I told you so!

My colleague Damien Gillis told you so! Independent economist Erik Andersen told you so! The Campbell/Clark government has taken the jewel of our diadem, BC Hydro, and forced it into what would be, for any company in the private sector, bankruptcy.

We learn this from a leaked internal BC Hydro document, headlined in the September 11 Vancouver Sun, where Independent Power Projects (IPPs) share part of the blame for the massive power bill hikes on the way for Hydro customers – over 26% by 2016! By 2024, rates will allegedly skyrocket by 57.3 per cent!

Minister Bill Bennett says that the costs from IPPs are “not that great” but doesn’t give any figures. According to Jim Quail of COPE Local 378 – the union that represents many Hydro employees – these losses are due to “a failed experiment with independent power producers”.

$55 Billion in over-priced IPP contracts

What we do know – and have known for some time – is that BC Hydro has signed on for some $55 BILLION of power from IPPs, over the next 20-40 years, to buy power at 2 -3 times the market rate, sometimes far more. We also know that Hydro didn’t have to spend one cent for private power (we’re now a major net exporter, at a considerable loss) and we also know that on Minister Bennett’s orders, at least 10 IPP contracts for unfinished projects will be cancelled.

Minister Bennett, trying to act as if he and his government had nothing to do with the mess Hydro is in, says:

[quote]I’ve been very forthcoming since I took over as minister, in terms of saying to the public that there will be some rate increases. I have always coupled that statement with my commitment that I will do everything I can to keep the increases to a minimum.[/quote]

And while we’re at it, how can a BC Hydro report come as a surprise to the minister?!

Is there any question why Premier Clark is not calling the Legislature into session this Fall? Day after day hammering by the opposition on BC Hydro?

No chance, Lance.

LNG is the answer to all our fiscal problems…or so they tell us

When I started preparing this piece, I asked this question: “How are you going to deal with these huge power bill hikes, Minister?”

There is only one way – find some other pathway to the taxpayer’s pocketbook. Be honest, Mr. Bennett, your government has screwed up big-time and no matter how you tart it up, the taxpayer will pay every red cent of Hydro’s debt.

Amazingly, a magic fairy has fixed everything overnight. A day later, “back of the envelope” Bennett has figured out how to deal with a 26% rate increase.

I had underrated his ability to whip into place a change in government policy that truly takes the breath away, for now, 24 hours after the BC Hydro report was leaked, natural gas is the answer! I wonder what policy is on for tomorrow, Minister?

Do you remember when natural gas was a filthy fossil fuel? When the Liberals loudly condemned the Burrard Thermal plant, which for a few weeks of the year, when Hydro is short of power, supplies a tiny amount by natural gas?

The Campbell/Clark government came out in 2002 with an energy policy principally in line with the preferences of the right-wing philosophies of Alcan, General Electric, Accenture and the Fraser Institute. It declared that all new power henceforth (with the exception of Site “C”) would come from private projects.

This policy designated some 700 rivers to be ruined and sent BC Hydro down the one way road to financial collapse. The only thing in the way for Hydro’s bankruptcy was the bigger and bigger assault on citizens’ wallets.

Of course, now that natural gas has gone from being a toxic fuel to clean energy overnight, can coal-fired power plants be far behind?

A government out of control

This government is out of control. It has had a decade to analyze BC Hydro and assess its power needs and how to meet them – and yet it couldn’t be more off-base.

Why? Because they have made these highly improvident deals with IPPs. Any study of the Hydro problem will run afoul of industry, which is on a gravy train and supported by the Fraser institute. Most of all, they’re hugely frightened that these secret IPP deals – which you’re paying for – would be made public.

Am I bitter?

Frankly, I am, but perhaps not for the reason you might think.

I am a native and lifelong citizen of British Columbia and yes, I’m a British Columbian above all else. Since the scales fell from my eyes in 2005, I’ve fought against IPPs. Everywhere I spoke, audiences would look heavenward, assuming I was exaggerating – I must be, for no government would do this!

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In many meetings I was heckled by shills for the IPP racket, who would try to discredit me by asking red herring questions about Hydro’s workings and by discussing the minutiae of these secret contracts, which only they could claim to know.

I became more and more frustrated and when the NDP blew the election in 2009, I despaired for the province and kept on speaking and writing. I thought some relief would come after the election last May. I’m no NDP fan, having whipped their ass in 1975 and 1979, but I could see that they were the only hope.

Empty vindication

I knew that vindication for Damien, Erik and me would come but what would that mean? It wouldn’t bring our rivers back and it wouldn’t stop the fiscal ruination of BC Hydro.

