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BC Hydro's $825 Million Dam Deal

Price seems way too high to NDP critic, who questions Lib donor tie.

By Andrew MacLeod, 26 Jun 2009, TheTyee.ca

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Waneta: Dam good deal?

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Representatives of both B.C. Hydro and Teck Resources Ltd. say they are happy with the $825-million price they negotiated for B.C. Hydro to take one-third ownership in the Waneta Dam, near Trail in southern B.C.

But that price is significantly more than what stock analysts thought Teck might get, leading New Democratic Party energy critic John Horgan to wonder if the publicly-owned company was bailing out a big B.C. Liberal Party donor.

"That's where they met," said B.C. Hydro spokesperson Susan Danard while explaining the price was reached after weeks of negotiations. "For us, we feel it's a good value to our ratepayers."

"We obviously arrived at a price both parties are happy with, that we think is fair," said Greg Waller, the Vice-President Investor Relations and Strategic Analysis for Teck. "We think it's a very good transaction for the people of B.C.," he said, adding the company did well too. "It's a good transaction for us."

But John Hughes at Desjardins Securities was quoted in early May saying Teck might get $500 million for a stake in Waneta.

And Tony Robson at BMO Research had the value even lower, at about $425 million.

As a BMO research note on the sale put it, "B.C. Hydro's price for the asset is well above BMO Research's C$425M valuation of the available excess power." BMO is using a 10 per cent nominal discount rate, the research note said, "which may well be higher than [the rate] used by utilities in valuing assets, hence resulting in a higher transaction price."

Only Hydro and Teck know worth: Teck VP

"The analysts who are commenting are mining analysts," said Teck's Waller. "It doesn't surprise me they wouldn't recognize the full value of an asset like this with some of the attributes it has."

It is rare for assets like dams to sell, so it is hard to know their worth until they change hands, he said. "The people who'd know the value best would be B.C. Hydro and ourselves."

B.C. Hydro's Danard said the utility calculated what it could pay based on what it would cost per megawatt hour of energy. After everything's accounted for, power from the Waneta Dam will cost about $75 per megawatt hour, she said.

That's comparable to other recent B.C. Hydro deals, she added, including the 2006 tender for power from private energy companies and a recent deal to buy power from Alcan. The rate is much lower than what it would cost B.C. Hydro to start a new project of that size.

In 2006, The Tyee reported the result of the tender was a B.C. Hydro commitment to buy power at rougly double the market rate. The same article noted the utility said building the Site C dam would generate power at $42 per megawatt hour.

Price sounds high: Horgan

"It sounds like a premium price," said the NDP's Horgan. "Almost a billion for an old piece of infrastructure." The dam, on the Pend d'Oreille River, opened in 1954.

There are many unknowns about the sale, Horgan said, but "On the surface it doesn't appear to me to be a good deal for ratepayers to pay that much for power they could have had on the open market for a better price."

The deal may result in B.C. Hydro acquiring relatively cheap power, he said, but it is possible they could have had the same power for even cheaper, without the burden of looking after the dam.

There are a number of reasons B.C. Hydro could have driven the price down, he said. Teck is in financial trouble, the economy is in a downturn and there were only a few potential buyers. "My understanding is there was only one bid and it was B.C. Hydro's."

Besides, for years Teck has been selling about a third of the power the dam produces, the amount beyond what it needs to run the Trail smelter.

"Hydro has always had the option to purchase Cominco power surplus to their smelting needs. They've never done that," said Horgan. "Why would you pay a premium to then be responsible for operation and maintenance?"

He plans to ask energy, mines and petroleum resources minister Blair Lekstrom about the sale when the budget is debated in the fall, he said. "They better have some dam good answers during budget estimates."

Teck's Liberal donations

A look at Teck's most recent quarterly report appears to back Horgan's suspicion. In the first three months of 2008, the company sold the surplus power from Waneta Dam for $75 US per megawatt hour, roughly the same as what B.C. Hydro says it calculates it will be paying for power once it owns a share of the dam.

But in the first three months of this year, the price of power from the dam was much lower at just $37 US, or about $44 Canadian, per megawatt hour.

Horgan said when he first heard about the sale, he wondered if the government-owned power utility was paying a high price to bail out a private company that has been a big backer of Premier Gordon Campbell's B.C. Liberal Party.

