By Marvin Shaffer
BC Hydro rates are going up. In its rate application hearing before the BC Utilities Commission last year, BC Hydro forecast increases of some 10% per year for 5 years or more. In ten years time, rates could be double current levels.
That hearing took place prior to the recent election and needless to say talk of such increases, let alone their implementation, was not allowed. The government capped BC Hydro’s rate increases and the hearing abruptly terminated. Now, post-election, BC Hydro is back to square one: it still has to increase its rates to match its growing expenditures, as well as recover costs that were deferred inappropriately in the past.
While the government looked to BC Hydro management and even the NDP administration in the 1990s to blame for the current predicament, the nature and scope of the Liberal government’s intervention in the affairs of BC Hydro over the past decade were unprecedented.
First, the government directed BC Hydro to be self-sufficient. BC Hydro could no longer rely on any imports of electricity, even the seasonally surplus hydro and wind routinely available in the Pacific Northwest, to meet its requirements. Nor could BC Hydro recognize the Burrard natural gas-fired thermal plant or the electricity that the province receives under the Columbia River Treaty as sources of energy that it could use in case of drought or other contingencies.
It was widely recognized that self-sufficiency has simply forced BC Hydro to buy or develop more sources of new supply than it needs or could otherwise justify.
At the same time, the government severely restricted the sources of supply that BC Hydro could itself develop, directing that new sources be purchased under long term contract with independent power producers (IPPs). The government later legislated that BC Hydro plan to buy IPP power for export, and provide the transmission, back-up and other services needed to create marketable products.
BC Hydro’s mandate was no longer to meet its customer needs in a reliable, cost-effective and responsible way. It was to be a vehicle for the development of a new IPP industry in BC.
BC Hydro was also directed to make billions of dollars of new investments, all exempt from BC Utilities Commission or other independent review, including the now infamous smart meter and Northwest transmission line projects. BC Hydro was told to rush ahead with those projects despite the lack of well-developed business cases or public interest justification, and despite the large amount of priority investments that BC Hydro had to make at the same time to maintain and refurbish its existing facilities.
These major changes in direction and arguably the basic mandate of the corporation, contributed greatly to the upward pressure on BC Hydro costs and rates. The recent IPP purchases alone will impose losses of over $250 million on BC Hydro in 2014 and over $1 billion in losses over the next four years, based on BC Hydro’s own estimate of the average price of the energy it was forced to purchase and its forecast value in the export market.
We cannot undo what has already been done. But changes can and should be made going forward to reduce further pressure on hydro rates.
The requirement for self-sufficiency needs to be completely eliminated. Government should restore BC Hydro’s traditional mandate: to ensure reliable supply in a cost-effective and responsible manner.
BC Hydro should again be allowed to recognize Burrard as a back-up resource in event of drought as long as that plant remains in operation.
Major new investments, including Site C, need to be subject to BC Utilities Commission or other independent review of the benefits and costs they entail. Government must resist exempting them from benefit-cost assessment and independent review.
Most importantly right now, government must ensure there are no major subsidies to LNG plants for BC Hydro energy or services, or to the supply and pricing of electricity for major new mining and oil and gas loads.
The low rates BC Hydro customers have enjoyed are due to the benefit we all share in the low-cost hydro generation BC Hydro developed in the 1960’s and 70’s – its so-called heritage resources. A limit must be placed on each customer’s sharing of the benefits of those heritage hydro resources; otherwise there will soon be little such benefits to share.
Marvin Shaffer is a research associate with the Canadian Centre for Policy Alternatives and a consulting economist specializing in energy, transportation and natural resource economics. He is also an adjunct professor in the Public Policy Masters Program at SFU, where he teaches a course on benefit-cost analysis.