BC Hydro

Organizational inertia and Site C

The decision to proceed with Site C was not based on need for power by BC consumers. Demand is this province has been more or less unchanged since 2005. This data is taken from BC Hydro’s Annual Reports:

1996 to 2017 520

From 1994 to 2005, domestic demand increased by 21%. From 2006 to 2017, it dropped 1%. BC Hydro claims something different but they like to include out-of-province sales when mentioning consumption.

Residential Rates 520

So, why is the province spending billions to provide new generating capacity?

Until 2005, constant expansion of a utility’s capacity to deliver power was understandable. Since electrification, consumption had increased steadily.

However, de-industrialization and technological efficiencies put an end to that. Without regular volume growth, utilities raised prices beyond inflation rates and, in the last few years, BC Hydro led major North American utilities in percentage increases. Higher rates encouraged customers to save energy, so the decline in per capita consumption accelerated.

The recent experience in British Columbia is not unusual. Consumption in the USA as reported by the US Energy Information Administration (EIA):

usa450

Organizational inertia explains why a company like BC Hydro remains stuck in its ways instead of being open to shifting industry and market dynamics. The company employs many people whose entire career tasks have involved expansion of capital assets. For its first 45 years, BC Hydro dealt with rising demand, so the growth culture is firmly established, even if the current market calls for a new and different vision.

I wrote this about demand forecasting in an In-Sights article published in 2016:

  • In 2005, BC Hydro said demand would grow 20% by 2016. It grew 0%
  • In 2011, BC Hydro said demand would grow 20% in the following five years. It grew less than 1%.
  • In 2012, BC Hydro said demand would grow 9% in the following four years. It dropped by 1%.

The provincial utility had been planning to build Site C since the 1970s. The Peace Canyon dam was completed in 1980 and the following year, BC Hydro was before the BC Utilities Commission seeking approval to build Site C.

BCUC declined to approve the project in 1981, saying:

By majority report the Panel recommended conditional approval with the Certificate to be withheld pending evidence as to need for the project and timing. Commissioner Kilpatrick dissented, recommending rejection of the Application.

Nevertheless, Site C remained in the plans. BC Hydro’s builders wanted to build and utility managers saw it as an inevitable project. Liberal politicians had a love affair with mega-projects so they were naturally programmed to advance BC Hydro’s large spending plans. Under Premier Christy Clark, the matter was not a matter of economics; it was purely political.

To exercise control of BC Hydro’s messaging about Site C, Energy Minister Bill Bennett’s Chief of Staff was transferred to the public utility. It was a lucrative assignment for him according to Public Accounts and FIA returns:

SANDVE 480

This is one example of why the ball keeps rolling. Influential people gain significant rewards from expansion. Terminating major projects would result in reduced opportunities to feed at the public trough.

Clark and her colleagues saw Site C as just one more piece in their borrow-and-spend agenda. They perverted Keynesian economics. Even in good times, BC’s government kept spending and increasing public debt and, especially, quasi-debt in the form of contractual commitments, where BC leads the nation.

contractual 450

Clark vowed to get Site C beyond the point-of-no-return so another government could not end it. To her, economic viability mattered nothing; it was a monument for which future generations would pay. Liberals cleared regulatory hurdles by using cabinet directives to remove BCUC from its normal oversight role.

After John Horgan succeeded Clark, the new Government could have ended Site C but the NDP worried that critics would again label them as anti-development. Additionally, union supporters pushed for completion of the project. The incoming government’s decision to proceed appears to have been made early, even before it took office. There is evidence.

Not a single NDP MLA attended the 12th annual Paddle for the Peace although they’d been there regularly in prior years to oppose further flooding of the Peace River valley.

Secondly, the government did not revoke any directives that limited the scope of examination the BCUC was asked to conduct.

BC WA res rates 300

Thirdly, the NDP government cherry picked material from the regulator’s Site C report and distorted the issues and information about electricity rates in other jurisdictions. For example, Don Wright’s technical briefing issued in December reported the average residential rate in neighbouring Washington was 15¢ a KWh. The EIA reports that number was considerably less.

Wright’s briefing ignored the downward price trends in wind and solar power and failed to discuss new contracts secured by utilities in the US and Alberta to acquire renewable energy at less than 4¢ a KWh, or about one-third of the cost of Site C power.

