In the mid 20th century, British Columbia was ruled by a self-educated hardware merchant turned politician. In small town business life and later in provincial politics, W.A.C. Bennett implemented decisions without much concern for philosophical or theoretical constraints. He had dreams and little patience if obstacles interfered with objectives.
Former Social Credit cabinet minister Rafe Mair wrote that Bennett knew “affordable and available power was critical both to residents and to attract competitive industry.” Until 1961, with a patchwork of private and municipal systems, many BC residents paid among the highest electrical rates in North America. Others had no reliable service at all. Bennett expropriated the largest private operator and formed BC Hydro, a public corporation.
In 2001, forty years later, residents and businesses enjoyed some of the lowest electrical rates anywhere. BC Hydro sold energy worth $7.9 billion, including $5.5 billion from export sales. Those numbers made the hearts of BC Liberal sponsors beat rapidly. However, it was not the value realized by taxpayers and BC Hydro customers that caused excitement, it was the prospect of privatizing those values.
The first step in 2002 was “Energy for our Future: A Plan for BC” that included creation of BC Transmission Corporation, setting the stage for generation and export of private power. However, the implosion and bankruptcy of Enron had investors worried about American energy markets.
The solution – arranged by BC Liberals – was for taxpayers and BC Hydro to carry all financial risks by long-term contracts to purchase and resell private power at inflation protected prices. This plan ensured strong profitability for independent power producers (IPPs). If free market prices fell or demand stagnated, private companies would continue profitably while BC Hydro absorbed all losses. This created instant wealth for the politically savvy promoters who made the arrangements and soon after flipped their deals for handsome gains.
The government and partisans it appointed to BC Hydro’s management compounded market assumption errors by assuming that innovation was unlikely. They locked into established technology and rising prices while the clean energy business was evolving and gaining cost saving economies.
In summary, when provincial leaders had opportunities to establish energy and financial strategies, they consistently made bad decisions. BC Hydro executives and Liberal advisors who argued for different choices were removed. Paul Nettleton, the MLA who opposed Liberal energy policies was suspended from the Government caucus. Even when misdirection was obvious to all, an altered course was not taken.
The most valued skill in politics is image making, not decision making. Once a commitment is established in public, political inertia discourages change. Admitting error and changing direction is seen as weakness.
So, after Premier Campbell’s administration chose the wrong course, Christy Clark’s crew accelerated down the same path. However, they had another motive, which was to deliver maximum value to their friends and sponsors. Some were gaining by selling power to BC Hydro above market price and others through consuming electricity at prices that were a fraction of the utility’s marginal cost. Additional groups aimed to profit from billions in profligate spending at BC Hydro. Unprecedented sums have been spent on systems to collect and distribute power from IPPs, to deliver power to northeast gas producers, on the billion dollar smart meter installations, underperforming IT systems and newly privatized engineering and technical services.
Since there is no profitable export market for electricity and there is no demand growth within BC, the growing supply of private power has required moderation of BC Hydro’s own production. This is demonstrated by the company’s source of supply reports. Here, I’ve charted six years before the Liberals gave preference to private producers and the six most recent years.
By itself, this chart is alarming but, if one considers BC Hydro’s massive capital spending, a picture emerges of a very unhealthy corporation. It has been irresponsible to have grown assets from $12 billion to $30 billion while production and sales declined. That assets are headed for $45 billion without real expectations of higher domestic consumption is scandalous. Perhaps, criminal.
In 2001, for each dollar of assets, BC Hydro had 63¢ in electricity sales. In 2016, the number fell to 17¢ even though average sale price of power rose by 68%.
BC Hydro sold more electricity to residential, commercial and industrial customers in 2005 than the utility did 11 years later in 2016. BC Hydro did that in 2005 with assets worth 40% of today’s value.
Shockingly, the company is embarked on a program of capital expenditure that will add about $15 billion to its list of assets.
By any measure, the management of BC Hydro has been a colossal failure: incompetence made worse by chicanery and flawed policy objectives.