BC Hydro

Private power – BC’s unmitigated financial disaster

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.

2001 Q1 460

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.

Mid C vs IPP prices 500

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.


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11 replies »

  1. Norm is absolutely correct but BC citizens have yet to process this reality. It would be great to know of some legal action that would hold folks accountable but the chances of that look slim to none.
    Pressing on with Site C is more of the same and is unexplainable. If some person set out to destroy BC Hydro 15 years ago they could not have done a better job of it , maybe someone did.

    Liked by 2 people

  2. We must realize that Gordon Campbell’s term in office was all about rewarding politcal friends and insiders with taxpayer’s cash.

    Campbell did not run a government, he ran a massive Ponzi/money laundering scheme. If anything, Campbell was the El Capone of premiers.

    Premier Photo-op (not to be confused with Prime Minister photo-op) was a classic grifter who made sure she got in on the action.

    This has lead BC in a shambles and i do not think Horgan got the “balls” to clean it up.

    The question is, is Horgan actually premier, or is it Premier Meggs because it seems the Vancouver politcal crowd is getting all the lolly, with the great unwashed again being lead like sheep to a tax slaughter.

    The NDP and the Liberal parties, are nothing more than birds of a feather, enrich your political supporters and friends on the taxpayer’s dime.

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  3. This is the ‘mess at BC Hydro’ that the new Energy Minister has referred to.

    They explain it here in backgrounder #2, from a Govt news release from Dec. 11, 2017:

    “At the same time that BC Hydro was directed to accommodate this new supply of intermittent (IPP) power, the previous (Liberal) government also instructed BC Hydro to decommission its Burrard Generating Station in Metro Vancouver to address growing concerns about local air pollution and greenhouse gas emissions (somehow GHG emissions from LNG export are not a concern).

    As BC Hydro lost needed electrical capacity to backstop its new intermittent (IPP) power supply, it was forced to seek new capacity or “firm” power, the type traditionally provided by hydroelectric facilities like Site C.

    In 2010, the old government introduced the Clean Energy Act, which exempted a number of BC Hydro projects and power procurement activities from independent review by the BC Utilities Commission including Site C, the Clean Power Call, the Smart Metering Program and the Northwest Transmission Line.”

    So as if BC Hydro owing over $50 billion for intermittent IPP power wasn’t bad enough, it now has to spend over $10 Billion for Site C in order to back up that IPP power.

    From:

    https://news.gov.bc.ca/releases/2017PREM0135-002039

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    • The government release in December was self serving, aimed at justifying their decision to proceed with Site C.

      As I’ve demonstrated elsewhere, in a time of flat demand and soft export markets, BC Hydro increased internal generating capacity at its larger sites : 200 MW in FY 2004, 15 MW in 2007, 665 MW in 2011, 452 MW in 2015 and 490 MW in 2016. They could add 500 MW more with a sixth generator at Revelstoke.

      Because of soft demand, BC Hydro moderated its own power generation to accommodate influx of private power and increased capacity at their own facilities. BC Hydro’s own statistics prove this assertion.

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  4. Step 2 on BC Hydro bills is now 12.9 cents/kwh. Step 1 is 8.5 cents/kwh.

    Ten years ago, in 2008, just before BC Hydro went to two-tiered billing, the rate was 6.5 cents/kwh.

    I’ve kept my hydro bills.

    Hydro rates will no doubt go up every year. This is in BC, where we have huge hydro plants which were built and paid for years ago.

    Liked by 1 person

  5. What bothers me,is many of the Liberals involved are or will be collecting our money in the way of pensions. It is time for an investigation into criminal activity and a loss of pensions. Arlene

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  6. I suggested to decision makers that a reorganization of BC Hydro was the best way to unburden the utility. Something like this:

    Sell BC Hydro’s generating and transmission assets at depreciated market value to a new BC Electric Company financed by a reformed bcIMC and owned by the pension fund and current employees with government continuing to hold shares. Public pension funds would be kept at work in BC instead of being invested abroad, funding the tobacco industry, arms dealers, Chinese state-controlled enterprises and other undesirable investments.

    BC Hydro is already a financial basket case. Aging plant, worthless assets (about $7 billion of intangibles and deferred costs), unprofitable markets and a changing energy landscape means it cannot survive long term without huge subsidies from the province. Selling generating and distribution assets and paying off the enormous existing secured debt would leave a company with no ability to continue. It would have to declare its insolvency, unable to pay contractors.

    IPPs could do contracts with the new company and ones that serve local needs would find success. Those expecting to sell power profitably to a public utility so that agency can sell it into money losing markets might not fare as well.

    I’m sure the Fraser Institute and BC’s libertarian crowd would be happy because they believe we should all follow directions from unhindered and unsubsidized markets.

    First, government might need a little legislation to smooth the way, particularly to ensure workers’ basic pensions are funded.

    Liked by 2 people

  7. Basic pensions are funded! My husband worked hard for 37 years, donating toward a pension. It has now been reduced twice, not even keeping up with the cost of living. It is frustrating receiveing increased Hydro bills and ICBC increases, food costs etc. Arlene

    Liked by 1 person

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