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BC Hydro rate shock powered by lies

Posted December 2, 2013 by Rafe Mair in Economics
Hydro rate shock powered by lies

BC Energy Minister Bill Bennett

How do you know when a politician’s lying?

When you see his/her lips move.

Bill Bennett, the BC Hydro point man in the government, tells us that there will be a 28% increase in Hydro charges over the next few years, which NDP critic John Horgan says will raise a family’s costs by $300 dollars annually.

The NDP sent out a fundraising plea last week “to fund our work to protect British Columbians from these gigant rate hikes.” Simply campaigning to kill the increases without getting to the root of the matter will do nothing to solve the problem long-term, as our independent economist Erik Andersen has explained in these pages.

Mr. Bennett didn’t tell the whole truth about the need for this rate increase and Horgan, who talks about the obvious impact this will have on families, doesn’t seem to want to go to root of the matter. I will get to that in a moment. First, an obvious question which doesn’t get raised much if at all.

Bleeding Hydro still pays dividends to Liberal Govt

With all its financial woes, BC Hydro still pays a dividend to the government. How can a corporation bleeding to death financially pay a dividend?

The answer is – are you ready for this? – The cost is passed onto us, the beleaguered ratepayer/taxpayer. What is happening is simple – the government takes the dividend that can only be paid by a Hydro rate increase. So, the government steals from our pocket then makes up the theft by raising rates!

The real reason for Hydro’s financial woes

Let me spell it out – these hikes have very little to do with upgrades and everything to do with rank fraud perpetuated by the Campbell/Clark government and placed on the shoulders of BC Hydro, then passed on to us!

Let me pause for a moment to observe that this sleight of hand is indeed happening and raise Mair’s Axiom I to the forefront: “You make a serious mistake in thinking that those in charge know what the hell they’re doing.”

Now the grand theft, entirely unmentioned by the mainstream media.

Here’s the skinny. In 2003 the Campbell government took away BC Hydro’s right to generate any new energy (except Site “C”) and all new energy must be created by private power companies.

(As we go on here, remember Mair’s Axiom I.)

For the most part, private companies – the so-called “run of river” projects – produce the majority of their power during the Spring run-off, just when Hydro has full reservoirs and has no need of private energy.

Well, then, I guess BC Hydro simply doesn’t buy energy from these companies, right?

Wrong! And remember Mair’s Axiom I as we proceed.

BC’s private power sham

These private companies have “take or pay clauses”, which means that Hydro must pay for this unwanted and unneeded energy!

Ah! You say, Hydro would be able to get this power cheaply, right?

Wrong. Remember Axiom I – they must pay 2-3 times the market price and about 10x what they can make it for themselves!

What are the consequences from this for Hydro?

Over the next 20-40 years they will have to shell out over $50 BILLION dollars to these private companies, somewhere between $1.5 and $2 BILLION per year for power that don’t need and must pay at least double its worth. Note, that these private contracts, by all accounts, are indexed to increase over time, so that they are protected from the marketplace.

Now the scandals: Bill Bennett is shielding this $50 BILLION from his reasons for Hydro increases – and for reasons I can’t fathom, the NDP critic, John Horgan, isn’t talking about it.

“You make a big mistake…”


About the Author

Rafe Mair

Rafe Mair, LL.B, LL.D (Hon) a B.C. MLA 1975 to 1981, was Minister of Environment from late 1978 through 1979. In 1981 he left politics for Talk Radio becoming recognized as one of B.C.'s pre-eminent journalists. An avid fly fisherman, he took a special interest in Atlantic salmon farms and private power projects as environmental calamities and became a powerful voice in opposition to them. Rafe continues to make regular appearances on radio and television, writes regularly for thetyee.ca, and writes a regular blog at rafeonline.com.

27 Comments


  1.  
    james

    How does BC escape the IPCs it signed in the short run perhaps a buy back in fact I Favor nationalizing BC Hydro IPC sites, removing the dividend to government and replacing it with a rate reduction equivalent




  2.  
    scott

    On peack hours power is sold alberta and .U.S.Do you thnk this benefits B.C. residetints?




