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The $55 Billion private power racket and real story behind Hydro’s debt

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Posted July 3, 2013 by Damien Gillis in WATER
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The $55 Billion Private Power Racket and Real Story Behind Hydro's Debt

Dennis Richardson photo

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.

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About the Author

Damien Gillis

Damien Gillis is a Vancouver-based documentary filmmaker with a focus on environmental and social justice issues - especially relating to water, energy, and saving Canada's wild salmon - working with many environmental organizations in BC and around the world. He is the co-founder, along with Rafe Mair, of The Common Sense Canadian, and a board member of both the BC Environmental Network and the Haig-Brown Institute.

4 Comments


  1.  

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  2.  
    Archives

    Friday, 12 July 2013 07:04 posted by chad le clos

    I’d like to thank you for the efforts you have put in penning this blog. I am hoping to check out the same high-grade blog posts from you in the future as well. In truth, your creative writing abilities has encouraged me to get my own, personal website now 😉

    Wednesday, 10 July 2013 16:42 posted by Tom

    Thank you for this important article.

    Three phrases here have resonated with me. These were “breach of the public trust”, “fraud” and “corruption”.

    Given that it’s something like a $187.00 fine to ride a bicycle without helmet in B.C., it seems to me that there must be grounds to pursue a criminal or civil action against those who were entrusted with the public’s resources, and tasked to manage those resources in the Public’s best interests.

    I can’t see the sleeziest lawyer or corrupt judge making a case for these people.

    I know who signs their checks, but I wonder how the RCMP would be able to ignore a formal complaint of wrong doing and demand for an open public forensic accounting, signed by a few thousand outraged British Columbians… For starters.

    Perhaps an action like this would also wake some of the sleepwalkers.

    Sunday, 07 July 2013 19:48 posted by Reinier Kanis

    Thanks for this information update, the absence of articles like this that are the main reason the major Vancouver Newspapers are going broke. People really don’t want to pay to listen to those who serve the government rather than the people.

    If they spent more time researching the truth, then websites like this would not get so much attention. It sure is great to see some people are publishing the important news citizens need to read.

    Saturday, 06 July 2013 00:56 posted by GThornton

    I wonder what all the fluff is about. Did BC citizens not see this coming? I know…Christie might have been the devil we know, but her party’s track record is full of back room deals. If the public thinks, ever, that politicians are more transparent and honest, just ask Harper how Duffy is doing. Let’s face it, it’s always about the money…I waited twelve years for a 30 cent raise working in BC healthcare, but Christie and her cabinet all got a healthy raise! What part of this don’t we understand? What BC truly needs is a Leader.

    Friday, 05 July 2013 19:31 posted by sharon

    ‘When the pocket book hurts, the people listen.

    Be prepared to disseminate all this information as a Fact Sheet when the tipping point arrives.

    Municipalities care about ‘commercial’ interests, not the citizens . . . when commerce trumps citizen debt with no fantastic ‘percs’ for the citizens, there will be a reckoning.

    BC Hydro belongs to us.
    As do the rivers.
    Time to re-educate BC residents.

    Friday, 05 July 2013 06:51 posted by clayton gladstone

    Wake up people precious few can make that 1% ,supporters are mindless drones.

    Friday, 05 July 2013 06:17 posted by elmer kabush

    Suggestion is to set up public internet discussion groups
    similar to strategy that the new mayor of Calgary used in
    his election campaign strategy to build a following and
    to discuss key issues facing BC Hydro with the public at
    a very affordable way.

    Thursday, 04 July 2013 20:55 posted by Damien Gillis

    From HuffPo today – Bennett hinting at rate increases but cagey about numbers: http://www.huffingtonpost.ca/2013/07/04/bc-hydro-rate-increases_n_3547866.html

    Erik’s figures are clear – unless it’s an immediate 35-40% increase, it won’t be enough to correct ‘our public utility’s path to ruin.

    Thursday, 04 July 2013 19:37 posted by Kevin Logan

    Thanks Erik,

    These are good points for political accountability.

    However, even if what you define as “production values” are shifted with the with long term contractual obligations directly under the purview of the ministry, it will still result in annual compounding of debt, as that is precisely the problem with these deals.

