Hydro customers could pay $4.5b for new plant

Scott Simpson
Vancouver Sun
17 Jan 2005

BC Hydro customers will pay an estimated $4.5 billion over 25 years for a new gas-fired electricity plant that is being proposed to the B.C. Utilities Commission as the answer to Vancouver Island's looming energy crunch.

Hydro will go before the commission today with a proposal to partner with a Calgary company, Pristine Power, to develop a 252-megawatt plant at Nanaimo's Duke Point.

Total costs associated with the project have yet to be disclosed, although both Hydro and Pristine have begun to openly discuss fixed expenditures in recent days.

The Joint Industry Electricity Steering Committee, which opposes the project, has been furiously crunching numbers in preparation for Monday's hearing, and came up with the $4.5-billion figure this week after adding up fixed costs and making long-term projections on the price of natural gas.

The number is stated in a letter sent to the utilities commission by the committee.

Hydro has already spent $170 million over the past four years, but will recover only $50 million, leaving its customers -- the taxpayers of B.C. -- on the hook for the remaining $120 million.

But those costs pale in comparison to the amounts Hydro is prepared to pay out over the next quarter century -- although Hydro says the per-unit cost of energy from Duke Point is comparable to what it will pay for other private-sector operators, roughly $65 per megawatt for secure, high-grade electricity.

Pristine will invest about $285 million to build the plant, and will receive fixed monthly payments of $2.9 million for 25 years, according to Pristine president Jeff Meyers.

That adds up to a return on investment of $870 million over the life of the deal.

Meyers said Terasen Pipelines is guaranteed $9.6 million per year for gas delivery services in support of the plant -- $240 million over the life of the deal.

Meanwhile, the Joint Industry Electricity Steering Committee said the biggest single cost of Duke Point will be the gas that is necessary to run it.

It pegged the total, 25-year cost of the project at $4.5 billion, including gas purchases at present market prices, if the plant runs 80 per cent of the time as Hydro expects.

All of those costs will be borne by Hydro customers.

Hydro power planning manager Mary Hemmingsen says the facility is necessary to meet peak electricity demand on Vancouver Island, which hit a record for hourly electricity consumption on Friday morning.

Hemmingsen said Hydro expects that demand will continue to escalate amid solid economic and population growth.

She said the situation is so urgent on Vancouver Island that without Duke Point, Hydro may have to consider measures that could include a fleet of barges housing diesel-fuelled 23-megawatt generators.

Hydro would rely on a scheme involving power consumption curtailment by Norske Canada, and the barges, until BC Transmission Corporation can set down new high-voltage cables to the Island in 2008.

Hemmingsen said the existing cables will reach the end of their useful life in 2007 and Hydro would prefer to have Duke Point operational by that point to avoid a potential power crisis.

The Duke Point project has attracted opposition from virtually every stakeholder group in the province, who believe it is too costly a solution to the Island's growing energy needs.

The industry steering committee calculates that the net cost of electricity from Duke Point would be $200 per megawatt hour because the plant would only operate about 20 per cent of the time.

Those calculations were rejected this week by senior executives of Pristine, in a meeting with The Vancouver Sun.

"We think their numbers are just wrong," said Pristine president Jeff Meyers, adding that the true cost was $65 per megawatt -- given Hydro's expectation the plant will be in operation 80 per cent of the time.

Hydro says Duke will produce electricity for about the same price as other, smaller-scale, private sector projects that have recently been awarded power-supply contracts from the crown corporation.

The BCUC hearing will determine whether or not the project is a cost-effective solution to the Island's needs, but will not consider whether other cheaper options are available.

In 2003, the commission rejected Hydro's attempt to self-operate a Duke Point plant -- even though Hydro had already spent $170 million including $120 million for turbine equipment and $50 million in development costs for a gas pipeline project that was abandoned last month.

Hydro is coming back before the BCUC with a deal that would revive the 252-megawatt project with Pristine as developer.

"The important thing to understand in this bid is that the Island needs electrical capacity. It doesn't necessarily need electrical generation that runs on every hour," Meyers said.

Meyers said Duke Point was a better option for the Island.

"You have a wire serving the Island that is to be retired in 2007. That's a firm date. BC Hydro has an obligation to serve and they need to have reliable capacity."

He noted that Pristine supports alternative forms of electricity generation, such as run of river hydro, but says those technologies cannot deliver the same measure of security or steady output as a gas-fired generation plant.

"When everything starts to come on in the morning, Hydro needs resources they can absolutely switch on. You can't get that from wind, you can't get that from small hydro or a number of the alternatives."

© The Vancouver Sun 2005