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"In addition, the proposal implies that only 1% of our existing energy
comes from renewable resources, which is misleading and incorrect. The
Chairs of the Minnesota legislative committees have clearly stated that
under Minnesota definition of renewable energy. Therefore, any policy
that would limit our ability to contract with Manitoba Hydro would reduce
our use of renewable energy. The proposal clearly misstates the facts
and as such misleads shareholders."
Unfortunately, it is Xcel that is clearly misstating the facts and
misleading shareholders.
First, Xcel claims shareholders are talking about its existing supplies
when the shareholder proposal is clearly referring to the new regulations
and renewable definitions that are to be applied to future contracts
and even cites the state laws related to this (as described above).
The shareholder resolution states: "WHEREAS electric industry restructuring
has led several states to establish mandatory standards for renewable
energy content, and that that less than 1% of Xcel's existing energy
supply will qualify under the Renewable Energy Objectives established
by 2001 Minnesota law (Statutes 216B.1691)."
Secondly, the "Chairs of the Minnesota legislative committees" did
define 'renewable', but in the broader sense, not in relation to Manitoba
Hydro, and that was before MN statue 216B.1691 classified renewable
hydro as less than 60 MW.
Third, Xcel's contention that limits to Manitoba Hydro contracts would
limit their renewables simply makes no sense. Contracts with Manitoba
Hydro have no impact on contracts for wind, biomass or other renewables.
And as already proven above Manitoba Hydro does not meet the renewable
definition and Xcel itself recognizes this and list it separately in
their annual report.
2. Has the MPUC addressed the issue of Manitoba Hydro's impacts on
the PCN
The MPUC received 'comments' on all the companies involved in the
bidding process. The PCN comments identified a number of concerns with
Manitoba Hydro, particularly its ongoing failure to address environmental
and socioeconomic impacts of the projects, but no evidence was allowed
to be presented.
A closer review of the MPUC order following the hearing (as opposed
to the short excerpt in Xcel's opposition statement) shows that the
MPUC did not feel that they had to further investigate environmental
and socioeconomic impacts because a). a formal challenge to the MPUC
was premature at that time since no bid had been decided upon and no
contract completed, and b). the Northern Flood Agreement (NFA) was responsible
for addressing these issues (our whole point, of course, is that these
were not addressed).
If and when a contract between Xcel and Manitoba Hydro is actually
approved, a formal court challenge against MPUC and Xcel will be started,
and a contested case hearing in which full evidence can be presented
and full cross examination of witnesses allowed, will be sought by PCN.
Given that there is ample evidence that ongoing failure to honor legal
obligations under the NFA has resulted in ongoing environmental and
socioeconomic impacts, and given that Minnesota law requires consideration
and weighing of such impacts, there is every likelihood that the court
will ask the MPUC for a proper review of environmental and socioeconomic
impacts.
Minnesota law requires the MPUC to quantify and set a range of environmental
costs (and include other external factors such as socioeconomic cost),
to give preference to renewable energy, and to apply economic and social
cost even if the utility gets a bid from an outside supplier.
The actual language is:
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MN statue 216B.2422
"Subd. 3. Environmental costs. (a) The commission shall, to the extent
practicable, quantify and establish a range of environmental costs associated
with each method of electricity generation. A utility shall use the
values established by the commission in conjunction with other external
factors, including socioeconomic costs, when evaluating and selecting
resource options in all proceedings before the commission, including
resource plan and certificate of need proceedings."
and
"Subd. 4. Preference for renewable energy facility. The commission
shall not approve a new or refurbished nonrenewable energy facility
in a integrated resource plan or a certificate of need, pursuant to
section 216B.243, nor shall the commission allow rate recovery pursuant
to section 216B.16 for such a nonrenewable energy facility, unless that
utility has demonstrated that a renewable energy facility is not in
the public interest."
and
"Subd. 5. Bidding; exemption from certificate of need proceeding.
