BC Liberal Energy Minister Bill Bennett came on CBC’s Early Edition Monday to answer some of the mounting questions regarding BC Hydro’s financial troubles and his party’s energy policies (listen to the full interview here). Suffice it to say, he fell well short of coming clean – and yet, the exchange yielded a few very interesting moments from the East Kootenay MLA, newly appointed to the Cabinet position.

Host Stephen Quinn put to Bennett that Hydro’s grave financial problems stem from policies of the BC Liberal Government over the past decade, asking him if it is now in a position to have to undo some of those policies. “I would certainly challenge vigorously the assertion that BC Hydro is in financial crisis and, some people have said, close to bankruptcy – and that’s simply not true.”

The real numbers, supplied by independent economist Erik Andersenand verified by the Auditor General, tell a very different story.

Bennett defended Hydro’s Liberal-appointed board, suggesting he wasn’t intending to make significant changes or fire its members and Hydro’s executive staff. Contrary to his recent criticisms of “surprise” cost overruns for capital projects – including the Northwest Transmission Line – he began by expressing confidence in Hydro’s project management. Given his comments in recent weeks, this 180 degree about-face from the minister was the only real surprise here.

Much of the conversation focused on Hydro’s $5 billion in “deferral accounts” – a controversial accounting practice criticized by the Auditor General, which allows Hydro to bank future revenues from rate increases against current deficit spending on capital projects and operations. Bennett again, largely defended the practice as business-as-usual accounting.

The minsiter blamed the NDP for not investing enough in infrastructure upgrades during its tenure in the 1990s, suggesting that caused the Liberal Government to have to carry out billions of dollars in upgrades. What he leaves out is that a significant portion of this capital spending is directed to hooking up private power projects to the public grid. Moreover, as independent economist Erik Andersen has demonstrated in these pages, the rate of spending is out of line with Hydro’s retained earnings and would not be considered acceptable to the shareholders or board of any private sector company.

Finally came the most important discussion – on the government’s private power program at the root of Hydro’s present difficulties. Quinn played a tape of a recent interview with SFU professor and noted critic of the Liberal Government’s energy policy, Dr. Marvin Schaffer:

The government told BC Hydro how it had to plan its system; it told BC Hydro where to get its power from; it told BC Hydro what projects it had to do; it told the [BC Utilities] Commission it couldn’t review a whole range of projects – and that’s part of the problem that has to be fixed going forward if we want to get some of the cost-drivers under control.

Bennett dismissed Shaffer’s comments, firing back:

I don’t agree with him…What he just expressed is a very narrow and biased point of view. When he refers to telling BC Hydro where they’re going to get their power, he’s obviously referring to the green – the clean power that’s been generated in the province and we made a decision a number of years ago that we were going to start to develop alternatives to the big hydroelectric dams. I mean, do people want more dams in British Columbia? I’m not sure they do. We’re trying to build something at Site C in the northeast and there’s lots of opposition to that. I think the public support the development of wind power and solar and run-of-the river projects.

They account for such a small proportion of the total debt at BC Hydro and they account for such a small proportion of the power that’s actually generated in the province. For the life of me I can’t understand why people make such a big deal out of having clean power.

Mr. Bennett is correct that private power projects account for a small proportion of the electricity produced in BC – approximately 16% – and yet, as of 2011 they made up roughly half of the total amount Hydro spends on power every year, according to SFU’s esteemed energy expert and former Hydro board member, Professor Marjorie Griffin-Cohen.

As to Bennett’s contention that they account for a “small proportion” of the debt, in fact Hydro is on the hook for $55 Billion worth of dramatically overpriced, long-term private power contracts – projected to cost Hydro a billion dollars a year by 2014, much of that at a loss.

“What Marvin Shaffer was talking about there was the ‘self-sufficiency’ requirement that means that BC Hydro has to purchase power at what amounts to an inflated rate,” Quinn followed up. “Is it time for that requirement to go?”

Bennett’s surprising response: “I won’t say ‘no’ or ‘yes’ at this point in time”, suggesting that some adjustments to this policy – the very basis for the private power purchasing program – were being made and may continue to be made in the future. Reducing these artificial requirement for more power than Hydro needs access to would erase the justification for private power projects – which was the crux of comments made by then-CEO Dave Cobb two years ago, resulting in his premature departure from the crown corporation to work for Jimmy Pattison.

