B.C. gains on Alberta's power pain

Deregulation handed $500M bonanza to BC Hydro, critics say

Darcy Henton
The Edmonton Journal
Monday, April 14, 2008

The deregulation of Alberta's electrical system may be controversial here, but it has been a bonanza for British Columbia, say industry observers.

They say B.C. has made windfall profits -- more than half a billion dollars -- selling its cheaply produced hydro electricity on Alberta's power market at prices that rocket to nearly $1,000 per megawatt hour (MWh) -- or $1 per kilowatt hour -- when supply is short.

By contrast, John Calvert, an associate professor of public policy at Simon Fraser University in Burnaby, B.C., says BC Hydro produces electricity at a cost of about 0.6 cents per kilowatt hour (KWh) and sells it to B.C.'s 1.7 million customers for around 6.4 cents per KWh to cover transmission, distribution and other costs.

Liberal MLA Hugh MacDonald says it is obvious B.C. taxpayers are the winners in this province's electrical deregulation experiment and Albertans are the losers.

"It's like BC Hydro won a lottery -- only they get a prize on an annual basis," he said. "They will get an annual dividend from our major mistake: electrical deregulation."

MacDonald suspects BC Hydro uses the Alberta revenue to keep its electricity prices amongst the lowest in Canada while Alberta prices are heading in the opposite direction.

"We have gone from some of the lowest prices in North America to some of the highest costs in North America and deregulation is to blame," he said.

NDP Leader Brian Mason said deregulation was supposed to bring lower prices and increased generation and it hasn't accomplished either.

"We're buying more power from B.C. at prices that must be a world-record mark-up," he said. "They are making out like bandits."

Neither Alberta Energy nor BC Hydro would reveal the exact dollar value of the electricity that is purchased by Alberta from B.C., but Alberta Energy reports on its website that it purchased more than $668 million worth of power from B.C. and Saskatchewan in the five years between 2002 and 2006. The province imported nearly $200 million in 2006 alone -- the last year for which figures are available.

While both B.C. and Saskatchewan export electricity to Alberta, the lion's share comes from B.C. SaskPower officials wouldn't say how much electricity it sells to Alberta, but its annual reports suggest it is a minimal amount -- about $13 million in 2006.

Wayne St. Amour, a vice-president with the non-profit Alberta Electric System Operator, said BC Hydro has the ability to close its spillways in the early morning hours and purchase power from Alberta's coal-fired plants when market prices are low. It then taps its recharged reservoirs when demand peaks and sells power into the Alberta grid at prices as high as $999 per MWh.

"Those are the market dynamics," he said. "That is a price that is entirely reasonable when we think about the level of reliability it provides us to ensure the lights stay on in Alberta."

Alberta deregulated its electricity market in 2001. Since 2002 it has been a net importer of electricity, St. Amour said.

Jim Wachowich, a lawyer for the Alberta Consumers Coalition, said Albertans paid the costs of creating the deregulated system and all the rules and entities that operate it and now B.C. is cashing in on the rewards.

"The jurisdiction next door is enjoying the benefits of electrical deregulation without suffering any of the costs," he said. "I really do believe Albertans have paid costs and not seen commensurate benefits from those costs."

But Alberta Energy spokeswoman Tammy Forbes says the power line between B.C. and Alberta supports the sharing of electricity during high- and low-demand periods to ensure a reliable supply and Alberta benefits from that.

She added that restructuring the electricity system has enabled Alberta to lead the nation in generating wind power and resulted in proposals to build 7,200 megawatts to meet the province's staggering demand for electricity.

"Our load growth in 2007 was equivalent to Ontario's load growth and they have three times our population," Forbes said. "The amount of electricity that has been added -- 4,600 megawatts -- is estimated to be $5 billion in private investment that didn't use taxpayers' money ... That is adding an entire Saskatchewan worth of new generation."

Alberta's plans include construction of a second power line into B.C. within the next decade. Critics say that may only increase Alberta's dependence on B.C. power.

"There is always concerns around too much interconnectedness," Wachowich said. "If someone else's system goes down, it can bring you with it."

Calvert said B.C.'s electricity can be produced cheaply because most of its dams were built in the 1960s and 70s.

"We're paying prices that are 30 to 40 years old," he said.

Alberta electricity, which is produced by private companies primarily from coal-fired plants and natural gas-fired plants, is considerably more expensive to produce and it is sold into a supply-and-demand-based electricity market.

Joseph Doucet, who teaches energy policy at the University of Alberta, says B.C. is well positioned to take advantage of Alberta's restructured market.

"The juxtaposition of a hydro system and a thermal (coal) system is ideal," Doucet said. "You have a market that is close to you that you can serve and, by virtue of two things -- good luck in geography and good planning -- you can profit from that market."

He said Alberta would need more generation if it wasn't for its easy access to B.C.'s electricity. And the power it purchases is emissions-free, he added.

"I would suggest that before your readers get too hot under the collar about this, it's not that different from the way we Albertans feel about expensive oil and our proximity to the U.S. market," he said. "We can't begrudge them their hydro capacity. They should be able to profit from it."

BC Hydro, which trades power and natural gas through its subsidiary Powerex, earned $511 million from sales to other provinces in 2006 and more than $2 billion in the past decade.

The Crown corporation carries a $7-billion debt, but it is required to pay a dividend of 85 per cent of its annual surplus to the B.C. treasury. It made a $407-million profit in 2006-07.

Calvert, the author of Liquid Gold, which argues against efforts to privatize part of B.C.'s electricity system, is a strong proponent of a publicly-operated electrical system. "BC Hydro is a good deal for people here," he said. "The public is not keen to have it privatized."

Both Alberta's main opposition parties have vowed to pull the plug on electrical deregulation if they get into power.

"I never thought it was a good idea to restructure your system, but no one consulted me at the time," Calvert said.

dhenton@thejournal.canwest.com

© The Edmonton Journal 2008