What BC Hydro says about its own work clearly establishes the forecast as a foundation document for future planning for new generation and distribution investments:
[quote]Load forecasting is central to BC Hydro’s long-term planning, medium-term investment, and short-term operational and forecasting activities. (1)[/quote]
Because of this importance, the forecast needs to be as accurate as possible and that is where matters get interesting.
Getting the numbers wrong
An illustration of getting the numbers wrong can be seen on page 21 of the 2012 Load Forecast: “Comparison of 2011 and 2012 Forecasts”. There is a forecasting error of about 4% in each year for the period 2013 through to 2032. BC Hydro discovered that it had projected total demand numbers in 2011 that it subsequently reduced 12 months later, by about 4% for each of the following 20 years.
Case in point for year 2017; the 2011 forecasted demand value was 4,219 GWhrs more than was presented in Forecast Year 2012, one year later. This amount of error is the equivalence of the projected annual output of the proposed Site C dam or $9 billion of borrowed money.
This is not a one-off event, just part of a pattern across the past decade. For example, from the 2007 Forecast, the demand value for 2012 was projected to be 57,201 GWhrs for the year. Actual reported sales, in GWhrs (2), were 52,197; 5,004 less than forecasted in 2007. This was a forecasting error of 9% for only 5 years on from its presentation.
Industrial power demand on the decline
By the 2012 Forecast BC Hydro was beginning to recognize that its previously held opinion of future demand was wrong. For example:
[quote]The residential forecast is below last year’s forecast for all years of the forecast due to lower housing starts and account projections, and lower loads anticipated from EVs…Industrial sales are projected to be lower than last year’s forecast.(3)[/quote]
This was a very belated recognition of a condition that was evident starting about 2007. Sales to large industrial customers had been steady at about 16,000 GWhrs per year in the first half of the decade, but certainly not increasing and thereby providing no supportive evidence of growth of demand for this customer category.
To no one’s surprise 2008 sales to large industrials was the start of a downward trend. In 2009 sales were 14,303 GWhrs, in 2010 13,020 GWhrs, where they have flat-lined right up to March of 2014 (last report available).
Commercial and light industrial too…
Regarding the sales outlook for the customer category “commercial and light industrial”, BC Hydro wrote: “Total commercial forecast is below the 2011 Forecast in the initial period of the forecast; this primarily reflects lower commercial distribution sales driven by slower growing economic drivers.”
Now, dear reader, you might rightly ask yourself why has and does BC Hydro gets its forecasting wrong. The answer or answers are not so easy to discern but they are most likely because of using model entry data of poor quality, thereby compromising projections. For residential customers, the “forecast is the product of accounts and use per account. The account forecast is driven by projections of regional housing starts.”
For commercial customers, “The key drivers of these end-use models are regional economic variables (i.e., commercial output [Gross Domestic Product (GDP)]), employment, retail sales, and non-economic variables such as weather and average stock efficiency of the various end uses of electricity.” For large industrial customers:
[quote]GDP growth projections are used to develop the forecast. (4)[/quote]
Common to all customer categories is the forecast for Gross Domestic Product (GDP). This is where BC Hydro loses control by taking the GDP outlook from the BC Ministry of Finance. The Government’s outlook on GDP has been consistently bullish, simply because its preparation has too large a political dimension. Government budget presentations universally project an increase for year two greater than for the upcoming year. To do otherwise would be a career-ending action.
Rising consumer costs = more conservation
As to the residential forecast it focuses on the outlook for meter installations. People are the consumers of electricity not addresses of meters. It was clear from the evidence presented at the hearing on the installation of the “smart meter” that one customer sometimes had multiple meters. In urban areas, where real estate prices have increased dramatically, population densification has been a trend, meaning that more than two people can often be behind one meter.
BC Hydro does prepare their forecasts being mindful of price elasticity. Yet resistance to higher rates, and ones destined to increase at accelerating rates, has possibly not been adequately appreciated by BC Hydro.
An additional driver used by BC Hydro when preparing the forecast of residential demand is “personal income”. There are two factors that degrade the use of personal income data. The first is the trend of exporting high-income, value-added jobs from the province. The second is the progressive increase in service fees and rates that shrink disposable incomes. Decreasing ridership on BC ferries is a good example of this dynamic.
Need for Site C unproven
There is no argument that BC Hydro has a history of wrongly exaggerating the outlook for electricity demand. This could be because some of the input data for its modeling are politically contaminated. The construction of Site C, a $9 billion matter using borrowed money, is not even close to having the support of a believable forecast of demand. The sloppy business case for this dam is a disgrace and an insult to the citizens of BC.
The following is republished with permission from Policy Note – the blog of the Canadian Centre for Policy Alternatives’ BC office.
By Keith Reynolds
The BC Finance Ministry has produced a report much more critical of Partnerships BC and its activities around public private partnerships (P3s) than might have been expected by a province so committed to the practice. It raises issues of conflict of interest, dubious practices and questionable assumptions in the multi- billion dollar program. The story has received no media coverage.
