VICTORIA — B.C. Hydro is losing billions of dollars because it was forced by the provincial government to sign contracts with private power producers for the wrong type of power at exorbitant rates, according to a new report.
The independent report, commissioned by Energy Minister Michelle Mungall, concluded that the private power contracts will “cost ratepayers an estimated $16.2 billion over 20 years, the estimated period during which B.C. Hydro will likely not need the energy government directed it to buy.”
“The annual impact of this surplus energy to B.C. Hydro ratepayers is estimated at $808 million per year, or $200 per year per residential ratepayer, which is equivalent to $4,000 per residential ratepayer over 20 years,” read the report. “The $16.2 billion estimate is believed to be conservative.”
Report author Ken Davidson, who directed government’s treasury board staff in the 1990s, laid the blame on the policies the former B.C. Liberal government placed on B.C. Hydro to be energy self-sufficient using clean energy sources.
That led to a rush by Hydro to buy an estimated 8,500 gigawatt hours of energy from IPPs. However, many of the projects are run-of-river, which generate intermittent power and peak during the spring freshet when Hydro has an overabundance of such power, read the report. That is combined with contract terms that have caused the Crown energy corporation to get locked into decades of overpayments, wrote Davidson.
“When I see that (ratepayers) are paying an extra $200 a year for this scheme, for a total of $16.2 billion, a scheme where 80 per cent of that money is going outside of the province … not only is this a big huge boondoggle, but it’s just scandalous,” said Mungall. “It’s unacceptable.”
The IPP contracts are often for 30 years, with terms that could cost Hydro even more if the corporation tried to break free of them to stem its financial losses, Davidson wrote in the report. Three IPP contracts are almost 60 years in length.
“We can’t break them,” said Mungall. “We’re going to have to renegotiate them when we can. And I don’t think it’s appropriate for ratepayers to be paying anything more than market value for this. … Market value has been $25 per megawatt hour and we’ve been paying over $100 in some cases. That’s a $75 discrepancy.”
The IPP contracts contain terms to protect against inflation, which Davidson wrote “could potentially add another $1 billion to the cost estimate over the next 20 years” plus another $7 billion for the longest-term contracts.
“Government directed B.C. Hydro to purchase 8,500 GWh of firm energy B.C. Hydro did not need,” Davidson wrote.
Despite that, the government has said it does need more power as part of its CleanBC plan to electrify the province and meet its pollution reduction goals. That is in addition to power from the Site C dam project.
“It’s the type of intermittent power we were buying that is at issue here,” said Mungall. “The reason Site C is something we are going to need in the future is because it’s firm power. We can lift up the spill gates as needed and run the generators as needed, which you can’t do with a lot of these smaller IPPs.”
The report comes as the B.C. government finishes the first phase of a review into Hydro’s practices in an attempt to find savings and lower rates. Results of the review are expected Thursday. A rate freeze the NDP promised in the 2017 election was rejected by the independent B.C. Utilities Commission because it was deemed unaffordable to Hydro.
Davidson recommended Hydro be tougher when any future IPP contracts come up for renewal that generate intermittent energy, and only make one offer priced at the real market value of the energy produced.
He also called for the reversal of any remaining self-sufficiency policies for Hydro, which could have the added benefit of freeing up Hydro’s energy trading arm, Powerex, to make more money.
Davidson also called for more transparency on future IPPs and the restoration of the utilities commission oversight power on Hydro contracts, which had been circumvented by the previous Liberal government.
Hydro currently has a moratorium on Hydro’s standing offer for IPPs. But government would need to change the law to cancel the program.
Mungall said some First Nations own or partner in IPPs and any change government will make to the program needs to consider the financial impact on their communities.
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