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B.C. Hydro suffered a stunning rebuke Monday, with the B.C. Utilities Commission rejecting its plan to build an electricity generating plant on Vancouver Island.

Hydro officials predict that the Island won't have enough power to meet its needs within five years. To address that shortfall, they want to build a $370-million power plant at Duke Point, near Nanaimo, as part of a $710-million project that would also include the Georgia Strait Crossing natural gas pipeline. The pipeline would carry natural gas from the mainland to fuel the power plant.

The provincially owned utility was told to look for a cheaper way to keep the lights burning on the Island, where most of the 700,000 residents rely on electricity transmitted from the mainland.

A utilities commission panel ruled Hydro failed to prove the generating plant proposal was the most cost-effective way to address the Island's looming electricity shortfall.

A federal joint review panel of the National Energy Board and the Canadian Environmental Assessment Authority approved the Strait of Georgia gas pipeline proposal in July. But its future is now unclear as a result of Monday's decision.

The panel felt that the Duke Point project was, in the short term, an overkill solution to the Island's power needs. It would have generated 265 megawatts, enough energy to serve approximately 200,000 households.

The commission concluded the need for new supply resources is 100 megawatts less than Hydro's forecast for 2007-08.

Hydro executives planned to spend the night poring over the commission's 88-page ruling and decide what to do next. "We respect the decision of the regulator, and we will be going through the decision to determine if there is any recourse," said Hydro spokeswoman Elisha Moreno. "This is a regulatory decision. There's really not much we can say about it right now."

For those opposed to the plan, Monday's announcement came as a surprising victory. "I'm delighted," said Larry Whaley, of the Mid-Island Council of Canadians, and one of the early organizers of protest to the project. "There are so many kinds of environmental battles that seem to be never-ending, and if this means the end of this one, I'm delighted."

His sentiments were echoed in the offices of the GSX Concerned Citizens Coalition, an umbrella group with a membership of 3,000 including the Georgia Strait Alliance and Sierra Club. "On the face of it we're very pleased, but there may be a catch," said director Arthur Caldicott, who had yet to read the decision. "We're not used to having big victories."

The utilities commission ordered Hydro to solicit private sector bids for alternatives to Duke Point.

That's in keeping with the B.C. Liberals' vision for private sector involvement in the province's electricity supply.

The task now falls to private sector competitors to prove that they can meet the Island's energy needs more cheaply -- and as reliably -- as Hydro.

The panel rejected Hydro's assertions about the size and urgency of the problem.

Hydro says the failure of aging transmission cables carrying electricity from the mainland to the Island is imminent and says population growth could mean rolling blackouts within five years.

But while the utilities commission lauded Hydro's efforts to secure a new, autonomous electricity supply for the Island well in advance of any potential problems, it ordered the Crown corporation to seek private sectors bids for alternative projects.

It said Hydro must prove that Duke Point "is the most cost-effective project to meet the needs of the ratepayers of B.C. Hydro" if it wants to proceed.

The panel recalled that a senior Hydro executive in testimony during the Duke Point hearing asserted that Hydro felt no further investigation of alternatives was necessary and that it was time to get on with the job.

In rejecting that claim it encouraged Hydro to issue a call for tenders to seek alternative projects from the private sector. NorskeCanada has already indicated an interest in bidding for a contract to sell electricity to Hydro.

Hydro has only recently been returned to the scrutiny of the utilities commission, after spending several years as public agency outside of regulator control.

The utilities commission acts as a public watchdog and regulates pricing and other activities by publicly and privately owned utilities in British Columbia which are likely to have an impact on consumers.

Hydro was cut loose from regulation in the mid-1990s but put back under the commission's control in November 2002 by the provincial government.

Hydro has already spent about $100 million on the purchase of equipment for the Duke Point plant.

Nanaimo Mayor Gary Korpan was disappointed with the decision, saying it had little to do with the fact Nanaimo will lose out on $1 million a year in property tax revenue and hundreds of construction jobs required to erect the plant.

"I still need to see the reasons, and I sure as hell hope there is an explanation as to how we're supposed to deal with the shortage of electricity," he said, noting the need for a secure and dependable supply on the Island is acute. "We've known that since we've had the brownouts and blackouts over the last two winters."