern Flood Agreement . MR. J. ARNASON: Ye s, they would be. MR. H. ENNS: Is it the belief that as far as individual claims are concerned, having dealt with 1,256 out of the 1,398 who have been formerly registered, where are we at?

Are we anticipating another 1 ,000 claims next year, or are we resolving the individual claims, lea ving aside the bigger issues yet to be decided upon by Band or under the Northern Flood Agreement? MA. C. GOODWIN: Mr. Chairman , if the bigger issues are sett led , then the numbe r of claims will drop very significantly. MR. H. ENNS: Mr.

Chairman, during the course of the year, we have heard different figures discussed in the media, both by repr es enta tives of the Indian commun ities and, I may be mistaken , I thought a very substant ial offer was made by Ma nitoba Hyd ro representatives to settle with a particular group. I appreciate Manitoba Hydro is in a negotiating position

Thursday, 6 June, 1985 with respect to these outgoing unre solved issues, and don't wish to jeopardize Manitoba Hydro's negotiating position, but I would assume we are still talking very substantial sums of money, at least in the range of what Manitoba Hydro has already paid? MR. C. GOODWIN: Yes, that is correct. Offers to the five Indian Bands, which are the signatories of the Northern Flood Agreement, total $31 million. •· H. ENN S: Pardon me. The claims total $3 1 million. •· C. GOODWIN: No , the offer for a one-time total settlement of the majority of the arbitration claims. MA. H.

ENNS: As of today that offer has not been accep ted , it is still bei ng nego tiated ? •· C. GOODWIN: That is correct. MR. H. ENNS: I wonder, Mr. Chairman, if we have any indication of how much of the $20.2 and $1 .5 million tha t has been paid out by Ma nitoba Hydro to compensate for the disturbance in these communities and individuals as a re sult of Hydro dev elopment. Is there, agai n, a general kind of br eakdo wn as to percentage of terms or actual dolla rs that went into what I would call community assets, such as better commun ity halls or skating rinks, as compared to ind ividual com pensa tion?

And I have th ree area s directed toward the difficulties that resulted in terms of the resource , the chairman said I think the Hydro understands my ques tions. IIR. C. GOODWIN: Mr. Chairman, it is perhaps difficult to know how some of the money would be used . The compensat ion payments that we have made have been on the basis of the damage that we feel has been suffered. I can give figures on that. How it has been used we don't fully know.

There have been , of course, indirect benefits perhaps from reconstruct ion of water pump houses which were re quired because of changed water levels, re sulting in a better pump house than there was there before. Com pensation paym ents, basically to individuals of the five bands, and the associated non-treaty communities adjacent to the m total just over $800,000.00. IIR. H. ENNS: Would Manitoba Hydro have available to them population numbers that we are talking about? MR. C. GOODWIN: Cer tainly, but I don't have them immediate ly.

The four biggest commun ities would be about 2,000 people ea ch, so the total number of people is in the order of 8,000 to 9,000 people, I believe. MR. H. ENNS: We have made out roughly some $800,000 in individual compensa tion monies paid to some of the 8,000 or 9,000 people in the area, right? MR. C. GOODWIN: Mr . Ch airman, just qu ickly averaging that - $800,000 for 8,000 people, over 10 years, is about $10 per head per year; but that is perhaps not a very usefu l figure to you. MR. H. ENNS: In terms of what t described as . you talked about pumps and pump stations.

We also 118 built some fine skating rinks I understand. Manitotl Hydro has become . . . What have we done in th North under the broad heading of community asse1 - halls, mee ting halls, curling clubs? IIR. C. GOODWIN: I think that the only facility th1 we know of as being built as part of the compensatio package is the Cross Lake Arena, $3.7 million. MR. H. ENNS: In terms of the major re sourc disturbance which I take it is commercial fishing; appreciate the fur industry is equally involved, but ho1 does Manitoba Hydro attempt to resolve compensatin some of the losses?

