BC Hydro customers set to pay $16B over 20 years for power they likely don’t need: report

BC Hydro ratepayers are expected to overpay by billions of dollars for electricity it doesn’t need, due to costly and unnecessary contracts with independent power producers (IPP), according to a new report.

Energy Minister Michelle Mungall commissioned the independent report, written by former B.C. Treasury Board director Ken Davidson, which pinned the blame for the power deals on the previous BC Liberal government.

“The annual impact of this surplus energy to BC Hydro ratepayers is estimated as $808 million per year or ~$200 per year per residential ratepayer, which is equivalent to $4,000 per residential ratepayer over 20 years,” the report said.

“The $16.2-billion estimate is believed to be conservative.”

Mungall said some of the contracts are 20-year deals, while it could be up to 60 years before some of them come up for renewal.

Many of the IPPs, she said, were BC Liberal donors.

“This is the type of thing the BC Liberals have done is let their rich friends get away with British Columbians’ dollars, and it’s B.C. that has to pay,” she said.

“If we had not gone into these private power schemes, people would be paying $200 less on their hydro bills right now.”

Titled “Zapped,” the report made three key conclusions: that BC Hydro bought power it didn’t need, and that had the wrong energy profile; that the power authority paid too much for that electricity; and that BC Hydro did all of this at the behest of the government.

“Government provided clear direction to BC Hydro that resulted in BC Hydro not increasing its own generating capacity and not importing power to meet demand,” the report said.

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“Government then adjusted the parameters that drive the energy planning process at BC Hydro, to create the appearance of an urgent need for more firm energy.”

To speed up the signing of electricity deals, the province offered fixed-price contracts with no reference to market value, and signalled that it was ready to pay higher energy prices in the service of speed and volume, the report found.

Much of the power that was purchased was from run-of-river facilities that generate the majority of their energy during spring runoff, when BC Hydro didn’t need it, the report argued.

Of the 105 IPP contracts signed since 2002, 71 were run-of-river.

The report also notes that a number of producers were given protection from inflation, something that could cause the final tab to be higher.

BC Liberal energy critic Greg Kyllo said the report needs to be looked at in the context of sky-high energy prices at the time, prompted by the California energy crisis.

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“At the same time, British Columbians were largely looking for more renewables. People like wind, they like solar. And there’s no question about it, those forms of power are significantly more expensive than other options,” he said.

“As these IPPs rolled out, they also offered opportunities for First Nations, many of which were just running on diesel generators to have power for their communities. The projects provided economic benefits to these First Nations. ”

Kyllo added that the IPPs brought an infusion of investment from outside of B.C. and generated a significant amount of tax revenue for the province.

Energy lawyer David Austin, who advised on the development of B.C.’s first IPP, characterized the report’s conclusions as “just plain wrong.”

Austin pointed to decades of BC Hydro’s own load forecasts, all of which have exceeded the amount of power that B.C. has actually needed.

And he suggested BC Hydro was moving to acquire made-in-B.C. energy of its own volition, pointing to 2006 comments from BC Hydro executives stating that the utility was facing “too much volatility” by relying on the spot market for 18 per cent of its power.

Davidson’s report concluded with five key recommendations, which included the following:

• Going forward, all energy should be bought at market rates
• BC Hydro should be allowed to purchase power from outside of B.C. if needed
• The BC Utilities Commission’s (BCUC) oversight role should be fully restored

The report further recommended that BC Hydro disclose instances in which power is not purchased at market rates, and the elimination of the currently-paused Standing Offer Program pricing model for small producers.

In a statement, BC Hydro said it fully cooperated with Davidson and “we accept the findings in the report.”

“Since last year, government has been looking at energy procurement as part of its comprehensive review of BC Hydro and will deliver its direction on next steps this week,” the statement said.

“We remain focused on keeping our rates affordable for our customers, and will continue to work with government to find opportunities to lower our costs.”