Since 2005, according to Elections B.C.'s database, companies listed as Teck Cominco Limited, Teck Cominco Ltd. and Teck Cominco Metals Ltd. have given over $478,000 to the Liberals. That includes a pair of donations worth $160,000 in January, 2005, just four months ahead of a provincial election.

Teck chairman Normal Keevil's name also appears alongside a $70,000 donation the Quintette Operating Corporation, at one time a Teck subsidiary, made to the Liberals before the 2005 election.

Minister Lekstrom was unavailable for an interview, though he has reportedly said the sale was a "great deal" for B.C. Hydro ratepayers.

A ministry spokesperson asked for questions to be submitted by e-mail. After receiving them, he wrote to say Lekstrom would be unavailable for an interview.

Review, due diligence coming

The sale needs approval from the B.C. Utilities Commission to go through.

B.C. Hydro's Danard said the Crown corporation will file the required documents with the BCUC within the next couple weeks, and much more detail will be available.

The BCUC will take a rigorous look at whether B.C. Hydro got the best possible deal for the power, she said.

B.C. Hydro will also take a closer look at the 55-year-old dam, she said. "We believe the facility's in pretty good shape," she said. In calculating an appropriate price, she said, the utility assumes a well maintained dam will last forever.

For B.C. Hydro the sale would mean a new source of low-emission energy produced within the province, she said. "It's almost like acquiring another heritage asset."

No doubt it's also good for Teck, she added. "It strengthens their balance sheet, which gives their employees job security."

Related Tyee stories:

[Tyee]

Andrew MacLeod is The Tyee's Legislative Bureau Chief in Victoria. Reach him here.

24 Comments:

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  • Whiskey reef

    2 years ago

    This deal stinks.......

    as Buccanneer bay pointed out last week.

    A 1/3 share of what?

    A 1/3 share of excess power,anyone ever consider if there`s extremely low water years there may not be excess power,after all,aren`t the experts predicting forest fires and dry weather?
    The other part of the equation is this,how do we know what the cost per kilowatt of power costs from this dam?
    Is the dam going to last 10 more years or a 100 more years?

    Very interesting story,what else is not being told is this,we could buy dirt cheap power from Alberta,for like 10 dollars or less per kilowatt hour.............

    Ehis deal stinks.like every deal Campbell makes it`s shrouding in mystery and a convoluted explanation!

    More question,BC Hydro has no money,so how much are the carrying costs/interest/

    How much more debt is being piled upon BC Hydro`s balance sheet?

    Why would the province buy a 1/3 share of old ancient infrastructure?Why wouldn`t they have bought 1/3 shares in new Run of River projects?..............

    Is Campbell trying to create an artificialy high ceiling for Hydro rates to justify paying private for profit Run of River?

  • Skywalker

    2 years ago

    You got it right Whiskey reef!

    It's just another way of making the taxpayer pay Campbell's debt to his buddies. First we have a sale of BC Rail, then all of BC Rivers, the natural fish stocks sacrificed to the international fish farmers and now this. Yes he is trying to create a reason to give away BC Hydro.

  • Van Isle

    2 years ago

    This just shows that there

    This just shows that there is more than one way to break a company. Goldman Sachs would be proud; just like they ruined Montana Power.

  • kootenay

    2 years ago

    Wantea Dam

    In addition to the tyee article, one should also read this webpage:

    http://www.pennenergy.com/index/power/renewable-generation/display/360503/s-articles/s-hydro-review/s-volume-28/s-issue-4/s-feature-articles/s-articles/s-new-development-partnering-in-power-development-in-british-columbia.html

    This provides a excellent description of the history of power generation in this region of the province.

    The province also purchased the Brilliant dam from teck back in 1996. The Columbia Power Corporation and Columbia Basin Trust upgraded the Brilliant dam adding 120MW of capacity to its existing 145MW. The Keenleyside dam was also upgraded to produce another 185MW of generation.

    There are also plans in place to add an additional 400MW of generating capacity to the Waneta dam, but I must admit, I don't know the status of those plans.

    Teck has been earning between $50 and $200Million dollars per year with the sales of the excess power generated at the Waneta dam, depending on the price of power of course. This means it will take BC Hydro somewhere between 4 and 16years to pay off the purchase price of the dam.

    Also, I question those who think BC Hydro is responsible for all the maintenance costs for the dam. They have only purchased 1/3 of the power, there are two other partners...

    With the ability to expand the damn and double its capacity, this is much better than developing Run of the River, such as the Howser Creek project in Kaslo the will literally kill 3 smaller rivers and divert a larger river from Kootenay lake to Duncan lake.

