Rationale for Site C ‘Utter Nonsense,’ Says Former Hydro CEO

Province had ability to cancel project without cutting services, argues Eliesen.

By Andrew Nikiforuk 18 Dec 2017 |

Andrew Nikiforuk is an award-winning journalist who has been writing about the energy industry for two decades and is a contributing editor to The Tyee. Find his previous stories here.

Marc Eliesen, the former president and CEO of BC Hydro, says Premier John Horgan’s rationale for proceeding with the Site C dam is “utter nonsense” and “not in accordance with the facts.”

Last week Horgan said the $10.7-billion mega-project would be completed, arguing that cancelling it would leave “British Columbians with an unavoidable $4-billion bill with nothing in return.”

Horgan said that “to cancel would add billions to the province’s debt — putting at risk our ability to deliver housing, child care, schools and hospitals for families across B.C.”

A government news release said cancelling Site C would cause a 12-per-cent increase in electricity rates; increase provincial debt from $44.6 to $48.6 billion; and force “massive cuts” to services.

Eliesen, who made three submissions to the British Columbia Utilities Commission’s inquiry on Site C, says none of that is true.

“The premier’s statements on debt accumulation and cuts to services are unconscionable and utter nonsense,” said Eliesen, who has worked in the industry for more than 40 years, serving as chair and CEO of Ontario Hydro, chair of Manitoba Hydro and chair and CEO of the Manitoba Energy Authority.

“To say the cost of cancelling the mega-project can’t be managed without affecting the budget is just wrong,” Eliesen said.

The $4-billion cost of cancellation — based on the $2.1 billion already spent and $1.8 billion in site remediation costs — doesn’t have a significant impact on the government’s operating budget and would not affect budgets for things like social services, he said.

“The government knows better and is aware of these facts,” he maintained.

Since 2006 BC Hydro has sunk $2.1 billion into the project, adding to the debt, “and the province still has a triple A rating.”

The estimated $1.8-billion cost of remediating the site would have been spent over two to four years and could be amortized over 30 years, said Eliesen.

As a consequence the real cost of cancelling Site C can easily be managed “without affecting the provincial budget or imposing price hikes on ratepayers,” Eliesen wrote in an op-ed in the Victoria Times Colonist.

The BCUC inquiry on the dam reported that “the cost to ratepayers of continuing or terminating the Site C project is similar” unless Site C goes even further over budget.

Eliesen noted the government had not cited similar concerns in cancelling tolls on the Port Mann bridge, a decision that added $3.5 billion in debt to the province’s books.

Horgan said nothing about how that new debt “might crowd out the government’s ability to borrow for important social infrastructure or lead to a credit rating downgrade,” said Eliesen.

Eliesen said additional budget overruns are likely and the real threat to the province’s finances is the full cost of completing a troubled project over the next seven years.

The budget was $6.6 billion in 2010. Cost estimates ballooned to $8.3 billion in 2014 when then-premier Christy Clark announced the final investment decision and further increased to $8.8 billion in 2016. Now the government says the project is expected to cost $10.7 billion.

When Eliesen made his submission to the BCUC inquiry he estimated that the final cost would be $12 billion or 30 per cent over budget.

He now estimates the project could cost ratepayers anywhere between $13 billion and $14 billion.

“You don’t throw good money after something that is bad,” he adds. “It is known as the sunk cost fallacy. ”

If Newfoundland’s Muskrat Falls dam is any indication, Eliesen’s forecasts are reasonable. That hydro mega-project started with a $6.2-billion budget and is now expected to cost $12.7 billion, with the result that electricity prices will likely double. A judicial inquiry has been launched. Like Site C, Muskrat Falls was exempted from proper regulatory oversight.

A Carleton University management professor recently warned the “disaster” mega-project could help push the province of Newfoundland into financial insolvency.

Eliesen said the BCUC report — almost 300 pages long — provided Horgan with all the evidence he needed to cancel the mega-project and protect B.C.’s economy.

It warned that the project was high risk, over budget and behind schedule.