Now we have a government acting as if the huge mess came from the Wicked Witch of the West. Maybe it has something to do with sun spots or chemtrails.

There will be no political penalty. Just before the next election, the Liberals will trot out a modest increase in electricity rates. According to this leaked document, that’s exactly what they’re planning to do, drastically curbing power bill hikes – just as they did this election year, when they capped  increases at 1.44%, further compounding Hydro’s long-term financial woes for short-term political gain.

In the meantime, they will peddle a load of horse buns about a pot of LNG gold just around the corner.

So yes, I’m bitter that our government and private power industry have destroyed much of the province I love so dearly and dragged our once proud power company to the portals of bankruptcy.

And I make no apologies for my bitterness.

Energy Minister Bill Bennett has invited citizens to review and presumably submit thoughts about the recently released BC Hydro draft “Integrated Resource Plan” (IRP), which includes some “bullish” projections of demand.

Hydro chronically wrong

This BC Hydro forecast for demand is definitely in the tradition of previous inflated domestic (BC-only) forecasts, which makes it an exaggeration with very expensive consequences.

In 2003 the public utility forecasted BC-only needs were to be 56,241 gigawatt hours (GWhrs) by 2013. In reality, last year’s reported domestic sales (excluding sales to others disclosed as long-term supply contracts to out of province customers – page 68, BCH 2013 Annual Report) were 49,595 GWhrs, – an error of 6,646 GWhrs. (Hydro’s fiscal year ends March 31)

In 2007 BC hydro forecasted BC needs in 2012 would be 57,201 GWhrs. Reported domestic sales – again, net of sales to others – were 49,922 GWhrs, an error of  7,279 GWhrs.

Hydro’s short-range forecasting isn’t much better – even just one year out. In 2010, the crown corporation forecasted BC needs in 2011, 12 months forward, would be 52,024 GWhrs. Reported domestic sales were 49,013 GWhrs, an error of 3,011 GWhrs.

Forecasting errors are irrelevant if no one takes notice of the values. Unfortunately, your government, BC Hydro Board and senior executives saw these forecasted needs as their license to build, contract, borrow and spend, big-time. Using current cost numbers for the proposed dam on the Peace River, Site C, each annual GWhr of error was/is the same as borrowing/contracting for $2+ million.

The amount of borrowing error in the 2003 forecast was about $14 billion at Fiscal 2013.

For the 2007 forecast it was more than $15 billion at Fiscal 2012. The 2010 error for only a one year period was about $7 billion. The further out in time, the bigger the crime.

Population growth, electrical demand stay relatively flat

One should remember this history of continuously being wrong, always exaggerating future BC needs when addressing the new “Integrated Resource Plan” by BC Hydro, vintage 2013.

Like all government-generated material, when it comes to a vision of the future, it will be universally bullish. BC’s population is going to grow fast. Economic activity is invariably going to grow fast, they maintain.

There is lengthy discussion by BC Hydro that sets out how the domestic demand forecast is constructed. Heavy reliance is placed on new construction data, population projections by the provincial government and GDP projections from the same source.

[quote]BC’s population is on a shrinking trend

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There are three categories of customers the forecasters treat separately:

1. Residential customers
2. Commercial and light industrial users
3. Heavy industrial users

Contrary to BC Hydro’s and the government’s narrative, BC’s population is on a shrinking trend. During the decades of the 70s, 80s and 90s, provincial population rates of growth were 7% for 5 year blocks. This bullish growth slowed in the first decade of this century, registering a comparative growth figure of only 5.5%.

This growth trend reversal has yet to influence the provincial government and BC Hydro.

Confirmation of this shrinking population growth trend is also found in the government’s fertility records. In 1972 the posted fertility factor for BC was 1.966; now in 2013 it is 1.435. Not wishing to endorse a diminishing population trend, the folks in charge of this report and forecast have simply “flat-lined” at 1.400 indefinitely.

Higher GDP ≠ increased electrical demand

A second important indicator for the BC Hydro forecasters is provincial GDP. A logical connection, one would reasonably think. GDP gets frequent mention in the discussions of how demand is generated for both the commercial and heavy industrial customer groups. This seems to be where BC Hydro forecasters get matters seriously wrong.

From 2003 through to now, the annual reported GDP value of BC has increased by 63%. In 2003, it was $138 billion and by 2013, the government was reporting it to be $225 billion. During the same period, none of the three groups of customers increased their amounts of purchased electricity.

