LTAP: Private power comes with a huge cost
COMMENT: Note the footnote: "Energy Minister Blair Lekstrom called some ... analysts ... who track the private power companies operating in the province .... The ministry won't say who got the chats with the minister. No transcript exists of the briefing, the ministry says."
By Paul Willcocks
Times Colonist
August 12, 2009
The B.C. Utilities Commission deserves a slap upside the head for its ruling on B.C. Hydro's plans to sign deals with private power companies that will cost consumers billions of dollars.
Not for its substance. As far as I can tell, the murky, acronym-laden swamp of a decision makes sense.
But its incomprehensibility -- not just to dabbling journalists or interested readers, but to energy experts -- is appalling.
The utilities commission exists to protect the public interest. B.C. Hydro is a monopoly. It sold $2.8 billion worth of electricity within the province last year -- about $650 for every person in the province.
The commission, among other things, scrutinizes B.C. Hydro's operations and plans to make sure it isn't making mistakes that result in unnecessarily high electricity costs.
This decision ruled on B.C. Hydro's long-term plan to meet energy demand in the province.
And the utilities commission had some big doubts.
It had to look at several components of the plan, starting with B.C. Hydro's forecast of future energy demand. That was OK.
Then it reviewed B.C. Hydro's plans for reducing demand, through increased efficiency and conservation and off-peak power. Curbing demand can be cheaper than adding new dams or wind turbines.
Those didn't pass the commission's scrutiny. The corporation wasn't doing enough, it ruled.
Next the commission looked at how B.C. Hydro proposed to meet the province's energy demands in the coming decades. That matters because wrong decisions mean unnecessary costs for consumers and companies. If B.C. Hydro enters into a long-term deal to buy electricity from a company developing a big power project on a B.C. river system, for example, when it's not needed, consumers pay the price.
The utilities commission rejected B.C. Hydro's long-term energy acquisition plan.
The Crown corporation, acting on government direction, has set three criteria for new power. It has to be green -- hydro, wind or burning wood waste. It has to come from private companies, not B.C. Hydro's own projects. And the capacity has to be so great that no imports would be needed.
That's consistent with the government's decision, two years ago, that climate change was an over-riding issue.
But it comes at a cost. New, green energy from private companies is expensive. If B.C. Hydro commits to paying too much, or buying too much, energy prices will be higher than necessary.
The commission -- based on my reading of an opaque 200-page decision -- thought B.C. Hydro could be planning to buy more power than was necessary, building a large cushion into its plans.
And the corporation had reduced the potential capacity of Burrard Thermal, the gas-powered plant in the Lower Mainland. Burrard is old and inefficient and produces a lot of greenhouse gases. But it can provide cheap standby insurance power, an alternative to costly contracts with private power corporations.
The ruling baffled everyone. It didn't order a halt to the current call for new green power projects from private corporations. But it did reject B.C. Hydro's plans to reach power deals with those companies.
Plutonic Power, one of the big IPPs, saw its share price fall 19 per cent on the day after the decision's release, making it worth about $35 million less.
The bottom line, I would say, is the utilities commission judged that B.C. Hydro is trying to buy too much expensive energy from private companies, at consumers' expense.
The Crown corporation is in an interesting spot.
The government and the well-connected private power companies want it to go ahead with more long-term deals.
But the utilities commission has served notice that B.C. Hydro will be taking a risk if it goes ahead.
The commission might not allow those costs to be passed on to consumers, which would threaten the $500 million -- more or less -- the government expects in profits from B.C. Hydro.
Unless, of course, the government abandons its commitment to an independent utilities board and opts for political interference.
Footnote: Energy Minister Blair Lekstrom called some of the analysts for the big investment houses who track the private power companies operating in the province in the wake of the ruling. The ministry won't say who got the chats with the minister. No transcript exists of the briefing, the ministry says.
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Posted by Arthur Caldicott on 12 Aug 2009