A detailed reading of BCUC documents shows the agency’s discomfort with BC Hydro submissions regarding demand forecasting, acquisition policies and surplus energy. Examples:

...there remains a significant amount of additional surplus energy acquisitions… We have previously discussed concerns with variances in the load forecast and cost of energy and the amount of excess energy that is purchased at relatively high rates.

If this oversupply can’t be managed there will continue to be upward pressure on rates…

The Panel also recommends a review of the appropriateness of five years between refreshes of the Integrated Resource Plan (IRP). Five years can be a long time – prices for clean energy have dropped significantly during the five years since the previous IPP review and also BC Hydro’s demand has also fallen short of the previously forecasts.

The Panel finds there will be considerable upward pressure on rates for the remainder of the 2013 10 Year Rates Plan and beyond fiscal 2024. The Panel finds the risk associated with this upward pressure on rates is especially concerning given the submissions related to potential “demand destruction” that could result from the impact of real rate increases on already vulnerable industrial customers and the likelihood that even nominal rate increases will increase energy poverty among BC’s low-income households.

…The Panel also notes the submissions from participants who raise concerns that future rate increases could also be impacted by real interest rate changes and the impact of any changes in credit rating that could result from BC Hydro’s higher debt load, its high level of regulatory account balances and off-balance sheet IPP commitments. Both the Provincial Government and BC Hydro’s credit rating could potentially be impacted by these factors and by the Auditor General’s report qualification…

While the NDP has done much to change the direction of government in BC, they’ve been paralyzed when it comes energy policies. BC Hydro has been a troubled organization for years and it will not be rescued by timid actions. That’s bad news for every BC business and every resident who consumes electricity.


To lay people, accounting trickery employed by BC Hydro may not be apparent but in Decision and Order G-47-18, BCUC referred to the public utility booking a billion dollars of non-existent revenues in the past eight years.  BC Hydro overestimates revenues and when actual sales are lower, they record the difference as income and, instead of adding cash to their bank accounts, they add a like amount to a deferral account, thus creating a fake asset.

There is no reasonable justification for doing this consistently. Liberals began this false reporting of financial information and it is inexcusable that the NDP continues the deceit.

This is an extract from the BCUC document.

bcuc


In the 12 fiscal years after 2005, BC Hydro’s total assets rose from $12 billion to $32 billion, even though domestic demand for electricity did not increase.

2006 to 2017

Categories: BC Hydro, Site C

11 replies »

  1. Moved three years ago into an older but well maintained house. The previous owners were spending $125 a month on Hydro. New vinyl windows, insulated garage door, resealing all doors and replacing all lights with LED dropped consumption considerably. Then, the most important discovery was that my heat pump was consuming huge amounts of power and made the house drafty ( I found this out on Hydro’s website?). We go away for 3+ months in the winter. Set the thermostat at 17, turned off the heat pump and my average daily consumption went from 22kw a day last year down to 10 this year. Joined Team power smart challenge before we left and consumption is down 48% over 120 days. The gas bill went up by several dollars but totally surprising was the Hydro saving. Even with hydro increases our monthly payment is $54 and they owe us. We are consuming less and are more comfortable.

    Like

  2. Where did you find the reference “The Panel also recommends a review of the appropriateness of five years between refreshes of the Integrated Resource Plan (IRP)” Some US utilities have a 1yr cycle and Dominion Energy of Virginia found the price of solar had dropped 24% in one year.

    Like

    • Indeed. BC is now selling the Canadian entitlement back to the Americans for about 3 cents a kilowatt-hour, while BC Hydro pays more than 4x that amount for private power in BC. The Canadian Entitlement is for more capacity than Site C will have.

      Like

      • Long after I left elementary school I understand they introduced something called ‘Mystery Math’. It boggled my mind and I left it to the system to teach my children. However, I interceded and brought them up on ‘Fundamental Math’, the mathematics of my generation. It would seem the politicians did not have the benefit of my scholarly learning and grew up believing in the Mystery.
        And that may explain the fix we’re in today. There is no other rational explanation!

        Like

  3. Fine article, explains a lot of things. I enjoyed the picture of Mungall, 2016. I am wondering if another reason was keeping the door open to power fracking and LNG?

    Like

  4. perhaps John A could teach a math class over at B.C. Hydro and the Leg.

    I always understood you bought at one price and then sold for a higher price and that higher price had to include what you needed to run your company and pay yourself. Guess those guys at B.C. Hydro never learnt that. Gee and I’ve always been one of those lefties……..

    Like

Leave a reply but be on topic and civil.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s