While it is likely the province will continue to push P3s with undiminished enthusiasm for large projects, the report and surrounding documents acknowledge many of the criticisms of P3s raised by other groups including both the Canadian Centre for Policy Alternatives and the BC Construction Association.
The results of the Partnerships BC study were announced in a December 16 press release in which the government promised to carry out the recommendations in the report as well as further recommendations contained in observations from the report’s steering committee. If the government carries out this commitment it will mean Partnerships BC will lose some of its autonomy in the way P3s are delivered.
The study arises from a commitment in the 2011 Throne Speech that the province was going to take a hard look at is Crown corporations “to ensure taxpayers and families are protected and the interests of all British Columbians are well served.” The studies are being conducted by the Ministry of Finance’s Internal Audit and Advisory Services branch (IAAS).
Among the biggest issues in the report is conflict of interest. The report states:
[quote]There is a concern that Partnerships BC is potentially biased towards certain procurement methodologies because it is mandated to be both a self-sustaining organization and an advisor to government. This creates the perception that Partnerships BC’s advice may be biased towards revenue generating opportunities for the organization.[/quote]
In a letter from the report’s Steering Committee to the Minister of Finance containing “additional observations” the Committee recommends taking some decision making power away from Partnerships BC. The Committee recommends:
[quote]To ensure the determination of work directed to Partnerships BC is unbiased, it is recommended that the initial screening of all new capital projects for P3 viability be conducted by the Ministry of Finance under the direction of the Deputy Minister.[/quote]
The report also identifies (although it dismisses) the potential conflict of interest of hiring of the former PBC Chief Executive Officer, Larry Blain, as its Board Chair and then contracting with him to provide other services. However, the report also says:
[quote]A sample of fourteen consultant and contractor files, representing 23% of total files, was also reviewed. More than half of the contract files reviewed did not contain adequate documentation.[/quote]
The report does not say whether or not Blain’s contracts were among these deficient files. Since the IAAS review began both Blain and the woman who replaced him as administrative head of the agency, Sarah Clark, have left Partnerships BC.
While the report specifically says it did not examine the methodology that justifies the use of P3s some of its findings touch on this methodology. For example, Partnerships BC says it bases its decision on whether or not to use a P3 by comparing the cost of a P3 with a public sector comparator. However, PBC frequently uses what it considers to be the most expensive possible method of public procurement (Design/Bid/Build), ignoring less expensive methods of public procurement such as Design/Build, which even the Canadian Council for Public Private Partnerships (C2P3) considers public procurement.
The report says:
[quote]In many instances, PBC has used DBB (Design Bid Build) procurement as the benchmark. However this is not always understood by the project owner to be the most likely alternative as the project owner might choose to do DB (Design Build) procurement if a P3 does not generate value for money. Consideration should be given to using the most likely alternative that the project owner would use, to ensure that value for money is correctly stated and is understood by all parties.[/quote]
The report states that there is an inherent uncertainty in the assumptions used by Partnerships BC to justify P3s and recommends that:
[quote]Given the inherent uncertainty of the assumptions made in the value for money calculations, at least one jurisdiction in Canada has set a minimum value for money threshold (5%) that is required to go forward as a P3, and the government could consider doing the same.[/quote]
The report examines “bundling,” a practice by which smaller projects are linked to provide a large enough contract for a P3. This has been a particular bugbear for the BC Construction Association which finds many of its members are too small to participate in such projects.
The report finds this is not a common practice, but despite this, the Steering Committee for the report recommended to the Minister of Finance that “government strongly restrict the use of bundling and provide clear guidance on what is considered acceptable bundling.”
The report recommends that the trigger threshold for using a P3 be raised from $50 million to $100 million saying, “Stakeholders believe that this threshold needs to be raised to ensure greater cost/benefit returns on these complex and costly projects.” This being said the report suggests loopholes be left open should the government want a P3 for a smaller project.
The Steering Committee makes another recommendation which may undermine PBC’s involvement saying:
[quote]For local government and associated entities within BC, allowing Partnerships BC to provide services only through direct invitation (on a government to government basis) provided there is a positive return to the Crown Corporation.[/quote]
If followed through on this may reduce pressure on local governments to use PBC for projects.
A significant portion of the report focuses on the possibility of PBC competing with the private sector which might be delivering these services instead of a government agency. Major consulting firms, and smaller ones as well, could have delivered many of the services provided by Partnerships BC.
In 2002 when Larry Blain, who had also served on Gordon Campbell’s transition team when he became Premier, was appointed as head of Partnerships BC, the agency seemed largely untouchable. This seems to be changing.
In a final irony, the report itself may be a conflict of interest. Partnerships BC is a private company owned by the Ministry of Finance, thus the Ministry of Finance is reviewing its own agency which raises its own conflict of interest issues.
Keith Reynolds is a National Research Representative for the Canadian Union of Public Employees.
On Monday, as Canadians got back to work following the holidays, the price for crude oil dipped below $50/barrel for the first time since 2009, offering a glimpse of the profound changes in store for the country in 2015. With some $60 Billion in oil/tar sands projects now in peril – harkening back to “dark days” of decades past – this federal election year promises to put the fossil fuel-dominant economic vision of Canada’s political leaders to the test.