Where Bennett and the Liberal Government go from here on the Hydro file remains to be seen – but judging from their continually shifting positions and confused statements, they’re running scared. And so they should be. They got us into this mess – now it’s catching up with them.

British Columbians have been hearing a lot lately about BC Hydro’s shocking debt situation – which is far worse than it’s being described. Newly-minted BC Liberal Energy Minister Bill Bennett is supposedly on the warpath, looking for ways to trim the fat from the crown corporation’s bulging belly. The Liberal Government was “surprised” by last-minute cost revisions to a few Hydro projects, skewing its budget calculations, we’re told.

Bollocks.

There is no “surprise” here – any suggestion thereof is political theatre. Strike that. Let me call it what it is: LYING.

The ballooning cost of the Northwest Transmission Line, cited as the key cause of this budgetary hiccup, represents but one tiny fraction of Hydro’s real financial mess – and the BC Liberal Government knows it.

Why? Because they caused these problems themselves.

The mainstream media, as is to be expected, is largely parroting the government’s cover story and ignoring the real problem: BC Hydro and its ratepayers are in a world of hurt because of 12 years of very deliberate and disastrous BC Liberal Government policies, pushed on the public utility.

First and foremost of these was the forcing of BC Hydro to purchase $55 BILLION worth of sweetheart, long-term contracts with private power companies, which we didn’t need. As our resident, independent economist Erik Andersen – supported by figures and confirmation from the Auditor General – has demonstrated through a series of over the past 3 years, BC Hydro has chronically overestimated domestic demand for power. Historical estimates by Hydro have projected our current use at well over 60,000 Gigawatt hours (GWhrs) of electricity per year, when, instead, we’ve been flat-lined at around 50,000 for several years and show no real sign of growing beyond that (unless, of course, we build massive new capacity to subsidize mines and gas projects – more on that in a moment).

But you can’t merely blame BC Hydro for getting the numbers wrong. Forecasting power demand has, unfortunately, always been a more of a political exercise than a statistical one. Hydro’s masters are under enormous pressure to justify the government’s energy agenda. Those who question it – even at the top of the crown corporation’s executive ladder – pay the price.

Two CEOs who presided over a significant portion of this era – Bob Elton and Dave Cobb – were both pushed out after making cryptic references to the problem of private power contracts.

As for the Northwest Transmission Line? This project was pushed on Hydro in order to support the province’s agenda to open up new mines in northwest BC – again, highly subsidized by taxpayers. Why aren’t these mines building the line themselves (they’re kicking in only a fraction of the cost)? Why were the federal government and companies’ contributions capped, with BC Hydro left holding the bag for the entire cost overrun, now in the hundreds of millions of dollars?

Has BC Hydro done a poor job managing costs on the project? Is the Pope Catholic? But that’s largely beside the point. This project is the BC Liberal Government’s baby and now, when it goes sideways, they blame the public utility…and act surprised about it? How cowardly and dishonest can this bunch get?

The way this is all playing out should be of great concern to British Columbians. The Liberal Government and its private power pals are taking a page out of the neoliberal handbook, which aims to privatize anything of value, while unfettering “the market” of all “regulation” (which you and I would call “laws”). Here’s how it works:

1. You saddle a valuable public utility or asset with enormous debt through private sector contracts it doesn’t need (of course, the stated rationale is the opposite – i.e. saving the public money through “private sector efficiencies”, which somehow NEVER, EVER materialize).

2. Blame the utility and its managers for the debt load when it becomes unbearable.

3. Use this as a justification to break up and sell off the utility, for pennies on the dollar, to the very private sector players who were instrumental – along with their government puppets – in bankrupting it in the first place.

Somehow, magically, the problem becomes the solution. This has happened all around the world, as Australian author Sharon Bedder details in her vital book Power Play: The Fight for Control of the World’s Electricity.

The same pattern has repeated itself, all across the United States, Central and South America, Africa, you name it. It’s a tried and true formula, designed to steal the public’s most valuable assets out from under them – and, mark my words, they will try to do it here next.

My colleagues Rafe Mair, Tom Rankin, Gwen Barlee, John Calvert, Andy Ross, Erik Andersen and I have been warning about this – and documenting and sharing it with the public – for years now. Everything we predicted has come to pass. EXACTLY as we predicted it would – from the unchecked destruction of fish and wildlife habitat through these unnecessary, highly inefficient and costly private river power projects, to the precise nature of Hydro’s present financial troubles.