(a) A utility may select resources to meet its projected energy demand
through a bidding process approved or established by the commission.
A utility shall use the environmental costs estimates determined under
subdivision 3 in evaluating bids submitted in a process established
under this subdivision."
3. Is this just a Canadian issue?
There are two ways of looking at this.
a). The first is that regardless of where a company has its headquarters
- when its overseas operations or suppliers present legal, financial,
and reputational risk to the company - then it is the company's fiduciary
responsibility to deal with it.
Some of Xcel's legal liabilities are:
Xcel will face a court challenge that the Public Utilities Commission
did not consider environmental, socioeconomic and reliability, risks
and costs associated with its proposed Manitoba Hydro contracts.
Xcel may be legally liable, under economic torts of inducement to breach
contract and/or economic interference, for buying power from Manitoba
Hydro when Xcel knows, or ought to know, that power is being produced
in violation of Canadian treaty and Constitutional law.
Xcel may be joined as a defendant or sued in related actions for Manitoba
Hydro exports that are subject to a trade challenge under US anti-dumping
laws, and/or WTO subsidy laws for unfair subsidization (failure to internalize
environmental and socio-economic costs ) .
As for reputational risks - Xcel's purchases from Manitoba Hydro have
resulted in it becoming the target of consumer campaigns. This began
last year when the Quakers organized weekly protest outside of Xcel's
headquarters in Minneapolis. This has continued to expand to the point
that Xcel is, at this very moment, the target of a radio and newspaper
ad campaign in Minnesota. The text of the radio ad is below;
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"Our families don't want Canadian hydropower that devastates people
and the environment. Xcel Energy purchases approximately 40% of Manitoba
Hydro electricity and sells to its customers. Manitoba Hydro's dams
have destroyed millions of acres of fragile forest while causing erosion
to 3000 miles of shoreline. Dam projects have negatively affected the
people of Cross Lake Manitoba. Increased unemployment, alcoholism, and
suicide rates have resulted from damage caused by flooding. The families
of Cross Lake Manitoba pay the price and Minnesota families get the
benefits of electricity- Is that good for business - Is that good for
our families? Our families want to purchase clean renewable electricity
such as, wind, solar, and fuel cells: that's smart business, and that's
good for our families. Call Xcel Energy CEO Wayne Brunetti at 1-800-328-8226
and ask him to get Manitoba Hydro to clean up its mess and start providing
our families with clean renewable energy! Learn more by visiting JustEnergy.org.
-- Protecting people and the environment."
KCCO is considered the local Republican station and the one that people
tune in to listen to "Lake Woebegone." Meanwhile, the Sierra Club is
about a launch its own Xcel ad campaign in Colorado (Xcel's second main
area of operations). And while the environmental groups are more likely
to aggressively target Xcel, the religious community has been at the
forefront of the criticism aimed at Xcel, and that too is growing. This
is evidenced by the fact that the Interfaith Center on Corporate Responsibility
has identified Xcel as one of its prime campaigns in the category of
"environmental racism" and recently sent out an 'alert' to its entire
membership about the upcoming shareholder vote.
Another legal/financial liability, is that Manitoba Hydro's own legal
liabilities pose a risk to Xcel. Manitoba Hydro has already paid many
millions in damages. In a recent single lawsuit alone, it was ordered
to pay for an all-weather bridge ($22 million to construct) and for
the costs to PCN society and economy for failure to build this bridge
years ago as it was obligated to do (this latter amount is expected
to be about $40 million to $50 million). That is but one lawsuit. Manitoba
Hydro faces another 300+ lawsuits for its failure to implement the NFA.
These could total hundreds of millions of dollars in damages/ settlements
(potentially billions if the recent Quebec Hydro settlement is a precedent)
and that if it loses these lawsuits the costs will have to be passed
on customers like Xcel.
b). The second argument is Xcel's contention that the Northern Flood
Agreement (NFA) is the right way to deal with this issue.
