After the decision to proceed with Site C was announced yesterday by the BC NDP, David Eby, BC’s Attorney General wrote a letter explaining the decision. In an nutshell, he says that the construction (sunk) costs to date, combined with the anticipated costs of remediation, would be put on the province’s books immediately, thus increasing the debt of the province so significantly that it would reduce our credit rating (thus increasing borrowing rates) and leave absolutely no money available for any other projects throughout the province.

International energy expert, Robert McCullough immediately responded, emphasizing that Eby and the BC NDP were clearly unaware that the BC Utilities Commission (BCUC) had set amortization periods for sunk costs and reclamation expenses. Their advice was that a 70-year amortization period should be used for the sunk costs of $2.1 billion and a 30-year amortization cost be assumed for the reclamation costs (which have been estimated by BC Hydro to be as low at $1 billion and by the BCUC to be possibly as high as $1.8 billion).

Following is the email from David Eby, BC’s Attorney General, explaining the rationale for the decision to continue with Site C rather than cancel it and following that you will find a link to the response from expert Robert McCullough.

From: Eby.MLA, David [mailto:David.Eby.MLA@leg.bc.ca]
Sent: Monday, December 11

Thank you for writing to me about the Site C dam.

As you know, for several years I have been a critic of the Site C dam project. The previous government’s enthusiasm for this hydro project failed to recognize the massive and disruptive changes taking place in electricity generation and distribution, proposed consuming billions in public spending for power demand that is at best uncertain, pushed ahead over the objections of at least one First Nation in the area, and shrugged at the destruction of valuable farmland in the Peace.  Given that this megaproject was well underway in May, and that there was little transparency about what was going on at Site C, during the election we committed to send the Site C project for review to the BC Utilities Commission for advice on how to move forward given that the previous government had avoided any oversight to date.  The Utilities Commission reported back to us, and to the public, that in their opinion terminating Site C and implementing a portfolio of alternative generation technologies would have comparable public and ratepayer costs to continuing with the Site C project.

That was very hopeful news.  In response, our government took the Utilities Commission’s information to experts in finance for analysis about what options were available. 

Devastatingly, at this stage we received unambiguous advice that while the net cost of the termination and continuation scenarios may be similar, the accounting treatment of the two models was dramatically different. In particular, we were told that if we abandoned the Site C project, we would incur an immediate $3-4bn public charge on either hydro ratepayers or BC taxpayers. 

In contrast, we were advised that if we continued the project, even if it went significantly over budget, the accounting treatment of the completed project as an “asset” would enable it to be repaid over 70 years by ratepayers with a significantly different impact on rates and public accounts.  There were two options we examined in a termination scenario: funding the termination charge through public accounts (taxpayers), or funding the termination charge through BC Hydro (ratepayers). In either scenario, the real world implications of the financial advice we received were dramatic.

For the first option, public financing of the immediate $3-4bn charge would mean $125-150m in new annual debt service charges, effective immediately on termination. This charge would eliminate  spending room for promised progress on childcare and many other government and public priorities. Public financing of termination would similarly mean that billions in capital funding currently intended to be spent on hospitals, school seismic upgrading, and other critical public infrastructure like transit would be consumed entirely with no matching asset created. If we proceeded with our capital spending plans despite incurring this charge, our debt rating would change as well, bringing with it additional increased interest charges.

Leaving the $4bn charge with Hydro so ratepayers could finance it, with no matching “asset” was no better. This approach would result in an acute risk that Hydro’s debt would no longer be considered “commercial” by bond raters and/or BC’s Auditor General who has already cautioned about BC Hydro’s books which already overburdened by debt.  If BC Hydro’s debt was no longer deemed commercial by analysists, this would result in BC Hydro’s entire debt being seen by bond raters and BC’s auditor general as government debt. The financial impact of that more than $10bn in debt moving on to public books overnight would be catastrophic for any hope of building the kind of province we need to build.

The decision to proceed with the Site C project taken by our government today is not a happy one.  The strategies of the previous government to avoid oversight and push the project “past the point of no return” with the hope, achieved, of visiting financial ruin on the books of any government that would seek to cancel it, are unforgivable.

