Nelson's power trading draws Hydro's wrath

City raking in $50,000 a month from exporting Hydro-generated power to markets outside British Columbia

Scott Simpson
Vancouver Sun
October 15, 2008

BC Hydro wants to shut down a power trading scheme in which the city of Nelson is making $50,000 a month by exporting Hydro-generated electricity to markets outside British Columbia.

In documents filed with the B.C. Utilities Commission, Hydro says the scheme relies on loopholes in a 15-year-old energy supply agreement and could balloon into a $17-million-a-year drain on Hydro finances unless the agreement is rewritten.

Hydro says Nelson is effectively "arbitraging" a public resource -- cheap power intended for customers in B.C.

Nelson is buying the power at Hydro's rock-bottom industrial rate, three cents a kilowatt hour, and selling it on the North American spot-trading market for two, three times as much or more.

Nelson has a rare ability to trade on the North American market due to its ownership of a small run-of-river hydroelectric utility on the Upper Bonington River in the West Kootenay.

Nelson is using FortisBC's transmission network to move power to buyers outside B.C. FortisBC is a utility with 108,000 customers in south-central B.C.

It also has a standing order with BC Hydro to take delivery of Hydro power whenever demand exceeds supply in its customer area, including Nelson.

Hydro's mandate -- to provide all British Columbians with benefits from its roster of hydroelectric facilities around B.C. -- means it cannot refuse calls for power from FortisBC.

Since Nelson began selling power in earnest last June, its monthly exports jumped from two megawatt hours to 151 megawatt hours, the bulk of it coming ultimately from Hydro.

Nelson has stated in documents that it made $150,000 in its first three months selling power.

Hydro worries that unless the Nelson scheme is eliminated, other FortisBC customers with their own generating facilities, such as the Celgar Pulp and Paper Mill, will join in, costing BC Hydro $16.7 million a year in lost power sales opportunities.

"BC Hydro and its ratepayers should not be required to incur incremental costs to support the city of Nelson's arbitrage activities and potential arbitrage opportunities of other FortisBC customers with self-generation," Hydro said in a Sept. 16 letter to the utilities commission.

The city is arguing that the economic benefits it reaps should be considered as part of any decision on the merits of the scheme.

Alex Love, general manager of Nelson Power, said the city undertook a thorough examination of Hydro's power supply contracts with FortisBC before moving ahead.

The city, he added, does not begrudge Hydro's objections. "We took a good look at the contracts that are in place. FortisBC did, as well, because when we purchase power from them, they have to make sure their T's were crossed and their I's were dotted," Love said in a telephone interview.

"Certainly, contractually we are allowed to do this, but from BC Hydro's perspective, they need to look at it and say, 'Well, is it good for [our] organization, or not?'

"They came to the conclusion they would be better off if we didn't do it. The question is, does the benefit to Nelson outweigh any detrimental effects to BC Hydro, or vice-versa?"

Hydro thinks the scheme is bad news for its customers. Its Sept. 16 letter, on file with the commission, says: "BC Hydro believes that it, and its ratepayers, will incur direct and unwarranted financial losses" as a result of the exports.

A FortisBC spokesperson said the company is simply transmitting the power and not profiting from it.

Hydro spokesperson Susan Danard said the Crown-owned utility doesn't object to Nelson selling power; it just doesn't want it selling Hydro's power.

ssimpson@vancouversun.com