In-Sights reader Bruce has been thinking about BC Hydro and asked important questions, I offer my answers but with a broader picture of what BC Hydro is today and why.
Hydro spent a billion dollars on smart meters. They are spending billions on Site C and billions on IPP’s.
After spending so much on all those other things, how can hydro survive buying high off the IPP’s, selling low for years and not go bankrupt?
Campbell brought in this fiasco and it is still going on and will for years more. Any company running a business like this would have gone under years ago. Can hydro just keep going like this without any consequence?
First, a comment about smart meters. They made sense since time-of-use billings are facilitated. That system of charging for electricity is used elsewhere to reshape demand peaks. Had consumer purchases of electricity not gone flat in 2005, BC Hydro would almost certainly have used this billing method.
Time-of-use remains a possibility for the future but having surplus power capacity makes that unnecessary. Politicians worry about consumer resistance to this method. But overall, the issue of meter types is relatively minor. The devices must be changed periodically anyway and meters that communicate provide advantages to the utility.
Can BC Hydro continue? Yes, but not with the present level of rates. The company is guaranteeing years of low prices to large industrial users, so the future burden of rising prices will fall largely on small to medium sized businesses and residential consumers. BC Hydro has been using accounting trickery for years to create phantom profits and look stronger than it is.
Fortunately, BC’s public utility has a great deal of very low-cost power from dams built decades ago. The company could have been allowed to stay focused on delivering electricity across BC at the best prices possible. If that had been the case, our electricity bills would be far lower than they are today, Hydro would be continuing to move large sums to the provincial treasury and its long-term debt could be at zero.
Of course, neoliberals like the BC Liberals never saw a successful public enterprise they didn’t want to privatize. Politically, it would have been difficult to dump BC Hydro as they did with BC Rail. Instead, Liberals chose to privatize a large part of BC Hydro’s profits.
There is a huge variation between the cost of electricity generated at old dams and the cost of new private power purchases and electricity from Hydro’s recently added capacity, such as at the joint venture with SNC-Lavalin near Campbell River. Profits from the old cover losses from the new.
Ignoring John Laxton’s Hydrogate, the failed effort to export utility expertise to Pakistan in the 1990s, the seeds of harm at BC Hydro were sown by Gordon Campbell in 2001. BCH had made huge profits selling into California when Enron’s “Smartest Guys in the Room” were fixing the marketplace by creating artificial shortages. Smart guys in BC looked at big export dollars going into the public utility and plotted to put their hands on that flow.
Premier Campbell obliged. He opened just about every river in the province to proposals for private power and he moved bulk power transmission facilities from BC Hydro to a new company, thereby ensuring private producers could access lines to ship power into U.S. markets.
The plan imploded when the market-fixing scheme in America collapsed and Enron executives went to jail. Suddenly, potential BC producers were facing export prices that were a fraction of what they anticipated.
Campbell and his BC Liberal colleagues aided the profiteers. BC Hydro was required to contract with Independent power producers (IPPs) at prices that ensured immediate and continuing profitability. Prices initially offered by Hydro to IPPs bore no relation to market value or even to fair investment returns. Those prices even had inflation escalators. I estimate $10 billion or more above market value has flowed to IPPs but many of the original promoters cashed out early by selling to companies outside BC that had actual power production credentials.
Major unions were unhappy with IPP deals. In most cases, union members were neither building nor operating the facilities. Unable to lobby government to improve or cancel secret bulletproof deals, they lobbied aggressively for continuation of Site C, even though it was unneeded without growing demand for electricity in BC or profitable export markets.
I have been told unions made major financial support to NDP for the 2017 election contingent on continuation of Site C. The party had few options because it was not in great shape. Had they not sold their headquarters building, the BC NDP would have been in a deficit position at the end of 2015. That would have been disastrous 15 months before the next election campaign.
The die was cast for Site C even before April 2017 so the constrained review by BCUC was just the opening act of political theatre that continues today.
What we have seen with BC Hydro is that political parties on both left and right see conversions of public assets to private interests as normal ways of doing business. The only difference is who gets the money.
Categories: BC Hydro