[quote]From 2003-2013, residential rates have increased by 50%. They need to increase another 40% now.[/quote]

In cases like this, on the evidence, there is a big disconnection where one would not expect there to be. It clearly diminishes the value of the BC Hydro’s forecasting and seems to explain just why they have continuously made errors.

What this disconnect also suggests is that a considerable chunk of BC’s economy and finances is leaving the province. This economic “leakage” is probably why BC Hydro forecasts remain so irrelevant.

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If the above were not enough, don’t forget that BC Hydro has yet to collect over $5 billion of deferred charges – a controversial form of borrowing against future rate increases. It is not apparent that the BC Hydro forecasters adequately accommodated demand reductions in response to the certainty of sharply higher rates. In the period 2003 to now, residential rates have increased by 50%.

Reaction to this increase has been minimal, as folks have found ways in their personal budgeting to make accommodations. Per capita consumption for the past ten years has been steady at about 3,800 KWhrs. When rates increase, as soon they must, by 40%, the public response is likely to be one of enthusiastically embracing energy conservation and even withdrawal from the grid.

There is immediate relief available for BC Hydro’s embattled customers. Minister Bennett should be required to remove the excess debt associated with new generation designed to serve a misguided cabinet-crafted economic development program.

Plans to provide inexpensive electricity to resource development projects – such as mines and liquefied natural gas plants – are pure gambling. Leave the speculation and gambling to the private sector, where participants have a risk appraisal discipline that comes with using personal money.

Folks, the wheels are coming off the BC Government’s 2002 Energy policy, which forbade BC Hydro from creating new power (Site C Dam being exempted).

Energy Minister Bill Bennett has cancelled 10 Independent Power Projects (IPPs), with plans to defer delivery on up to another 9.

This is a major vindication for all of us who have pointed out the obvious – BC Hydro cannot go on paying over two times the market for electricity. It simply can’t deal with the $50 BILLION-plus bill it must pay for the privilege of losing money hand over fist.

Let us always remember that this policy was put in place because the Campbell Clark government, egged on by big business and the loony right wing Fraser Institute, said we would need the energy and that only the private sector could handle this need.

How deep will the cuts go?

The obvious question to the minister is how far will he go? Will he place a moratorium on all future IPP projects? What about other contracts already signed? Will he look at IPP dams in production?

What about the fairness of those deals, which were stated by the BC Utilities Commission as “not being in the public interest”? What if in examining these secret contracts, the minister finds them to be, as I suspect, unconscionable bargains?

Will he start monitoring IPP plants and enforcing environmental rules? Why now, ten years after the Energy Plan, is the minister analyzing this IPP mess?

[quote]Why now, ten years after the Energy Plan, is the minister analyzing this IPP mess?[/quote]

Let good ol’ Uncle Rafe tell you why.

As many have been saying, BC Hydro is bankrupt – at least it would be if it were in the private sector. Its only recourse to avoid actual bankruptcy is to pass this mess off to voters, and that will mean big-time trouble for the Clark government. Premier Clark is now looking towards the election of 2017 and can see her government in deep, deep trouble. She sees the BC Hydro situation as the big issue – demonstrating how the pitiful NDP campaign last May was so harmful to the province.

The premier’s difficulty is that she was part of the energy policy a decade ago and supported it because right wing ideologues like the Fraser Institute advised her government that publicly owned enterprises were to be despised and done away with. In short, the present damage to BC Hydro is irreparable, which was the whole idea in the first place.

LNG Hail Mary

Premier Clark lost all the Campbell nitwits and is now supported by a caucus that was glad to see the end of him. They don’t have an ideological approach to BC Hydro and see their own survival as dependent upon cleaning up this energy mess.

Premier Clark knows this and has a solution: build Site “C” for about $10 BILLION, sell power at a huge discount to large energy producers if they will “mine” gas, largely by “fracking”, then take that gas to Prince Rupert, liquefy it, using huge quantities of subsidized power, then sell it to Asian markets. This will, opines the Premier, not only wipe out the province’s debt but also will put $100 BILLION into a “Prosperity Fund” – and we’ll all be on easy street.

All of this depends, of course, on getting a market for this gas. That depends on its putative customers needing gas in 2017 and beyond. What happens if these future customers have lots of gas? That has largely happened.

(Let me digress to note that recently The UK and Israel have each discovered enough natural gas for 25 years, the point being that the likelihood is that by 2017 – the absolute earliest any of BC’s LNG will be ready for export – gas will be a glut on the market.)

Mr. Bennett is no fool and sees that placing everything on #12 Red on the wheel is madness, while also realizing that what I’ve just said is so obvious that not to deal with it could not only defeat the government but destroy the right wing coalition.