Good news, bad news
If 2014 was the year of the pipeline protest, 2015 may advance the cause of environmentalists and First Nations even further, without a single placard being waved or arrest made. In a country where the economy increasingly drives political policy and media commentary, something as simple as the halving of oil prices will likely do more to reshape the future than years of ardent protests. Cynical but true.
Yet these changes are complex and fraught with contradictions. Lower oil prices stall new oil/tar sands projects and pipelines while chilling investment in LNG projects. Yet they also drive consumer demand through lower prices at the pump.
And although this setback for Canada’s fossil fuel sector should be a wake-up call as to the need to diversify our economy and energy options, in some ways it hampers renewable energy development, by eroding recent gains in cost competitiveness for clean technologies. When oil costs over $100/barrel and natural gas is $8/unit, increasingly cost-effective wind and solar look pretty good these days. Cut those fossil fuel prices in half, and not so much.
Another important contradiction to note is the benefit to Canada’s economy from a weakened fossil fuel sector. As a new study from RBC reminds us, lower fuel costs to consumers free up cash that can flow into our economy through other avenues. More importantly, lower oil prices mean a lower Canadian dollar and lower energy costs to manufacturers, both greatly benefitting Canadian exports.
In other words, the jobs we lose in Fort McMurray may be replaced – and then some – by a strengthened manufacturing sector in places like Ontario.
What this moment – and potentially extended period – of depressed fossil fuel prices offers Canadians is the opportunity, in a pivotal election year, to rethink our economic future. And this applies at both the federal and provincial level – from BC’s proposed LNG industry, to the Yukon’s debate over fracking, to Alberta’s oil/tar sands, to several pipelines planned to carry dilbit eastward.
To get the conversation started, here are a few big ideas we should be considering in 2015:
Estimates of government subsidies for the oil and gas industry range from a billion and a half dollars a year to as much as 6 billion, depending on how you calculate them and whom you listen to. So to those “free marketeers” who would balk at subsidizing clean tech innovation, just be sure to apply the same standards to the fossil fuel sector, which, we’re frequently threatened, would up and walk away if we didn’t maintain the lowest royalty and tax regimes in the world.
As our contributor Will Dubitsky has documented over the past year, Canada is the exception when it comes to major industrial nations investing in clean tech. While Stephen Harper cut our only federal clean tech innovation funding in 2013-14 (which stood at a paltry $82 million), China invested $68 Billion in clean tech in 2012, with the US not far behind. Both countries, along with Germany, Denmark, Spain, Brazil, and many others, have reaped the rewards with millions of new green jobs. Canada’s tax incentives and subsidies for clean tech lag far behind these other nations.
Even in Canada, despite a wildly unfair balance of public investment in fossil fuels compared with renewables, the employment balance is shifting. Trying to assess the real job benefits of the oil and gas industry is a tricky business, because so many different numbers and definitions are thrown around (“direct”, “indirect”, “related”, Canada, Alberta, etc.). The Alberta Ministry of Energy, for instance, pegs “oil sands related direct employment in Alberta” at 146,000; whereas a 2011 study by the the Petroleum Resources Council of Canada acknowledged just 20,000 jobs in the Alberta oil sands sector, with 130,000 total oil and gas jobs across Canada.
Renewable energy proponent Clean Energy Canada subscribes to the latter measurements and made headlines with a report last year suggesting we now have more jobs in clean tech than we do in the oil/tar sands. The comments on this Globe and Mail story discussing the report range from skeptical to apoplectic at the audacity of these dimwitted eco-pinkos. But the key take-away is that clean tech jobs are growing in Canada – and rapidly – with very little help; whereas the future of oil sands construction jobs is suddenly looking pretty bleak.
If you believe the derision of oil sands boosters, these green jobs pose no real threat to their sector, so what are we waiting for? What are we not seeing that China, America and Germany are? If jobs are the name of the game, then it’s high time we got behind these sustainable alternatives.
And that doesn’t just mean wind and solar. As we’ve learned from a number of recent reports, Canada – particularly these western provinces doubling down on fossil fuels and big, antiquated dams – are sitting on top of huge geothermal potential. This is a clean, renewable energy source which, unlike wind and solar, is as predictable and consistent as coal or natural gas – without the wild market fluctuations.
While lower oil and gas prices may inhibit investment in clean tech and consumption of renewables, as noted above, that’s precisely what government intervention is for. This is where a government with long-term vision can step in an catalyze private sector investment and job growth for the future, laying the groundwork for an economy that is not strapped to the roller coaster of fossil fuel prices.
2. Take advantage of lower oil prices
As I noted earlier, lower fossil fuel prices can be a very good thing for Canada’s economy. There is strong evidence – from the likes of Industry Canada, no less – that higher oil and related currency prices have cost our nation more jobs than they’ve created.