Thank you for writing to me about this important issue. I brought your voice to Victoria to speak against the project, and in favour of terminating. However, the costs of termination were ultimately too high for a government committed to making life better and more affordable for British Columbians. I hope that, while you may not agree with the decision, you may now understand how it was reached.

Yours truly,

David Eby

Response from Robert McCullough here: 20171211 Response to MLA Ely 3 RM.
____________________________________________________________________________________________
Additional reports from experts Robert McCullough and Harry Swain, former chair of the Joint Review Panel on Site C.
Robert McCullough made it very plain in his final letter that it is in fact cheaper for the NDP to cancel, to the tune of $266 m a year.
Harry Swain gave a timely press conference explaining that cancelling was not an economic risk.
A few days after that press conference, when cabinet members were still saying our credit rating would be downgraded if we cancelled, Harry Swain weighed in again on that particular question, and Damien Gillis printed it in Commonsense Canadian:
Further Also of course there is the Fact vs. Fiction piece, which addresses the negative influences associated with the economic decision to proceed with Site C as well as clarification of the facts that should have influenced the decision to cancel the project: http://www.peacevalleyland.com/single-post/2017/12/10/Site-C-Fact-vs-Fiction
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SOURCE: Peace Valley Solidarity Initiative

December 11, 2017 19:31 ET

Peace Valley Solidarity Initiative Sets Date for Accountability Summit on NDP’s Reckless Decision to Proceed with Site C

CONTACT INFORMATION

  • For more information regarding the Site C Accountability Summit please contact:
    Dr. Steve Gray
    778-679-9011

Calling it a “difficult decision,” the B.C. government has decided to go ahead with the controversial Site C hydroelectric dam, paving the way for work to restart.

“At the end of the day, we’ve come to a conclusion that, although Site C is not the project we would have favoured or would have started, it must be completed,” said Premier John Horgan in announcing the decision.

“This is a very, very divisive issue, and will have profound impact … for a lot of British Columbians. We have not been taking this decision lightly.”

The NDP government had been debating whether to continue the construction of the dam — which will displace farmers and submerge Indigenous lands as it floods 5,500 hectares of the Peace River valley — or cancel the work midway through the job.

Ultimately, the government concluded that cancelling the project near Fort St. John would result in a 12-per-cent increase in hydro rates in 2020. It also forecast overall rates would be nearly twice as high for 20 years beyond 2020 if it cancelled Site C — or would leave the government with significantly less money to spend on other infrastructure spending.

An estimated $2 billion has been spent so far on the dam, announced by the previous B.C. Liberal government in 2014.

The government now expects the dam, originally budgeted at $8.3 billion, will cost approximately $10 billion, with $700 million set aside in a reserve for overruns.

The B.C. Utilities Commission, the independent energy regulator, concluded in its assessment that the dam is over budget and behind its scheduled completion of 2024.

Site C Review 20171211

Premier John Horgan is giving the green light to continued construction on the controversial Site C dam project. (Chad Hipolito/Canadian Press)

Indigenous, Green opposition

Immediately after the decision was made, BC Hydro and the Independent Contractors and Businesses Association voiced their support for Horgan’s choice.

But the dam has been marked by deeply divisive approaches to environmental, economic, technological and Indigenous concerns that have become the front lines of political battles in B.C. — and many groups representing those factions immediately let their displeasure over the the Site C decision be known.

“Today, Site C is no longer simply a B.C. Liberal boondoggle — it has now become the B.C. NDP’s project. They are accountable to British Columbians for the impact this project will have on our future,” said Green Party leader Andrew Weaver in a statement.

“We have seen what is happening to ratepayers in Newfoundland because of Muskrat Falls, a similar project, where rates are set to almost double. I am deeply concerned that similar impacts are now in store for B.C. ratepayers.”

However, he has said his party, which holds the balance of power in B.C.’s legislature, would not attempt to force an election over the issue.

While BC Hydro has reached benefit-sharing agreements with many Indigenous groups, there are several ongoing legal challenges, and the West Moberly and Prophet First Nations have said they will seek a court injunction to halt construction and begin a civil action.

Premier John Horgan on decision to continue with : “I am not the first person to stand before you and disappoint Indigenous people.” http://www.cbc.ca/1.4435939  

“Needless to say, we’re deeply and bitterly disappointed. It’s absolutely heartbreaking,” said Grand Chief Stewart Phillip of the Union of B.C. Indian Chiefs.

