A newly released report details how the previous provincial government pressured BC Hydro into signing long-term contracts with independent power producers (IPPs) that will cost B.C. customers more than $16 billion over 20 years.
Former B.C. Treasury Board director Ken Davidson delivered his report, titled Zapped: A review of BC Hydro's purchase of power from independent power producers conducted for the Minister of Energy, Mines and Petroleum Resources. It details how the previous government manufactured an urgent need for power while disallowing BC Hydro to produce it, therefore requiring the public utility to buy power from private producers at inflated prices. According to the report, this will ultimately cost the average residential BC Hydro customer about $4,000 over the next 20 years, or about $200 per year.
“British Columbians are paying more on their hydro bills because of the previous government’s choices,” said Michelle Mungall, Minister of Energy, Mines and Petroleum Resources. “Professional staff within government and BC Hydro warned them against that course of action, but that government refused to listen. As a result, these contracts have already cost customers $3.2 billion and are set to cost billions more over the next two decades.”
The report also demonstrates that the power BC Hydro was forced to purchase from IPPs was largely the wrong energy profile. Of the 105 contracts with IPPs since 2002, 71 were from run-of-river projects, most of which can only be relied on during the spring freshet. BC Hydro does not need more power during that time when the demand is low and there is abundance of water available in BC Hydro's reservoirs.
“B.C. didn’t benefit. BC Hydro customers didn't benefit. A small number of well-placed independent power producers benefited, and customers were stuck with a 40-year payment plan,” said Mungall.
The report notes that hydroelectric generation is B.C.’s strength. BC Hydro’s dams are flexible resources that provide clean electricity and can be ramped up and down as necessary.
While there are no quick fixes to the challenges posed by IPP contracts, there is an opportunity to address some of the financial issues when these electricity purchase agreements expire, namely renewing on a market-rate basis. The report offers the following recommendations to government:
- Ensure prices reflect the real market value: All energy should be purchased at the appropriate market rate or the IPP owner can trade its energy directly with the market, which is currently an option.
- Eliminate the self-sufficiency mandate: BC Hydro’s energy planning should be able to rely on a reasonable level of Powerex trading to meet its electricity supply obligations, as opposed to relying solely on the electricity generating facilities within the province.
- Restore the oversight of the BC Utilities Commission: The commission’s full oversight role should be re-established.
- Improve transparency on the cost of energy procurement: BC Hydro should price all energy at market rates or disclose all instances where energy purchases are not at market rates in an open and transparent way, including to the BC Utilities Commission.
- Eliminate the Standing Offer Program: BC Hydro has too much non-firm IPP energy to continue acquiring it and it should not have an energy procurement process that remains open. While the Standing Offer Program is currently on hold, it should be eliminated entirely.
These recommendations informed Phase 1 of a comprehensive review of BC Hydro focused on affordability and restoring sound financial and regulatory oversight. The results of the review will be announced on Feb. 14, 2019.
To read the report, Zapped: A review of BC Hydro’s purchase of power from independent power producers conducted for the Minister of Energy, Mines and Petroleum Resources, visit: https://www2.gov.bc.ca/gov/content/industry/electricity-alternative-energy/electricity/bc-hydro-review
Four backgrounders follow.