The ECOreport’s radio broadcast Monday, March 28, 2016 on CKTZ: $50 Billion For Electricity BC Does Not Need
By Roy L Hales
British Columbia’s regulatory accounts have been receiving a lot of attention lately. Business Vancouver compared them to a shell game, in which expenses are deferred to the future so that the government can report “profits.” Vaughn Palmer writes that the province has “cumulative long-term obligations amount to $102 billion, with Hydro accounting for the bulk of them.” The item that really caught my eye was $50 billion for electricity BC does not need.
$50 Billion For Electricity BC Does Not Need
$53,817 million ($53.8 billion) according to an article Arthur Caldicott published in the Watershed Sentinel.
“(That’s) for power BC Hydro cannot possibly sell, and has no demand for,” he told me.1
“A huge portion of BC Hydro’s deferred debt, around $50-$55 billion, is in energy purchase agreements to independent power projects (IPP) and electricity usage has pretty much flatlined since about 2008 – when we had the big recession,” added Gwen Barlee, of the Wilderness Committee.2
“BC Hydro is trying to export energy, but the export market has declined dramatically. The average price for BC Hydro in 2005 was $85 a megawatt hour (Mwh). Flash forward to 2015 and it is less than half that, it is $40 Mwh. .. In the last call for power, BC Hydro was forced to pay IPPs $125 Mwh on average.”
She added that these IPPs were never intended to produce electricity for the local market. They were intended to supply California, but are primarily run of river and California’s renewable portfolio standard does not consider IPPS “green.” So they won’t buy electricty produced by our IPPS.
BC Hydro Must Make Long Term Plans
BC Hydro has a very different perspective, at least publicly, and emailed:3
“The Clean Energy Act requires BC Hydro to be self-sufficient. This means that BC Hydro must make long term plans so that we don’t need to rely on other jurisdictions for power at essential times, and our long term agreements with IPPs provide energy certainty.
“IPPs are a critical part of our plan to be self-sufficient. Independent power projects provide about 25% of British Columbia’s electricity and make up about 28% of our costs. BC Hydro would have a significant shortfall without this energy and capacity.”
Barlee responded, “When you have a BC Hydro spokesperson speaking about IPPs, they have to keep in mind the B.C. Government has given them marching orders and they are supposed to say good things about IPPS.”
“A Great Deal Of Energy That We Have No Need Of”
She cited a 2011 Vancouver SUN article in which one of BC Hydro’s former CEOS said they would be spending hundreds of millions of dollars a year on IPPS , with no value in return for ratepayers.
Retired economist Erik Anderson agreed, “We have purchased a great deal of energy that have no need of.”4
He traced the origins of BC Hydro’s monetary problems back a decade, when the government crafted a description of needs in the province. They covered every possible contingency, including drought conditions for years to come.
The problem with purchasing electricity for all these possible scenarios is that you have to pay for it. The amount collected from ratepayers has risen from $4 billion to almost $5 billion a year, though we are not using any more electricity, but this is not enough to pay off the rising debt.
” … A Cute Accounting Way …”
“B.C. Hydro is a Crown Corporation and they report their debt in a cute accounting way. The official debt for B,C, Hydro in 2005/06 was just under $6 billion. That is the official debt and use the word “debt” and “official” in a formal way. A year ago it was $13.2 billion. So that official debt increased by 128% over the last eleven years. In the course of those years the demand, the number of hours that BC Hydro sells to its customers didn’t increase hardly at all,” said Anderson.
In 2005 they sold 51,205 GWh. In 2015 they reported sales of 51,213 GWh.
He added, “On top of the debt that I just told you about,, there are the contractual obligations that BC Hydro entered into to fulfil the requirement to cover off on every contingency imaginable.”
“The reason they don’t show them as debt is these are conditional contracts. They have to deliver product (units of electricity) and so the auditor general does not count them as debt, because officially debt has nothing to do with performance, just the passage of time. So to avoid the appearance of debt, the $50 billion has been worked into contracts, and the only way you can see those numbers is to go into the annual statements of the Ministry of Finance and … in the Auditor General’s section, towards the end and under a note towards the statements, he indicates the total contractual obligations and contingencies.”
“It is sitting at just over a $100 billion dollars, but they don’t count as a formal debt and the province doesn’t count it as formal debt, but the credit rating agencies do.”
Exempted From Review By B.C. Utilities Commission
Adrian Dix, the BC Hydro Critic for the provincial New Democratic Party, described the issue as “complicated,” but added “the mistakes made on IPPS are being repeated on Site C.”5
“What the Government did, in 207, 2008 and 2009 … was that it bought too much power at a very high price from IPPs, or independent power producers. It forced B.C. Hydro to do this. It has exempted B.C. Hydro from the provisions of the legislation that would require review by the B.C. Utilities Commission (BCUC),” he said.
