From the Vancouver Sun – April 19, 2011
by Harvey Enchin
Self-sufficiency sounds like a good idea. Dependent on no outside aid
or trade for survival, the self-sufficient nation would be completely
autonomous and free to do whatever it is autonomous nations are supposed
to do.
Another word to describe self-sufficiency is autarky.
There have been few but notable examples of autarky throughout history.
Nazi Germany was one. Others include Afghanistan under the Taliban,
Burma under Ne Win, Cambodia under the Khmer Rouge, Spain under Franco,
Italy under Mussolini, Romania under Ceausescu and, of course, North
Korea, which has developed an ideology of isolation called Juche.
Self-sufficiency and repressive, autocratic failed states seem to go
hand in hand.
British Columbia is not a failed state yet but the
decree that B.C. become self-sufficient in electricity by 2016 will
impose an unprecedented burden on ratepayers and cause incalculable
damage to the economy all for no discernible purpose.
Studies done
after the policy first surfaced in 2005 in a BC Hydro service plan
(later confirmed in the 2007 Energy Plan) warned that electricity rates
would have to increase by 7.5 per cent annually for a decade, raising
the power bill for a customer paying $715 a year to $1,618. It will
likely be a lot higher than that. On March 1, BC Hydro asked the B.C.
Utilities Commission for an interim rate increase of 9.73 per cent to
take effect May 1 but scaled it back to 8.23 per cent after the
government ordered a review of the 32-per-cent rate hike over three
years that the utility was seeking.
Rate increases spun as the
price for domestic energy security might sell with the public. But the
energy plan goes well beyond energy security. It requires that BC Hydro
in its calculations of the amount of electricity required for
self-sufficiency assume a worst-case scenario of the most adverse water
conditions in the historical record. As well, it must achieve a 3,000
GWh surplus by 2020. Will the public still be willing to pay much, much
more for electricity when the objective is no longer just
self-sufficiency but rather generation of surplus power presumably
destined for export?
The argument for self-sufficiency is based on
the misguided notion B.C. must address the issue that in recent years
it has been a net importer of power. However, the cause of this reversal
has less to do with B.C.’s capacity to generate electricity than it
does with the decline in demand from customers in the United States.
Indeed, revenue from the sale of electricity and natural gas dropped 50
per cent in fiscal 2010 as the U.S. dollar weakened and the recession
continued to dampen the American economy. B.C. didn’t import more, it
exported less. Net imports is a relative and not necessarily negative
term.
Consider tomatoes. In a typical year, Canada imports roughly
the same volume of tomatoes as it exports. Why? Because it makes
economic sense. It costs too much to produce tomatoes profitably in
Canada through the winter months so they are imported from Mexico and
California. During the rest of year, Canada exports tomatoes to the U.S.
It
is the same with electricity. Demand for power goes up in winter for
heat and lighting and B.C. often imports power to meet that demand. In
summer, demand drops in B.C. but spikes in the U.S. southwest thanks to
air conditioning, allowing B.C. to export at a profit.
In fact,
demand varies by time of day as well as by season and Powerex, a BC
Hydro subsidiary, is charged with keeping an eye on the spot market 24/7
and handling cross-border trading, including negotiating contracts to
deliver power to U.S. utilities. The activities of Powerex have
generated hundreds of millions of dollars for the B.C. government and
kept rates lower than they would otherwise have been.
The
self-sufficiency objective throws a wrench into the symbiotic trading
relationship. Firstly, the government has instructed BC Hydro to buy
only renewable energy from independent power producers. The prices being
negotiated range from $76.20 to $133.80 per megawatt-hour. Meanwhile,
the spot price for mid-Columbian electricity in recent days has ranged
from $8.73 US to $30.92 (off-peak and peak respectively).
Barring
dramatic changes in market prices, Powerex will be trying to peddle
B.C. power at more than double the going rate, or take a loss on every
sale.
The market imbalance is purely hypothetical, of course,
because no one would trade with B.C. if the province makes good on its
threat to build a barrier of self-sufficiency. Trading is a two-way
street that benefits both parties. The U.S. would look to alternatives
to trade with B.C. in the absence of reciprocity.
BC Hydro
customers have already seen electricity bills skyrocket since 2008, when
the utility decided to penalize families by introducing a stepped rate
that charges users above a certain threshold 40 per cent more per kWh.
The
pointless goal of self-sufficiency will drive rates much higher,
diverting consumer spending from goods and services that fuel economic
growth to artificially overpriced power. Companies will also see their
electricity bills soar at the same time as consumers cut back on
purchases and may seek more business-friendly places to set up shop. Job
losses, lower tax revenue and weaker economic growth will follow.
Self-sufficiency is the philosophy of failure. The B.C. government should abandon this destructive path.