[quote]…from 2000-2011, the oil and gas sector created about 16,500 jobs, while, at the same time, Canada lost 520,000 manufacturing jobs. Much of the manufacturing losses are tied to the rise of the petro-dollar which tends to rise and fall with the price of petroleum…Even Industry Canada acknowledges the problem. Their report notes that between 2002 -2007, from 33-39 per cent of Canadian manufacturing job losses were due to “resource-driven currency appreciation.”[/quote]
Sure, many Canadians will feel the pinch in their stock portfolios as our overly energy-bound TSX falters, but the opportunity for benefits to Canada’s economy from lower oil prices is significant – reinforced by a recent report from RBC, which notes:
[quote]Our current Canadian forecast assumes that both consumers and exporters will respond to these incentives that will slightly more than offset the expected weakening in oil-sector investment.[/quote]
What this all boils down to is a choice: Either export raw, unrefined bitumen and syncrude – generating few local jobs – or export finished goods, manufactured in Canada. Since the latter brings more jobs and value-add to Canadian resources, shouldn’t that be a no brainer?
3. Pull the plug on pipelines
Keystone XL, for both political and economic reasons, appears less and less likely by the day. Even an expected bill from a dual-majority Republican congress can and likely will be vetoed by Barack Obama. Clinging to this vision will only further strain diplomatic relations with our southern neighbour. It’s time for Stephen Harper to throw in the towel on Keystone.
As for Enbridge and Kinder Morgan, on top of all the law suits, the widespread public opposition – culminating in highly effective civil disobedience at the end of 2014 – and the well-justified environmental concerns, these plummeting oil prices mean the demand for increased export capacity is simply not there. Many oil/tar sands projects can’t make a buck at $50 oil (which is substantially lower when you factor in the Western Canadian Select discount on bitumen) – evidenced by the cancellation of numerous expansion projects in recent months.
[quote]Canadian oil and gas projects worth a total of $59-billion may be deferred during the next three years as the ‘collapse’ in capital investment in the global oil industry echoes the dark days of 2009 and 1999.[/quote]
The same thing is happening with risky, expensive shale oil from the Bakken in North Dakota, with production and train shipments plummeting in recent months. These unconventional fossil fuels are the first to lose their lustre in low-price periods. Upstart American shale oil producers are a victim of their own success – flooding the market with too much supply. Now, with OPEC unwilling to back off with its cheaper, light crude supply, it is forcing these more costly new sources out of the market.
Added environmental hurdles and calls for increased provincial benefits and reassurances, piled on top of a weakening business case, spell trouble for these projects – once considered a cake walk compared to getting through BC.
Times change, new facts emerge. Canada needs to evolve its thinking accordingly. If Stephen Harper wants to hang onto his majority – even stay in power with a minority government – he should rethink his dogmatic devotion to pipelines unpopular with many voters and for which the economic justification is simply no longer there. The oil/tar sands isn’t the only avenue to create jobs and be strong on the economy.
4. For God sakes, abandon LNG
Christy Clark’s LNG vision is the biggest loser of them all.
Petronas’ stalling comes on the heels of many other big players getting cold feet, including Encana, EOG, Apache, and BG Group.
And with good reason. Even after Clark gave away the farm to these companies – slashing down to nothing the export tax at the root of the Liberals’ grand “$100 Billion Prosperity Fund” promises in the last election – this dog still won’t hunt.
Here’s why: With all the added costs to produce and ship LNG to Asian customers, the break-even point is between $10-13/unit of gas. When Asian prices momentarily spiked to $16-18 a few years ago, it seemed like BC exporters could make some real money exporting LNG. But as we and other pundits correctly predicted, this price bubble wouldn’t last. Now, with spot prices hovering at or below $10 – and expected to continue falling throughout 2015 – that Asian price premium is gone, taking BC’s LNG pipe dream with it.
Sure, oil prices may pick up and with them LNG prices, but the lesson here remains: LNG is expensive and volatile – not characteristics that make big energy companies likely to fork out the tens of billions of dollars and half decade in pipeline and plant construction required to get this industry up and running. Which is why the sooner we abandon this delusion and start focusing on real, sustainable economic alternatives for the province, the better off we’ll all be.
“It’s the economy, stupid.” That’s the refrain environmentally-minded folks are browbeaten with, their pipeline and climate change protests patronizingly brushed aside by wise economic pragmatists.
But in 2015, with $50 oil, we should all be on the same page for once.
Not so. Clean Energy BC, the lobby group very ably representing IPPs in the province, has released a report claiming that BC Hydro could save $750 million to $1 billion if it were to buy a basket of run-of-river, wind, biomass and other IPP supply instead of building Site C. And apparently Minister Bennett is looking at that option as an alternative to Site C.
No reason to believe private power lobby
There is, of course, little reason to believe IPP supply would provide cost savings of $750 million to $1 billion relative to Site C. The estimates of such cost savings assume that IPP supply can be secured by BC Hydro at an average cost of $74/MWh, some 40% less than the average $125/MWh price BC Hydro contracted to pay after its last call for new supply.
