Site C

Sunk costs

I once owned a car that my family had driven almost 400,000 km. The engine was becoming unreliable, down on power while dripping and burning oil. We enjoyed the car and didn’t want to replace it so I had the engine rebuilt at a cost more than $2,000.

A short while later, an inspection revealed the front suspension and steering components were badly worn and needed replacement. Reluctantly, I spent more money.

Within a few weeks, the engine began stalling frequently. Turned out the engine control module (the car’s computer) was failing intermittently and had to be replaced. Then, the alternator stopped charging and a wheel bearing rumbled loudly.

Having already put out around $3,000, I felt compelled to continue making repairs so that my expenditures were not lost.

I came to my senses and replaced the car and thereby avoided being a victim of the sunk cost fallacy, which is described at behavioraleconomics.com:

Individuals commit the sunk cost fallacy when they continue a behavior or endeavor as a result of previously invested resources (time, money or effort) (Arkes & Blumer, 1985). This fallacy, which is related to status quo bias, can also be viewed as bias resulting from an ongoing commitment. For example, individuals sometimes order too much food and then over-eat ‘just to get their money’s worth’. Similarly, a person may have a $20 ticket to a concert and then drive for hours through a blizzard, just because s/he feels that s/he has to attend due to having made the initial investment. If the costs outweigh the benefits, the extra costs incurred (inconvenience, time or even money) are held in a different mental account than the one associated with the ticket transaction (Thaler, 1999).

Regrettably, Premier John Horgan’s cabinet, concerned about the $2+ billion already spent on Site C, appears not to understand the concept. They have “status quo bias.”

Having made the wrong decision, no doubt influenced by Liberal holdovers in the civil service and BC Hydro management, it is not too late for NDP ministers to correct the chosen course.

There are many reasons to cancel Site C:

    • With the estimated cost of the project having advanced from $6 billion to $10.7 billion since 2010 (a $1.9 billion rise in last year alone), there is much uncertainty about Site C’s final cost, particularly since BC Hydro is now changing its design;
    • The Site C reservoir will increase production of green house gases;
    • Flooding more of the Peace River valley will accelerate decline of the province’s high quality farmland;
    • horganThe project impacts First Nations people negatively, which is contrary to principles of the United Nations Declaration on the Rights of Indigenous Peoples, implementation of which Government claimed to be a priority;
    • PowerBC, a campaign to reduce demand for electricity, was an NDP election promise and it remains viable;
    • Per capita use of electricity has declined sharply in the past dozen years, largely through technical efficiencies of lighting and small motors, a trend certain to continue, particularly as the cost of BC Hydro power rises;
    • Prices of alternative energy production has fallen dramatically, as noted by the American Wind Energy Association.

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By the way, all those people supposing that Site C power, which will cost between $100 and $125 per MWh, can be exported profitably should remember that Alberta’s latest tender for private power came in at $37 per MWh. This is a chart of the market price in the northwest USA. (The price spike was during illegal price manipulation by Enron and others.) With low-cost solar and wind power now a reality, there will be no worthwhile markets for BC’s newly produced, and high-cost, surplus electricity.

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Categories: Site C, Uncategorized

15 replies »

  1. Obviously wind power interferes minimally with agriculture. In fact, because farmers would be paid for use of their land, this sort of wind farm would strengthen the agriculture community.

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  2. There seems to be some Rule of Thumb John Horgan has forgotten regarding Site C.
    .
    #1. Your “first loss” is your best loss. (The exaggerated $4 Billion loss is not lost.. much of the expenditures went on roads and infrastructure – which was necessary upgrading for the town Fort Saint John.)

    #2. The Trend will continue until it stops … Dam downtrends will continue to spiral out of control while electricity profits will continue to downtrend due to newer technologies, conservation and efficiencies.

    #3 China has “No Loss” clauses in their contract. Nothing is permitted to interfere with their profits. Law Firms are guaranteed to be the biggest winners over the duration of the construction of Site C. Taxpayers will be the biggest losers.