[quote]Premier Clark has no vision because visions cost money.

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Premier Clark has no vision because visions cost money. She sees that the energy situation is catastrophic. She will rely on companies pledging to build LNG plants yet the shovels are barely turning. As the months and years progress, she will “suddenly” find that the world – especially including Asia – will be awash in natural gas. More and more, like Mr.Macawber, her policy will be based on the hope that “something will turn up”.

Thanks to the pitiful press we face, and the just-as-pitiful NDP election campaign last May, the public is largely in the dark about this mess – but that won’t last until the next election in 2017.

Minister Bennett and his colleagues will dip deep into the top hat but, alas, there are no rabbits there.

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Reported by the Vancouver Sun on 17th August, 2013: Powerex (subsidiary of BC Hydro) “has reached a $750 million out-of-court deal to settle claims it drove up electricity prices in California more than a decade ago”. Energy Minister Bill Bennett indicated, “The loss [penalty] will be applied to BC Hydro’s debt in deferral accounts and paid down by BC Hydro’s five-per-cent rate-rider.”

So what was done by whom, how and when? One certainty – BC Hydro’s customers had no hand in the fraud, nor were they ever asked if they wanted their electricity supplier to be engaged in much out-of-province trading.

Trading of electricity by Powerex was historically thought of as a marginal business, only to facilitate occasionally bringing in electricity to meet provincial short-term needs and to sell temporary surpluses to others. Oh, how far off the rails did matters go?

In Enron’s salad days, its board and executives were held up for admiration for their unbridled, rapacious conduct. The Wall Street mantra, preached by the likes of Merrill Lynch and Goldman Sachs, that “greed is good”, prevailed at Enron and, by extension, with the many “wannabees”.

For no reason other than it was there to be done, California was singled out as a worthy place to enjoy the benefits of electricity “deregulation” and this transpired with Enron leading the charge.

The average annual market price for electricity – measured by the PX-Day Ahead Prices, expressed in USdollars per megawatt hour (MWhr) – were stable at $30 for the years 1998 and 1999. In 2000, this price level continued without much change through to the end of April. By December the monthly average was US$385.60 per MWhr. In an 8 month period, electricity measured at the wholesale level, had increased by nearly 1,300%. 

That scale of that price increase, in such a short period, just did not make sense in what had always been a stable industry, where balance is well maintained by producers and customers. Just imagine yourself facing a 1,000% increase for gasoline, bread or water. Your sense of outrage would be through the roof, and rightly so.

This pricing change would have been recognized as a game-changer by everyone in the electricity industry in North America. Ignorance of this change by the likes of Powerex, BC Hydro and even the BC cabinet is unbelievable.

In February, 2002, two California researchers published, “A Quantitative Analysis of Pricing Behavior in California’s Wholesale Electricity Market During Summer 2000; The Final Word.” They concluded that “there is considerable empirical evidence to support a presumption that the high prices experienced in the Summer of 2000 reflect the withholding of supplies from the market by suppliers (generators or marketers)”.

This polite representation just describes the fraudulent conduct of the few to extort unearned money from the innocent and many. Morality did not exist among the producers and marketers, making all participants guilty in an active conspiracy to defraud the innocent.

So, just how big a deal was this fraudulent behavior for Powerex/BC Hydro and the government? Starting in 2000, Powerex reported a gross volume of trading in GWhrs of 23,410 at an average price of CDN$48.22 per MWhr. Given the currency differential then, this price was roughly in accord with the US prices above.

Only one year later, with volume almost the same, the average per unit price increased by nearly 500% to CDN$228.37. That change in unit price is one huge “speed bump” not to notice and ask why. It wasn’t until 2004, after the stuff hit the fan in California, did trading prices return to the normal steady state of about CDN$30 per GWhr and has mostly held there until now in 2013.

If the electricity professionals at Powerex, BC Hydro and the provincial cabinet claimed to have missed noticing a 500% price change, you would think they would have noticed unplanned revenue increases of about $8 billion over the course of 2001-2003. Long before 2003 the evidence was in of a fraud being perpetrated on the citizens of California that no one in the Pacific Northwest would have been unaware of.

Even if the $750 million settlement looks like a good deal, it is now easy to understand why the Governor of California showed Premier Campbell the back door when he, Campbell, sought to have run-of-river power generation designated “green electricity”, thereby qualifying this energy for pricing premiums in California.

Dumping this penalty onto the shoulders of BC Hydro customers is an act of accountability avoidance. The BC cabinet should be ashamed for continuing to make BC Hydro customers victims targeted for the immoral, if not illegal conduct of others.