The estimated cost savings also ignore the relatively low value of run-of-river and wind supply, run-of-river because of the disproportionate amount of energy produced in the springtime and wind because of the intermittent nature of the supply and consequent need for constant back-up. And, the estimated savings ignore differences in the cost of capital between publicly financed and private supply, and differences in the contractual rights to the projects at the end of initial contract periods.
From bad to worse
One can only hope that Minister Bennett does not jump from one bad idea (building Site C even though BC Hydro does not need that supply in the foreseeable future) to an even worse idea (acquiring high cost, low value IPP supply that we equally don’t need).
There is a far better strategy that BC Hydro should pursue.
What Hydro really needs
What BC Hydro really needs in the short to medium term is back-up for its hydro-electric system — assurance it will be able to meet all of its requirements even in drought conditions when hydro production is constrained. As well it will need more peak generating capacity — the ability to meet requirements in very heavy load hours periods.
The most cost-effective way to meet those needs is with the installation of additional generating capacity at BC Hydro’s existing hydroelectric plants — the so-called Resource Smart projects — and with strategically located natural gas turbines — available if needed but otherwise not run. The IPP run-of-river and wind projects don’t provide what BC Hydro needs and while Site C could, it would provide far in excess of what is required.
Minister Bennett would do well by deferring the development of Site C. Maybe one day it will be needed and a case could then be made that it is in the broader public interest notwithstanding the very legitimate objections of those most directly impacted by the flooding it entails. But it isn’t needed right now.
And nor is a return to the forced purchase of IPP supply. Been there. Done that. Don’t need to do it again.
The following is an open letter to Premier Christy Clark from economist and former ICBC CEO Robyn Allan
November 19, 2014
Dear Premier Clark,
Your government is an Intervenor in the National Energy Board Section 52 public interest review. The hearing is to determine if Kinder Morgan’s Trans Mountain Expansion Project is worthy of a public license to construct and operate a twin pipeline. The system will transport more than 890,000 barrels a day of primarily diluted bitumen to BC’s west coast.
Most of this heavy oil is destined for Westridge dock in Burnaby where it will be loaded onto tankers for marine transit. The tanker traffic triggered by the expansion means two oil tanker transits a day in the Salish Sea and Burrard Inlet. A number of oil tankers will be regularly parked in English Bay and Burrard Inlet awaiting loading.
The Province’s application to participate as an Intervenor in the NEB process reads, “the Province would be directly impacted by the project’s economic activity, including that which would result in revenues to the Province.”
I am writing to you to advise you of results of my research into Trans Mountain’s tax obligation and how that fundamentally impedes the Province’s ability to receive revenue.
Kinder Morgan claims that Trans Mountain is a significant contributor to federal and provincial income tax revenues. The company is relying on this as proof it deserves a public licence to triple its pipeline capacity. Pouring tax revenues into Canada is not the story Kinder Morgan tells its US-based shareholders. Promoting Trans Mountain south of the border, Kinder Morgan boasts of cash tax refunds—two in the past five years.
From 2009-2013 Trans Mountain’s combined federal and provincial Canadian corporate tax contribution averaged just $1.5 million per year.
How could this be? The answer lies in complexities of the Canadian and US corporate tax regulation and Kinder Morgan’s tax planning culture which is explained in theattached brief.
I believe Canadians are owed an explanation why this US multinational pays so little in Canadian corporate income taxes. Trans Mountain plans to triple its capacity and because of economies of scale suggests it will pay a tax rate of 25% on its net income leading to about $100 million a year in federal and provincial corporate income tax.
Based on their structure and corporate culture, this is false.
Kinder Morgan does not pay its “fair share” now, and will not pay its “fair share” in the future—to BC or the rest of Canada.
The Province must request that the Canada Revenue Agency undertake a full and comprehensive audit of Kinder Morgan’s activities in Canada.
cc. Honourable Michael De Jong, Minister of Finance
I know you have heard it all so I guess it is now all about the legacy you and your cabinet colleagues are willing to create. Thinking in terms of demand for electricity in BC, the reported record of sales by BC Hydro has flat-lined at about 50,000 GWhrs between 2008 and now. BC Hydro reports sales for four categories of customers.
Even with a 1.2% annual population growth, as estimated by BC Statistics, sales on a per capital basis are have been trending lower. It is a fact, long denied by the executives of BC Ferries, that higher rates cause demand to shrink. Known as price elasticity, customers start searching for ways to reduce consumption right up to the extremes of going off-grid or moving out of BC.
Light industrial and commercial customers are doing the same.
Large Industrial customers started reducing their demand in 2006 when the annual sales for this category was 16,428 GWhrs. By Fiscal 2014 reported sales were down to 13,994 GWhrs, a drop of about 14%.
Where reported annual sales go berserk is for the “Other” category. In 2006 sales to “Others” was reported to be 1,838 GWhrs with about 2,000 GWhrs being the annual total until 2013 when it spiked to 7,417 GWhrs only to crash in 2014 to 2,558 GWhrs. Until there is disclosure as who are the “Others” in BC , inclusion of this category, in making up any demand outlook, is irresponsible. The Auditor’s notes suggest that in fact sales to “others” are sales to customers outside of BC.