    #4. Andrew Wilkinson was barely elected on the 5th ballot. Less than 30,000 Liberal members bothered to vote. The new Liberal leader supported has three Lossers:
    Gordon Campbell, Christy Clark and Site C.

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  3. The “sunk costs” fallacy is all too true. We also had a car and we also did the same thing, until fate would have it, dispatched it to a scrap yard after an embarrassing encounter with black ice. “Sunk cost” meant nothing to “book value” and the money spent, meant nothing.

    We did not make the mistake again!

    The NDP did the same with the “FastFerry” debacle and instead learning from their mistakes, are repeating them on a scale that beggars the mind.

    The NDP may do it for a third time, with another “FastFerry” style debacle,the, Broadway subway, which now costs over $3 billion and that for a Cambie St. cut-and-cover!

    Doing the same thing over again and expecting different results, has been said is a definition of insanity; Horgan and the NDP, proceeding with site C, can be easily described as “insane”.

    How many FastFerry” type fiasco’s the NDP must do before they will learn? Wasn’t one enough?

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  4. Mr. Horgan, I attended a couple of your “town halls” while you were out securing the vote in the last election…both occasions you said one of the reasons for getting out there was your son. He asked you “what are you gonna do about it?” in a conversation about the current government at the time (libs).
    Please, don’t make him ask “what the hell were you thinking?!”. This is not only “our” future we’re talking about here, it’s the future of our great great grandchildren as well. Please remember, not all of us have our noses in the political trough, nor a lucrative union job…we’re the ones who’ll remember what the NDP really stood for under your care. Stand for what is right, not expedient.

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  5. It would be easy to understand the NDP’s rationale for proceeding with Site C if it boiled down to just the Sunk Cost Trap, however, I don’t believe that to be the whole story. Premier Horgan stood up before the people of this province and justified his decision to proceed with Site C with a bag full of lies which he will not openly defend. There is a lot more going on back stage that we are not being told. Every metric you analyze suggests this project should be shut down.

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    • I agree, there are other factors driving John Horgan’s terrible decision to press ahead with Site C.

      After some reflection, I now think that the NDP *never* intended to stop Site C. The Vision “brain trust” that controls the NDP had calculatedly and cynically pretended pre-election to oppose Site C in order to win votes. Otherwise the NDP would never have won the election. Several Island seats and Nelson would have gone to the Greens or allowed a Liberal to squeak out a three-way win if the NDP had not faked out progressive voters. The support for LNG and fracking was also a given from before the election.

      I see other evidence of the NDP trying to fake out progressive voters. For example, pretending to “stop” the grizzly bear hunt, except for “food”. This loop hole was so glaring that absolutely no one was fooled and the government was forced to change course and really stop the hunt.

      The latest announcement about increasing the minimum wage to $15 is also a pathetic feint. Fifteen dollars would be barely adequate if it came into effect right now but it doesn’t become effective until June 2021, three and a half years away; too little, too late. Meanwhile housing costs seem to be increasing exponentially.

      The NDP are aiming to be the non-corrupt “Liberal light” version of the Liberals and are going for the centrist vote. However that is the last thing this province needs as we hurtle towards environmental catastrophe. BC needs principled progressive politicians, people following the examples of Bernie Sanders, Tommy Douglas, Jeremy Corbyn and Dave Barrett.

      I think the NDP will find out the majority of voters in this province are progressives and we want, and need, a progressive government. I have great hopes for Sonia Furstenau, the Green MLA in Cowichan.

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      • I fear the NDP’s Kinder Morgan opposition is mere political theatre and reluctant surrender is planned for later.

        A government that favours Site C – despite damage to the Peace River ecosystems, broken faith with First Nations, cheaper and cleaner alternatives, a dozen years of flat demand and export markets that have been unprofitable for years – has an unstated agenda.

        That could be providing subsidized power to Kinder Morgan and to expanded gas production and liquefaction. They think this will allow them to say to Liberal supporters, “See, we’re the party of yes. We got an LNG plant done; you didn’t.”

        The NDP aim is to be more than a one term government but they’ve miscalculated. They have lost and are losing their own supporters. Shutting down debate within the party will exacerbate the loss.