Horgan acknowledged disappointment by many Indigenous people, but said his government is still committed to adopting the principles of the United Nations Declaration on the Rights of Indigenous Peoples.

“Look, there has been over 150 years of disappointment in B.C. I am not the first person to stand before you and disappoint Indigenous people,” he said.

“But I think I am the first to stood before you and say I am going to do my level best to make amends for a whole host of issues and decisions that previous governments have made to put Indigenous people in an unwinnable situation.”

What: The Peace Valley Solidarity Initiative (PVSI) organizers will hold a news conference Monday, December 11 to critique the flawed process and information on which Premier Horgan, Finance Minister Carole James, Energy Minister Michelle Mungall, and the NDP cabinet and caucus are expected to base their imminent decision to proceed with Site C.

The news conference will provide media with information and facts to best help them prepare for the Premier’s news conference later that morning.

Also, the Chair of the Peace Valley Solidarity Initiative, a long time NDP supporter, will describe the grave consequences a decision to greenlight Site C will have on the NDP, and announce plans to hold the NDP government accountable to the people who elected them.
When:             Monday, December 11, 2017
9:30am, PST

Where:           North Pender Room (Main floor)
Grand Pacific Hotel
463 Belleville St, Victoria, BC

Who:              Dr. Steve Gray, Chair, Peace Valley Solidarity Initiative (PVSI)
                       Harold Steves, Former NDP MLA, Founder, Agricultural Land Reserve
                       Rob Botterell, Legal Counsel to Peace Valley Landowner Association
(PVLA) & Peace Valley Environment Association (PVEA)
Everyone with an interest in the pending decision on the future of Site C, the largest capital expenditure in the history of BC, is welcome to attend.

Dr. Steve Gray, Harold Steves and Rob Botterell will be available for interviews following the news conference and throughout the day (in-person or via telephone).

International Energy Expert Robert McCullough will also be available to comment on the NDP Site C announcement, after the news conference.

See contact information below to arrange interview times.
Additional Information:

 

Media Contacts:Amanda Munro: amanda@munrothompson.com / 604-360-3994
Emily Marroquin: emily@munrothompson.com / 604-928-6299

SITE C DAM: FACT VS. FICTION
Prepared by PVLA and PVEA for NDP Caucus Meeting on Sunday, December 10, 2017
FACT #1: Most, if not all of the senior officials – from BC Hydro, Ministry of Finance, and Ministry of Energy, Mines and Petroleum – advising the NDP Cabinet and Caucus in secret over the last 10 days are the same officials who recommended proceeding with Site C to Premier Christy Clark.

FICTION: The NDP Caucus and Cabinet have conducted an open, fair and transparent decision-making process providing outside experts an opportunity to know and respond to the final arguments used to justify completing Site C.


FACT #2: BC is awash in untapped renewable energy potential. BC Hydro places the wind potential of the province at 4 times that of Site C, meeting all of BC’s decarbonization and electrification goals – without even considering solar and geothermal energy. BC also has back-up for intermittent renewables.

FICTION: Site C must be built to meet the electrification revolution.


FACT #3: BC’s triple A rating was just confirmed and will not be downgraded by cancelling Site C. BC is already financing the $2.1 billion in sunk costs with 30-year bonds at a cost of $ 57 million per year, not $300-400 million per year. Even if the inflated $1.8 billion in termination costs are added, cancelling Site C will save ratepayers at least $266 million/year or $123/household in 2024.

FICTION: Cancelling Site C will result in a credit rating down grade, cost $300-400 million /year leaving no money for infrastructure promised by the NDP in their election platform. Completing Site C will not punish future ratepayers.


FACT #4: Future cost overruns and problems will be owned by the NDP if Site C goes ahead. Many NDP supporters will abandon the party in the next election as the decision-making process on Site C was not open, fair and transparent.

FICTION: The NDP have no alternative but to proceed with Site C and it’s the BC Liberals’ fault that this dam must be completed.

