Electricity Costs

By Gwen Johansson

Dave Cobb is president and CEO of BC Hydro.  In August, he confirmed what Hydro watchers have been saying for some time: that provincial energy policy is forcing Hydro to buy electricity it doesn’t need at prices higher than it needs to pay.  Mr Cobb said that if the government’s policy doesn’t change, BC Hydro would be “spending hundreds of millions of dollars per year of ratepayers’ money with no value in return” and that Hydro would be required “to buy far more long-term power than we need.”

That means that without changes, your BC Hydro bill will be going up – a lot – when it doesn’t need to.

Cobb was talking about restrictions imposed on BC Hydro by the province’s policies, especially electricity self-sufficiency.  Legislation passed last year requires that Hydro hold enough electricity by 2016 to meet all BC needs.  By 2020 it must hold 3000 gigawatthours extra.  It must be able to do that in the lowest water year on record.  That means BC will have surplus electricity in all years except the very worst one, which might occur once every fifty or more years.

The theory, apparently, was that all the surplus power could be sold to the United States and Alberta.  But abundant low-cost natural gas has allowed them to develop their own gas-fired generation, so the export market isn’t as large as anticipated and what market there is won’t command the prices that Hydro needs to cover off the cost of what it’s committed to buy.

Besides having to acquire more electricity than needed, Hydro is also required to buy that electricity from private independent power producers (IPP’s) operating in BC.  Hydro could buy it cheaper on the open market both now and in the foreseeable future.

Purchases are classified as non-firm, meaning electricity that isn’t available all the time such as wind or run-of-river; and firm, meaning electricity that’s always available.

Bids from IPP’s to supply electricity recently came in at an average of $100 per megawatt hour for non-firm and $124 for firm.  Recent spot market prices ranged from a low of  $4.34 for non-firm to a high of 52.43 for firm.  Firm power with delivery in 2012 was recently listed at $27-35 on the Pacific Northwest wholesale market.  The further into the future you go, the less reliable the price predictions.  Keeping that in mind, the 2030 price is suggested to be in the range of  $81-85 per megawatt.  So relying on the best information available, it seems BC Hydro is being forced to pay artificially high prices for electricity.

Buying high and selling low doesn’t work for long.  So who will pick up the shortfall between what Hydro is paying and what it can sell the electricity for?

Well, that would be you, BC Hydro customers.

BC Hydro rate-payers guarantee Hydro debt, which is presently $12-$16 billion.  But Hydro has signed contracts with IPP’s that have not yet come on line and those future obligations aren’t included in the $12-16 billion.  The contracts are not public so the exact debt for which rate-payers will be responsible can’t be calculated.  But it isn’t pocket change.  Estimates range upward from an extra $30 billion by 2016.

For the past ten years, the IPP lobby has been very active in shaping both provincial public opinion and provincial electricity policy and they have achieved conditions very favorable to their industry.  BC Hydro rate-payers have been noticeably absent from the debate despite being the ones on the hook for those IPP contracts.  So if there’s to be a change in what Cobb describes as “spending hundreds of millions of dollars per year of ratepayers money for no value…” and buying “far more long-term power than needed,” then rate-payers will have to stand up and insist that provincial policy change to protect their interest.

Gwen Johansson has served on numerous energy-related endeavours.   She co-chaired  the Northeast Energy & Mines Advisory Committee; served on  BC Hydro’s Integrated Electricity Planning Committee; is a former  BC Hydro Director and a former member of  the BC Energy Council.  She lives in the Peace Valley near  Hudson’s Hope.