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.
Categories: BC Hydro, Independent Power Producers (IPP)
Luckily, we have the Vancouver Sun digging really, really, no stone unturned deep to get us the critical facts on BC Hydro, as evidenced by this hard-hitting interview a few months ago.
No wonder Jessica can’t keep a straight face.
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I’m no accountant, so I rely heavily on your expertise, Norm. No doubt, there have been great costs in stringing thousands of kilometres of power lines to collect relatively minor units of power from remote IPP sites.
As dams go, the “possible” Site C wouldn’t be all that powerful, at 5100 GW/hours per year (450,000 homes worth.) Yet, take a look at Innergex’s six IPPs in the northern Harrison Lake area, totalling 594 GW/hours per year… about 1/10th of even Site C’s output — and each of these needs a BC Hydro power line to go out and collect the unneeded power. All this, for ~52,000 homes worth of unneeded power (if the power loss from all those lines doesn’t dispate it).
The one IPP in the area I don’t begrudge is the one at Douglas, which powers a small native community which previously only had diesel generators. They can keep their power, though — or sell the excess at market price.
Meanwhile, blogger Robin Trethewey, who lives off-grid, north of Harrison Lake, says, “Another IPP at Stokke Creek is directly across the lake, ready to go, when this site is completed, a submarine cable layed across the lake bottom from Stokke will connect to the grid here.”
Presumably, BC Hydro has paid for the underwater cable there. It’s incredibly inefficient.
Trethewey’s blog at: https://hotspringlodge.blogspot.ca/2014/09/trethewey-creek-power-project-inspection.html (He has no ownership in the IPP. His family name is his only connection.)
There are a few difficulties in following power capabilities of dams. BC Hydro reports generating capacity and annual totals of power produced. When they add turbines to a dam, they increase capacity but there are other limiting factors. One is water flow. Revelstoke with six turbines instead of four will be able to produce 50% more power at one moment but the dam will not necessarily produce 50% more power over a year. The water flow may be inadequate. However, meeting peak demand is one of the utility’s tasks.
In 2008, Mica had capacity of 1,805 MWh and produced 8,562 GWh. In 2015, Mica had capacity of 2,257 GWh and produced 6,028 GWh. In 2016, Mica capacity was reported at 2,747 MWh with production shown as 9,451 GWh.
To give a more accurate picture of production, the chart above compares 3 year long segments. Difference in one year to another year might be explained by unusual factors but in the chart we can compare two separate 6 year periods.
With respect to who pays for transmission line to feed the grid, we cannot know since BC Hydro won’t reveal information specific. In general, the producer pays to get power to the point of connection but where that is not predictable. For example, when AltaGas built its northwest hydro facilities, BC Hydro spent almost a billion dollars to build a transmission line that allows AltaGas to deliver power. AltaGas and Imperial Metals’ Red Chris mine are the two big beneficiaries of that massive spend. Imperial Metals doesn’t even pay their BC Hydro charges; they’re able to defer under the Liberals’ aid to billionaires program.
Not to mention too that Imperial Metals was involved in the construction of some of that power line and sold it to BC Hydro for $52million. Wonder what that section actually cost?
Norm says: “Once a commitment is established in public, political inertia discourages change.”
Wise words. Time to get the ball rolling in a different direction.
Alberta is fighting back against the insiders.
The Termination of Power Purchase Arrangements in Alberta: What is the Legal Position and What are the Implications of Termination? – by Nigel Bankes, ABlawg.ca
More than meets the eye in power battle – by Sheldon Fulton, Calgary Herald
Early this coming week in the commonsensecanadian.ca i’m publishing an article on this mess on the BC Hydro tragedy for which I received considerablr help from Norm Farrell on the technical end and from award winning filmmaker Damien Gillis concerning IPPS at the time men of science and politics were singing their praises for “clean, green” power without getting off their asses and seeing for themselves what they truly were.
The unbelievable destruction of BC Hydro starting the moment Gordon Campbell became premier and continuing full blast today under Clark, must be the #1 issue of the 2017 election which is something when you consider what they’ve done to the provincial debt. A wise government over time can tackle if not elminate the Debt but the jewel of our Crown Assets, our legacy of cheap and available power, bought at a high one time environmental cost, is. In 25 years, beyond redemption.
That’s www,commonsensecanadian,ca tomorrow or Tuesday.
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I remember Paul Nettleton became persona non grata in the Liberal caucus for saying Campbell was trying to destroy BC Hydro.
What you describe about “Energy for Our Future: a Plan for BC” amounts to a breach of public trust. “…incompetence made worse by chicanery and flawed policy objectives” sounds like an out under prosecution.