Speaker Biographies

 

Dr. Steve Gray is a medical doctor and health care administrator and Chair of the Peace Valley Solidarity Initiative (PVSI). Steve worked 16 years for the BC Ministry of Health as a medical consultant. He recently retired from the Provincial Health Services Authority where he was the Vice President, Physician Compensation and Planning. Steve has worked in Vancouver, Victoria and various rural and remote areas of B.C. as a clinician.  He is a member of the Esquimalt-Metchosin NDP.

Harold Steves is a long time Richmond City Councillor, Former NDP MLA, and is one of the founders of the Agricultural Land Reserve. A former Richmond school teacher, Harold operates the family farm in Steveston with his wife Kathy, raising pure bred Belted Galloway cattle. Harold also assists his son Jerry operate a ranch in Cache Creek, B.C. Descended from a pioneer Richmond farming family, he is very active in community life in the Steveston area, and is particularly interested in the preservation of farmland, heritage preservation, and environmental issues. Harold represents Richmond as second Director on the Board of Directors of Metro Vancouver.

There is misinformation circulating about the cost of cancelling the Site C dam. Some people have erroneously stated that Hydro must bear the whole amount of sunk cost plus remediation immediately upon cancellation, leading to rate shock and and a downgrading of Hydro’s credit rating. FALSE. The full cost to date plus remediation is about $3 billion, which can be amortized over many years. The following has been prepared by utility finance expert Eoin Finn.

The accounting rulebook states:

“When a capital project is CANCELLED such that work on asset will not be completed, costs accumulated in AuC (Asset Under Construction) accounts must be transferred to expense by journal voucher in the period it was cancelled. Supporting documentation for authorization of cancellation or correction is requested for audit purposes.”

However, as utility finance expert Eoin Finn tells us: “There are at least a couple of ways of smoothing the impact to ratepayers, which are fairly normal, GAAP-approved practice in utilities with lumpy expenditure patterns.

1. This sort of one-time “hit” IS why Hydro’s deferral accounts were created in the first place. With BCUC’s permission, the rate smoothing deferral account could be used, and the sum amortized/recovered over whatever period can be agreed upon with BCUC, which has the hammer on this. $3B over 10 years would be a $300M-a-year rate hit—which a 1-time rate increase of 6% in year 1, or successive rate increases of 2% over each of the first 3 years, would take care of. Relatively small potatoes—rates have increased 70% over the past 10 years.

2. The BC Government could eliminate or reduce either its ($300) dividend or portion of its almost $1B water charges to BC Hydro. That would be transferring the costs from ratepayers to taxpayers, but those are much the same people anyway (major exceptions are FortisBC customers in the Okanagan).”
____________________________

Further note on sunk costs to date and remediation costs:
Sunk costs are $2 Billion, including $500m for rental of Atco trailer camp, and $500m for planning at Hydro’s headquarters.
Remediation of the site is considerably less than Hydro has estimated and is between $500-800M at the most.

Vancouver’s Eoin Finn is a director of the Pacific Electricity Ratepayers Association and a retired partner of a major accounting and consulting firm.

Dear Premier Horgan and Cabinet Members,
I understand that rate impacts continue to be a big issue. I asked Robert McCullough to summarize the rate impact issue and his response to me is in the letter attached (below).

Mr. McCullough concludes:

The bottom line is that regardless of BC Hydro’s claims, the current estimate based on BCUC findings is that cancelling Site C will save rate payers a minimum of $266 million per year or $123 per household in 2024.

There is nothing in the law or regulatory practice requiring that BC rate payers be penalized for a termination of a project that is:

  • twice the cost of the wind backed by Mica Dam alternative,
  • headed for further cost overruns that could take the total project cost to $12-$15 billion,
  • poorly managed,
  • environmentally costly, and
  • one which has adverse impacts on the ability of First Nations to exercise their treaty rights.

It is important to recognize that part of the money spent so far was used for building infrastructure and developing resources in the Peace valley region that have a value and will be utilized.

And, this is without entering into a long term sales agreement of BC power under the Columbia River Treaty entitlement – an agreement which would generate billions of dollars to offset Site C cancellation costs and fund other BC government infrastructure projects.

To continue with Site C is fraught with problems.  In 2017, there is no need to destroy our river valley’s for power, and the BCUC Final Report has clearly shown we are not “past the point of no return.”