  3.  
    erik

    The person to person information given to me at a public meeting of the Professional Economists Association of BC, in Victoria, by the Chief of Forecasting for BCH, about a year and a half ago, was that all new IPP contracts were pricing electricity at more than $110 MWhr with an upper bound of $130.

    The BCH 2013 Annual Report indicates BCH counting 7,417 GWhrs sold to Others at about $43/MWhr. BCH called sales to others as part of “Domestic” sales, which was a lie, but on page 68 of the report the corporation’s auditor corrected that misrepresentation by describing sales to others as sales to customers outside of BC who had the privilege of having long-term contracts, presumably at $43 + or_.

    It is the reality of the corporate life that when producers are desperate for cash and they have a surplus of what they produce and wish to sell they take prices lower. By these measures BCH is a desperate seller and has the equivalence of two Site Cs worth of surplus power ready to sell at 40% or less of what electricity will cost from Site C or 25% of what other IPP contracts call for.

    It is hard two imagine why anyone is willing to champion the case of IPPs who are clearly simply parasites in BC. The capital borrowing represented by 7,417 GWhrs is between $16 and 20 billion. This and other over-borrowing and over-spending examples are the reasons the BC government can’t balance budgets. The province’s Auditor General is currently calling “contingencies and contract obligations” that are not counted as debt by the Finance Minister stands at $100 billion with at least $50 billion directly associated with BCH and its IPP contracts.




  4.  
    Hugh

    Mid C off peak is at $41 today, the highest it has been all year. In May it was negative!

    http://www.quandl.com/ICE-Intercontinental-Exchange/MIDCOFFPEAK-Spot-Power-Price-Mid-C-Off-Peak

    The $62 that Gavin mentions, I believe, includes older, lower-priced IPP contracts such as Alcan. Kemano was built in the 1950′s, before BC Hydro, but they still consider it an IPP.

    More recent IPP contracts are much more expensive to BC Hydro.




    •  
      Damien Gillis

      You got it, Hugh.




    •  
      Gavin

      Hugh, I am comparing existing IPPs with BC Hydro’s cost of generation today.

      If you wish to compare recent and future contracts, then you must compare it to BC Hydro’s Site C, John Hart, Aberfeldie, all of which are astronomic in cost. They are $128, $125, and $134 a MWh, with major destruction of habitat. John Hart blocks one of the most productive salmon runs in the world.

      Future IPP projects will cost BC Hydro about $85 a MWh, much cheaper than Site C.

      Alcan’s contract was renewed just a few years ago. So why is it not astronomic as Damian claims?

      By the way, Mid C just hit $100 a MWh. Now try get a long-term contract out of Mid C!




      •  
        Damien Gillis

        No, Gavin, we don’t have to compare Site C power to IPPs. The point is they are both unnecessary. You need a third box that says “none of the above”.

        And no, I was not in favour of Alcan breaking its contract to sell private power at high prices to BC Hydro instead of using the power to smelt aluminum and create jobs, as was the clear spirit of the original deal allowing them to dam up five rivers and create the Nechako/Kemano power system with our public assets.




      •  
        Hugh

        I agree that the cost of Site C would be astronomic, at est. $8 billion. That’s ridiculous, what, is it made of gold?




  5.  
    Gavin

    Mid C power price is $84 a MWh today.

    Why don’t we throw our money away and buy expensive and dirty Washington State power, and stop buying IPP power at $62 a MWh?

    Too many jobs in BC and everyone is living like a king – so why not help the Americans with jobs?




  6.  
    Hugh

    Explain:

    “(former) BC Hydro president Dave Cobb has told his staff that he expects Victoria to soon abandon its current energy self-sufficiency policy, a move that would free Hydro from buying hundreds of millions of dollars worth of electricity that it doesn’t need from independent power producers.”

    from:
    http://www.canada.com/vancouversun/news/westcoastnews/story.html?id=9c7f6e08-e6b0-4374-a763-f1c2b5190ec6




  7.  
    Gavin

    2012/2013 was an exceptional year in that there were so much precipitation that BC Hydro dams started to spill in June and July.