        The Greens are applauding; they will be the beneficiaries.

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        • oh yes, the BC government’s “resistance” to Kinder Morgan is completely fake, 100% kabuki. The federal minister called out this tactic on CBC’s radio show, The House, yesterday.

          And how insulting that the NDP think progressive voters are that stupid; the NDP must be getting advice from the Clinton Democrats. Liberal voters will stay Liberal. And progressive voters are now abandoning the NDP (and the Democrats) in droves.

          I think this is also why the NDP gave themselves, and the other political parties, provincial money to fund parties over the next four years. Because the NDP knew their progressive donors would stop donating to them after the Site C decision, not to mention fracking. The NDP political strategy was calculated well in advance, courtesy of the Vision apparatchiks and neoliberal senior bureaucrats.

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        • I too agree that Horgan’s Kinder Morgan opposition is nothing more than a charade. This may sound like a conspiracy theory but it wouldn’t surprise if Notely and Horgan cooked this whole thing up. Notely is facing an election next year so she needs an issue that makes her look tough ie: beat up on BC for opposing the pipeline. Horgan needs to look like he cares about the environment so he rolls out the pipeline road block. They both look good in their respective jurisdictions but we all know the pipeline will be built. Trudeau might even win a few points as he rides in on his white horse and orders everyone to get busy building the pipeline. Why can’t politicians just be honest with us? 😦

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        • I agree.

          All the NDP are doing is political theater for their base.

          I think Horgan is being badly advised and a ‘kinda’ mini game of thrones is being played out with McPhail, Meggs, Eby and a few others.

          I also beleive the Greens will be the official opposition to the Liberal government come the next election.

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  6. The plan appears to be about exporting from BC, BC LNG, and diluted bitumen (via the KM pipeline expansion) from Alberta.

    The Site C dam (at a cost of $10 billion to publicly-owned BC Hydro) would presumably supply electricity to both projects.

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  7. The pure business-case economics of this project do not support continuance, and exponential developments in alternate energy sources make the case weaker by the day. Coupled with John Horgan’s reluctance or inability to publicly address either expert criticism of his initial decision or critical new information, this makes one wonder if his decision was based solely on politics from the outset.

    Using Mr. Horgan’s political capital as a metaphor for the Site C project, we can see the sunk cost fallacy at work there as well.

    He expended a huge amount of his political trust and goodwill account with a large segment of his base and the Greens by approving this project. That’s a sunk cost. The calculation he must have made was that the expenditure of political capital would be offset by a corresponding increase in trust and goodwill from voters traditionally in the BC Liberal camp, and the major unions. I can’t see either increasing, certainly to a degree that would offset the numbers he has disappointed (if not enraged). He’s in a hole at least as deep as the Peace River Valley, and will be looking up at political water as deep as that which will cover the valley floor unless he changes course.

    BTW Norm, I suspect I must have purchased that vehicle you discarded.

    Liked by 1 person

  8. Hello Norm:
    In 2016, The New York Times examined the concern of toxic Mercury contamination found within the resevoirs of Muskrat Falls Hydro Dam and the Site C Dam.
    How can John Horgan proceed with the construction of Site C when he is aware of the downstream health hazards?
    Aren’t children’s long term health effects, fish, the agricultural environment and Indigenous Rights of equal value and worth several Billion dollars?
    Aren’t the deferred debts of BC Hydro already over $150 Billion?

    This should be front page news before the West Kelowna by-election on February 14th.
    “Kill Site C … Before It Kills You”

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  9. We are going to be forced to pay higher hydro rates in order to pay for the $10 billion Site C dam.

    The electricity from Site C supposedly will be used to drill and frack natural gas in NE BC and to power a non-existent LNG export industry.

    Another use of Site C is to provide electricity for an expanded Kinder Morgan pipeline, which will greatly increase the tanker shipment of diluted bitumen out of Vancouver harbour.

    The BC NDP government has also said that Site C is needed to provide backup capacity for over $50 billion worth of over-priced intermittent power from IPPs in BC.

    WTF?

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