Friday, February 5, 2010

Once, there were giants

I have written here repeatedly about British Columbia’s mistaken policy of promoting private production of electricity. BC Hydro is forced to sign long purchase agreements at rates substantially above the likely wholesale values and well above the cost of generating new electricity. Advance contracts at premium prices eliminate the main business risks facing producers and guaranteed streams of public money provide collateral for borrowing, even for producers with minimal invested equity.

Liberals want profits to be privatized while costs and business risks are socialized. Since this benefits the rather few individuals gifted with risk free investments, we must examine possible motives for the policy. Here, the advantages are clear for the sellers but incomprehensible for the public.

Without considering corruption, it is difficult to conceive of the Campbell Government’s motivation. If encouragement of private enterprise is the main purpose, BC Hydro would not be involved as intermediary. Private utilities could produce and sell electricity in the domestic or export markets at their own risk. That is market driven capitalism allegedly favored by BC Liberals.

If alternative power technology initiatives are successful, inexpensive clean power will be available readily. Electricity prices will drop. Nuclear is one possible technology, geo-thermal and high-efficiency solar are others. We can embrace those capabilities or not but their availability will affect export pricing of electricity because Americans are diligently embracing alternate energy.

All schemes for private power in this province are shrouded in secrecy. What is known though is that many companies involved are populated by people with close ties to the Liberal Party. Contracts are not available for public review although it is clear that the commitments total over $30 billion. The quickly sourced report of the government’s Green Energy Task Force is secret and they solicited public submissions to be received through email accounts outside the public system so that records could be undisclosed. The Task Force is beyond scrutiny.

This scandalous situation developed and continues, partly because the NDP opposition is poorly engaged as they wait for Premier Campbell's final self-destruction. Liberal backbenchers are toothless lambs, following their wounded leader without question. A compliant media. loyal to doctrinaire ownership, offers mindless support to the current administration.

I will review one regularly egregious example of media ineffectiveness. It involves representatives from the three major news organization of BC: Global TV News, Canwest Newspapers and Corus Radio. I realize this is a long article but it is fairly transcribed and is reflective of the tortured logic employed by these media members.



CKNW’s regular Friday segment “Cutting Edge from the Ledge” should be can’t-miss radio for BC political junkies. The pundits each have long experience, connections to government and business insiders and resourceful employers. They can examine intricate details of complicated stories, if they choose to do so. The weekly one hour radio segment allows opportunity for complete and balanced discussion of an important issue, again, if that is desired.

Most professional journalists claim adherence to codes of ethics, standards that promote accuracy, objectivity and fairness, among other elements. The radio program perhaps is due a little latitude since it is a conversational gathering with three colleagues talking about political affairs and news events. Regardless though, journalistic standards require that reporting be fair, comprehensive and thorough. We should particularly expect that of three people represented as the lead political commentators of their respective employers.

On the January 29th edition, Bill GOOD said:

I’m told there are a lot of very frustrated investors, frustrated independent companies trying to figure out what they’re going to be able to do and not do in terms of independent power. . . . If, in fact, it is demonstrated that an independent power project is “green” - and the likes of David Suzuki and Tzeporah Berman have said it can be and should be. If that’s established, what is it about exporting power that has some people lighting their hair on fire?

We want to export lumber. We’re desperate to import wood product into the United States; that’s not as renewable as power. Why is power being sold or exported such as issue for some people?

Keith BALDRY responds:

. . . I think there is a fear among some people – however groundless - that the emerging private involvement in energy production is going to drive up electricity prices in this province. There’s people that just don’t like the private aspect of energy production. They want to keep everything in the hands of Hydro. But a lot of people who are familiar with this point out that Hydro does not have the capability anymore in terms of manpower and resources to actually continue to create new energy projects out there and manage them all.

So Bill Good sets up the straw man, Baldry topples it over. Good ignores the issue of the public carrying all the associated business risks and immediately claims that critics oppose green power.

Regular caller Brian was first up for a quick game of cat and mouse. But then at 43 minutes past the hour, a very clever caller, beckoned the pundits gently forward and then struck off their heads, metaphorically speaking.

Richard:

. . . A jaded old coot like myself could be accused of raising an eyebrow that all this independent power projects is a future make-work project for out-of-work Liberal politicians who will end up with directorships and other sinecures in their gold years, with these companies.

There is a long way from the time these IPP companies get their initial sanction and they actually get up to production. A lot of them won’t make it. We’ve already seen VRB [Power Systems Inc.] essentially go bankrupt, sell their assets off, one penny on the dollar. Naikun, which is another wind company up there in the Queen Charlotte area, they’re laying off 10 or 15% of their workforce right now. They’re nowhere near actually getting up to production.

