In calendar year 2016, BC Hydro bought 14,180 GWh from Independent Power Producers (IPPs) and paid $1,244 million. Ten years before, in 2006, it bought 4,940 GWh of IPP electricity for $368 million, a difference of $876 million.
However, according to annual and quarterly reports, BC Hydro’s residential, commercial and business consumers bought less power in 2016 than in 2006.
Purchases from IPPs have increased steadily in both quantity and unit price while demand by BC customers has been flat for a dozen years.
BC Hydro’s sales of resulting surplus energy have been to oversupplied markets where prices have averaged about one-third of what Hydro has been paying private producers. This a perversion of free enterprise that Liberals claim to support.
In addition, BC’s public utility has behaved like a spendthrift and, despite no increase in demand, its assets grew from $13 billion in 2006 to $31.5 billion at December, 2016.
The mismanagement of BC Hydro is a financial scandal unprecedented in BC’s history. Unfortunately, the corporate media refuses to report these facts. Their loyalty is to not to citizens and taxpayers but to the vested interests that have hands firmly in our pockets.
In the early 1960s, Premier W.A.C. Bennett created a publicly owned utility – BC Hydro – because private operators refused to meet the province’s electrical needs. (Further details here.)
Power producers in the mid-twentieth century focused mainly on profitable services in the southwest but Bennett’s government had a province-wide vision. It was an audacious plan, but appropriate and successful. BC Hydro became indispensable, serving citizens and business enterprises throughout British Columbia.
However, the financial success of BC Hydro guaranteed it would be attacked by raiders aiming to convert public wealth to private. To be successful, they needed the cooperation of BC’s political rulers and, whether motivated by covert rewards or philosophical bent, BC Liberals cooperated fully. Ironically, among the facilitators is W.A.C. Bennett’s grandson (and Clark pal) BC Hydro Chair Brad Bennett.
According to BC Hydro records, electricity consumption by residential, commercial and industrial users was lower in 2016 than in 2005. (And 8% lower in the first half of fiscal year 2017 compared to the prior year.)
Yet, between 2005 and 2016, independent power producers more than doubled deliveries and the amounts paid by BC Hydro more than tripled. Surplus power has been dumped outside the province at an average, since 2005, of 28 cents on the dollar, not including distribution and sales costs.
The following, written by economist Erik Andersen and included here by permission, adds related information and commentary:
Economists have a term describing enterprises such as BC Hydro, ICBC and BC Ferries, etc. The term is “NATURAL MONOPOLY”.
IT IS IMPORTANT TO FOCUS ON THE WORD MONOPOLY AS IT IS A TYPE OF SOCIAL/FINANCIAL ARRANGEMENT THAT KNOWINGLY SHUTS OUT COMPETITION BECAUSE IT MAKES NO COST SENSE TO HAVE TWO OR MORE PROVIDERS.
A natural monopoly is of course a desirable investment to own so it is understandable that private investors want ownership or at least indirect ownership that comes from structuring supply contracts so as to get the public’s financial guarantees.
Economists use another term , economic rent, to describe income that is obtained simply from ownership, income that is not “earned” in the sense that no one works or takes capital risks. The level of income is not determined by competition in the global market place, or any place for that matter. A look at BC Hydro is a good way to see how it was done well and then not well.
Prior to about the beginning of the current century BC Hydro was by most measures a well managed and solvent public utility. The BC Utilities Commission successfully looked after the public interest by riding herd on the occasional departure of Hydro into speculative ventures that did not make sense economically and financially.
In the 80s, BCUC gave the development of Site C a thumbs down for the reason of insufficient need for the added power. BCUC left the tracks when it failed to step into Hydro’s involvement in the Enron fraud and has been a spectator agency ever since.
So what changed? Private investors lusted after ownership of one of North America’s last remaining large electricity producers and began a campaign to change the BC Hydro ownership. Mr. Campbell ran into big public opposition when the idea of selling off BC Hydro was first tried on. To get around public opposition he and some bright sparks framed a need for more BC located power sources. This was covered with a fig leaf piece of legislation.
All unprincipled insurance sales folks mostly want to talk about the benefits and talk about the insurance premiums is avoided or rushed through at the end. That is mostly what BC Hydro/BC Government did, not talking about the premium/future expenses. Everyone was given the chance to feel good because we were after all contracting the building green generation.
Well now, nearly 15 years later the bill for all this new privately owned generation capacity is at hand and it is choking off new businesses in the province because BC is no longer the least expensive jurisdiction to buy electricity in North America.
BC deliberately gave away its electricity cost edge that it previously enjoyed over other jurisdictions. We know that private BC citizens now pay 70% more than they paid in 2004. We also know they buy less, partially because of higher costs. Demand from BC only customers had peaked at about 52,000 GWh and has declined since. To fool the trusting, BC Hydro is now selling electricity into the Western grid at almost give away prices but labelling it “domestic” sales.
One test of the measure of vulnerability customers of this natural monopoly have when price increases happen, is to determine “demand elasticity” when prices of a good or service increase. (Inelastic is an economic term used to describe the situation in which the the quantity demanded or supplied of a good or service is unaffected when the price of that good or service changes.)
Using a traditional formula one looks to get a value for “N”. When the value of N equals zero, demand is perfectly inelastic; when N is above 1 it is elastic, more so as the value for N gets larger.
Across the years 2004 to 2016, in BC`s electricity marketplace, N was .19. At that number, demand elasticity might just as well be zero; realistically there is no elasticity what so ever.
The customer pays the price demanded because they have almost no options to do other wise, except if they are prepared to invest the thousands necessary to “go off the grid”, something more and more BC citizens are doing, mostly out of anger and self defence from their government.