“What (the Liberal Government) said was the standard for what we need in terms of power is what is called the low water year. In other words the bad water year is the standard for self sufficiency. You have to buy power as if every year was a low water year. The result was disaster for the balance sheet of B.C.Hydro. We’ve lost, in the period we are in, approximately $1.4 billion, on these contracts.”
“That’s the reason that we have a 28% rate increase. The Liberal Government bought power we didn’t need, that benefited friends of the Liberal Government. We bought too much power and we bought it for years to come. Some of the contracts that BC Hydro signed with these IPPs guarantee that they will be paid for 35 years. So this is what they mean when they talk about $50 billion in contractual obligations,” said Dix.
“What happens when you don’t have domestic demand is that you have to buy power at a high cost and you have to sell it internationally , at a time when costs are dropping, at a very low cost. The result is that B.C. Hydro customers have lost money in the billions of dollars. ”
“This Liberal Government has decided with $53 billion of spending, going up to the 2040s. Those are the decisions that they have pushed on the province. Now fast forward to Site C ….”
The Case For Site C
According to the email from BC Hydro:
“Site C is not being built to meet the electricity needs of today. With its long construction period, Site C is being built to meet the needs of our province starting nearly a decade into the future.
“We need the capacity that comes from a large storage facility and that’s what Site C provides. It allows us to provide the firm power you need when you are also using intermittent power sources like wind and solar. When Site C is completed in 2024, it will serve British Columbians for generations by providing clean, reliable and cost-effective electricity for more than 100 years.
“It’s important to note that year-to-year demand fluctuates based on a variety of factors. Last year, we had a warmer than expected winter and have seen a drop in our industrial load. Our demand forecasts are still indicating we’ll see an increase of about 40 per cent over 20 years.”
“20 Years And A whole Lot Of Speculation”
“I don’t think it’s true in a number of ways. Our in province demand has flatlined at 50,000 GWh a year (since 2004). So, with all the build-out under contracts that they’ve done with private producers and the capacity we have on-line in the form of dams, it is no where near needed. If you can make a case it would probably be twenty years and a whole lot of speculation later,” said Anderson.
“It is pretty apparent that we are not going to need Site C for the first five years of its’ existence. It means that power we though we could sell in BC to meet domestic demand will have to be sold for whatever we can get for it on foreign markets. So not only has Site C got all the problems we know, and it is exempted from review, we are going to lose a ton of money. And there is only one way to deal with that, raise rates for everyone in British Columbia,” said Dix.
“So when they say to you this will create job, it is quite the opposite. Increasing costs on every business in BC and every residence will cost jobs.
A Strictly Political Agenda
“We are bringing Site C in to meet a strictly political agenda by the Government of British Columbia. They want to simply the debate into you are either for it or against it, and not have to justify whether we need the power or not,” said Dix.
“There is time to do a proper assessment of this project. The Government does’t want to do this. They want to create one of these political debates that you are seeing some evidence of in the United States: You are either for jobs, and therefore for Site C, or you are against jobs and against Site C.
“That is the debate they want. Forget the fact you can get far more jobs by producing this energy in another way.”
“It makes way for no sense for BC Hydro to get the energy it needs to serve the BC economy and ratepayers, than way more than it needs.”
“If you can only sell 20 litres of milk in your store, you wouldn’t buy 1,000 and say that is good business. Or you wouldn’t buy 80 and say that is good business – you’d be throwing out milk all the time.
“This is the situation we have with Site C and what further complicates it is that they are amortizing it over 70 years. I think most people listening to this would argue that the price of other forms of energy is going to drop considerably over the next 70 years, but BC rate payers are going to be locked in.”
Site C is a continuation of the kind of bad policies that resulted in BC having over $50 billion of contractual agreement for energy we do not need.
“You have a Government that made a mistake, and signed some 35 year contracts that were bad deals for the province and (as the details of these contracts are secret) won’t let us see that. And you have a government that, in effect, distanced itself from the consequences of its bad decisions – for it not to be a matter of public debate,” said Dix.
“It’s breathtaking to think of losses in the billions because of public policy decisions made by a Liberal Government which overturned the law to get away with it.”
What Can We Do About It?
Site C and the province’s $50 billion of are two closely related problems.
In regard to Site C, tell your local MLA this project should be reviewed by the B.C. Utilities Commission.
It may still be possible to get out of some of the IPP energy contracts B.C. Hydro signed, but we will not know that until the details are known.
This is not an endorsement for the NDP or GreenParty, but I agree with Adrian Dix that the present government of BC needs to be replaced.
Top Photo Credit: Vancouver wires that Wouldn’t survive an ice storm by Roland Tanglao via Flickr (CC BY SA, 2.0 License)