B.C. tries to avoid Hydro issues - again

By MATHEW INGRAM
Globe and Mail
Tuesday, November 26


You can't really blame B.C. Premier Gordon Campbell for desperately
trying to find some safe middle ground on the electricity issue,
given the public-relations debacle that has occurred with power
privatization in both Ontario and California. Unfortunately, the
result of his efforts is a cosmetic change that does little to
address B.C.'s power issues - a failure of nerve that is only the
latest in a long line of such failures.

During the runup to the B.C. elections in 2001, in which Mr.
Campbell's Liberal party won a landslide victory over the former NDP
government, there was much talk about splitting BC Hydro up into
pieces - generation, transmission and distribution - and opening some
or all of them up to private competition or ownership. Then came the
power crisis in California and the Enron debacle, all of which gave
private power a bad name.

Of course, BC Hydro made out quite well during the California crisis
- so well that the state criticized the province's power-trading arm,
Powerex, for reaping a $400-million (U.S.) windfall as a result of
the massive spikes in California's spot market, spikes that some
allege were deliberately created and manipulated by Enron and its
partners. BC Hydro is still in court trying to get about $280-million
it says it is owed.

In any case, once California started melting down, the Liberals
clammed up on the issues of deregulation, and said that they had no
intention of selling off BC Hydro's generation or transmission
assets. It's not hard to see why - not only have things blown up in
California and Ontario, but even a tiny step such as the contracting
out of BC Hydro's computer services raised howls of criticism from
the province's labour groups.

So the B.C. government is doing what politicians frequently do in
such cases, and promoting a half-measure as a groundbreaking move
toward a brighter future for all. Splitting BC Hydro into two units -
generation and transmission - is a step forward, but only a small
one, and one whose tangible benefits remain a large question mark.
Will BC Hydro be able to shed its history as a spotlight-hogging
behemoth and actually allow private producers open access to the
grid? That remains to be seen.

BC Hydro's track record of encouraging private-public partnerships
and co-generation - something that the province is more and more in
need of, as its power needs grow and supply remains stagnant -
doesn't exactly fill anyone with confidence. A proposed co-gen plant
on Vancouver Island, where BC Hydro started warning about power
shortages in 1995, was plagued by delays and cost overruns, and two
partners either quit or were shoved out the door: first Alberta-based
Atco Power, then U.S.-based Calpine.

The larger problem for the province is that BC Hydro has not invested
enough in new generation over the past decade to keep up with
increases in demand - in part because the NDP government treated the
utility as a piggy bank, and siphoned off as much as it could. In the
latter days of its reign, the government even convinced Hydro to
boost its profit projections so the NDP could claim to have a
balanced budget.

As generating capacity has fallen short of demand, BC Hydro has been
forced to buy power on the spot market, which has driven its costs
up. Last year, the utility's power costs were $4.4-billion -
quadruple what they were in 1999 - and the bulk of that increase was
power purchases, 30 per cent of which were short term. The utility
admitted that it was a net buyer of power during the year, and it had
to draw funds from the "rate stablization" account in order to meet
its target rate of return.

Mr. Campbell may want to give the impression that the province is
"open for business" in power, and that private producers are welcome
to supply power to the grid through the new separately owned (but
still government-controlled) tranmsission unit. And yet, he has
steadfastly refused to remove the price cap that was imposed by the
NDP in 1993, which fixes residential rates at about 6 cents per
kilowatt hour. In doing so, he has fallen into the same trap as
Ontario Premier Ernie Eves.

An open market is not just one massive Crown corporation carved in
two, something B.C. has done by design and Ontario has arrived at by
default, as Mr. Eves has backtracked on deregulation. An open power
market, one which encourages private producers to develop new
generation, requires market prices that can fluctuate - and yes, go
up from time to time - in order to encourage more entrants into the
market. Two large Crown agents and a price cap is not a recipe for an
influx of private power.

And so, British Columbia will ignore large parts of its recent
government-commissioned report (which recommended market rates), just
as previous administrations ignored earlier such reports, and just as
Mr. Eves has ignored everyone but his public relations staff and
re-election team. And British Columbia will continue to buy expensive
power, and pray for snow.

ENDS