    On the other hand, the previous two decades, BC Hydro had to import power most of the time, and the dams did not spill and have had huge storage capacity.

    So is Rafe saying he rather buy dirty coal fired power from Washington State and send our dollars south so jobs are created in Washington and jobs are lost in BC, because of his hatred of private competitive, cheap, and clean power? And Washington State power is not cheap. It recently hit $45. It is a spot market useless to BC Hydro. BC Hydro needs longterm power contracts or it cannot guarantee that the lights stay on all the time.

    Longterm power contracts in Washington are $55 to $65, which makes them more expensive than BC generated private power that create vast number of jobs right in BC.




    •  
      Damien Gillis

      Gavin, BC was a net exporter of 5,800 GWh of power last year – more than 10% above our total power needs. This trend is on the rise and shows no sign of abating into the distant future, as I laid out with clear evidence in this recent piece:

      http://commonsensecanadian.ca/need-site-c-dam-exaggerated-public-hearings-set-next-month/

      All indications we have suggest these private power contracts range from $85-120/MWh, far higher than your Washington spot market prices. Moreover, the issue is not how much they are today, but where they’re at when the bulk of this surplus IPP power comes on stream – i.e. the Spring freshet. In recent years, spot market prices have bottomed out, sometimes as low as $10 at this time of year – that’s because Washington State has its own hydro reservoirs, which are also full at this time of year. Meanwhile, demand is at its lowest (Spring = no air conditioners, little heating = low electrical demand) The combination of an abundance of supply with a lack of demand means what? A decline in price. So what we’re paying $85-120 for – precisely when we don’t need the power – we are forced to dump at a huge loss.

      Rafe is not saying buy dirty coal. He’s saying quit fleecing the ratepayers of BC.

      Besides, the practice of buying coal-fired power from across the border does nothing to increase the real carbon footprint of these plants, which can’t be shut down at night when demand is at its lowest. We buy some of this power – which would be wasted otherwise, and put it to use, while allowing our hydro reservoirs to fill up.

      Don’t try and couch this is an environmental issue – that’s simply a PR device of you IPP cronies with your euphemistic “Clean Energy BC” language. IPPs have done nothing to reduce coal-fired power in Alberta or BC. What they have done is ravage our precious rivers with unnecessary environmental damage, while putting BC Hydro on the path to bankruptcy and jacking up bills for consumers.

      https://wildernesscommittee.org/news/the_smoking_gun_bc%E2%80%99s_private_power_operators_are_killing_salmon_what_happens_next

      http://commonsensecanadian.ca/bc-hydro-get-electricity-demand-forecasts-wrong/




      •  
        Gavin

        Damian, what is your source for BC Hydro exports?

        According to BC Hydro, it lost $120M in exports last year, but gained $395 million in the 3 years before. In the last 6 months, BC Hydro has profited $45 from exports.

        In the spring quarter, BC Hydro was exporting power at $115 a MWh.

        And why do you insist we import Washington dirty coal and nuke power that cause global warming? And Washington power is spot – useless for BC Hydro which needs long term power contracts and not spot market which was $100 recently.

        And IPP power is not $85 to $120 a MWh. According to BC Hydro report page 45, the average was $71 for existing and $102 for future IPP power. Then you have to deduct $10 to $30 a MWh for the extra benefits IPPs pay government that BC Hydro does not. That puts IPP power at $62 to $84 a MWh.

        Have you subtracted gov. benefits from your $85 to $120 figure? And what is your source for the $120 figure? And why is your $85 figure so much higher than what is reported by BC Hydro for IPP power at $62 a MWh?




        •  
          Damien Gillis

          Stats BC, as stated.

          Hydro monkeys with its figures, as our resident economist Erik Andersen has detailed int hese pages – which is why we rely on Stats BC.

          You also ignore the hidden costs to BC Hydro to support IPP power – i.e. IPPs pay only a portion of the costs to connect their projects to our grid.

          I’m basing the cost of these contracts on the most recent “clean power” calls.




  8.  
    Gavin

    “For the most part, private companies – the so-called “run of river” projects – produce the majority of their power during the Spring run-off, just when Hydro has full reservoirs and has no need of private energy.”