The centre of BC Liberal policy is the neo-right notion that all public enterprises, Crown Corps, Crown Land (much of which in BC exists under joint-sovereignty between the Crown and First Nations), social services like hospitals and schools and, according to former head of the Fraser Institute Michael Walker, even the air we breathe, should be privatized. It’s only because the people generally disapprove of this policy that it has been affected as far as it has—a considerable way in BC—by stealth after a few bold, initial sales of public assets that have turned out to be fraudulent (the corrupt sale of BC Rail to an extent we might never fully know because of the corruption of the corruption trial) and which compelled the BC Liberal agents of these unapproved privatizations to double-down on stealth. In other words, breach of public trust, in spite of the seriousness of the offence, has become so inured in BC, the BC Liberals actually run on their prowess at doing it.
Gordon Campbell’s ouster was a big thing in this sad story: he was a highly intelligent and driven micro manager who constructed an insidious network of tentacles that touched every aspect of public administration in cleverly camouflaged ways in order to affect the neo-right agenda of destroying public enterprise and the public-sector labour unions employed by them. The “incompetence” of his replacement Christy Clark, who resorts to absurdity and incessant whopperism to compensate, has allowed even deeper, sinister breaches of public trust by more competent ministers who really run the government. While Christy’s perfectly content to be a cheerleader who thinks she’s a Premier, much is probably afoot under her more-or-less independent ministries. The neo-right agenda which was never approved of by the public has thus drilled straight down to the hot place that would shock even those who tacitly support these saboteurs of the public weal. For this reason, there is practically nothing the culprits will stop at to prevent being exposed by losing an election, Site-C being the prime example: a flagrant misappropriation of public funds to build an unnecessary dam solely to provide an election stage-prop for the flagging BC Liberals and bankrupt (the favoured neo-right technique) publicly owned BC Hydro at the same time.
There never was any way to sugar coat the destruction of one of our societies greatest and most beneficial public enterprises; it’s simply become more blatant as the ideological agenda has devolved to crude culpability.
The big question is why hasn’t this been stopped?
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July 31, 2016 at 8:25 am
I remember Paul Nettleton became persona non grata in the Liberal caucus for saying Campbell was trying to destroy BC Hydro.
Do you mean this?
Paul Nettleton on BC Hydro
November 13, 2002
“I have reached the conclusion that these are only the opening moves in a strategy intended to completely dismantle the crown corporation.”
“In the final analysis, I think we have just become infected with the same sort of ideological blindness that once plagued the NDP, albeit on the opposite end of the ideological spectrum. It is our very commitment to the principle of the free market that has been distorting our view of the facts. Those facts do not support privatization. When it comes to hydro, the standard line about more competition being good for the consumer just does not hold water.”
Nettleton was naive. There was no commitment to the principle of the free market. The intent was quite the opposite, as I explained in the article.
Had IPPs been subject to market forces, we would not have paid them $1.3 billion in fiscal year 2016. Nor would we paying even more in the years ahead. The 3¢ a KWh that BC Hydro gets when it exports surplus power is the free market. The prices they guarantee to IPPs – over 15¢ a KWh in some cases but 10¢ on average – is the not-free market. (Anyone wonder why the Fraser Institute does not complain about this?)
In fact, Liberals cared nothing about free markets except to use it to gain knee-jerk support of the neoliberal crowd.
A 2013 draft report for the California Energy Commission entitled “Including British Columbia Run-Of-River Facilities In The California Renewables Portfolio Standard”
http://www.energy.ca.gov/2013publications/CEC-300-2013-011/CEC-300-2013-011-SD.pdf contains the following statement on page 2:
“British Columbia’s electrical utility, BC Hydro, updated its evaluation of the potential for exporting electricity in its 2012 Integrated Resource Plan.3 The Integrated Resource Plan describes several major factors that limit the potential for electricity export, including a significant cost disadvantage for Canadian resources as compared to U.S. resources, competition from other renewable resource producers within the Western Interconnection, and limitations imposed by Senate Bill 1X‐2 as described above. Additionally, BC Hydro would need transmission capacity to export BC hydroelectricity and the Integrated Resource Plan states that current transmission lines are fully subscribed. Building new transmission capacity or increasing the utilization of existing capacity in the U.S. could allow BC Hydro to demonstrate direct interconnection to a CBA. However, the costs of constructing this transmission are estimated to be $4 billion to $6 billion.
BC Hydro has concluded that there are no suitable opportunities for the export of electricity from clean or renewable British Columbia resources for the foreseeable future.