I hope this helps towards your decision to terminate Site C which will allow us to take part in the exciting advances happening around the world.

Yours sincerely,
Ken Boon

President, Peace Valley Landowner Assoc.
SS#2, Site 12, Comp 19
Fort St. John, BC  V1J 4M7
(250)262-3205
pvla@xplornet.com

 

Letter from Robert McCullough to Ken Boon re:  Repayment of $2.1 Billion Sunk Cost and $.5 – $1.8 Billion Reclamation Cost of Site C:  Dec 7 2017 Letter to Ken Boon

This letter has been written by Robert McCullough and shared on behalf of the Peace Valley Landowner Association (PVLA) and the Peace Valley Environment Association (PVEA)
Robert McCullough Thank You Letter to Premier Horgan & $500 Million Remediation Map
As a courtesy to the PVLA and PVEA, our expert Robert McCullough shared his thank you letter to Premier Horgan and Cabinet with us.

Please see an excerpt of the letter below:

December 4, 2017
Premier John Horgan and Cabinet
Government of British Columbia
PO BOX 9041
STN PROV GOVT
VICTORIA, BC V8W 9E1
Via email and by hand
Dear Premier Horgan and Honorable Ministers:

Thank you for the opportunity to meet with you and your cabinet. Although I have worked with Canadian clients for many years, this was the first time to have the chance to help government officials in such a challenging situation.

As I noted during the meeting, I approached the opportunity in the same way I would approach meeting a client – oriented primarily towards problem solving and less towards advocacy.

As I noted on Thursday, three provinces and one state have recently faced similar challenges. In Quebec and Nebraska, the government faced the issue of a troubled investment squarely.[1] When the downside risks are large and growing, it is generally best to limit your exposure. In Quebec and Nebraska, a bond rating downrating was avoided by prompt action. Rate increases were effectively eliminated through the availability of cheaper alternatives. In Manitoba and Newfoundland, the government indeed found itself “Waist Deep in the Big Muddy” and have faced rating downgrades and significant rate increases.

At the heart of the debate is a change in the industry that many find hard to adjust to. After being told for many years that energy is scarce and limited, we find that with the amazing decline in renewable prices that we can produce as much electricity as we need.[2] British Columbia Hydro places the wind potential of the province at 15,898 megawatts — roughly fourteen times the capacity of Site C.[3] Not all of this is available on peak, of course. Hydro-Quebec, Canada’s leading wind developer, counts 30% of name plate capacity as dependable capacity which equates to four and a third times the usable capacity of Site C. To be clear, the nameplate capacity of proven renewables is sufficient to meet all of our forecasted decarbonization and electrification goals, even if it amounts to over four times the capacity of Site Cs. And this is before taking into account other renewables such as solar and geothermal. British Columbia is awash in untapped renewable potential.
Click image below to download the rest of the letter.


[1] The Omaha Public Power District is a governmentally owned and operated utility – comparable to a Canadian crown corporation.
[2] Lazard’s levelized cost of energy analysis—Version11.0, November 30, 2017, page 10.
[3] BC Hydro Wind Data Study CSRP0009-A, May 1, 2009, page 44.
Robert McCullough letter in full:
$500 Million Remediation Map

Remediation of the Site C site is projected by the BCUC to cost $1.8 Billion, much more than the estimates of BC Hydro and Deloitte of $1.2 Billion.

In fact, most of the Peace Valley is intact. Another viable option is a remediation cost of no more than $500 million, with Mother Nature doing the rest.

Click the image below for a map demonstrating the impact Site C would have on the Peace Valley:

Robert McCullough is Principal of McCullough Research in Portland, OR, and for over thirty-seven years has advised governments, utilities, and aboriginal groups on energy, metals, paper, and chemical issues. He has testified repeatedly in state, federal, and provincial courts as well as before Congress and regulatory bodies. His testimony in front of the Senate Energy Committee is credited with initiating the Enron trading investigations during which he worked for the U.S. Department of Justice and three western attorney generals. He has consulted for U.S. and Canadian clients on hydroelectric issues in many states and provinces, including on many occasions, presenting on issues before Canadian regulators.
For all past reports go to
www.peacevalleyland.com/sitecinquiry.
PVLA Site C Inquiry Reports