But, the big issue of Brian and Mark, and one that I think all three of you continually stick handle around is the sheer dollars that are at stake here. Assuming these companies that get the initial green light actually get up and fulfill their contracts and start producing, we are paying them three to four times current rates.

Scott Simpson, in the Vancouver Sun, actually had an article that confirmed that a few weeks ago. It didn’t get much play, it was somewhere in the business section. Again, the three of you, for instance, in the media, continually sort of move it on to the overall issue of green power – and isn’t this a good thing to go for green. But, if you look at the dollars and cents, there’s this subsidy that’s three to four times current rates. Now, we can look in the future. Maybe electricity rates continent wide will go up . .
.
Bill Good:

Let me interject for a second. I don’t intentionally stick handle around anything. I try to understand the issues and I…. A couple of points you made are really good ones. I think the government allows far too many prospectors, if you will, to make a stake and it makes it look, it makes it easy for the critics to say, “They’ve sold off 600 rivers.” Well, in fact, they let far too many people put their oar in the water and most them don’t have the backing, don’t have the money, and will never ever create independent power.

But the other thing that I don’t fully comprehend is this constant current rate argument versus future rates. Is it not going to cost us more for power in the future given that 30 years after a lot of the hydro projects were created, it’s going to cost Hydro, or a private power operator a great deal more money to create new power, future power?

So you can’t compare what we’re paying for power out of 30 year old project with the power that’s going to generated out of a Site C dam or out of a run of river power project 5 years from now.

Richard:

But you can look at trends and the trend right now is that, in the U.S., they are opening up other alternative energy: solar in areas where they do get a lot of hot sunshine and it is cheaper. Nuclear - Obama was talking about that the other night. Natural gas – that would be a huge game changer if they were to up the ante by creating more natural gas fueled plants, because it’s cheap and plentiful everywhere.

The price of natural gas, much to our displeasure up here, is so very low compared to oil for the energy produced. Yeah, looking forward you could see energy prices not much different than they are now. If that happens, and these project survivors that make it past the finish line and start producing, they’re guaranteed three to four times, and they’re going to be exporting at a time of year, in spring, when we’ve already got lots of energy here and we don’t need the power internally. We’ll be sending subsidized energy, on the cheap, to the U.S. I don’t know what the U.S. will pay but it will probably be very much lower than is contracted for.

Bill Good:

Where’s the subsidy?

Richard:

I believe if it [BC Hydro’s cost of production] is three cents per kwh, or something like that now, I think it is contracted over 30-40 years that they [private producers] get 12 cents and up per kilowatt hour.

They’ve been banging this drum for months and months and I didn’t really pay any attention until I saw Scott Simpson’s article which basically confirmed the same thing.

I’ve been listening a long time on this and I’d say you three, all of you, tend to change the subject to the concept of green power rather than to the dollars and cents which is in the billions of dollars over the leasehold 30-40 year time period.

Keith Baldry:

There is no question the rate aspect of this particular file is a source of controversy but as you point out caller, trying to predict the future when it comes to electricity rates is fraught with peril. There is an argument to be made that private power producers, the reason they’re getting into this game is because it’s going to be a money maker scheme for them if they can actually, as he puts it, get past the finish line, getting through the environmental assessments and getting into the open market.

Whether it has an impact on residential customers in this area though, and this is where there’s a split opinion, is open to question. These power producers, even when they get up and running are still a relatively minor part of the energy grid in this province. BC Hydro is still by far the dominant energy producer in this province and those private power producers again hard to say what type of impact they’re going to have on commercial customers in this province and whether or not those rates will be significantly higher than what Hydro currently charges its customers today.

The energy market in North America is rapidly changing market in terms of rates and its structure. It’s hard to say five, ten years down the road, even with these independent power producers if they are part of the grid, what type of impact that’s going to have on electricity we’re charged right now in our homes and our businesses.

Vaughn Palmer:

The British Columbia government has for environmental policy reasons ruled out a couple of the cheaper sources of generating capacity that are available out there - coal fired and natural gas fired. For policy reasons, we’re not looking at nuclear. I think other people will try it before we do. They’ve also, for policy reasons, said that over time they want to be 100% self-sufficient here. They want to stop importing power from Alberta.

We’ve also got a policy that 50% of our power needs for the future are going to be answered by conservation. Where’s the other 50% coming from? I think that’s what leads you to say, well, we should be trying a couple of wind projects, we should be trying some geo-thermal and bio-energy here in British Columbia to see if we can make it work. They are going to be dipping your toe in the water kind of products Bill. There’s no question some of those are more expensive than some of the cheaper options. But, if you’ve ruled out the cheaper options for public policy reasons, I think you’re going to see some of the more experimental stuff, some of the more expensive stuff tried here, as a way of starting.