In an ideal world this would be true. And all PCN is asking is that
the NFA be honored and implemented as intended. Yet the crux of this
issue is that the NFA has not been implemented.
Evidence of failure to implement the NFA includes the significant lawsuits
already won by PCN under the NFA, including one in which the court found
Manitoba Hydro liable for death, and another in which the court of appeal
found Hydro liable for significant accumulating social and economic
costs of PCN for serious delay in building an all-weather road. PCN
has a number of community-wide lawsuits (akin to class action suits)
outstanding, including for liability for a suicide epidemic, loss of
employment of PCN citizens, and a $100 million lawsuit regarding contaminated
drinking water. In total, there are over 300 lawsuits outstanding. PCN
has won virtually all of them to date.
Further evidence of failure to implement the NFA and the perpetuation
of significant environmental and socioeconomic harm, may be found through
a number of authoritative sources such as the Report of Auditor General
of Canada, Report of Government of Canada, Department of Fisheries and
Oceans, Aboriginal Justice Inquiry, the Royal Commission on Aboriginal
Peoples, Cross Lake Environmental Impact Assessment Study, Commission
of Inquiry into Manitoba Hydro, and the recent Inter-Church Inquiry
into Northern Hydro Development which found in 2001 that the hydro project
constituted an "ongoing ecological, social and moral catastrophe". All
such official and quasi-judicial inquiries have heard much evidence
before rendering their findings.
4. What is the relationship between CEO Brunetti and the PCN?
The first paragraph of Xcel's opposition statement implies that they
are actively engaged in addressing this issue. Xcel CEO Wayne Brunetti
went to visit the PCN in July 2001. At that time, and then again when
he meet with shareholders in October 2001, Mr. Brunetti asked what the
PCN wants Xcel to do. Both times the PCN sent him detailed replies asking
the company to develop a set of energy purchasing 'standards' . The
first he did not answer, and the second he rejected.
Below is an excerpt from a letter sent just last week by the PCN representative
Tim Rudnicki to Xcel VP Dave Sparby on this very issue.
"April 1, 2002
Dear Mr. Sparby:
During our telephone conversation on Friday, March 29, 2002, you
raised several issues I would like to further discuss with you. For
instance, you said to me that Xcel Energy CEO and Chair Wayne Brunetti
"has a good working relationship with the Chief" of the Pimicikamak
Cree Nation (PCN) and that Xcel is working with PCN to resolve the issues
PCN has brought forward in regard to Manitoba Hydro.
With respect to Mr. Brunetti's working relationship with the Chief,
there have been no meetings or conversations between the Chief and Mr.
Brunetti since Mr. Brunetti's trip to Pimicikamak territory last July.
Further, there has been no correspondence between them except for the
letter the Chief sent to Mr. Brunetti last October. Can you clarify
for me what you meant by working relationship?
As for your statement that Xcel is working to resolve issues PCN
has brought forward regarding Manitoba Hydro, what is it that Xcel has
done to date in trying to address the issues and solutions presented
by PCN? I am aware that during Mr. Brunetti's visit to PCN last July,
and again when meeting with shareholders, he asked what PCN wants of
Xcel. Both times PCN provided Mr. Brunetti with detailed information
and, following a great deal of research, provided Xcel with a carefully
structured and phased standards solution. To date Xcel, through your
letters to and conversations with Kate Kempton, has rejected this solution
and all its components and steps. If there are efforts by Xcel beyond
this, please inform me so that I can more fully inform PCN.
Based on correspondence between you and Kate Kempton (lawyer for
PCN), PCN proposed that Xcel adopt and apply standards to the significant
amount of the Manitoba Hydro product Xcel is buying. These "environmental
and human rights" standards closely parallel standards of the Federal
Energy Regulatory Commission and other state and federal right-to-know
laws that address environmental and human rights issues. They are designed
to protect both PCN and Xcel, and its shareholders and consumers, against
what are to date unassessed, unmeasured and unaddressed risks as well
as the costs and harms that occur when those risks are realized through
an economic, environmental, legal or other event."
