BC Hydro lets its customers down

COMMENT: Government's hands were all over the LTEPA+, the deal between Alcan and BC Hydro that was rejected by the BC Utilities Commission. What's curious about this editorial is not so much that the editors are making this effort to blame BC Hydro, and distance the Premier from the rejected agreement, but why the editors are doing that.

After three recent major embarrassments, managers should seek a better deal with Alcan, not fight to revive a bad one

Editorial
Vancouver Sun
February 12, 2007

Premier Gordon Campbell was embarrassed politically in December when the B.C. Utilities Commission rejected a long-term power deal between BC Hydro and Alcan Inc.

Now that the commission has released its reasons for the decision, however, it's apparent that the reddest faces should belong to the management team at BC Hydro. And not for the first time.

When Campbell announced the deal in August, he touted its benefits for the province, arguing that it secured both a renovated aluminum smelter in Kitimat and a clean energy supply at a reasonable price for the province. On the basis of the information available to us at that point, the Vancouver Sun's editorial board supported the deal.

But according to the commission, it wasn't as advertised.

In its decision released in late December without reasons, the commission said the agreement should never have been signed, that the public utility was paying too much for the power and that Hydro's other customers were being badly served.

Now that the reasons for that decision are out, it's clear that this is not just a bad deal, but that BC Hydro failed to do its due diligence before the pact was inked and then failed again in preparing to defend the deal before the commission.

Specifically, the Crown corporation failed to make the case before the commission either that it needed the power or that it had done even an adequate job of negotiating the best price for its customers.

One of the key issues left unsettled as a result of Hydro's mismanagement of this file is whether using electricity prices as an incentive to secure industrial development -- as this deal was intended to do -- should be considered in the public interest by the B.C. Utilities Commission.

The commission said there could be circumstances where it could be, but did not look at whether the $110- million incentive Alcan was being given to rebuild its Kitimat smelter, which British Columbians would have paid for through bigger electricity bills, qualified.

The utilities commission did not make that judgment -- or determine whether the deal was good for the District of Kitimat -- because Hydro failed to make its business case on the most basic levels. So the commission did not have to consider anything else.

This is the third major embarrassment produced by Hydro management in the past couple of years. In 2004, it pulled the plug on the Duke Point power generating project on Vancouver Island after spending $125 million.

In the process, it abandoned a private sector partner at a time when it was under instructions from the provincial government to seek outside investors for new power generation.

In late 2005, the credibility of Hydro managers took another hit when they were forced at the last minute to cancel the unveiling of their Integrated Energy Plan, their supply blueprint for the next 20 years, after the government balked at its direction. Now we have a deal that the utilities commission has ruled is not in the public interest.

Both Alcan and BC Hydro have reserved the right to appeal the decision. Given how favourable the deal is to Alcan, we can understand why the company wants it preserved.

But Hydro should drop the appeal and turn instead to renegotiating a pact that looks after the interests of its customers, an interest it appears to have forgotten.