B.C. power subsidy hurts us all

Pierre-Olivier Pineau
Times - Colonist
Victoria, B.C
Aug 11, 2006

On July 27, B.C. Hydro announced the first privately owned coal power plant in B.C., expected to run 24 hours a day, 365 days a year in Tumbler Ridge in northeastern B.C.

The power plant is the largest, by far, of the 38 contracts B.C. Hydro signed for privately produced electricity. It will have more than twice the output of the second-largest power plant (a hydropower plant in Powell River) and twice the combined output of the three announced wind-power plants.

These 38 new power plants are all privately owned and operated and will sell their electricity under no-risk contracts to B.C. Hydro. They are justified by the government and B.C. Hydro as being "one step toward closing the gap between demand and supply."

But the question is why such a gap? Why is demand so high and supply so low? Why do we need to rush to build new power plants?

The answer lies in the fact that in B.C., electricity is subsidized. It is sold below market rates due to government regulation. With such low electricity prices (50 per cent cheaper than in Alberta and in some neighbouring states), residential consumers in B.C. use 33 per cent more electricity per person than in Alberta and electricity-intensive industries come to B.C.

This may sound all good, except if you care for the environment, how B.C. territory is developed or if you think higher-income citizens should not receive an electricity subsidy from their government.

The "subsidy" is not direct. It is not money directly given to consumers or to B.C. Hydro. It is an indirect subsidy, reflecting the opportunity cost of current pricing. B.C. Hydro, by selling its electricity at about six cents per kilowatt hour, is missing out on the opportunity to sell at nine cents in Alberta or more in the United States.

This means that each time B.C. consumers use one kWh thinking it "cost only six cents," B.C. Hydro is missing out on the revenue of nine cents that could be made if the electricity was sold outside the province. Not only does this mean B.C. taxpayers are losing a good source of additional profit every year (about $400 million), but it means that electricity demand is inflated.

Low prices make us not think about electricity consumption and create the need for new power plants to close "the gap between demand and supply." With an important mining industry in B.C., the resource sector is very happy about this "gap" and thrilled that the B.C. government favours coal over other options.

The story doesn't even end here. It is easy to realize that the largest residential consumers are also the richest ones. Households with revenues up to $35,000 use about 6,000 kWh of electricity each year. Beyond $35,000, consumption quickly jumps to 12,000 kWh. Power is needed when you have three bedrooms, two computers, many appliances, air conditioning and a new plasma TV. Why should these higher-income consumers pay only six cents for their 12,000 kWh?

The result is that they don't think in terms of energy efficiency, B.C. taxpayers lose possible profits, the gap between supply and demand widens and the need for new coal-power plants is created.

It is time for B.C. to have a real energy policy, one that is rational and sustainable, not one that avoids facing the consequence of low prices in order to please voters and the coal industry.

Pierre-Olivier Pineau is an associate professor at HEC Montreal and at the School of Public Administration at the University of Victoria.