BC energy future at risk

by Charles J. Walter
Common Ground
July 2006

If Ottawa decided to take control of BC’s and the rest of Canada’s ten provinces energy grids there would be a huge political hue and cry from all Premiers in defence of their provinces control over energy and energy transmission. Just witness the current demands by resource rich province such as Alberta to keep the feds national equalization hands off oil income. On April 4, 2006, the North American Electric Reliability Council of the United States (NERC), which was created by the Federal Energy Regulatory Commission of the US (FERC), applied simultaneously to all 10 provinces to regulate Canada’s electrical transmission grid. NERC will be headquartered in Washington, DC and its current board of two Canadians (including a former BC Hydro director) and eight Americans are representatives of the private and public electrical utilities that make up NERC.

Canada is the largest supplier to the US of total energy, when oil, natural gas and electricity are combined. Wars are being fought today over this scale of energy capacity.

Forty five years ago, when Premier W.A.C. Bennett nationalized BC’s hydroelectric generating and transmission capacity, his government created for the citizens of BC a legacy of low cost power, which supported private economic and community development as well as providing substantial direct and long-term financial benefits to BC’s treasury.

In 1964 President Lyndon Johnson arrived with a cheque for $250 million and the Columbia River Treaty was ratified. BC Hydro built great dams and an integrated electrical transmission system. BC began to export huge amounts of electrical power to the US and the integrated western North American energy grid, from northern BC to southern California was created. The BC government was allowed to sell 50 percent of the downstream benefits for 30 years to build the Columbia Treaty dams and reservoirs. BC taxpayers took on the debt, paid the lion’s share of the costs and finally the downstream benefits returned to BC in 1998 in the form of 1,170 megawatts of now higher-value, open-market saleable power. That’s enough power to take care of roughly 2.2 million homes.

In 1991, California’s misguided ideological market commitment to privatize its power and the treacherous corporate tentacles of the likes of Enron, drove California to the edge of bankruptcy. BC Hydro along with other long term and loyal power generators were accused of market manipulation (they were subsequently exonerated by FERC of any wrongdoing in 2003). California followed up with a billion-dollar lawsuit in 2005. BC Hydro called it legal blackmail. The suit never made headway.

Unbridled private competitive electrical companies, the California experience showed, do not act for the greater good. In response to California’s near death financial nightmare, the US Federal Energy Regulatory Commission stepped in and used the crisis to force much needed efficiencies in the US generation and electrical transmission system. FERC observed that the US needed to create an open access highway for electrical power transmission and generation.

British Columbia, which is coupled with the US western continental system, has a different type of electrical generation and transmission system altogether from that in the US. Bennett’s “nationalized” BC electrical grid was already an open highway and integrated, albeit under the Crown control of BC Hydro. Further, BC Hydro had an enormous advantage with its dams, which act as huge batteries generating instant power at peak demand times.

Bennett knew how to control power for BC back in the ‘60s, but this is now the NAFTA 21st century, and FERC decided that BC should comply with United States energy system law. Shortly after 911, Premier Gordon Campbell met with US Vice-President Dick Cheney; energy security was on the US agenda. FERC then requested BC split up its unified electrical system in compliance with the new US rules.

Campbell, no doubt under considerable pressure, mandated a policy directive rather than pass a law. The BC Transmission Company was then set up and BC Hydro became a generator only. Campbell however went even further and his government policy said all new BC power would now come from private sector independent power producers (IPPs). The BC Utilities Commission, which was cancelled by the previous NDP government, was re-established by the Campbell government to regulate the two new utilities and IPPs in the best interest of the people of BC.

At the same time NERC made its application to regulate all of Canada’s grid, the BC Utilities Commission made a ruling which matches FERC’s US power transmission rules on new transmission and financing. This created a private sector financing structure on the backs of British Columbia Transmission Company’s (BCTC) core public assets. In sum, the fracturing of the once great BC Hydro is well under way.

BC is 12 percent short this year of being able to meet its own electrical needs. To secure its energy future, BC needs to create new generation for itself, and the US. BC also needs to rebuild its grid.

Private companies control the titles to the best BC wind and tidal energy locations, which were originally researched and identified by BCH. These titles represent, at a minimum, tens of billions of dollars of future investment and utility scale electrical generating assets. Title control also represents precious clean renewable energy at a time of great concern for energy security.

There are many similarities between the W.A.C. Bennett energy era and those of today. The need for new clean power in BC and in the US markets was enormous then, as it is now. Bennett’s brilliant legacy was to create a balanced open energy system with huge capacity checked by a utilities commission charged to protect the interests of community. It has all worked very well for BC, Canada, and our friends in the US. The electrical energy business gets triple A credit ratings and monopolies compete with other monopolies in this arena. Properly checked monopolies can serve the greater good, and in fact must, Bennett reasoned.

On August 4, this year BC Hydro will be opening the independent power producer bids on its recent call for new power. A mix of wind, run of river and co-generation proposals are on the table. These deals will set the precedent for the legal structure of future power projects in BC. Meanwhile Campbell recently announced the appointment to his office of Susan Yorkovitch as director of communications and she is to be focused solely on the BC Hydro file. Susan’s last employer was David Emerson at Canfor. Emerson, as a Liberal and now as a Conservative, is a core member of the North American committee working out the Security and Prosperity Partnership details. Yorkovitch’s new job comes with a $3 million public relations budget as well. No doubt something’s up in the premier’s office on the multibillion dollar BC energy file. With the direct connect to BC Hydro via Yorkovitch along with the recent sale of Terasen Gas and the contradictory cancellation of Site C and the Island’s Duke Point generating project, Campbell has clearly signalled now that he is prepared to intervene politically and take the lead, albeit very unevenly.

This was not his position when he started out as premier. Something’s changed and the urgency level has gone up. He has been told by the best and the brightest on his elite BC Progress Board that BC’s number one priority is energy. It’s the same energy priority Bennett dealt with. His inner advisors have for six years been consistently unimaginative and weak on the energy file and his minister of energy has kept a narrow focus on the cash flow from hydrocarbons including methane fields and coal. The only minister in cabinet with a good grip on BC’s renewable future is Environment Minister Penner, in a junior portfolio. BC has lost a decade and is well behind on its renewable energy potential. Both the NDP and the Liberals have left BC Hydro to ossify at the board level and in the executive suites resulting in tremendous lack of vision, creative capacity and lost opportunity.

The stakes are in the double-digit, multi-billion-dollar range, and the risks are who controls BC Hydro, the BC water table, and its renewable energy generating assets; and for whose future economic benefit?

Keep a focused eye this August 4, on BC Hydro’s headquarters for a clear indication of how BC’s energy future will look after it opens the IPP bids. Structure determines destiny and the shape of BC Hydro’s interface with the independent power producers will be critical. Particularly watch Powerex’s (BC Hydro’s sacred trading arm) position and the BCH, BCTC and BCUC boards and executive suites for new appointments. Oh, and listen carefully to Yorkovitch’s comments coming from the premier’s office.

For further information and background see the film: Enron, The Smartest Guys in the Room and visit: www.commonfrontiers.ca/Single_Page_Docs/News_Items/Apr13_05_Foster.html/

www.powerex.com/about/facts.html/

www.neb-one.gc.ca/PublicInterestFootnote_e.htm (National Energy Board of Canada)

www.ferc.gov/about/com-mem/kelliher (background on the chair of FERC)

www.NERC.com/