If it is not already a fundamental law of economics
it should be: When government says we must pay whatever it takes, we
inevitably pay too much. So it is with the B.C. government’s energy
policies.

In the Clean Energy Act, the government told BC Hydro it
has to be self-sufficient. It wasn’t talking about ensuring a reliable
supply of energy. “Self-sufficiency” as defined by the government is
simply a requirement for BC Hydro to buy more long-term firm electricity
supply than its own, well-established reliability criteria says it
needs and that the B.C. Utilities Commission -the independent government
agency tasked with regulating energy utilities -would support.
Moreover, it has to do that regardless of the cost.

On top of that, the government legislated that BC Hydro has to buy “insurance” -even more electricity that it does not need.

What
this “insurance” is for has never been made clear, but the effect of
“self-sufficiency” and “insurance” is to force BC Hydro to buy or
develop the equivalent of two Site C dams more than is actually needed
to ensure a sufficient, reliable supply for British Columbians.

The
fact that the electricity BC Hydro is being forced to buy is costing
more than double what the electricity is worth, now and in the
foreseeable future, does not seem to matter. The legislation is
absolute. BC Hydro must acquire this extra electricity supply whatever
its impact on costs and rates.

BC Hydro has to do a lot more as
well. Under the Clean Energy Act, the government directed BC Hydro to
buy private power for export, with BC Hydro providing the transmission,
backup and other services needed to make the private power a marketable
product.

The legislation does not require BC Hydro to do this at a
loss, but there is no provision to ensure that BC Hydro is fully
compensated for the value of the services it provides and risks it
assumes. In case BC Hydro is hesitant, government has explicitly
legislated the right to force BC Hydro to buy private power for export,
regardless of the risks or impacts on BC Hydro’s own trading
opportunities.

The Clean Energy Act goes even further. It directs
BC Hydro to proceed with literally billions of dollars of investments
without any independent review by the BC Utilities Commission or anyone
else. So the billiondollar smart meter initiative is going ahead,
without independent scrutiny of its thin business case based more on the
identification of illegal marijuana growing operations than anything
else.

The Northwest Transmission line is going ahead without any
consideration of the tens of millions of dollars per year that BC Hydro
will lose to supply each new mine the transmission line is being built
to connect. Under BC Hydro’s industrial rate schedule, in accordance
with government legislation, the mines will pay less than onehalf of the
cost of the new supply BC Hydro will have to acquire to provide the
very large amounts of electricity the mines consume.

Also going
ahead without B.C. Utilities Commission review and approval are
purchases of private power under the recent 2010 Clean Call, despite
their high cost and relatively low value.

All
of which brings us to the most interesting, some might say ironic,
current situation. Having done all this, the government now is not
pleased with the impact its cost-be-damned policies are having. BC Hydro
rates are forecast to increase over 50 per cent in five years; over 100
per cent in 10 years.

The government realizes that something has
to be done: BC Hydro cannot be allowed to raise its rates that much. So a
panel of government officials has been formed to review and make
recommendations on BC Hydro’s costs and rates.

The political spin
accompanying the announcement of this review is that the government is
taking on BC Hydro. In fairness, it can be tempting to bash BC Hydro. No
doubt some executive salaries are out of line and some discretionary
costs could be reduced.

However, one can only hope that the panel
recognizes the need to investigate the government’s own major role in
driving up BC Hydro’s costs and rates.

The temptation to look for a
few million dollars of savings in salaries and operating costs should
not cloud the need to address the billions of unnecessary costs being
forced on BC Hydro by the provincial government.

The stated
objective of the review is to ensure that BC Hydro’s costs are minimized
and benefits are maximized. That cannot be done with the
“self-sufficiency”, “insurance”, export and myriad other requirements
and projects government has imposed without regard to impact and cost.

The
main provisions of the Clean Energy Act should be repealed. The
government panel would do a great service by addressing why that is
necessary and what should be instituted in its place.

Marvin Shaffer is an adjunct professor at the School of Public Policy at Simon Fraser University.