Power producers wonder who's in charge at BC Hydro

Don Whiteley
Vancouver Sun
July 20, 2005

BC Hydro's next call for power, in which it invites private-sector independent power producers to submit bids to sell electric power into the Hydro grid, is scheduled for the fall.

But in the wake of Hydro's recent decision to abandon the $285-million Duke Point power project on Vancouver Island, who in their right mind would want to participate in such a high-risk game?

That's the message now being delivered to Hydro from both the private-sector partner in the Duke Point project, and from the Independent Power Producers Association of British Columbia (IPPBC).

In a pair of stinging letters -- one of which went directly to the B.C. Utilities Commission and to which Hydro must respond by Thursday at the latest -- the power producers are clearly wondering who is in charge at Hydro, and what exactly is going through their collective minds.

"BC Hydro's termination decision has sent a chill through the independent power and financial communities in B.C. and across Canada," says IPPBC President Steve Davis. "Questions are now being raised as to the real value of a BC Hydro Energy Purchase Agreement. Further, it appears that developers' access to capital will be restrained and will likely come with higher costs."

Duke Point Power, the private-sector partner abandoned at the altar, was even more pointed in its letter:

"DPP is dismayed and shocked by BC Hydro's decision and submits that a complete explanation should be provided to the [B.C. Utilities] commission ... The actions of Hydro ... will have a chilling effect on the willingness of market participants to consider doing business with BC Hydro."

At issue here is providing additional electric power for growing demand on Vancouver Island. For years, Hydro argued consistently that a gas-fired power plant at Duke Point was an integral part of any solution. Despite opposition, it convinced the utilities commission the project was essential, and the commission approved it.

Hydro said it bailed out because a legal challenge by opponents threatened to delay the project for long enough to compromise the reliability requirements (Duke Point Power says that's not true) and it needs to get on with solving the island's power needs, short-term and long-term.

To do that, Hydro has put forward a combination of increased transmission capacity from the mainland (B.C. Transmission Corp. filed an application to do that last week) and "crisis" measures including a curtailment of electricity load to Norske Skog (which is now negotiating terms, from a position of significant strength, with Hydro). All these measures had already been ruled insufficient by the utilities commission when it approved the Duke Point project.

According to the IPPBC, Hydro is now left with a $120-million write-off on a project that went nowhere, plus about $10 million in regulatory costs.

What's worse, this is the third time Hydro has tried to push a project to provide power to Vancouver Island. The first was a call for bids in 1995, after which Hydro decided a rebuild of the Burrard Thermal plant would do the trick (after private companies spent money submitting bids, of course).

But the utilities commission rejected that approach, and Hydro then tried its first run at Duke Point, with a proposal for a Hydro-built project. That too, was sent back to the drawing board, hence the call for bids on this latest effort.

The IPPBC estimates its members have spent more than $30 million on aborted attempts to provide power for Vancouver Island, including this latest fiasco.

The utilities commission gave Hydro exactly one week to answer Duke Point Power's complaint about the decision. Until that response is made public, publicly-owned BC Hydro won't be making any public comment -- either on the IPPBC letter or on the Duke Point Power letter.

Now, it seems, private-sector power producers in this province will be factoring in a "B.C. premium" when bidding on future Hydro calls for power (that's assuming they bid at all). They will include a "cold feet" contingency payment, hidden somewhere, to protect against similar treatment.

The reasons for Hydro's bail-out on Duke Point look so transparently bogus that you have to wonder what the real reason is. To cancel because of a legal challenge by opponents, in B.C. of all places, is bizarre. You can't build a dog house in this province without attracting organized opposition (usually from cat lovers).

The provincial government has so far taken a hands-off approach to this, leaving Hydro and its board of directors to stew in their own juices. But the costs of these missteps will be borne by everyone in B.C. who uses electricity, which means everyone. And Vancouver Island residents are vulnerable to power deficiencies without the long-term solution that Duke Point represented, in part.

Sooner or later the government will have to do something. Perhaps they are waiting for Hydro's response to the complaint from Duke Point Power, or more pointedly, the utilities commission's response to Hydro's letter.

don_whiteley@telus.net

© The Vancouver Sun 2005