    Wrong and wrong. Are you saying BC Hydro should build run of river projects, and not private power companies? But the rainfall and snow melt is the same! Clouds don’t differentiate between BC Hydro mountains and private power mountains!

    BC Hydro does NOT buy all the spring runoff power from private producers. If you read the link below, you will see BC Hydro buys only 25% of the spring runoff. That is, it will buy spring runoff power up to 1/3 of the power produced for the rest of the year. So wrong again.

    http://www.bchydro.com/content/dam/hydro/medialib/internet/documents/info/doc/info_-_cpc_-_specimen1.doc

    Gavin




    •  
      islandpapa

      how is that link proof of anything?…it is just a “specimen”…like that little brown mass one drops off at the lab…useless if it doesn’t have a name attached.




      •  
        Gavin

        The difference between the specimen and actual contracts signed is in 1) price, and 2) escalation. Otherwise no other term was up to negotiation.

        In any case, we know the weighted average price of IPPs which is $102 a MWh, before deduction for benefits paid. This weighted average includes all variations in the specimen contracts.




  9.  
    Gavin

    “Campbell government took away BC Hydro’s right to generate any new…”

    Not correct Rafe – BC Hydro recently completed Brilliant 1, Brilliant 2, Aberfeldie, and has started on Waneta and John Hart – all power projects. BC Hydro will be spending $22 billion in the next decade building stuff.

    Aberfeldie by BC Hydro, a small hydro, came out TWICE the cost of private power companies.

    So you want BC Hydro to build small hydro at twice the cost and bill the ratepayers for that? And then have cost overruns (in the NTL project, BC Hydro had 85% cost overrun!) and then bilk the hapless ratepayers for that?

    So are you proposing that rates should be increased to support a bloated, inefficient, wasteful state owned company where 60% of employees make over $100,000 a year, and driver/helpers make $150,000 a year?

    How come you never answer to comments that corrects your mistakes?




    •  
      islandpapa

      3 guesses Mr Chu




    •  
      Damien Gillis

      Upgrades to old dams do not equal “new power”, Gavin. They don’t add additional capacity (capacity is always the size of the reservoir, which does not change with new turbines and upgraded power lines). What these usually sensible upgrades do is add flexibility to our grid, which is helpful in times of extreme demand or technical problems with a given supply. Rafe is correct – Hydro was forced to buy power it didn’t need from private operators, the sole real purpose being to enrich those operators, not to provide for the energy needs of British Columbians.

      The reason this is a problem is because it is a scam.

      How do you know when an IPP hack is in the room? You hear the word “Aberfeldie”.

      And sure you can put some of the blame on Hydro for NWTL, but be sure to heap the lion’s share on the Liberal Government that directed it to build this boondoggle to supply its vaunted mines in the Sacred Headwaters.

      That doesn’t mean IPPs – with their much higher financing costs and lack of experience building these projects are any better.

      And I frankly don’t care who builds the stuff. I care who owns it. I care how much it costs ratepayers. Even more than that, I care whether the infrastructure is necessary or not. These IPPs are not and they are costing ratepayers and arm and a leg.

      The whole thing is a giant sham.




  10.  
    Hugh

    The Van Sun article from Nov 27 said big companies in BC might want to “access market-priced electricity in the U.S., where rates are much lower.”

    http://www.vancouversun.com/business/Hydro+hikes+will+average+annual+bill+fifth+year/9218003/story.html

    The U.S., where BC Hydro exports its excess power, after buying lots of un-needed power from IPPs at high prices.




  11.  
    tom baker

    That sound correct when do we start,cleaning out the old closet of B.C. hydro ,as we do own it !




  12.  
    Raging Senior

    I think the solution is simple….Hydro STOPS purchasing power from the IPPs, STOPS paying dividends to the lieberals pockets (If I purchase shares in a dividend paying Co. that is not making money, I don’t receive dividends!! ) STOPS paying very high bonuses to executives alreading making 6 figure wages, and STOPS giving the govt. $800m prior to elections because the govt thinks Hydro has too much money. Now, argue with that. Hydro is OUR company still isn’t it?





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