    The employees at Teck are very concerned about the sale. The excess power sales have saved our asses many times over. When metal prices are down the Company has relied on the power sales to keep this operation running and not lay employees off. Our future is much less secure as a result of this sale.

  • Moonbug

    2 years ago

    http://www.plutonic.ca/s/Medi

    http://www.plutonic.ca/s/Media.asp?ReportID=347659&_Title=Plutonic-Power-Shares-Soar-After-BC-Election

    Plutonic Power Chief Executive Donald McInnes said the election was "a huge affirmation for Plutonic's business plan and...(Premier) Gordon Campbell's vision that B.C. become a powerhouse in green energy development is now supported, justified and embraced by the electorate."

    He said British Columbians are taking climate change and carbon, or greenhouse gas, emissions seriously and that the government is looking at companies such as Plutonic as an environmentally friendly way to create low-cost, economic solutions to long-term provincial power supply.

    "This is a massive opportunity...and the price of our stock today reflects the almost instantaneous change in the investment climate for such projects following the provincial election," McInnes said.

  • Moonbug

    2 years ago

    Plutonic Power's

    Plutonic Power's shareholders are betting on the Liberal government bankrupting BC Hydro and selling it for a song.

  • ReeferMadness

    2 years ago

    This deal stinks

    The Liberals are committed to wrecking and privatising a publicly owned jewel. This makes me ill.

  • Andrew MacLeod

    2 years ago

    Kootenay

    I made some similar back of the napkin calculations on how long it will take BC Hydro to pay off the purchase price. It looks to me like you are quoting revenues without counting expenses. In the most recent quarterly report Teck said the operating profit after depreciation from Waneta Dam was $8 million over the first three months of the year. If that's typical, BC Hydro would net more like $32 million a year on the power sales, therefore taking more like 26 years to cover the purchase price.

  • Whiskey reef

    2 years ago

    In re-reading the story.........

    The most telling statement in the story is this...........

    Miss Danard of BC Hydro states.......

    " 75$ per megawatt hour is comparable to recent deals signed by BC Hydro including the 2006 call for energy from private Run of River"

    There it is in a nutshell,Gordon Campbell has created an artificialy high ceiling for power,look at the facts,we are going to pay double the price for the Wanata dam power then they were able to sell on the open market last year.

    @ Kootenay(Luke)---If we can only sell the power for 40$ per megawatt we will never get the money back and..............

    Since Waneta dam excess power already flows into the market why lock in 900 million dollars,this deal doesn`t put more power into the market,into BC,this deal sucks,BC Hydro is paying 900 million dollars to sell power that is already being sold in the open market,Teck wasn`t saying to BC Hydro,hey,you can`t have this power,were selling it to California,how would they get power out of the province,does Teck own a transmission grid to move the power? NO THEY DON`T.......

    This deal was done to try to justify paying that price to private power(Plutonic).......
    This is nothing but a ponzi scheme,......

    825 million dollars to buy power that`s already being sold into the market/Explain that Campbell.

  • Whiskey reef

    2 years ago

    @Andrew Macleod......

    And if there is a glut of power on the open market and we can`t the price per Megawattt of power?

    How long will it take,and we are getting 1/3 of what,boom years,dry years,what is the life span of the dam? What is the maintenance schedual of the dam?Who pays for maintenace? If Teck pays for maintenance what guarantee do we have that they will do it? What if Teck goes belly up can they sell their remaining 2/3 ?

    What if Teck`s smelting needs skyrocket?

    This deal needs to be gone over with a finetooth comb.what if Teck stops smelting alltogether and sell their 2/3s into the market for half the price we are paying for 1/3 of the power?......

    Way too many problems with this deal,either we buy the dam outright or not at all.

  • kootenay

    2 years ago

    Whiskey reef

    "does Teck own a transmission grid to move the power? NO THEY DON`T......."

    I don't know if Teck owns the transmission line, but there is a transmission line running directly from the dam to the States.

    This power has been sold on the open market for years to the highest bidder. They year Teck made $200million profit, was several years ago to California in the midst of an energy crisis.

    The numbers I was quote regarding Teck's profit from power sales are Profit Numbers $50million to $200million per year. This is over and above maintenance.

    Please don't refer to me as Luke, I'm a socialist through and through. I'm looking at this sale from a slightly different point of view than you, I'm concerned about employement security of smelter workers, these are the people who are going to be directly impacted by this sale.

