BC Hydro needs government policy changes
Though presented as part of its effort to protect families, the government’s recently imposed cap on BC Hydro rate increases will not help British Columbians – families or otherwise. The cap on rates does nothing to reduce costs. At best it provides a shortterm gain, but sooner or later BC Hydro will have to increase rates to match the increase in its costs.
British Columbians will benefit only when BC Hydro is able to plan and operate its system more efficiently. And as much as the government would like to blame the BC Hydro board and management for rising costs and rates, the fact is that the government’s own policies are largely to blame.
In an unprecedented series of directives, the government forced BC Hydro to acquire more power than it needed to ensure reliable supply, or could otherwise justify. It also dictated that all new customers, including large electric- intensive industrial loads, would pay the same standard rate, even though that rate is less than half the cost of the new supply BC Hydro has to acquire to meet the new customers’ requirements.
Through new legislation the government authorized BC Hydro to make major investments in smart meters, new transmission lines and other
projects without any independent assessment of their costs and benefits or business plan. That same legislation also directed BC Hydro to develop plans to buy and export private power, and enabled cabinet to force BC Hydro to do so regardless of the costs of the back- up and other services BC Hydro would have to provide and the market risks it would have to assume.
These measures have already had major impact. In its rate application, BC Hydro reported that by 2014 it will be buying over five million megawatt hours of private power as a result of the government’s policy. This is power that BC Hydro does not yet need, would not otherwise have acquired and the BC Utilities Commission would not have approved. The average price BC Hydro will be paying for this power is well over $ 100 per megawatt hour and its value, based on BC Hydro’s latest forecasts of its market value, will be less than $ 50 per megawatt hour. The financial loss to BC Hydro will be well over $ 250 million in that year alone.
The government cannot reverse the costs and losses it has already imposed on BC Hydro. Rate freezes only mask, they do not undo what has been done. What the government can and should do, however, is to change its policies and rescind the legislation and directives that have prevented BC Hydro from planning and operating its system more efficiently.
The government has already recognized that the extreme version of the self- sufficiency and insurance policy it imposed on BC Hydro was a mistake. However, the changes it proposes, to
require BC Hydro to be self- sufficient under average as opposed to severe drought water conditions, does not address the fundamental problem.
There is no inherent need for, or value in, self- sufficiency. What we need and what BC Hydro has always done in the past is to develop and acquire enough resources so that it can ensure reliable, cost- effective supply under all water conditions. Government should reestablish that basic requirement and let BC Hydro, with the independent oversight of the BC Utilities Commission, determine how best that can be done. This is particularly important with the growing loads BC Hydro is now forecasting for the future. The goal should be to economize on what we need, not to grossly overstate it.
The government is also reportedly aware that it has a problem with its policy governing the pricing of electricity for large new electric loads. Discussions are taking place with the proponents of new LNG plants that would consume in aggregate more electricity than the entire output of the proposed Site C hydro generating station. BC Hydro would incur huge losses if forced to provide power to these LNG plants at the standard industrial rate as opposed to, for example, the cost of Site C.
But this is not a one- off problem with LNG. The very same problem, albeit at a somewhat smaller scale, exists with the new metal mines and other electric- intensive loads expected in the province. BC Hydro will lose tens of millions of dollars per year at each new mine if it provides power to them at the standard industrial rate.
In 2002, the government’s own task force on energy recognized that selling power at prices less than half the cost of new supply is not efficient, sustainable or equitable. Prices need to reflect and recover the cost of new supply, especially for major new users of electricity. That will protect BC Hydro consumers. And it will help dampen excessive growth in the demand for and use of electricity in the future,
Other policy changes are needed as well. Whether smart meters ever made sense is now a mute point. A plan should include time- of- use pricing and other methods to shift demand from peak to off- peak periods.
As for exports, the purchase and resale by BC Hydro of low- value, high- cost private power never made sense and makes even less sense now with the depressed power markets in the U. S. as BC Hydro has recently pointed out. Nevertheless, BC Hydro has unique opportunities to capitalize on the increasingly valuable storage, shaping and other services it can provide with its large reservoir system. The government should encourage BC Hydro to pursue and enhance those opportunities, and eliminate all of the measures it itself imposed on Hydro that diminish that export capability.
The government’s energy plan for BC Hydro was a predictable, serious mistake. Capping the resulting rate impacts it has caused won’t fix it. Changing policy will.