What is blinding obvious from these numbers is that BCH already has or has access to the generation of 125% of the projected output of Site C. One could speculate that with what BCH already has they have the existing condition that saves an expenditure of $8-10 billion.
Creating a story about growing future demand for electricity in to engage in self-delusion. In-spite of BC Hydro spending billions and contracting for tens of billions more, over the period 2006 through to 2014, reported total domestic sales (including the dubious sales to “Others”) have been stubbornly stuck at 52/53,000 GWhrs. Growth in total revenues is only coming to BC Hydro by rate increases, not increases in demand.
There is a vast difference between need and want. Since there is no credible evidence of need for more electricity in BC, in the foreseeable future, Site C is only an expensive indulgence serving the interests of the construction industry but at a big cost to BC citizens who ultimately shoulder the financial liabilities of BC Hydro follies. It is ironic that all BC Hydro customers, other than residential, operate with limited liability status so they could care less if BC Hydro is crippled by excessive liabilities, yet they are the customers it seems the government listens to most closely.
“The good ol’ days”, is seems, were 40 years ago. A recent study of global wealth by the Australian National University — it analyzed the quality of life in 17 countries representing over half the world’s population — revealed that prosperity peaked in 1978 and has been declining ever since (NewScientist, July 13/13).
[quote]The study’s conclusion was that “social and environmental woes have outpaced the growth of monetary wealth”[/quote]
More to life than GDP
Gross Domestic Product (GDP), the sum of all the monetary transactions in an economy, has continued to rise. But this traditional measure of wealth fails to account for social and environmental conditions that compromise the quality of our lives. An oil spill, measured in terms of GDP, is counted as a net benefit to society because the cleanup costs constitute economic activity.
Money spent on the prosecution of crime and the incarceration of criminals is similarly counted as a positive. Forest fires are expensive to fight so they are registered as beneficial. Water supplies contaminated by mining wastes and toxic legacies left by industrial activities incur restoration costs to society that are counted as pluses on the GDP ledger, as are health problems caused by pollutants. Damaged or destroyed property and infrastructure, wrought by extreme weather events such as storms and floods, must be repaired or replaced, so these disasters too are registered by GDP as initiators of useful spending.
The so-called carbon economy, a system of wealth production based the extraction and burning of fossil fuels, now causes an estimated $1.2 trillion per year in costs from environmental damage and climate change (CCPA Monitor, July/Aug. 2014). Pain, suffering and grief are not counted in this calculation.
The Genuine Progress Indicator
The Genuine Progress Indicator (GPI), used by the Australian National University study, is a much more comprehensive and realistic assessment of prosperity. It employed 26 variables to measure the quality of human life. In addition to monetary expenditures, it considered security, contentment, healthy living conditions, income equality, crime levels, community support, health care, clean natural environments, and even such non-monetary activities as housework and volunteering. The study’s conclusion was that “social and environmental woes have outpaced the growth of monetary wealth”. In other words, “We’re not making social profit,” summarizes Robert Constanza, one of the authors of the sobering Australia study.
Inequality for all
One of the most obvious “social woes” identified by the study was Income inequality. This growing disparity in the distribution of wealth creates many unsettling social conditions: poverty, civic unrest, homelessness, crime, and a collective psychology of negativity, victimization, disengagement and cynicism.
The many people without money cannot buy the goods and services that keep economies robust and diverse. But the few people with more money than they can spend are unable to correct this impairment — their superfluous cash just gets invested to generate more capital, most of which does not translate into social prosperity.
A similar conclusion was reached independently by Thomas Piketty in his watershed book, Capital in the 21st Century. In a remarkably indicative statistic that concurs with the findings of the study by the Australian National University, Piketty discovered that in the US, “in terms of purchasing power, the minimum wage reached its maximum level nearly half a century ago, in 1969, at $1.60 an hour.”
Some gains, but more losses
Critics of the Australian study have noted that developing countries are wealthier than they were in the 1970s, that half a billion people have risen from poverty since that decade, and that global poverty rates have fallen from 42% in 1990 to an expected 15% in 2015, while life expectancy during the past four decades has increased by 12 years for women and 11 for men. This may be so. And the accomplishments are remarkable. But they don’t refute the conclusions of the study.
The world’s population since 1978 has increased by over 3 billion, meaning that the efforts to improve humanity’s quality of life — remarkable as they may be — can only succeed if they outpace the burden of providing subsistence service to the rising number of people. The challenge of improving the prospects of a peak population of at least 10 billion is even more formidable.
The university study’s general conclusion that global prosperity has been falling since 1978 suggests that we may have exceeded the carrying capacity of our planet given the present system used to define, generate and distribute wealth.
The study also suggests that the diminishing prosperity on the planet is being distributed differently. Since 1978, the extremely poor are now marginally less poor, the extremely rich are now significantly richer, while everyone else in the middle is sacrificing prosperity. Whether this constitutes an improvement in humanity’s condition is debatable. For a sense of perspective, Ronald Wright, in his book, A Short History of Progress, reminds us that the number of people presently living in abject poverty on the planet is equal to the total population of the world in 1900.
