BC Hydro Forecast: Too high risk in the Industrial category
by Erik Andersen
I no longer need to worry about answers to my question of a few weeks ago. I was fortunate to be in a place where I was able to ask David Ince, Manager of Marketing Forecasting, BC Hydro. However, I am writing today to put on formal record my concerns that the “public interest” is not being addressed as it should be in the matter of the “Industrial” component of BC Hydro’s forecast.

David and his associate Warren Bell presented the current outlook soon to be posted as the forecast for BC Hydro. The impression left with me is that this is a work of considerable detail and is well balanced using the best available information until it comes to the “industrial” outlook.

David and his team are excellent navigators but are taking directions from a “captain” that appears comparable with Captain Francesco Schettino of Costa Concordia. While Captain Schettino had nowhere to go to escape accountability the “Captain(s)” of BC Hydro can carry on because the financial shipwreck of BC Hydro is in slow motion.

What I wish the BCUC would do is act in the public interest like an air traffic controller. Put on record course corrections to avoid the financial mess many can see ahead.

Warren made it clear that BC Hydro is playing a high stakes game in its planning to serve new industrial customers in the northern part of the province. This was a presentation driven by ambition and not by common sense. The “fig leaf” used was that BC Hydro was only following the government’s policy of taking all opportunities to go “green”.

This policy comes with a serious cost. Since 2000  BC Hydro has invested about $8 billion from which no discernable economic benefits for ratepayers have been derived, if measured by prevailing rates to customers which presumably reflect costs and productivity or not. Since 2000 the recorded demand for BC customers has floated around 50,000 GWhrs per year. The gross per capita demand in BC has been declining in recent years which is confirmation that conservation is working and that customers are price sensitive as is recognized in David’s forecast. So for all existing customers they are happy with having enough electricity from the existing production units operated by BC hydro plus those IPPs that have added 12,600 GWhrs, an over capacity condition that the Premier must have in her mind  when she is taking these days.

Now we come to the sticky part I am asking you folks to think about. Warren and David represented that “industrial” customers in BC pay about $35 per MWhr. The Quebec Hydro report, a comparison of North American rates, indicates the BC rate is closer to $50. Both represented that new power sources in BC are being paid about $130 per MWhr. A few of us looked at the public numbers for Site C and thought they would be about $100 perMWhr. No matter how one slices and dices the spread between the “industrial” rate and the marginal cost of new production is huge. When asked about what these “new and best friends” would have to pay, Warren would only answer that the matter was under negotiation which is much the same when politicians answer a question by saying it is a matter in front of the courts, sorry.

On just one of the several projects in the short list that makes up new “industrial” demand is the Northern Gateway Pipeline. This applicant has indicated it will buy electricity in BC for its pumping stations. A calculation of need produces an annual expense for NGP of $35 million per year which is in effect a $90 million per year subsidy by BC ratepayers to Northern Gateway. I don’t think BC Hydro’s existing customers will stand still for this kind practice and hopefully neither will the BCUC.

Complicating this gross indecency is the prospect that natural gas producers will get it all wrong again like they did twice with their passion for a Mackenzie Valley pipeline. Commodity prices have a nasty habit of large price swings that could very easily happen internationally. Just like you have seen with one applicant first seeking to be an importer of LNG and now an exporter. Hardly a public confidence builder.

Warren indicated that there is no other LNG operation in world using electricity in the fashion proposed by the “Captain(s)” here. Every where else they use their own product for the job. If this is an accurate representation, then for the sake of a “fig leaf”, BC ratepayers are facing the prospect of subsidizing a host of new industrial customers. That does not seem the best use of our credit and resources. Let the pipelines and mines carry their own energy costs as a way of reducing future operating revenue risks for BC Hydro.  Please look at the record for BC coal in the 70s. It is a metaphor for today.

Erik Andersen