Now it falls to the BC public to ensure the right corrective measures are taken to prevent the theft of our crown jewel. And the mainstream media needs to hear that its readers, listeners and viewers will not buy the official party line – this sob story of the poor government, betrayed by reckless managers at BC Hydro.

Our resident economist Erik Andersen has laid it out like so: either we raise power bills by 35-40% right now (politically impossible), or, preferably, we “un-saddle” Hydro of these private power contracts. He suggests doing so by removing them from Hydro’s books and dealing with them as their own category of government liability (which is, in fact, where they belong, since it wasn’t Hydro’s choice to take them on).

Moreover, Andersen advises, we should not be building the $10 Billion Site C Dam to subsidize the mining and natural gas industries with cheap electricity, while regular British Columbians and small businesses pay 3 times as much for their power. This is a practice – the public subsidization of large-scale industrial corporations with highly-discounted hydro power – that needs to be rethought under the present circumstances.

I would go one step further. These $55 Billion of secret, private power contracts need to be opened up to public scrutiny – and unwound, to whatever extent is legally possible. The BC Liberals should consider such steps to save their own skin, now that they are being confronted with the full consequences of their decisions over the past decade. Most of these projects are in blatant non-compliance of the terms of their agreements. Others are experiencing serious operational challenges, which gives you a sense of what a botched deal this is – even under these favourable terms, akin to highway robbery, they can’t help but screw things up.

The Liberals should consider unwinding whatever contracts they can to give themselves some budgetary breathing room going forward and avoid the need to jack up power bills to unacceptable levels.

Above all, they need to face a massive public backlash over the mere suggestion of breaking up BC Hydro. They must be made to understand that this is not a viable political option. Think the fact they’ve been re-elected for another term and face a weak NDP opposition means they can get away with whatever they want? Three words: Harmonized Sales Tax.

The four cheapest districts in North America for electricity have historically been – not coincidentally – the only remaining public power states and provinces: Quebec, Manitoba, Tennessee and BC (though not for long, at this rate). This is no accident. For all the rhetoric of “private sector efficiencies”, the record of evidence is clear: private power is a racket, designed by the likes of Enron for one purpose – to suck maximum dollars out of the pockets of unsuspecting citizens.

This program is legalized fraud, plain and simple. Yes, I am quite comfortable using that word here – which Merriam-Webster defines as “intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right.”

We British Columbians cannot, under any circumstances, allow ourselves to be the next in a long line of suckers duped by this agenda. If we do, we can look to the likes of Greece, Ireland and Spain for some sense of what’s in store for our future.

Damien Gillis will be discussing these issues in depth at a public forum in Kelowna this Saturday evening, in advance of the upcoming by-election.

The Honorable Bill Bennett;

Re: BC Hydro

It was event in 2009 that the financial direction taken by the BC Hydro Board, under the direction of the Cabinet, was a serious misread on the global and provincial economic circumstances and outlook. Far too much was expected when all the credible evidence indicated a global slow down was in the making. Nothing much has changed since then but BC Hydro has carried on with the narrative that growth and “good times” are just around the corner.

Starting in 2006, fueled by the fraudulent activity of Enron, BC has been on the well trodden path of others who believed the export of electricity, particularly “green energy”, was the road to financial salvation for BC. This was a theme from the 70s and coal was the fuel. Natural gas is the current narrative.In every case taxpayers were committed to debt that became “stranded” – of no economic value.

Since 2006/09 domestic (BC only) demand has mostly “flat-lined” at about 50,000 GWhrs making liars out of the many at Hydro and elsewhere who, a decade ago, forecasted demand to be well over 60,000 GWhrs per year by 2012. The record is replete with similar examples of demand exaggerations from BC Hydro.

Using the narrative of “need” being an absolutely ridiculously high number the government engineered a serious gross generation surplus that came at a cost of more than $50 billion in new contractual debt, from which the citizens of BC earn no equity after paying for the cost to build these sites. Surplus generation capacity is a luxury that comes at a very high cost, much like any excessively large insurance policy.

That is now all history. What is needed now is rational action. Collapsing contracts, while instinctively appealing, is hardly the solution.

Raising BC customer rates to get BC Hydro into a cash break even condition is politically dynamite. An across the board rate increase of 35-40% would be what is needed if all else is left to run its course.