I would assume that you wor closely with either the Department of Natural Resource� and their biologists, as well as with the Freshwater Fis Marketing Board, are they your main supplier that yo rely on for stats? MR. C. GOODWIN: Mr. Chairman, for statistic� cert ainly, the fish marke ting people, Department c Natural Resources, the biologists, both of the Provincil Govern ment and the Federal Freshwater Institute an' private consultants. Mr. Chairman, Mr .. Enns also asked if the fishing wa the major matter. I think perhaps fishing and trappin' are ess entially eq ual in value. MR. H.

ENNS: What portion of this money is bein utilized , or is there some prog ress in terms c reclamation of some of the damage done to the floode; basin, I'm thinking particularly of South Indian Lake Is there an ongoing kind of program, or is nature takin! its course? MR. C. GOODWIN: Mr. Chairman, essentially natur' is taking its course. The fishing or trapping resoum has been impacted . We are paying compensation t; the individuals impacted . We are under taking som programs of measurement, and governments have don' some research into finding ways to manage tha impacted resource.

In the case of So uthern Indian Lake, we have bough out the fishery entirely . We are leaving it to the Provincif Resource Managers to det ermine how best to manag; what's left of that resource. In the case of trapping, our offer for settlement witl the trappers deals with the impact to trapping which in almost all cases, is not a matter of a lack of fur o a problem with access to that fur. The major part o the package is money to cut trails and find better way: of ge tting to the traplines. That is the major impact 01 those trappers. MR. H.

ENNS: I appreciate that it's slightly more se the respon sibility of a line department like Natura Resources to monitor and to write the whole story abou what has transpired when an area such as the one we' re discussing, disturbances caused by the Churchil River Diversion in raising the waters of South lndia1 Lake. I'm wondering though, is Manitoba Hydro of it: own - of course, we keep a cer tain record of data an< costs and so forth - but are they, on their own, writin! a history and keep ing a diary of the events as the� have occurred in this whole arena for their own futurE

Thursday, 6 June, 1985 benefit, and indeed , from what I would continue to be, not a third party but certainly a very interested major player, the major player industr y, for its own records. I suppose what I'm gett ing at, I would like to, of course, live so long as to see th at the major environmental damage that has occurred in that area would be ameli orated in due process of time, as I know they have done in other basins.

I think it would simply be good busi ness on the part of Manitoba Hydro to have in its his tory book a reas onably accurate and detailed accounting of what transpir ed , the precise damage to the environ ment, the recovery of the environment, the steps that were taken to hasten that and help it along. Hopeful ly, some person ques tioning around this comm ittee in 10 or 15 or 30 years will be able to be told that the resource damage, that once occurred is no longe r there and that, inde ed it is quite possi ble to say that, in some way, Manitoba Hydro's activity has enhanced the area for one reason or another.

HON. W. PARASIUK: I believe that Hydro indeed probably has volumes on this whole issue and I think that's the proper thing to do. I might, jus t for the benefit of the mem ber who is the critic for this area, ind icate that for a few years there was a bit of frustration in the sense that the various groups impacted by Hydro devel opment only seemed to conc entrate or focus on wha t the y consider ed to be nega tiv e impacts; tha t's to be understood .

One of the things that I found qu ite encou raging over the course of the last nine months was the fact that, although various groups want to st ill deal with the compensation aspects related to negative impacts, they also see that Hydro de velopment offers potential for them in dev elop mental terms. One has to then start becoming more forward-thinking and looking at what are these dev elop ments? Are there pos sibi lities for us? Can we be part of that devel opmental process?

Although the gover nment is picking up those types of costs, as we have ind icated, I believe a beneficiary through that process is Hydro itself. I think Hydro itself has tried to, within cost parameters, see what can be done to ensure that th ere are dev elopm ental oppor tunities. That's the other side of the coin, I guess, when one looks at how one calculates costs, because a lot of these costs indeed , in a sense, can be kep t out of Hydro's side and built onto someone else and yet, at the same time, they are being incurred , in part, because of the Hydro dev elopment itself.

