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Site C Risks ‘Death Spiral’ for BC Hydro, Says Watchdog

Consumer Policy Institute warns of big rate hikes and pressure for taxpayer bailout.

By Andrew Nikiforuk 2 Feb 2018 | TheTyee.ca

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.

With the NDP’s approval of the controversial Site C megaproject, British Columbians should prepare for higher electrical rates, a taxpayer bailout and perhaps even a “death spiral” for BC Hydro, warns a consumer watchdog.

“If the track record of megaprojects in other provinces is anything to go by, B.C. electricity customers should be very nervous,” said Brady Yauch, executive director of the Consumer Policy Institute, a non-partisan organization based in Ontario.

The costs of Site C, which have grown from $6.6 billion in 2010 to $10.7 billion in 2017, will rise even more over time, Yauch predicted. “And that’s only the tip of the iceberg.”

The likely cost overruns for Site C, now in year three of a six-year construction schedule, “will have rate impacts that will be severe, which can lead to a death spiral for the utility,” Yauch said in an interview with The Tyee.

A “utility death spiral” occurs when rates rise to cover megaprojects. Higher rates lead to reduced demand, which results in more increases to cover costs — a vicious cycle that can be worsened when revenue falls as new forms of energy production, like rooftop solar, are adopted by customers.

Yauch said Manitoba Hydro and Newfoundland and Labrador Hydro now face potential death spirals.

After repeated cost overruns on controversial dams designed to produce so-called export “clean” power to U.S. customers, both utilities have asked regulators for dramatic rate increases to pay their bills.

The original budget for Manitoba’s Keeyask Dam was $6.5 billion in 2014 but now totals $10 billion. Newfoundland’s Muskrat Falls project started at $6.6 billion in 2014 and will likely surpass $12 billion.

In both provinces politicians are already talking about bailing out their indebted electrical utilities, said Yauch. “It has been proposed in Manitoba and they are also considering it in Newfoundland.”

Newfoundland could double electricity rates by 2021, while Manitoba seeks to increase them by 50 per cent, he said. Given that BC Hydro already has a debt of $20 billion, B.C. ratepayers could face the same kind of shocking rate increases, he added. 

“I would have made the hard decision to cancel the Site C dam,” said Yauch, despite the political difficulty,

“If you way weigh the risks — it is going to cost billions more than projected and will be producing power that the province doesn’t need — then the hard decision is the one to make.”

Yauch is the author of a major 2017 report titled “How Megaprojects Bankrupt Power Utilities and Leave Regulators in the Dark.”  

It documents how provincial governments have bungled dam megaprojects in Manitoba, B.C. and Newfoundland by ignoring regulators, misrepresenting the facts and undermining the public interest.

“In the process of pushing megaprojects ahead, public officials across the country have at various times ignored, handcuffed, circumnavigated or publicly disparaged the regulatory bodies that are there — in most cases established through legislation — to protect the public from the consequences of uneconomic and environmentally destructive megaprojects in the electricity sector,” the report says.

Dam megaprojects routinely go over budget for a variety of reasons, including a bias toward large and complex systems. 

In 2014 economists reviewed the state of global dam building and warned that large dams are now too costly and ecologically destructive to deliver positive returns and that governments should pursue smaller projects to generate extra capacity where needed.

Asked why Canadian governments continue to approve uneconomic and destructive hydro megaprojects, Yauch said the answer was complex and slightly different in every jurisdiction, but “economics and demand are never the reason.”

Political calculations rule the day, and the most common justification offered in Canada is that the “clean energy” will be sold to customers in the United States.

But rapid technology changes in renewables combined with cheap shale gas have led to the disappearance of the planned foreign markets, Rauch said.

The NDP government says it must now finish the dam because $2 billion has already been spent and the “clean energy” will help electrify LNG projects and fight climate change.

Yauch, an economist by training, described the government’s approval process for the Site C megaproject as a “great example of how not to do it.”

In 2010, the BC Liberal government passed the Clean Energy Act which removed the BC Utilities Commission from its normal role in reviewing the project’s economics and impact. The BCUC had ruled in the 1980s that BC Hydro’s energy demand forecasts were unreliable and that the dam was not needed.

As a result the Site C dam never underwent a proper independent review of its cost or need.

Then energy minister Bill Bennett defended the exemption on the grounds that the government couldn’t allow a “a group of unelected bureaucrats and lawyers” to decide the fate of the largest infrastructure project in the province’s history.

Although the NDP campaigned on restoring regulatory oversight and asked the BCUC to review the project, the process was “very constrained and short,” said Yauch.

Yet the BCUC still “said we’re not sure this is a good idea and it’s risky,” he noted.

Similar findings were made in Newfoundland at a constrained hearing for Muskrat Falls, but the government ignored those too, said Yauch.

The New Democrats had promised during the election campaign to make reconciliation with First Nations a priority. But Premier John Horgan said that Site C, which will flood Treaty 8 land, would be an exception. The platform also promised to maximize “generation from existing infrastructure” and not to build new dams.

Last December former premier Christy Clark, who vowed to push the project to the point of no return, praised Horgan on Facebook for approving the megaproject.

Asked how citizens can hold Canadian politicians to account for approving unneeded megaprojects, Yauch had a short answer.

“The only way is at the ballot box, and that’s a terrible way to run any energy system.”  [Tyee]

Read more: Energy, Environment

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