By Marvin Shaffer, Times Colonist, June 9, 2011
Utility forced under legislation to buy more power than it needs
If it is not already a fundamental law of economics, it should be: When government says we must pay whatever it takes, we inevitably pay too much. So it is with the B.C. government's energy policies.
In the Clean Energy Act, the government told B.C. Hydro it has to be self-sufficient. It wasn't talking about ensuring a reliable supply of energy. "Self-sufficiency" as defined by the government is simply a requirement for B.C. Hydro to buy more long-term firm electricity supply than its own, well-established reliability criteria say it needs and that the B.C. Utilities Commission - the independent government agency tasked with regulating energy utilities - would support. Moreover, it has to do that regardless of the cost.
On top of that, the government legislated that B.C. Hydro has to buy "insurance" - even more electricity that it does not need.
What this "insurance" is for has never been made clear, but the effect of "self-sufficiency" and "insurance" is to force B.C. Hydro to buy or develop the equivalent of two Site C dams more than is actually needed to ensure a sufficient, reliable supply for British Columbians.
The fact that the electricity B.C. Hydro is being forced to buy is costing more than double what the electricity is worth, now and in the foreseeable future, does not seem to matter. The legislation is absolute. B.C. Hydro must acquire this extra electricity supply whatever its impact on costs and rates.
B.C. Hydro has to do a lot more as well. Under the Clean Energy Act, the government directed B.C. Hydro to buy private power for export, with B.C. Hydro providing the transmission, backup and other services needed to make the private power a marketable product.
The legislation does not require B.C. Hydro to do this at a loss, but there is no provision to ensure that B.C. Hydro is fully compensated for the value of the services it provides and risks it assumes. In case B.C. Hydro is hesitant, government has explicitly legislated the right to force B.C. Hydro to buy private power for export, regardless of the risks or impacts on B.C. Hydro's own trading opportunities.
The Clean Energy Act goes even further. It directs B.C. Hydro to proceed with literally billions of dollars of investments without any independent review by the B.C. Utilities Commission or anyone else. So the billion-dollar smart meter initiative is going ahead, without independent scrutiny of its thin business case.
The Northwest Transmission line is going ahead without any consideration of the tens of millions of dollars per year that B.C. Hydro will lose to supply each new mine the transmission line is being built to connect. Under B.C. Hydro's industrial rate schedule, in accordance with government legislation, the mines will pay less than one-half of the cost of the new supply B.C. Hydro will have to acquire to provide the very large amounts of electricity the mines consume.
Also going ahead without B.C. Utilities Commission review and approval are purchases of private power under the recent 2010 Clean Call, despite their high cost and relatively low value.
All of which brings us to the most interesting, some might say ironic, current situation. Having done all this, the government now is not pleased with the impact its cost-be-damned policies are having. B.C. Hydro rates are forecast to increase over 50 per cent in five years; over 100 per cent in 10 years.
The government realizes that something has to be done: B.C. Hydro cannot be allowed to raise its rates that much. So a panel of government officials has been formed to review and make recommendations on B.C. Hydro's costs and rates.
The political spin accompanying the announcement of this review is that the government is taking on B.C. Hydro. In fairness, it can be tempting to bash B.C. Hydro. No doubt some executive salaries are out of line and some discretionary costs could be reduced.
However, one can only hope that the panel recognizes the need to investigate the government's own major role in driving up B.C. Hydro's costs and rates.
The temptation to look for a few million dollars of savings in salaries and operating costs should not cloud the need to address the billions of unnecessary costs being forced on B.C. Hydro by the provincial government.
The stated objective of the review is to ensure that B.C. Hydro's costs are minimized and benefits are maximized. That cannot be done with the "self-sufficiency,", "insurance" export and myriad other requirements and projects government has imposed without regard to impact and cost.
The main provisions of the Clean Energy Act should be repealed. The government panel would do a great service by addressing why that is necessary and what should be instituted in its place.
Marvin Shaffer is an adjunct professor at the School of Public Policy at Simon Fraser University.
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