    Also, the expanision capabilities at this site are huge, 400MW ,how many rivers would you have to destroy to generate this much power?

  • Whiskey reef

    2 years ago

    @Kootenay

    Then we should buy the dam outright and guarantee up to 2/3 of the power to smelting operation for a guaranteed price..........

    As for justifying a power generation sale for the saving of jobs,look what happened in Kitimat.......

    Rio tinto(alcan) dangled a carrot about jobs,expansion,prosperity,just give us the power generation and all is good,well..........

    No expansion,no jobs,no smelting,just large profits by selling power for Rio-Tinto.......

    Remember this Kootenay,Teck doesn`t give a rats ass about the health and welfare of workers or towns lifeblood,they care about corporate profits,...........

    And has Teck guaranteed to keep these jobs going if the deal goes through?And..........
    Like I said,the deal doesn`t create or put more power into the market!........

    And as for power generation expansion,who pays for the upgrades,would BC Hydro have access to to the extra generation as part of the deal?Would BC Hydro pay 1/3 of the upgrade cost and recieve 1/3 of the extra power?
    Or lets put it like this...........

    BC Hydro gives Teck 825 million dollars,Teck uses 130 million of that money and adds power generation,BC Hydro gets 1/3 of the present capacity............
    And Teck generates 40% more power,so,BC Hydro in the long run pays for the upgrade,Teck ends up with as much or more power as they have now and we the tax-payer are locked into buying way above market value power?

  • kootenay

    2 years ago

    Wiskey Reef

    You are making an aweful lot of assumptions and quite frankly I don't think you know what you are talking about. If you take the time to read the web link in my first post I think you'll find the answer to many of your questions.

    The key point is this; BC Hydro bought 1/3 of the power generated by the Waneta Dam. The Columbia Power Corporation and the Columbia Basin Trust still own the dam and are the people who would be doing the expansion.

    Weather BC Hydro actually owns any part of the physical structure, I'm not sure of that, its my understanding that they just bought the power.

    Just to make this perfectly clear: I have no love for Teck or the Liberals and am abundantly aware that either party would sell their grandmother for a nickel.

    I do have a personal stake in the smelter and this community as do several thousand other people who live and work here. Our concern is not whether this is a good business deal for BC Hydro, but how this affects the viability of our jobs and community.

  • kootenay

    2 years ago

    Facts

    I've dug up the press release Teck issued regarding the sale of the Waneta Dam.

    The Memorandum of Understanding includes provisions related to co-ownership and operation of the dam, and allocation and delivery of power generated by the dam. The details of these arrangements will be set out in the definitive agreement that will be developed by the end of 2009.

    Fortis BC has a contract with Teck to operate and maintain the Waneta Dam. I would assume both parties would pay Fortis a pro-rated amount for this service.

    The expanision of the Dam is a joint venture between Columbia Power Corporationa and Columbia Basin Trust. It is their decision whether or not to proceed with the expansion. Any additional power generated by the expansion would belong to CPC and CBT, neither Teck nor BC Hydro would benefit.

    I will agree with one thing Whiskey, the likely hood of this deal being cooked to the benefit Teck is a very likely senario, they don't donate that kind of money just for the fun of it.

  • Whiskey reef

    2 years ago

    Kootenay.....

    You are confusing the 2 issues not me,first off.......

    Teck will either make money smelting or not,if they don`t make money smelting they are not going to use power sales to subsidize smelting,just ask Kitimat how that game works........

    Google up Alcan/rio-tinto---read up on the anger of Kitimat workers who got shafted .....Campbell made the same claim about the contraversal Alcan(rio tinto)deal.......

    Campbell claimed it would save jobs,create jobs but it did neither,in fact it actually made things worse,Alcan didn`t give a rats ass about the workers and they were making money just selling power,if the deal wasn`t made more people and workers would have jobs in Kitimat today........
    I posted many article on the subject of Alcan and Kitimat in the past under various stories............

    The demand for metal and exports is going to decline for years and years and..........
    China and Asia will beat down labour costs,appears to me that Teck will only be in the power game unless real high profibilty comes back to smelting.........

    There are hundreds of articles about kitimat/Alcan deal,all of the warnings have come true,Alcan is now making money selling power and the employees and the town got the shaft..........

    I again repeat,the dam sale won`t protect jobs,either the smelting operation will be profitable or not,the deal/the power generation/and the smelting jobs are NOT INTERCONNECTED,just ask the mayor of Kitimat.

