What’s really wrong is that BC Hydro has been spending billions on new capacity but producing less power. Demand has not grown since 2005 but purchases from IPPs, between FY 2005 and FY 2015, rose 108% from 6,444 GWh to 13,377. The purchasing is up again in 2016, by about 11%. The cost of IPP power was almost $500 million more in FY 2015 than in 2013.
When you’re determined to reward IPP friends but have too much power and no profitable export markets, you shut down your own low-cost operations:
One other route is to pay IPPs to do nothing.
BC Hydro Paying Millions to Independent Power Producers to Not Produce Power Due to Oversupply, Desmog Canada, April 5, 2016
Economist Erik Andersen drew my attention to substantial cost differences between BC Hydro projects:
The evidence in this article, and quoting BC Hydro, is that by expanding generation capacity at Mica Creek (legacy dam of course), production has been increased by 1,000 MWs to 2,805 MWs for an investment of CDN$714 million. That works out to an investment of $714,000 per MW of additional productivity.
Now compared that with the investment and productivity posted for Site C. For a $9 billion investment Site C is projected to produce about 4,200 MWs (about 17% more than the BCH engineers expected to get from the 1989 version of Site C) . If you do the numbers BC Hydro is investing $2,142,857 to get one MW. That is three times more borrowed money needed to get the same unit of electricity that has been obtained from expanding generation at an existing dam.
It seems the provincial government and BC Hydro don’t believe in the merits of going after the “low-hanging fruit” first. It is obvious spending big is an overriding passion in Victoria.
Another interesting item is that BC Hydro added 500 MW capacity with Revelstoke 5 in 2011, a smaller scale project with a cost of $250 million or $500,000 per MW. So Mica is 43% higher although general inflation between 2011 and 2015 was 6%.
BC Hydro’s operating statistics demonstrate little need for new power. Any normal demand growth could easily be met through a program of serious conservation. Indisputably, it would be less costly to increase efficiency of current users than to build new supply.
However, British Columbia’s utility is managed to foster huge capital expenditures. BC Hydro is like a person who has a car for every anticipated need but just can’t stop buying more cars because, well, that’s what they do and it makes people feel important to spend large sums of money.
The rapid growth in property, plant and equipment assets is partly explained by BC Hydro’s accounting policies. By design, the company is aggressive in capitalizing operating expenses. Instead of recognizing some expenses as they are incurred, the company adds them to asset values, which along with regulatory account deferrals, creates an appearance of profits that can be used to create phony surpluses in the provincial treasury.
Deferrals now amount to more than $6 billion of spending that will have to be recovered from future electricity rates. Industrial users pay less than the average cost of power and, along with rising costs of IPP power and reduced production at heritage facilities, a perfect storm is brewing to cripple BC Hydro. What lies ahead are huge rate increases for power users, particularly residential consumers.