Economy over ecology
The second major cause of declining prosperity, according to the university’s study, is environmental degradation. For several decades now, the study concludes, the ecological costs of economic growth have been outweighing the benefits. These cost are hidden by the illusory assurances of GDP. But our individual and collective prosperity is being increasingly compromised by weather extremes, rising oceans, ubiquitous pollutants, species loss and invasive species, higher food and fuel costs, riskier resource extraction, food insecurity, climate refugees and the resulting political instability
This Australian National University study gives academic credibility to the growing feeling among many that, for all our efforts, the quality of our lives is not improving, that the next generation will not be as prosperous and secure as the present one, and that — somehow — we have to change the way we do things.
The following is a transcript of Rob Botterell’s recent speech to the BC Select Committee on Finance and Government Services. Mr. Botterell is a lawyer, former senior government official and former comptroller of TD Bank’s BC division.
I’m here today to talk about the pending Site C decision and the budget and fiscal implications. This project will be the biggest public infrastructure project in the next 20 years if it proceeds. It’s estimated, currently, to cost $8 billion, which would increase the provincial debt by over 10 percent. We don’t have accurate information on costs, so it could well be more than that.
Time is short. By my calculation, I will be reviewing $800 million of government spending every minute, so I would ask you to please review the materials that are in your kit, all of which is in the public domain. Further to the previous presenter, I would encourage you, in particular, to have a look at the report on energy alternatives in the right- hand side of the folder, which covers many of the items that were discussed just now.
While it’s true that B.C. has a triple-A rating, it’s also true that there are some storm clouds on the horizon. In May Moody’s gave B.C. a negative outlook due to the accumulation of provincial debt.
It’s my submission that it’s hard to understand how, if we can avoid part or all of it, adding $8 billion to the provincial debt helps to reverse that negative outlook. I think that’s a critical consideration in terms of the work. I’m sure you’re hearing many presentations on how taxpayer-supported debt could be used to provide much-needed infrastructure. I really encourage you to think about that as I make my presentation.
Need for dam not established: Review Panel
What would happen if you were going to the bank to borrow $8 billion for Site C? The question came up: “Well, is Site C needed?” The answer you would have to give is that the joint federal-provincial review panel concluded that the need for Site C has not been established. If the next question was, “How much is this going to cost?” you would have to say that the joint review panel concluded that they didn’t have the information, time or resources to determine whether the $7.9 billion cost is accurate.
If you were asked, “How much would B.C. Hydro likely forecast Site C losing in the first four years of operation?” you’d have to say that the joint review panel forecasts that it’s going to lose $800 million. And then the bank officer might say: “Well, what other alternatives were looked at?” You’d have to say that the joint review panel was either prohibited from considering — or did not have the information to sufficiently explore geothermal, wind, run-of-river hydro and other renewables, excepting power under the Columbia River treaty or burning natural gas to provide power.
Burning gas OK for LNG, but not for BC’s power needs?
Oh, you might say: “That’s interesting. What did the joint review panel have to say about natural gas?” Well, this is what the panel said: “Finally, if it is acceptable to burn natural gas to provide power to compress, cool and transport B.C. natural gas for Asian markets, where its fate is combustion anyway, why not save transport and environmental costs and take care of domestic needs?”
Then you might be asked: “Well, how much could the government save in taxpayer-supported debt by using natural gas?” Some $6.5 billion is the likely savings. How much a year? One expert — and the information is in your kit — says that currently you could save $350 million a year in operating costs to produce the same amount of electricity.
What about greenhouse gas emissions? If you’re saving $6.5 billion in capital and $350 million a year in operating, you’ve got room to buy carbon credits. So what should we do? What did the joint review panel recommend? “Well, it should go to the B.C. Utilities Commission.” What’s been the response of the Minister of Energy and the Premier? “Well, the B.C. Utilities Commission doesn’t have the capacity to look at it, and we’re going have KPMG do a little bit more research.”
Utilities Commission barred from reviewing Site C
My submission to you is that doing some KPMG research now — that hasn’t seen the light of day, that won’t see the light of day if it ever sees the light of day until after a decision on Site C is made — is no substitute for B.C. Utilities Commission open and transparent and accountable review. Those are key — key — commitments of this government and previous governments.
I’d submit that if the government decides to disregard the adamant opposition of First Nations, it’s fiscally irresponsible — particularly for an $8 billion project — to proceed without first referring this to the B.C. Utilities Commission so they can do the homework that the joint review panel said still needs to be done. If KPMG has done some internal work, that can go to the Utilities Commission and save the Utilities Commission some effort.
What’s the big rush?
We have the time. The joint review panel said that we don’t need power till 2028. And they did take into account LNG, contrary to Minister Bennett’s submission.