The report also documented that cheaper energy alternatives already existed and that new disruptive technologies could make the dam obsolete.

“The commission did a tremendous job,” said Eliesen. “It was a slam dunk for terminating the project.”

Eliesen suspects the government ignored the commission’s findings and other evidence because “there was a predilection in government” among entrenched bureaucracies to continue its development.

The first sign of the government’s bias was the narrow terms of reference it set for the inquiry.

The BCUC was not allowed to consider environmental issues or other supply options such as the shuttered Burrard thermal power plant or power allotted to B.C. under the Columbia River Treaty, equal to 11 per cent of BC Hydro’s capacity, which is now sold to export markets.

“Given these cheap and available options, the government should never have considered Site C in the first place,” said Eliesen.

But they weren’t considered because of the inquiry’s restricted terms of reference.

Eliesen suspects some senior bureaucrats have been pushing the project for years and lobbied for completion.

He points to the politicization of accounting at BC Hydro.

The former Liberal government changed legislation to allow BC Hydro to push operating expenses into future years and claim revenue it had expected to earn in future. It now has a $5.6-billion liability in those accounts.

In addition, the B.C. auditor general noted, the government’s policy on rate increases “has not allowed BC Hydro to generate the revenue required in 2015, 2016, 2017 to recover its cost of service.”

This year the auditor general issued a report that described the changes as “not acceptable under Canadian public sector accounting standards.” It warned that the impact of irregular accounting on ratepayers has not been properly quantified or understood.

Eliesen said the policies avoided rate increases and made the Crown corporation’s financial situation appear better than it really was.

“Without effectively cooking the books to avoid rate increases, Site C would likely not have been able to move forward in 2014, and the same people that supported that kind of improper accounting are the same people now advising the Horgan government on what a terrible impact a cancellation of this ill-conceived project would have on provincial finances,” said Eliesen.

He also pointed to an unusual letter to the BCUC by two deputy ministers on Nov. 16 challenging its calculations and conclusions.

“Here we have two deputy ministers publicly engaging in questions to a regulatory commission, undermining the commission’s authority,” Eliesen said. “Most of the questions were clearly answered in the commission’s report.”

The BCUC’s independent report assumed slow growth in energy demand. “The forecast of energy demand is most likely to be at BC Hydro’s ‘low load’ or lower, based on available information, government policies in place and other factors,” it found.

Yet according to a Business in Vancouver article, a week before the government’s Site C announcement Dave Nikolejsin, deputy minister of energy, told Clean Energy BC’s Generate 2017 conference that B.C.’s power demand will grow by 10,000 gigawatts by 2050. The reporter then calculated the demand would require the equivalent of nine Site C dams.

The reporter’s calculation was wrong. Ten thousand gigawatts actually would require the equivalent of 90 Site C dams.

And, the government confirmed, so was the 10,000-gigawatt claim.

“Our ministry modelling indicates incremental electricity demand of 3,500 GW-h by 2030, and 10,500 GW-h by 2050, to meet GHG targets for the buildings sector,” Les MacLaren, an assistant deputy minister said in an email. “It appears there was some unit confusion in preparing the final speaking points. It should have been gigawatt hours.”

A demand of 10,000 gigawatt hours would require less than two Site Cs, which is forecast to produce 5,100 gigawatt hours.

But the misinformation was reported in other media, including a column in the Globe and Mail by Gary Mason. (Nelson Bennett, who wrote the Business in Vancouver article, told The Tyee that he was going to remove the reference to nine Site C dams from the online report until he received clarification on the number. The government did not reply to Tyee requests for clarification about the numbers cited by Nikolejsin.)

According to the BCUC electrical demand has been flat for years and will likely remain so for years to come. The commission noted BC Hydro has repeatedly over-estimated demand.

Even if more power is needed, Eliesen said, cheaper alternatives than an over-budget mega-dam already exist.

“We have not reached the point of no return for cancelling this monster.”  [Tyee]

Read more: Energy, BC Politics

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