I’d also point out the Americans are offering enormous subsidies for what they’re calling green energy and we’re going to be up against that, it is true, if we’re trying to export to them.

Listening to and reading this again, I realize that Palmer and Baldry argued against their own positions and agreed that knowledge of future pricing is problematic and declines may occur because others are diligently working to bring new technology on stream. The new capability may be inexpensive whereas BC Hydro is committing tens of billions of dollars to expensive, small scale production and guaranteeing profits to those who carry none of the pricing/technology risks.

Now, citizens are left with a double conundrum. Why is the Campbell Government moving so certainly against the public interest and why has the media abdicated their role of objective truth telling?

Further Reading:





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14 comments:

  1. Nonsense Farrell - there is no free market for electricity in BC - duh!

    So how do you expect an IPP to get financed without a long term contract? There is only one buyer in town - you know.

    Also, IPPs produce power far cheaper than BC Hydro. The Ashlu IPP is selling power at $55 a MWh to BC Hydro for 40 years which is then selling that to residents at $75 and to California at $130. So get your facts straight.

    And BC Hydro just built a run of river plant and it cost them $120 a MWh.

    So if you wish to impoverish the taxpayer, then have BC Hydro generate power at twice the market rates, or you can buy dirty coal power at $60 from Washington and Alberta.

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  2. The PAPsmears are out in force sir. Keep up the good work. As for good, baldry and palmer, they are talking for the big biz. They are always commited to the big guys. They don't have a balance at all for what they speak.

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  3. To Anonymous 10:36 AM - As usual, the anti-green pro-public union (COPE 378) ideologic fanatics cannot answer to the points raised in the comments section, so they name call the posters.

    You just discredit yourself when you cannot produce the facts, and when you smear the opposition using insults.

    Any surprise that the anti-green and anti-IPP folks now wanting more coal burning and expensive government nuclear power have lost all credibility?

    Why dont you go and conserve power, turn your heat down to 12 degrees and sell your computers, and put your money where your mouth is, for heaven's sake.

    And the "biggest biz" of all is BC Hydro where union wire cutters are paid $280,000 a year. See http://www.vancouversun.com/news/public-sector-salaries/advanced-search.html

    Enter BC Hydro and $200000 for "greater than salary".
    ______________________
    Your comments indicate you misunderstand the original article. There are no arguments against green power or in favor of building nuclear or solar power facilities in British Columbia. You've done exactly what the three pundits are accused of: changing the subject and ignoring the core issues.
    Changes in technology may alter the value of electricity in the future. That raises the risk for every long term contract that presumes prices will continue to escalate dramatically.
    The business people involved in the private power sector recognize that, which is why they wanted to transfer risk to the public. Naikun is a former penny mining stock with a $35 accumulated deficit. The only way they can contemplate a $2 billion contract is by using government guarantees. And, with a former Liberal insider conducting the business, maybe they'll get it. While you scream at those you perceive to be your enemies, your friends are picking your back pocket.

    Regarding the BC Hydro salaries. You're OK with a manager, an accountant or a PR person earning big money but not technicians? Did those technical people work 9 to 5 with weekends off and generous expense and travel allowances? I recall some nasty storms that kept line workers out continuously. You'd rather they worked a 7 hour shift and went home?
    Norm

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  4. I think we all know the answers to the questions - "why does the government move against the public interest and why has the media abdicated its' role?"
    The real question is - how can we stop this and turn it around to benefit the public and preserve our natural resources for the 7th generation?

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  5. BC Hydro is signing contracts for new IPP power in BC for $120/MWh. If those IPPs didn't have BC Hydro as a purchaser, and had to sell into an open North American market, would those IPPs get built?

    The first commenter said BC Hydro is buying power from the Ashlu IPP project for $55/MWh. So why, only 4 years later, is BC Hydro paying more than twice as much per MWh for IPP power?

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  6. Hugh - The last spate of IPP contracts averaged $78/MWh. Are you making the $120/MWh figure out of thin air? Even the JIESC lobby group that represents big bussinesses who buy 40% of BC power at $35/MWh and waste it, is not saying IPPs cost $120/MWh. So what is your source for this lie?

    BC Hydro's own cost of production is $110 (Aberfeldie). Producing power is not cheap - the days of borrowing public money and building mega-dams that destroyed the river is over. Nobody is going to let you destroy rivers. Public unions are just dreaming.

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  7. In his Feb. 2 2010 Vancouver Sun article, Scott Simpson says that JIESC claims that the BC Govt's power export plans will cause BC Hydro to buy new power from IPPs at $120 per MWh. Then, maybe exporting it for $60/MWh.

    JIESC is worried that this may be a huge burden for taxpayers.