    Right now BC Hydro is spending 2 billion dollars to upgrade infrastructure and recent reports are suggesting that even more is required. All of which is well and fine if it is an investment in our future and the company remains a public asset.

    However, as we know, there seems to be a privatization agenda at play. Which means the public will foot the bill for handing over new and improved assets when the time comes.

    That said, when that time does come, these “contractual obligations” if shifted away from BC Hydro will be left to create a debt hole in the public accounts for as much as 60 years into the future, a total of twice the entire debt the province has incurred since its inception.

    However if left at BC Hydro the contracts will not survive the privatization process, and will be taken into account and resolved, and not left to burden us for decades

    Thursday, 04 July 2013 19:25 posted by erik

    Hello Brian; exporting electricity to Asia. now that is indead thinking very big.

    In the 60s I used to see the odd remients of the telegraph line north of Terrace and toward Stewart. Very formidable country. In the 70s I listened to the Dome Pet stories about a gas pipeline from the delta to the lower 48. I even developed two air logistics packages for the Mackenzie and Alaska Highway routes.

    In the 90s I was not popular in Alberta for trashing the second Mackenzie pipeline attempt.

    From all that history I decided these types of projects were always going to self-destruct for various reasons but mostly because of new techologies making the old ideas irrelevent.

    Thursday, 04 July 2013 18:57 posted by Hugh

    The $55 billion that BC Hydro owes to IPPs is money that will not be spent upgrading BC Hydro’s own infrastructure.

    Also, the $1 billion cost of the ‘smart grid’. My old meter worked just fine.

    I’m thinking GE wants the ‘smart grid’:

    http://www.geappliances.com/home-energy-manager/

    Thursday, 04 July 2013 18:15 posted by brian

    You are of course aware that the IPPs will be using this line to send the Power to Asia at a massive mark-up don’t you?

    http://www.bibliotecapleyades.net/ciencia/ciencia_energy52.htm

    you dont even have to read the link, but it is good if you do, but just scroll down and take a look at the picture, you’ll figure it out!

    Thursday, 04 July 2013 14:59 posted by erik

    Good points Kevin.

    Should shifting of IPP contracts happen then their respective annual production values should go as well.

    Dismantling Powerex at Hydro and re-establishing it at Bill Bennet’s Ministry would then have the consequences of previous poor judgement right where it belongs, not on the backs of Hydro ratepayers who are the innocent victims.

    The Auditor General made it clear over a year ago that $96.4 billion of “contingencies and contractual obligations” existed along side and in addition to the $70 billion of total liabilities the Government was reporting at the end of fiscal 2012. This $96.4 billion was ignored by all political parties this past April despite personally and dircetly recieving evidence of it from Sandra and myself.

    The new President of Hydro did publicly acknowledge in Fort St. John, about 2 weeks ago, that IPP debt was indeed $50 billion or more. For the sake of accounting at Hydro I know of no entry that shows Hydro is getting any ownership of assets from these IPP contracts.

    By driving the IPP contracts onto the Minister’s desk it is in a place where the voters get to hold foks accountable at the ballet box; maybe Kelowna.

    Thursday, 04 July 2013 14:00 posted by Kevin Logan

    Good points Erik and Damien,

    Another point is with the notion of shifting the debt out of the deferred accounts of BC Hydro to an undefined place within the accounting of the Province as a whole.

    This may seem on the surface a responsible means of salvaging BC Hydro and avoiding the debt trap, however extending the liability to the entire province with no revenue stream to address it creates a broader problem.

    In other words its not a solution.

    The downward spiral we have now long identified at BC Hydro already puts the province in jeopardy. Shifting the debt burden without a means of servicing the debt could create an even bigger monster putting at risk not simply rising rates for hydro customers but instead wholesale cuts and declining services across the full spectrum of government.

    This is already the case as the Province holds ultimate liability, and given that the agenda to offload Hydro is clear to anyone paying attention, leaving the debt under their umbrella would allow for it to be addressed during the process shielding the government from the liability.

