Manitoba Hydro says it will review plans to place an electrical substation inside three Exchange District buildings.

Manitoba Hydro appears to be putting the brakes on a plan to purchase and gut three buildings in Winnipeg's historic Exchange District and use the buildings' shells to expand a nearby high-voltage electrical substation.

In a news release Thursday, the Crown-owned utility said it is reviewing its plan and quoted CEO Bob Brennan as saying "the corporation respects community standards and will work with interested groups to find a proposal that will work for all parties."

CBC News broke the story that the utility planned to purchase the Allen Building, Daylite Building, and Glengarry Block — three adjoining, six-storey buildings on McDermot Avenue that are on the city's buildings conservation list — to house the expansion of an electrical substation.

Hydro said it would save the façades of the three properties but wanted them because the utility needs the space to augment power capacity in the city's downtown.

Local residents and some civic politicians were quick to condemn the idea, saying it would create a dead zone in the Exchange District, which has come alive in recent years with art galleries, restaurants and savvy young businesses.

It is also an area where many people have chosen to live.

Hydro spokesman Glenn Schneider told CBC News it may be possible to convert some of the buildings into retail or office space.

But to construct a new substation in another location would be too costly, he said Thursday.

"There's no point in building condominiums and new retail in the downtown area if we can't service them with electricity," Schneider said.

"So it's a very real problem that we have to deal with. We're taking a step back from this particular proposal and saying let's take a step back and look at all the options that are available to us and see if this is still the best way to go forward."

Schneider said the solution is not as easy as simply choosing another location for the substation because the existing substation in need of an upgrade is adjacent to the three McDermot Avenue buildings.

"We can't just take a spot two blocks away, which is a parking lot or that's vacant land right now because all of the underground feeders feed into that, the local feeders feed into that spot on King Street."

The three buildings in question are owned by an Edmonton company, Transglobe Holdings Ltd, which bought them last year for $1.3 million.

Bill Thiessen, who has developed and sold several condominium projects in the area, said he was taken aback by Hydro's idea when he heard about it this week.

"These buildings should be an alive, living part of our neighbourhood," he said. "And the fact that they would cease to exist perpetually, forever, is kind of blowing my mind. If people don't know the Exchange … this is not the peripheral, out in the boondocks. This is right in the middle. I'm just stunned."

The Allen Building, at 288 McDermot, also known as the Wilson Building, was built in 1905. The adjacent Daylight Building was built in 1904 and the neighbouring Glengarry Block was built in 1910. The latter two buildings were built by turn-of-the-century railway baron John Duncan McArthur.

Winnipeg's Exchange encompasses about 20 city blocks in downtown Winnipeg, just north of the famed intersection of Portage and Main. The area gets its name from the Winnipeg Grain Exchange, the centre of the grain industry in Canada, which developed in Winnipeg between 1881-1918.