  • Whiskey reef

    2 years ago

    Good post Kootenay

    The part about a definate agreement will be worked out by the end of 2009......

    Until that DEFINATE DEAL is worked out there are too many questioned,until all the details,the what ifs,the maybes are written in stone there is no way this deal can be put in front of the BCUC for consideration...............

    But knowing Scampbell the deal will be put in front of the BCUC,it`s all good BCUC,trust us,ok the deal,we`ll provide details later........
    What else is new?

  • lynn

    2 years ago

    Plutonic green: The colour of money

    "Plutonic Power Chief Executive Donald McInnes said the election was "a huge affirmation for Plutonic's business plan and...(Premier) Gordon Campbell's vision that B.C. become a powerhouse in green energy development is now supported, justified and embraced by the electorate."

    What Donald McInnes fails to say is that in Plutonic's home riding of Powell River-Sunshine Coast we voted against the Gordon Campbell and against the selling of our rivers in a big way - the NDP easily took this riding.

    Those of us who live near Toba and Bute Inlets know its "natural" priceless value - one far superior to its puny measurement in terms of dollars or kilowatts. There are many of us not fooled by this scam, despite McInnes's attempts to spin it otherwise.

    The long-standing success story of BC Hydro is being intentionally "re-written" for failure - it is the same old sleazy hand of privatization at work - one that we have seen over and over again dismantling all that is good and truly precious about this province.

  • kootenay

    2 years ago

    One more thing Whisky

    We're on the same side here, just slightly different views. I know very well about Alcan and the Liberals, I have met with Alcan workers and worked on a parallel campaign with them.

    The power Teck just sold off, did provide some protection for the workers here. That extra cash keep this place viable during low metal prices. We are now more susceptable to market conditions and may face more temporary shutdowns as a result.

    Of course Teck will kick us to the curb if they feel like it, but in the past the workers, in fact the entire community benefited for the excess power sales.

  • Camero409

    2 years ago

    BC Hydro's Burden

    Is our (the taxpayer) burden. Gordo foisted this on us to pay off his buddies, what else is new. Well let me tell you what is new. Now he's got his highways goon going after the Medical Plan. 4 more years of selling off our assets. Eventually it will all be in the hands of a few. We'll will be bludgened to death with high rates on almost everything.

    Think of BC as a house with lots of furniture (assets). Slowly but surely it's all being sold off. Soon we will have to pay just to sit down, sleep, breath air etc. That's what they are doing. Thank you Gordo, you ahole!

  • Curt

    2 years ago

    The brightest and the best?

    The brightest and the best? The best government to have when the economy downturns? The Best Place on Earth?

    Heaven help us all!

  • Bailey

    2 years ago

    $478,000 is not a political donation.

    It's a purchase price. I wonder what they thought they were buying?

    If it was an extra $350 million on this contract, it was a good deal.

    $732 dollars per million dollars of premium.

    I still firmly believe that an audit of all these large donors' books, especially one that shows where the money actually went after these premium contracts were paid would be very interesting.

    The Adscam audit of Federal Liberal premium contracts didn't even go nearly that far, and look how interesting that got.

  • North of Hope

    2 years ago

    Election issue

    In typical Gordo fashion, this was not mentioned in the election campaign. $825 000 000 to be spent and not a word about it during the election campaign. I suppose BC Liberal apologists will say that Campbell didn't lie this time the way he did with BC Rail, but he sure didn't tell the truth.

  • morechatter

    2 years ago

    23 Billion ?????......

    Its seems like a lot of questions, don't you think? But something tells me there are going to be a whole lot more circulated around a particular event.
    Its about time someone started asking them though. In fact its long overdue. As I never agreed with some of the things that the Former Premier Clark, did but he was held accountable along with his party.

    I'm waiting to see the system work again, you know like when Clark was premier, when the premier wasn't bigger than the laws themselves, or above them so to speak.

  • Whiskey reef

    2 years ago

    Good deal?Bad deal?.......

    I don`t have the answer to that question but,825 million is a lot of money to buy something that we were already buying,this aquisition doesn`t put a lick of extra power in the market,the power is alredy purchased by BC Hydro.
    But I can see where this is going,Campbell keeps locking in more and more 80$ megatonne power,so now instead of being able to buy cheap power at off peak prices from say Alberta,all our power aquisitions will be pricey,in other words Campbell has created an artificial ceiling for what we pay for Hydro.

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