Shortly after Gordon Campbell was sworn in as Premier of British Columbia, BC Hydro reported electricity trade sales of $1,860,000 for the three months ended June 30, 2001.
BC Hydro’s monthly trade sales averaged $620 million a month in Quarter 1 of Fiscal Year 2002 but they were not highly profitable. The utility did not have sufficient power of its own to export and was buying on the open market and reselling, sometimes for gains, other times for losses.
Market manipulation enabled by deregulation in California had moved electricity prices to unprecedented heights. Sophisticated business people recognized that fraud was the driving force and market levels would not be sustained. Less knowledgable people were excited by the possibility of untold profits.
Premier Campbell and cronies fell into the latter category. However, like the lawyer who never wanted to share a big settlement with his client, Liberals didn’t want profits from exporting power to be shared with BC citizens.
That led to the idea that all new power exported from BC would be generated by independent power producers. The planning began; private deals were put in place, some of them involving government insiders who saw quick gains through contract flipping.
However, the Enron scams unwound and fraudsters were dragged into American courts.
Sometime later, peak wholesale prices of about 40¢ a kilowatt-hour in early 2001 had fallen below 3¢ a kilowatt-hour.
British Columbia’s insiders changed course and the BC Liberal Government was accommodating. The new plan for independent power producers (IPPs) was to sell their output profitably to BC Hydro and let the public utility sell it into now unpredictable markets.
Almost 100% of business risk moved to the public. Indeed, BC Hydro’s trade markets have been soft ever since the Enron meltdown.
Politicians and utility executives in BC not only misunderstood the export markets of the early 2000s, they were blind to technological changes that moderated ,then stalled demand for electricity throughout North America.
The assumption that IPP output could be absorbed by BC’s domestic consumers proved another costly error.
Because the average price paid for each kilowatt-hour of electricity delivered by IPPs has been rising, the losses imposed on BC ratepayers – ultimately all taxpayers – has grown.
Comparing the amounts paid IPPs to the Mid-C wholesale rate reported by the U.S. Energy Information Administration, I calculate that payments to IPPs in excess of market value total $5 billion in ten years.
All of the IPP contracts that BC Hydro signed are secret. We know they are of varying lengths but as long as 60 years. We know the prices paid will escalate each year through inflation protection clauses. We also know that BC Hydro had to spend huge sums to extend the grid so that private power could enter the system.
Because none have been cancelled by now, we can assume that BC Hydro has little or no right to terminate any IPP agreement if market conditions make that appropriate.
The Horgan Government indicated it will conduct a review of private power purchases but lifting contract secrecy is the one thing that could be done immediately. It is inconceivable that IPPs could prove damages from publication of contracts since the business terms are widely known throughout the industry and none are competing for new contracts in British Columbia.
Secrecy only exists to protect politicians and utility executives from being accountable for massive financial mistakes. This might change but only if citizens demand it.
BC Liberals and independent power producers sold us a bill of goods. They talk about “run of river” which sounds innocuous but reality is something different. In addition to costing us billions extra, IPPs cost us environentally.#bcpoli #IPP #onpoli pic.twitter.com/FqNmMpJga6
— Norm Farrell – In-Sights.ca (@Norm_Farrell) March 19, 2018