Far better would be to transfer IPP contracts, with their ongoing payment obligations, from Hydro to the Government. A total that represents a production value of 15,000 GWhrs per year would be a good target amount. These would then be categorized as an “industrial development” component, not truly the responsibility of existing Hydro ratepayers, but rightly the responsibility of all the citizens of BC.

As to Site C and other new projects, the cost of electricity from these IPPs is north of $100/megawatt hour but large industrial users in BC expect to pay $40 or less. The contradiction is that large industrial customers in BC expect to pay $40 or less. In most other places in the world LNG plants use their own commodity to generate electricity for liquefaction purposes. Why we in BC would use high cost new electricity to do this job is hard to fathom as it would represent a huge subsidy from Hydro ratepayers for a trivial amount of employment.

Sincerely

Erik Andersen; Economist

I want to clarify my position on the proposed Site C Dam: I AM AGAINST IT.

One of the troubles in this business is that one comments on many aspects of the environment and can have a word or two or a line taken out of context – as happened with a column of mine last week, in which I referred to newly elected Premier Clark’s resolve to push forward with the dam to power shale gas operations.

Here are my thoughts on Site C.

We do not need the power, nor will we in the foreseeable future. In a blog sometime many years back, I answered the question, “Isn’t Site C better than so-called ‘run-of-river’ projects?” My answer was  if that’s the choice we face, I suppose I would have to agree. Except it’s false premise, since we don’t need either. That was, I believe, about 2008.

Now I would leave no doubt. These are two separate issues. I am unalterably opposed to so-called “run-of-river” because they not only destroy our precious rivers, they are – if they haven’t already –bankrupting BC Hydro.

Let’s then look at Site C. They say this will cost $8 billion – using the usual margin of error on such matters, we can safely assume it will be at least 25% higher, say $10 billion.

At any price the project would wipe out a large and very important amount of farmland and wildlife habitat.

Premier Clark has already designated the power for Liquefied Natural Gas (LNG) – which is enormously energy intensive – and it is here we descend into the world of madness. Premier Clark says that LNG will eliminate our debt of $57 Billion. Well, for starters, the real number is $171 Billion, or $40,000 per man, woman and child!

This will also give us a “Prosperity Fund” of over $100 Billion.

Really???

At this point we have no firm customers for one cubic meter of LNG and none on the horizon! Of course companies will say they are going to recover all this natural gas, ship it to Prince Rupert and sell it to China and Japan. I repeat – there isn’t a single firm contract in place and my bet is there never will be.

We’re in an entirely new world from a few years ago. A process called “fracking” lets one drill vertically into shale rock up to a kilometre or more then horizontally to capture fossil fuels trapped between the layers of shale. They do this with huge quantities of water laced with chemicals.

Leaving aside, for the moment, the question of markets and refineries, I’m sure you’ve picked up a couple of important environmental questions. What does this process do to the fragility of the nearby landscape?

Does it provoke earthquakes?

And, what about the water? It takes huge amounts – where does it come from and where, after it’s become so toxic, does it go?

The fracking and LNG processes use large quantities of power – this is where Site C comes in. We would sacrifice all that land in order to make power to be sold at bargain rates to gas companies. We, the people of BC, would make power, sell it at a discount to a company that would use that power to make more energy, to which more energy would be applied so as to transfer it to an LNG plant in Prince Rupert, where energy would be used again to make more energy to be shipped and sold!

Whom the gods wish to destroy, they first make mad.

Now let’s look at the markets.

The world is awash in natural gas. While fracking isn’t new, it’s come into vogue over the past few years. No one yet knows how much is available but there are huge deposits in Asia, especially Russia and China. Premier Clark would have us use public money to gamble on BC gas being lapped up in Asia, when, all signs say, they have ample of their own and the higher prices they currently pay are likely to vanish by the time we get our gas to market.

Don’t take my word for it – this is according to top business publications like Bloomberg, which wrote in January, “The difference between U.S. and Asian gas is poised to drop by more than 60 percent by 2020, leaving exporters facing a loss of as much as $6 million per tanker, according to calculations by Bloomberg based on data from Rice University in Houston.”

Moreover, if Asia does need gas, Australia is already in the position to supply it. In fact, the immense amounts of public money spent on this is a huge scandal in Australia which, it seems, Premier Clark wants us to join.

Let there be no doubt – I and my colleagues at the Common Sense Canadian stand firmly against Site C, no matter what those who would ravage our environment, including the governments, would have us believe.

To Site C, the answer is NO.