    Note that the $120/MWh figure is for present and future IPP contracts. I realize that Hydro's current EPAs with IPPs include older, less expensive contracts.

    JIESC wants a review of the Govt's power export scheme. I think that is a good idea.

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  8. Here's the link to the article:

    http://www.vancouversun.com/business/Industry+questions+power+export+scheme/2512132/story.html

    ReplyDelete
  9. Hugh - read the article - you are wrong again. Dont make it up.

    The article clearly says JIESC claims IPP power at "north of $100". Then Scott Simpson adds his own take at $120. So JIESC is NOT saying $120.

    Besides, the green and renewable premium for electricity is today $30 and will soon be $60/MWh. So green and renewable power at $100/MWh only costs BC Hydro $70 or $40/MWh because BC hydro receives the green credit.

    So JIESC comparing green and renewable BC power to American power which is coal and gas fired is silly and they are comparing apples to oranges, or regular gasoline to super-premium gasoline.

    And then in another article the same Scott Simpson claims that BC Hydro is selling renewable power to California for $130/MWh. So BC Hydro is buying power from Ashlu at $55 and selling to California at $130 with a huge profit margin. But apparently not enough to keep the unions happy.

    But the COPE 378 public union wants to generate power so they can keep their large number of $200,000 and higher salaries on the back of the ratepayer - no matter that it costs BC Hydro at least $110/MWh to generate new power. For the unions, freeloading on our dams is not enough. BC Hydro's dam costs are only $6/MWh because British colombians financed them and took the risks decades ago, but then BC Hydro sells that power back at $80 to BC citizens, the real owners. Where is the profit going? Certainly not to the governmnent. BC Hydro paid zero profit to the government last year.

    Hugh - before you make such unsubstantiated and uninformed claims, you better read the article.

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  10. This is from the article:

    "In a submission to the government's Green Energy Advisory Task Force, the industrial group calculates that the export plans will cost B.C. taxpayers $450 million a year in money-losing power sales transactions.

    It says the scheme will commit BC Hydro to pay independent power producers about twice the value that their electricity would fetch on the North American spot trading market -- $120 per megawatt hour to buy B.C.-produced power that will trade on a western North America market where the projected long-term price averages $60."

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  11. Hugh - as you can see, the $120 is not in quotes.

    Later on Scott Simpson says $100 in quotes. So the correct amount that JIESC claims is "upward of $100".

    Besides, have you subtracted $30 to $60 per MWh from the IPP price for the green credits?

    May I ask, why are you being dishonest and so ideological? If you really cared about taxpayer subsidy, then you should look at JIESC subsidy that they can buy power at $35 while residents pay $80. You should then look at BC Hydro generating power at $7 from legacy dams only to sell it to residents at $80 with the profit vanishing in thin air.

    You are obviously biased against the taxpayer and support the unions and JIESC reciving fat subsidies. $280,000 salary to cut wires at BC Hydro - that is the reality. Not even VPs at BC Hydro make that kind of money.

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  12. To: Anonymous 4:12 pm.... Wow, as a Papsmear member, I must have ruffled your feathers. Nice spin, too bad its way off. Ask your drinking buddy gordo, sounds like the dribble coming from him. Quit the PAPsmear work, and get a real job.

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  13. To Anonymous 2:07 pm - so you could not argue the point but retort in insults and name calling?

    Typical of public union activists who want to socialize all production in BC.

    Obviously having a real job is your sore point. While you public union types get paid $280,000 of public money for a job that is only worth $50,000 - the IPPs have to work and compete for their pay, and invest their own money (and not taxpayers money), take risks - and create real jobs for others.

    IPPs create wealth for all at their own risk. 95% of the revenue is paid to banks, pension funds, and investors. Public union types on the other hand grotesquely leech on taxpayers and they have the arrogance to call that a "real job".

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  14. Repeating the same personal opinions doesn't make them more factual. Let's move on unless new arguments can be made.

    This is not an issue of unions or of socialism, except that people supporting the current IPP development schemes favor socialism. That is because financial risks fall on taxpayers who must take or pay for future power, regardless of whether or not it is needed at the time. Additionally, the price paid for the power is guaranteed by government regardless of its actual value.

    Had the Columbia River, Peace River and other public dams been constructed under the IPP model, British Columbians would have no low cost power being produced. Our electricity prices would be much higher and a few fat cat friends of government would be laughing since they would be reaping the bonanza. That's what will happen in the future with these small private dam systems being built. Forty years from now, BC citizens will despise these schemes.

    Imagine if the Guiness Family still owned the Lions Gate Bridge. At $25 a crossing, that would return them about $500 million a year. Sure, they'd have paid for maintenance over the years but it would still be a sweet deal.

    ReplyDelete

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