NDP cornered by Site C costs
Rookie Liberal MLA Tracy Redies and Energy Minister Michelle Mungall emerged from the legislature chamber Tuesday afternoon, shook hands and congratulated each other, like two women who just finished a 10K together. They’d been jousting for days on one aspect of the Site C dam, the financial implications of the go or no-go decision now before cabinet. If Redies job was to extract information from the minister, then she flunked. Mungall divulged a few details, but mostly stuck to the line that cabinet is taking everything into account.
In a broader sense though, Redies’ cross-examination was a master class in how to pursue a line of questioning. It was informed by her experience on the board of B.C. Hydro, where she happened to be on the audit committee.
In short, she knows where the sunk costs are buried.
B.C. Liberals obviously want the project to continue, so she approached it with a definite bias.
And Liberals clearly created the box that the NDP cabinet is now in. Although the answers were scant, the dozens of financial questions just by themselves raise a number doubts about whether termination would be regarded now or years from now as a good idea.
As Redies put it: “Is she seriously considering the option of writing off $4 billion and triggering a completely unnecessary 10 per cent hike in hydro rates for years to come?”
The numbers have been verified earlier as the cost of walking away, and the subsequent size of the rate hike needed to cover that expense.
Chasing the point further, she said there are only two choices if the project is terminated – write off $2.1 billion immediately (not counting $1.8 billion in remediation) or loading the entire $4 billion loss in a deferral account.
Hydro has already deferred $5.7 billion in costs, and Mungall admitted that figure is “hugely concerning” to the government.
But deferring the sunk costs would come on top of the $150 million Hydro will lose next year if the three per cent rate hike is cancelled as Mungall has promised. If cabinet cancels the dam, the utilities commission would be considering Mungall’s rate freeze knowing Hydro is looking at about a half-billion dollar hit to the books. With other costs, the decisions could add $600 million a year to the utility’s expenses.
It posted $680 million in profit last year, so most of that would all be gone.
All that at a time when Hydro is carrying about $20 billion in debt, scheduled to rise to $23 billion, and has a long-range capital plan budgeted at $24 billion.
Redies queried: “Honestly, I would like the minister to explain how she thinks the BCUC could agree to a rate freeze in the situation of a termination, when it would clearly put B.C. Hydro into tremendous financial jeopardy.”
Deferring the cost would have a disastrous long-term impact, she said. A 10-year period would hike costs drastically. Deferring it for decades, which is on the table, would punish taxpayers who haven’t even been born yet.
Mungall said: “Who will ultimately pay the bill in a termination situation of Site C has not been determined at this stage because we have not made a decision.”
As for the write-off option, Redies said: “I would have thought that a $2.1-billion hit to B.C. Hydro’s and the government’s bottom line in one year would be catastrophic.”
On other aspects, Redies queried the B.C. Utilities Commission decision to reject Hydro’s load forecast and use a smaller one, which reduces Site C’s economic viability.
Mungall acknowledged that’s never happened before.
Redies asked if Canada and B.C.’s climate-change commitments don’t involve massive new electrification? Mungall: “Absolutely.” Redies summed it up: Termination would write off $2.1 billion in costs and trigger $1.8 billion more in remediation.
It would force Hydro to carry $400 million a year in extra costs for a decade, fire 2,300 workers at Christmas and put millions in First Nations benefits at risk.
It would cripple the balance sheet, balloon deferral accounts that are already too high and force billions in spending on uncertain alternatives.
“Is there anything that we might have missed?” she asked.
Mungall was non-committal, but it looks like she got most of it.