Opinion

Christy Clark’s Big Sales Job on Site C

Rate design hearings reveal big risks, no return for Crown corporation’s customers, says NDP critic.

By Adrian Dix 12 Oct 2016 | TheTyee.ca

Adrian Dix is Vancouver-Kingsway MLA and the NDP critic for BC Hydro.

Reading transcripts of the BC Utilities Commission’s hearings on BC Hydro’s proposed rate design can be tedious.

But it’s not without moments of insight, whimsy, even clarity — especially since BC Hydro executives must answer under oath.

Consider this exchange, as lawyer David Austin cross-examined BC Hydro executive Randy Reimann about the Site C project on Aug. 17.

AUSTIN: This is in relation to the $65 a megawatt/hour [price of power] as calculated using 100 per cent debt. Is it true to say that when that calculation is done that the government is not expecting any return on the risk as owner of BC Hydro that it takes with respect to Site C for a period of 70 years?

REIMANN: So the effective result is that Site C would be 100-per-cent debt finance, so from that perspective that would suggest that that’s probably true. I think in overall it’s a question of how much the government has as a return on its investment into BC Hydro.

AUSTIN: But for the purpose of Site C, it’s expecting a zero return on Site C for 70 years.

REIMANN: That’s right.

There it is. The admission that there is no prospect of Site C producing enough revenue to cover its $10-billion cost.

That’s true even if you accept the dubious demand forecast BC Hydro and the Liberal government are using to justify the dam, a forecast that has already been shown to be massively wrong.

A zero-dollar return on your $10-billion investment risk?

And even if you believe Premier Christy Clark’s claim that Site C will come in on budget, B.C. ratepayers will make nothing on a risky $10-billion investment, according to the Liberal “plan.”

Governments borrow money for lots of reasons. They don’t expect schools or hospitals to show a return on the capital invested.

But commercial enterprises, like BC Hydro, should ensure that the money borrowed to fund projects will earn a return that more than covers the cost.

Especially as governments don’t have unlimited borrowing powers or tax revenue to spend. When they engage in commercial operations like the generation and supply of electricity, they have to consider the risks and returns as part of the decision-making process. Otherwise dollars will end up in the wrong place.

And, by any account, Site C is a very, very risky project.

In order to make Site C look like a far more attractive financial project than it is, the B.C. government abandoned the concepts of risk and return. It rejected any normal financial or economic practice and opted for an approach out of the Soviet Union’s grand and disastrous five-year plans of the 1930s.

The BC Liberal government’s orders to BC Hydro and the BCUC on Site C have put ratepayers and taxpayers at risk for multiple generations, without even the prospect of a return or any serious consideration of risk.

And the math keeps getting worse

Now, consider this exchange at the hearings on BC Hydro’s rate increase application.

In both its presentations to the federal-provincial Joint Review Panel prepared in 2013 and its 2013 plan, BC Hydro claimed Site C would produce power “at a cost of $83 a megawatt/hour at the point of connection.”

But at the rate increase hearings on Aug. 19, Austin asked BC Hydro executive Gordon Doyle “where does the $83 per megawatt/hour figure come from?”

Doyle replied that “in our economic analysis, it was the unit energy cost that we used in the 2013 IRP,” referring to BC Hydro’s Integrated Resource Plan.

But Doyle added later in the hearing, “things evolved a bit between when we did the Integrated Resource Plan, and ultimately when the Site C project was approved.... And that, if I recall right, the number was more down around the $64 range.”

This is fascinating. The BC Liberals told the federal-provincial Joint Review Panel and the public that the price of Site C power would be $83 a megawatt/hour when the cost of Site C was supposed to be $7.9 billion.

When Clark announced Site C however, the price had gone up to $8.8 billion and now BC Hydro said the price of power produced by the dam would be $64 a megawatt/hour — 23 per cent less.

Project cost up, power price down is not possible. Not remotely. But Clark says it with a straight face. If someone told you that the cost of producing a litre of milk was going way up, but the price would drop at the grocery store, you would conclude that they were incompetent or not telling the truth.

That is Christy Clark energy policy in a nutshell. One part Soviet commissar, the other real estate huckster.

All to get through an election. Do you think voters will fall for it?  [Tyee]

Read more: Energy, BC Politics

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