As can be seen, Xcel and PCN have vastly different impressions of how
their relationship is progressing. It is correct that Xcel proposed
some undefined assistance with small biomass projects, and later proposed
a 'stakeholders' group - although the group had no set goals or format,
and was comprised of several organizations that PCN is already facing
in legal challenges.
And on a different but related topic (in terms of 'good faith' dialogues),
I personally called Xcel VP Dave Sparby and Corp Sec. Cathy Hart around
Xmas and offered to withdraw the resolution if they gave us anything
concrete to work with. I even asked them when their proxy printing deadline
was so I knew what timeframe we were working with and could have a deal
done before they went to print. They politely said 'we'll see' and never
got back to me.
5. Is Manitoba Hydro is a reliable source of energy?
Xcel's opposition statement refers to the reliability of Manitoba Hydro
and that if the proposal is adopted it may be "possibly endangering
reliability for our customers."
Included below is part of a study by McCullough Research that identifies
some key reliability risk posed by Manitoba Hydro to Xcel.
C. Reliability and Security
- Xcel Itself Seems Concerned About Manitoba Hydro Reliability For
the last two years, Xcel has been attempting to negotiate a power
purchase agreement with Manitoba Hydro, but has been unable to finalize
the agreement. In explaining this unanticipated delay, Xcel has indicated
"[n]egotiations have been slow" due to the "type of product being
provided", and the "operating risk of Manitoba Hydro's system" and
that there are "significant risks and issues" associated with these
negotiations.[1]
- The California Energy Crisis Provides Important Lessons About Reliability
Risks
The recent crisis in California's electricity markets raises significant
questions about the reliability of out-of-state contracts. When
California entered the crisis, its system operator routinely interrupted
scheduled contracts (where California was to supply electricity
to other markets) on an emergency basis. With emergencies announced
almost continuously from December 2000 through March 2001, these
interruptions effectively gutted long term contracts between California
and the Pacific Northwest. No financial recovery for such interruptions
has taken place because recovery requires approval by the federal
judge overseeing the bankruptcy of Pacific Gas and Electric -- approval
which has not been forthcoming.
The situation in the upper Midwest has some worrisome parallels
with that in California. MAPP (Mid-Continent Area Power Pool, the
electricity reliability council that includes Minnesota and Manitoba)
has recently adopted an Regional Transmission Organization based
in large part on the California model (which may be highly problematic).
Manitoba Hydro's relationship with Xcel is complex and counter-intuitive.
Manitoba essentially guarantees its exports to Minnesota through
contracts, but part of that guarantee relates to the fact that Minnesota
is supposed to sell power to Manitoba in times of drought or other
emergency situations in Manitoba. There are two problems with this.
First, because of the weather and geographic proximity between Manitoba
and Minnesota, there may well be a true energy shortage in both
areas at the same time. That means that it would be very difficult
for Manitoba to deliver on its guarantees to Minnesota under a contract
that provided that in such times Minnesota would deliver power to
Manitoba. Second, it seems that Manitoba Hydro intends to rely on
the spot market (outside of contracts) to get power in these situations
from Xcel (and others). This seems a faulty assumption at best.
If the worst were to happen, as it did in regard to California,
then Manitoba Hydro may not be able to buy from Minnesota utilities
on any market, and Manitoba may just breach contracts, as happened
in California.
- Reliability and Security Risks With Manitoba Hydro
The information above is indicative of major underlying issues.
There are five major factors that result in Manitoba Hydro being
a serious risk to reliability and security:
- a. Unreliable energy (reservoirs not large enough, making the
system vulnerable to drought)
- b. Manitoba Hydro misrepresents by counting as part of its reservoir
system many reservoirs that are not in its territory or under
its control
- c. Manitoba Hydro requires long transmission lines to get its
product to markets, and these are more vulnerable to attacks from
weather and terrorism
- d. Manitoba Hydro's existing projects have never been subject
to any real environmental or socioeconomic assessment, and this
lack of knowledge increases uncertainly and risk for purchasers
like Xcel.