That's when you get into some of the difficulties of exactly keeping an account of costs and allocating them to the right grou p. You run into some grey areas there, and I certainly don't take away at all from what I said earlier when I agreed with the Minis ter that it's important to try and calculate those costs, keep a record of them , and try and allocate them fairly between the various parties. We have gone past 12: 30. lt would be the intention to resume next Tuesd ay. I guess we would be then raising both Hydro and MEA matters. Did you have any particular lines of thought?

There is no sense having 50 people ... MR. CHAIRMAN: Order, order. We have not set any date yet. The announcement, as said, is only up to this 119 date. lt will be duly announced by the House Leader in due course, I don't know whether Tuesday will be free or not. MR. G. FILMON: Can I just, for the assistance of the committee, suggest that I think We could go the entire next sess ion on Hydro st ill, and then we'll decide at that point whether we want to go on one, or either, or both. HON. W. PARASIUK: Sure. MR. CHAIRMAN: Committee rise.

BRIEF PRESENTED BUT NOT READ: Presentation to Standing CommiHee on Public Utilities and Natural Resources 1985 By: C.J. Goodwin Executive Mana ger Corpo rate Plan nin g Mani toba Hydro Northern Flood Agreement The Northern Flood Agr e ement is between the Government of Manitoba, Manitoba Hydro, the Northern Flood Committee Inc., which represents the Ind ian Bands of Nelson Ho use, Norway House, Cross Lake, Split Lake and York Factory and the Government of Canada.

The principal threat of the agreement is that Manitoba Hydro has developed the Lake Winnipeg Regulation and Churchill River Diversion Projects; these projects have mod ified the water reg ime; mod ification of the water regime has some adverse effects on the residents on the Reserves; the adverse effects of the projects mus t be compensated for fairly and equitably; and because the adverse effects were not completely known at the time the agreement was signed, and the possibility existed that disagreements could aris e as to the cause or extent of alleged adverse effects, there was a need for an Arbitrator to resolve disput es and to fashion jus t and appropriate remedies as necessary.

Compensation for claims under the NFA is available to individuals who are members of one of the five Indian Bands and to groups such as trappers asso ciations where the mem bersh ip is su bs tantially comprised of ind ividual Band mem bers. The sign ificant part of the agreement as it affects Manitoba Hydro is the right of th ese per sons and gr oups to com pensation from Manitoba Hydro. To March 31, 1985 Manitoba Hydro has settled 1, 256 of the 1, 398 claims which have been filed, generally by individuals.

One hundr ed and forty­ five claims of many different types have been subm itted to the Arbitrator, of which 127 involve Manitoba Hydro. Of those claims, 59 have been settled outside of arbitration; 41 are in a process of negotiation as part of a proposed "package set tlement;" four of the seven heard by the Arbitrator have been settled; one other claim has been discont inued , and 22 are outstanding.

Thursday, 6 June, 1985 A sett lement of a numb er of other claims for compensation is being negotiated at present. These are principally for fis hing and trapping losses. lt is evident that the Office of the Arbitrator is being used to a greater extent than was expected when the agreement was sig ned . In some cases, the filing of a claim with the Arbitrator is done as a matter of record prior to negotiations being undertaken by the parties. lt has been our experience that many claims can be settled without a hearing before the Arbitrator.

Such hearings are very expensive for the various parties and every effort is made to avoid them. Th ree arbitr ation decisions made in 19 83 were appealed to the Court of Appeal on matters of law. Firstly , a ruling by the Arbitrator that Manitoba Hydro must pay one- third of the Northern Flood Committee's cor e costs, th at is, salaries, office costs and administra tion, was success fully appealed. Manitoba Hydro pays its share of legal fees and disbur sements related to specific claims but not the core costs of the committee.

Second ly, a ruling by the Arbitrator that Manitoba Hydro mus t provide the Northern Flood Committee with a particular report and in general mus t produce "any reports or studies whet her identified or not, in all cases where ther e is a possi bility that the Claimants may in any way be adversely affected" was successfu lly appealed . Manitoba Hydro also appealed an award of costs to couns el for a claimant on the ground that the costs were unreason able, but this was uns uccessfu l. Only one new arbitration claim was filed during the year ende d March 31, 1985, and this was settled through negotiation.

