More illumination is needed on Hydro's Duke Point deal

Editorial
Vancouver Sun
09 Nov 2004

The B.C. Utilities Commission created an awkward problem when it derailed the Vancouver Island Generation Project last year.

B.C. Hydro had already spent $120 million on the plan to build a gas-fired, 265-megawatt generation plant at Duke Point in Nanaimo and a related gas pipeline to Washington state.

The Utilities Commission, which was given regulatory control over the project following the change in government in 2001, said the plant was larger than needed and asked Hydro to consider private-sector alternatives.

In response, Hydro put out a call for tenders for the supply of power for Vancouver Island.

Hydro has now announced a winning project, but the details of that choice raise a number of troubling issues about how well ratepayers are being served by this whole exercise.

Hydro's plan for Duke Point had a projected cost of $370 million plus the cost of the gas pipeline -- another $340 million.

It's not at all clear that the proposal announced by Hydro last week will be any less expensive for electricity users; in fact, it might cost more over time.

The new plant will be built by Pristine Power, a Calgary-based company, which plans with its partners to pay Hydro $50 million for equipment already purchased and built and to operate a plant similar to the one Hydro was planning.

Pristine estimates it will spend at least $280 million in "hard costs." In addition, Pristine will face financing and other costs related to getting the plant up and running.

Hydro's construction budget had included $34 million to $41 million for interest cost during construction. There is no reason to assume Pristine's financing costs will be any less.

Hydro has not said what price it will be paying for power from the Duke Point plant, but we have to assume it will include a reasonable rate of return on the new company's investment.

On top of that, Hydro will have to eat $70 million in write-offs because its project and the associated gas pipeline are not proceeding.

So the B.C. Utilities Commission will have to explain to ratepayers how they are better off with what is essentially the same project proceeding under private ownership a year after they told Hydro to think again.

They will also have to explain to the other private-sector companies -- that spent time and money developing alternate proposals -- how this process has been fair to them.

Hydro has a clear conflict of interest in choosing a proposal here because of the carryover from its original project. Without the $50 million Pristine will pay for equipment already purchased for the Duke Point Plant, Hydro was looking at having to write off the entire $120 million.

British Columbians who buy their electricity from Hydro have a mixed interest here. On one hand, any losses suffered by the publicly owned utility will affect our power rates.

On the other, we have a long-term interest in attracting private power producers to the province.

If they cannot be assured they will be treated fairly, they will simply go elsewhere at a time when we need their investment and innovation here.

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