- e. Manitoba Hydro has a history of secrecy and management and
litigation problems.
a. Unreliable Reservoirs (Storage Tanks)
Manitoba Hydro is not a reliable source of energy because the manner
in which its projects were built, and on which it continues to rely,
is fundamentally flawed. The largest reservoir, Lake Winnipeg, an
enormous natural water body (9,417 square miles or 24,390 square
kilometers), is limited to only four feet of variation due to political
concerns (especially in regard to property values in cottage country
along the lake). South Indian Lake, the second reservoir, is "too
small" to meet the export and other commitments entered into by
Manitoba Hydro. Moreover, these problems have been known for a long
time.
Manitoba Hydro's reserves have often reached dangerously low levels
(in one case had all else been equal, this would have resulted in
a major power outage in the US Midwest). In its internal planning,
Manitoba Hydro assumes that it can rely upon power imports from
the United States, in times of low reserve levels in Manitoba. This
calls into question the reliability of export contracts and Canadian
domestic supply.
b. Half of "Manitoba Hydro's" Reservoirs Are Not its Own
Manitoba Hydro counts reservoirs as if part of its own system even
when they are under the control of other provinces and the US Corps
of Engineers. This includes reservoirs in Saskatchewan (Reindeer,
Gardiner), Alberta (Brazeau, Abraham), and Ontario (Lac Seul, Lake
of the Woods). In total, about 46% of what Manitoba Hydro calls
its own reservoirs, are not its reservoirs at all. Thus Manitoba
Hydro cannot guarantee power from what it doesn't control. Manitoba
Hydro's representation regarding the "firmness" of its supply could
be considered deceptive.
c. Transmission Lines
Another major reliability concern for hydropower imports from Manitoba
relates to transmission. Such imports depend upon a highly (and
perhaps uniquely) vulnerable transmission system. There are a number
of characteristics that individually and collectively entail substantial
risks.
The distance involved in moving electricity to load centers in
Minnesota is very large, on the order of 1000 miles, the rough equivalent
of shipping electricity to Minneapolis from Texas or New York. There
are only a few transmission lines connecting northern Manitoba and
Minnesota, providing very limited redundancy and grave exposure
to simultaneous outages.[2] These lines are mostly in very remote
northern areas and are subject to extreme weather conditions (especially
in winter), as well as electromagnetic storms.[3] Manitoba Hydro
has only a small amount of generation in southern Manitoba close
to its provincial demand centers and US export markets.
The transmission system within Minnesota is heavily loaded, and
there are currently constraints to bringing in additional power
via North Dakota. The current transmission capability from Manitoba
to Minnesota is already fully used, so any major expansion in imports
would require a new transmission line to carry the power.
Even if it were the case that the risks were acceptable in relation
to Minnesota's traditional reliance on hydropower imports, these
risks should now be carefully reconsidered in the light of proposals
to further increase Minnesota's imports from Manitoba.
Finally, this constellation of risks, which was already problematic,
also warrants reconsideration in the aftermath of September 11.
At a time when all infrastructure systems serving the US are being
scrutinized with respect to their vulnerability to sabotage and
other actions intended to cause disruption, the special risks associated
with hydropower imports should be carefully considered.
Hydropower imports from Manitoba are more transmission-intensive
than any of the state's other major electricity supply options.
In contrast to the 1000-mile transmission path needed for hydro,
in-state energy efficiency and distributed generation can actually
reduce the need for transmission and help to relieve existing bottlenecks.