In the unlikely case where such a project applies for RPS eligibility and procurement of its generation is classified as portfolio content categories 2 or 3, it would still have to meet California’s stringent environmental laws relating to new hydroelectric generating facilities located outside the United States, as discussed in detail in Appendix A. “
So where is the market for Site C production and how is it going to be delivered?
I believe the Clark administration is not the least bit concerned about marketing surplus power. Their interest has been in providing profit opportunities to a small group of supporters. Those include the many heavy industry consumers and power producers on their list of corporate donors and the contractors who are collecting billions building new transmission and generating capacity, despite no demand growth.
One Liberal supporter questioned my argument that BC Hydro was selling power to industry for less than marginal cost. He argued that since BC Hydro, through take-or-pay contracts, had bought electricity that wasn’t being delivered to the grid, they could start taking that extra power and not pay anything more. Therefore the marginal cost of power was zero so giving it to mining companies or other industries created no losses at all and was actually good business.
That, I’m afraid, is the kind of thinking that will lead us to further financial catastrophe. It is a bad joke when Liberals suggest they are the party best equipped to conduct public business. The apparent incompetence is so consistent that one must assume that bad decisions are purposeful and corruption is at the root.
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just think of what could have been done with this money had it been directed towards education health, the children of this province
even Quebec eventually had an investigation who knows perhaps some day B.C.will have one. Just hope its in our live time. There would be nothing fner than seeing el gordo and photo op queen go to jail,
Good on ‘ya, Lalia! #SiteC is textbook control fraud: diversion public assets 4 private gain
kirk murphy over at Laila’s.
July 28, 2016 Press Release on IPP pricing reduction to contracts
Page 12 of 45
Staying on track Optimizing our energy resources.
We’re renewing contracts with independent power producers at prices less than what they are currently paid, recognizing that those producers have typically RECOVERED MOST OF THEIR CAPITAL COSTS over their original contract terms.
We’re reviewing the Standing Offer Program to reflect the declining cost of new power technology and to better meet system needs
Page 28 of 45
Energy Sales since 2001
F2015 and F2016 are not weather-adjusted!!!
NVG, I know you won’t be misled by spin.
They say the will renew contracts with IPPs at prices less than what they are currently paid. Yes, but first they will pay excessive amounts for as long as 60 years. It’s is like the leasing company offering to continue leasing the same car to you after receiving payments for five years that amount to far more than its original cost.
Maybe they can explain why they are buying more private power (30% increase in last two years) when demand has not increased, there is no profitable export market and they’ve invested $18 billion over 10 years in new assets owned by BC Hydro?
BC Hydro won’t reveal any detail and we cannot examine any one of the more than 100 IPP contracts that exist. I don’t discuss specific deals – some of those are truly egregious, paying upwards of 15¢ a KWh – and I deal with averages for the entire category. Using averages doesn’t reveal the worst aspects of the IPP program because some are very old purchase agreements that have been in place since the last century. They were much smarter contracts.
A very fine disclosure and it will only get worse. Well done Norman.
This must be, as I’ve said all along, the #1 election issue.
It is monstrous malfeasance likely amounting to the criminal. The evidence is there and people like Erik and Norman to explain it.
Time is short.
Someday someone will write a book. Maybe.
understand that the huge multinationals-crooked corrupt snc-lavalin-(trudeaus pet corporation)-acciona-(from spain)-samsung-tell the crooked corrupt bc govt what to do -i assume the federal govt also because under trudeau,s watch trudeau had to sign off on the federal permits to get site c started-the peace river is a federally regulated waterway-the migratory birds are federally regulated-(bc hydro has cut down 18-24 bald and golden eagle nests with federal approval)-the fisheries is federally regulated and crooked corrupt bc hydro has destroyed the fish habitat–trudeau is in this up to his ears–the crooked corrupt corporations are running bc and crooked corrupt john horgan takes his marching orders from them–no one will shut down site c while the billions of taxpayer dollars are flowing into these crooked corrupt corporate and political pockets c-19 or not-who cares about the local populations that might be infected and the aftermath-greed supercedes all–ranchers-farmers evicted from their homes-no one cares-the govt and bc hydro have promised toooo much money to all dividing and conquering all peoples as some fall to the money grab not realizing that once the money is gone and the peace river valley is destroyed along with the wildlife habitat there is nothing left—-the crooked corrupt site c dam on the peace river is the biggest swindle of public funds in bc history and all for crooked corrupt corporate and political greed—mark meiers-charlie lk bc
Welcome to the party 22mt! You’re a little bit late, but still on track.