The first Arbitrator appointed under the Northern Flood Agreemen t, His Honour Judge Patrick Ferg , served from 1980 to 19 84, and has resign ed . During the period when a succ essor Arbitr ator is being selected , Judge Ferg has agreed to endor se any order which is agreed between all parties and does not require hearings to take place. This allows the parties to formally conclude nego tiations by agreement approved through an Order of the Arbi trator.

Manitoba Hydro, the Manitoba Go vern ment and the Northern Flood Committee agreed upon a successor Arbitrator in 1984, but the agreement of the Gove rnment of Canada to this person has not yet been received. The other sign ificant articles in the agreement, as far as Manitoba Hydro is concerned , deal with the minimization of damage, the mitigation of the effects of damage, the impl ementation of the applica ble recom mendations of the Lake Winnipeg, Churchill and Nelson Rivers Study Board, the provision of information on operations and consulta tion on, and future planning of, its projects.

Negot iations toward an agreement were initiated in 1974 when the Northern Flood Committee was formed at Nelson Hous e. lt was evident that the Churchill River Diversion wou ld lead to flood ing of Ind ian Reserve land which Manitoba Hydro could not expropriate because title was held by Canada. This need for an agreement ex tended to the Gover nment of Canada and the Government of Manitoba as well as to Manitoba Hydro, and the agreement covers the provision by Manitoba of add itional land in exchange for the land affected by the projects in the amount of four acres for each acre affected .

Additional claus es in the agreement affecting 121) govern ment rather than Manitoba Hydro deal wi emplo yment, training, ec onomic dev elopment, tl pr ovi sion of services, enha ncement of reso ur, harvest ing, etc. With regard to employment and traini� Manitoba Hy dro's pr ojects have provided so� opportunities, and the construc tion of Limestone w of course, provide more opportunities for the reside� of the Reserves. lt is Manitoba Hydro polic y to try to negotia compensat ion on a "package" basis for fishing ar trapping damage claims which inv olv e long- ter payment for the damage or loss.

During the past ye: the · parties to the agreement have been negotiatir toward a com prehensiv e set tlement for long- ter compensa tion for the fiv e Bands. Negotiatiol commenced on the basis of compensation for dama! or loss to fishing or trapping operations, but later appeared advantageous to extend this.

Good progre has been made toward this "package sett lement ." Tl package would include: 1. ret roactive comp ensa tion for losses to commercial trapping, community traplines, do mestic fish ing and commercial fis hing; 2. compensa tion for present and future losses to the above; 3. fund to construct additional trails away from the affected lakes and streams for trapping, hunting and recreational access; 4. funds for each Band to un dertake maintenance of mitigation works, clearing of debris, marking safe ice trails, placing navigation aids, etc.; (These are activities which are being paid for each year by Manitoba Hydro.) 5. dev elopment funds as a source of capital for local community initiatives and for assistance to secure funding from government sources for resource dev elopment; 6. compensation for damage to hunting and recreation; 7. compensa tion for low water levels at Cross Lake in lieu of constructing a weir which would restore the lake to its pred iversion level; 8. compensa tion for pos sible future loss and damage to resources due to the planned utilization of higher water level at the proposed Wuskwatim genera ting sta tion; 9. engi neering services to a value of $250,000 where Manitoba Hydro can provide such services when re quir ed by a Band, e.g. concrete production.

Negotiations with each of the five Bands are different stages, but in general we consider that th• are progres sing at an adeq uate pace. In the past fiscal year (1 984-85) Manitoba Hydro expenses rela ting to mit igation in total, includir Nor thern Flood Ag re ement-rela ted matters, w; $700,000 charged to ongoing operations, and $5. 1• million which was capitalized because it pertains future operations. Recent expen ditures include $2 million for the fish ing compensa tion agreement Southern Ind ian Lake . and $1.1 ,·,1illion for the Cro Lake bridge. COMMIT1'EE ROSE AT: 12 :32 p.m.

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