Island power project is coming together just in time

Editorial
Vancouver Sun
February 17, 2005

COMMENT: Is the BCUC leaking info to the Vancouver Sun? Is the BC Hydro communications machine buying lunches for Sun editorialists?

This editorial, shallow and half-informed in its reasoning, is also out of character for the Sun, which has largely ignored the last five years of energy issues on Vancouver Island. That's not to ignore reporter Scott Simpson's attention to Duke Point events, and the occasional op-ed by Dr. Mark Jaccard.

Well, whatever. Let's hope at the least that today's decision by the BC Utilities Commission on the Electricity Purchase Agreement between BC Hydro and Duke Point Power is already made, and won't be influenced by this editorial, too. - Arthur Caldicott

It's been a long time coming but the Duke Point Power Project on Vancouver Island will likely get the regulatory green light today. It is a welcome resolution to the problem of ensuring sufficient energy capacity on the island to meet peak demand.

The B.C. Utilities Commission is expected to hand down its decision today and all indications suggest that the $280-million, 252-megawatt, natural-gas-fired plant will be approved. Construction is slated to begin almost immediately with completion scheduled for May 2007.

When BC Hydro first presented its proposal to meet Vancouver Island's future energy needs some five years ago, the project included a $380-million pipeline across the Georgia Strait. An exhaustive process, which included years of debate and deliberations as well as hearings before the National Energy Board and the BCUC, finally drew to a close last year with cancellation of the pipeline and the BCUC sending BC Hydro back to the drawing board.

BC Hydro took a $120-million provision in the fourth quarter of 2004, mostly to account for its investment in the Duke Point Power Project to date. Unlike private sector companies, which would apply the write-off against profit and thereby gain at least some tax benefit, BC Hydro, a Crown corporation, will likely allocate the sum to a deferral account, which is intended to help manage variables beyond BC Hydro's control such as low water levels or high gas prices. Down the road, BC Hydro can be expected to apply to the BCUC to recover that money through rate hikes.

Meanwhile, the Duke Point Power Limited Partnership, held jointly by a unit of Australia's Macquarie Bank Ltd. and Pristine Power Inc. of Calgary, will build, own and operate the power plant and will pay BC Hydro $50 million for the assets already assembled, including the land, a steam turbine, engineering work and permit approvals.

Under its agreement with BC Hydro, the partnership will have to pay penalties if it fails to deliver the project on time or it misses other milestones of deliverability or reliability.

Critics have warned that power the partnership will sell to BC Hydro over the next 25 years won't be cheap -- estimates are in the range of $68 per megawatt/hour, roughly double the cost of hydro power produced on the mainland. But BC Hydro doesn't have sufficient capacity to supply Vancouver Island from its existing facilities. It would have to build something somewhere.

Environmentalists like to argue that alternative energy sources such as wind, solar and micro-hydro (small waterfall turbines) could serve the island, but these cannot provide dependable capacity for the island's growing population and businesses. Another proposal would have burned wood waste and other garbage to generate electricity, but PCBs and other pollutants this would have created made it a poor environmental choice. Some industrial power users said they could shift peak demand, but this hardly seems a sound long-term solution to the island's electrical capacity shortfall.

BC Hydro said recently that peak power demand it had forecast for 2007 has already been reached.

There are other benefits to the Duke Point Power Project besides dependable power supply. During the construction phase, local spending in the Nanaimo area is expected to increase by $40 million, with $8 million in additional annual spending thereafter, including $2 million in property taxes. Construction will create 200 jobs and 16 to 18 full-time staff will be needed to operate the plant.

BC Hydro will be able to use funds it saves on the capital cost of the power plant to repair and maintain its long-neglected transmission grid.

While some uncertainties remain, such as the cost and availability of gas to fill the Teresen pipeline, it appears that after an agonizingly long and expensive process, BC Hydro has finally arrived at what appears to be a way to meet the island's energy capacity needs -- and just in time for the crunch.

© The Vancouver Sun 2005