New wind would require some new transmission, but these requirements
would not be as great as those to import electricity from northern
Manitoba.[4]
c. Risk of Lack of Information
Another risk factor stems from Manitoba Hydro's existing hydro
system having never been subjected to any real environmental or
socioeconomic assessment. Manitoba Hydro did not even consult, or
seek the consent of, PCN and the other four affected Cree Nations
when it first built the northern Manitoba hydro projects in the
1960s and 1970s. And while there are many older hydro projects elsewhere
in North America whose construction predates current laws requiring
prior assessment, many such projects in the US (and in parts of
Canada) have now been subjected to major reevaluations to determine
hydro system impacts and implement actions to lessen adverse effects.
By contrast, Manitoba Hydro continues to resist any such reevaluation.
e. History of Manitoba Hydro Secrecy and Mismanagement
More generally, contrary to the well-established laws and practices
under which other North American utilities operate, Manitoba Hydro
is an anomaly in that it has a long history of keeping vital information
secret from its customers and ratepayers.
Manitoba Hydro has consistently refused to meet the demands of
the Freedom of Information Act and the Manitoba Ombudsman to release
information about its plans and operations.
Manitoba Hydro presented an internally inconsistent picture about
the Brandon natural gas plant. To US regulators it said that the
purpose of this plant was not for export; to Canadian markets it
said that its purpose was for export. It is believed the former
statement was proffered in order to avoid US environmental review
that would apply to operations close to the US border (like Brandon).
Manitoba Hydro presented false or contradictory information about
plans to retrofit the Selkirk plant.
Failure to release vital information, and misrepresentation of
other information, prevents consumers in Canada and the US, and
taxpayers, from being able to make accurate analyses and informed
judgments about the environmental and human rights consequences
of, and the economic viability and reliability of, this power.
Finally, Manitoba Hydro has a history of poor engineering decisions
cloaked within secretive and sometimes deceptive practices. A 1979
investigation revealed that the hydro project was not viable as
built, as Manitoba was too flat (thus, too much flooding would be
required) in order to produce the level of energy to which Manitoba
Hydro had already committed. A proposed deal between Manitoba Hydro
and its potential customer, Ontario Hydro, ended in litigation,
with the deal being cancelled. In 1994, several years after this
cancellation, one of the Manitoba cabinet ministers admitted that
he had been leaking correct planning data to opposition members
of parliament in an attempt to overcome the deceptive announcements
at Manitoba Hydro.
Taken together, there is more than ample reason to be concerned
about the situation at Manitoba Hydro, and the risks to which Minnesota
could be exposed. The recent bankruptcy of Enron is a strong reminder
that secrecy and deception can help give rise to enormous and very
costly problems.
[1] As part of its 1999 All Source Bid process, Xcel selected Manitoba
Hydro to provide 500 MW of capacity and energy. On January 21, 2001,
it filed with the Minnesota Public Utilities Commission the Petition
of Northern States Power d/b/a Xcel Energy for a Variance from the Order
Approving the Final Selection Report, wherein (Attachment A at 3) it
provided the quoted information as to why negotiations with Manitoba
Hydro could not be concluded in a timely fashion.
2] 75% of the electricity from the Churchill-Nelson hydro projects
in northern Manitoba is delivered to the Winnipeg area via two DC lines
that share the same right of way for over 500 miles. Manitoba Hydro
acknowledges that the existing configuration is risky, since single
events (such as a forest fire or an ice storm) could knock out both
of these lines. The utility has investigated constructing another DC
line through a remote area far separated from the existing lines, but
has been unwilling to bear the cost of this transmission system upgrading
absent major new hydro projects and export sales (www.gov.mb.ca/leg-asmb/hansard/4th-36th/punr_001/punr_001.html).
There are only three major transmission lines connecting Manitoba and
the US. Another 230 kV line linking Manitoba and North Dakota has been
proposed and is currently in the permitting process. [3] In January
1998, a severe ice storm left many parts of Quebec and Ontario without
power for periods up to several weeks. [4] Depending upon size and location,
new gas-fired generation could reduce or increase the need for transmission,
but any increment would likely be modest since there is substantial
capability to site gas plants so as to facilitate transmission.
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