So here we are. We’ve got a huge opportunity here to get this right. What I would like to urge every one of you to do is to think carefully about what your constituents and the people that you’ve heard from during these hearings would like you to do. What they’d like you to do is to make sure that the cost is accurate, so that we know what’s going on and we’re doing this in the least costly way possible.
In the consultation document there’s a key phrase here, in terms of taxpayer-supported infrastructure: “It is important to build needed infrastructure, but we need to limit our borrowing and keep debt affordable.”
From my perspective and in my submission, the right thing for this committee to do is to recommend that this matter be referred to the B.C. Utilities Commission and, if capacity of the B.C. Utilities Commission is at issue — after all, they reviewed Site C before, so they know what they’re doing; they’re set up to do this — that you recommend that the funding be set aside in next year’s budget to provide for a full, expert and independent review by the B.C. Utilities Commission.
This isn’t $800,000. This isn’t a mortgage for my house. This isn’t a mortgage. This is $8 billion at a minimum. What if it turns out to be $15 billion? I wouldn’t want to be in your shoes if that review hasn’t been done.
What’s the harm in doing the homework? Maybe the Utilities Commission will come back and say: “You know what? Site C is the best.” But everything in your folder and everything we’ve seen over the last few months suggests that we need to have a thorough look at this before making a final decision and that it shouldn’t be something rushed into.
This is a guest post by Mark Jaccard, professor of sustainable energy at Simon Fraser University and a convening lead author in the Global Energy Assessment – republished with permission from desmog.ca
During B.C.’s 2013 election campaign, at a conference of energy economists in Washington, D.C., I spoke about how one of our politicians was promising huge benefits during the next decades from B.C. liquefied natural gas exports to eastern Asia. These benefits included lower income taxes, zero provincial debt, and a wealth fund for future generations. My remarks, however, drew laughter. Later, several people complimented my humour.
Why this reaction? The painful reality is that my economist colleagues smirk when people (especially politicians) assume extreme market imbalances will endure, whereas real-world evidence consistently proves they won’t. For B.C. Premier Christy Clark to make promises based on a continuation of today’s extreme difference between American and eastern Asian gas prices was, to be kind, laughable.
Shale gas its own worst enemy
For many years, natural gas prices differed little from one region to another. But the shale-gas revolution in the U.S. in the past decade created a glut, causing rock-bottom prices in North America. Meanwhile, prices in eastern Asia were pegged to the price of oil, which has risen. These two trends led to a price divergence starting in 2008. By 2012, Japanese gas prices were more than four times higher than North America’s.
The Asian equation
If that difference was to hold for several decades, producers could earn sufficient revenues from Asian sales to cover shale gas extraction, pipeline transport, cooling to liquid in LNG plants, shipment across the Pacific, healthy profits, and billions in royalties and corporate taxes. That’s an attractive image in an election. But it can quickly become a mirage as gas markets behave like markets.
In competitive markets, a price imbalance triggers multiple profit-seeking actions, which work to eliminate the difference — usually sooner than expected — by those hoping to benefit from it. In this case, there are many potential competitors for the gas demands of China, Japan and their neighbours. China can invite foreign companies to help develop its massive shale gas resources. It can buy from Russia, which has enormous gas resources. It can also buy from other central Asian countries, such as Kazakhstan. It can also encourage a bidding war between prospective LNG suppliers from many parts of the world, some of which will have lower production costs than B.C.
The result will push down the price in eastern Asia. As was easily predicted by my smirking colleagues, it’s already happening. Unofficial reports put the price of a recent gas contract between China and Russia at $10.50 per million British Thermal Units, far below the peak Asian price, and close to (if not below) the cost of sending B.C. gas to China. At this price, there will be no government royalties, no lower income taxes, no debt retirement, no wealth fund. Maybe no LNG plants.
BC plants would cut corners
If any LNG plants are built in B.C., they will likely be constructed and operated as cheaply as possible, which will put the lie to another promise of Clark’s. In a province with legislated targets for reducing carbon pollution, she promised B.C. would have “the cleanest LNGproduced anywhere in the world from well-head to waterline.”
But, public documents indicate British Columbia’s proposed LNG industry will be three times worse, producing one tonne of CO2 per tonne of LNG. Were three such facilities built as proposed, they would bring oilsands-scale carbon pollution to B.C., doubling our current emissions and making it impossible to meet our legislated targets.
We could build the cleanest LNG systems in the world. This would require reducing methane leaks from processes and pipelines, capturing and storing carbon pollution, and using renewable energy to produce electricity for processing and cooling natural gas, as Clean Energy Canada has recently showed.
But this is unlikely, especially as those Asian gas prices fall. So brace yourself for another barrage of Orwellian doublespeak from government and industry, in which cleanest means dirty, great public wealth means modest private profits, and revised climate targets mean missed climate targets. No doubt my economist colleagues will be amused. But should they?
The two contrast a history of serious cost-overruns on major infrastructure projects with the oft-repeated myth of the government’s sound fiscal management. From the Port Mann Bridge and Hwy 1 widening (550% of initial estimate) to the a new roof for BC Place Stadium (514% of original projection), emerges a shocking pattern of inept project management.