    Clearly debt is already a problem for the province and adopting BC Hydros liabilities outright may be disastrous

    Thursday, 04 July 2013 13:11 posted by Damien Gillis

    Thanks, Erik. I concur 100% with your assessment that Hydro’s board and top executives know what’s going on and have gone along with the Liberal Government’s program to sabotage the asset. To be clear, my only counterpoint was that they are under extreme duress and face dismissal (whether by that name or the proverbial forced “resignation”) if they speak out publicly (as Elton and Cobb did). They are, as you say, not stupid – rather they are cowards for not being willing to sacrifice their cushy jobs and generous compensation packages (which have gone through the roof along with all Hydro’s other costs, as you are well aware) to stave off the eventual destruction of their employer and fleecing of their customers, the BC public. I’m prepared to lay plenty of blame at the feet of Hydro’s bosses – just not as much as the ultimate architects and drivers of this scandalous scheme: The Campbell/Clark Government and their private power pals/puppet masters…We must assume, as you say, that every single high-level participant to this fraud is well aware of what they’re doing – even if that may not have fully contemplated the world of hurt they will cause so many innocent victims.

    Thursday, 04 July 2013 12:58 posted by Erik

    A great article Damien.

    An important concept the BC public should capture is that sabotaging BC Hydro was nor is accidental.

    Hydro’s Board of Directors together with senior management have never been nor are financial illiterates. I can’t imagine anyone trying to forward such a narrative and expecting to be taken seriously.

    In the period; 2000 to 2012; BCH managed Total Assets that increased by 100%; committed ratepayers to Total Liabilities Liabilities that increased by 600% (includes the contract obligations to IPPs) and all to meet reported BC only demand that increased by 8.6%.

    This disastrous trend was blindingly obvious by 2008 but the people really calling the shots refused to acknowledge the many calls for sanity.

    What is now the BC Hydro condition was no accident.

    Thursday, 04 July 2013 12:14 posted by cherylb

    The first thing that needs to happen is that someone needs to simplify the issue. People want quick, hard 20 second soundbites. Otherwise you lose them.

    Perhaps a short you tube video that can be shared?

    Thursday, 04 July 2013 11:00 posted by Damien Gillis

    Iam a noun, what will be required here is an HST-style public backlash. That begins with information – but needs to be translated into action quickly. One step you can take – besides sharing this story with your friends and colleagues – is to write a letter to your local and major news outlets – demand they cover this issue with honesty and integrity. Tell them you know what’s really going on and stand firmly against it.

    Thursday, 04 July 2013 10:59 posted by scotty on denman

    It is evident a massive breach of public trust is being blatantly perpetrated by the BC Liberal government. How do you stop a government from doing something illegal? The electoral route has been disappointing. As the BC Rail corruption trial showed (or, more precisely, the corruption of the corruption trial), BC Liberal abuse of public funds can effectively frustrate the judicial process. If money was limitless, some agent could, perhaps, prosecute both the breaches of trust and noncompliance of IPP contract terms in a sort of legal pincer movement. While the electoral and judicial routes look remote, we do have Citizens’ Initiative, the uniquely (in Canada) British Columbian legislation that took down the hated HST, unique, too, because it was the first time in eight centuries of Commonwealth parliamentary history a government was forced by popular demand to repeal a tax law. This avenue could be pursued to force the government to, for example, repeal the law that requires BC Hydro to purchase IPP power at any cost. The petition phase of the Initiative would go over the heads of government, courts and MSM in focusing BC voters on IPP parasitism. We can deal with the perps later.

    Thursday, 04 July 2013 10:52 posted by del

    What you have brought forward is soooo true. The BC government through the LIberal gov. have taken our public utilities and unilaterally sold them to corporations. Health, ferry, hydro, the list goes on…the liberals are no friend of the people but are stooges for corporations.

    Thursday, 04 July 2013 09:27 posted by iam a noun

    So, besides talking about it, how does one get the ball rolling to stop this action of deceit?

    Thursday, 04 July 2013 00:33 posted by Kevin Logan

    Good piece Damien.

    Wednesday, 03 July 2013 22:11 posted by J

    The joke is on us every time Clark alludes to WAC Bennett:
    “But unlike W.A.C. Bennett, we can also change the future of our country. We can become the economic engine that drives Canada, and for the first time in the history of Confederation, we can step up and punch our weight in this Confederation,” she said.
    ( Read more: http://www.vancouversun.com/news/Christy+Clark+outlines+ambitious+economic+plans/8426419/story.html#ixzz2Y3AqjgA4 )
    And, unlike WAC Bennett’s government which created BC Hydro, CC’s Liberals can take it apart.





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