Saturday, February 27, 2016

Delusion and deception are complementary

The eyes of British Columbians should be on BC Hydro's Site C project. It is a hydro facility not needed in a province that has had a decade of flat domestic demand for electricity, despite there being no significant effort to improve efficiency and conserve power.


Site C has an $8.8 billion budget but is more likely to cost between $11.2 billion and $17.2 billion. An Oxford University study, Should we build more large dams? The actual costs of hydropower, says the purported costs and benefits of large hydropower dams prove uncertain. It reports:
Actual costs were on average 96% higher than estimated costs; the median was 27%. The evidence is overwhelming that costs are systematically biased towards underestimation...

First, experts (e.g., statisticians, engineers, or economists) and lay persons are systematically and predictably too optimistic about the time, costs, and benefits of a decision. This “planning fallacy” stems from actors taking an “inside view” focusing on the constituents of the specific planned action rather than on the outcomes of similar actions already completed.

Thus, for example, the estimated costs put forward by cities competing to hold the Olympic Games have consistently been underestimated yet every four years these errors are repeated. Biases, such as overconfidence or over reliance on heuristics (rules-of-thumb), underpin these errors.

Second, optimistic judgments are often exacerbated by deception, i.e. strategic misrepresentation by project promoters. Recent literature on infrastructure delivery finds strong evidence that misplaced political incentives and agency problems lead to flawed decision-making…
In planning, while project advocates almost invariably underestimate costs, they usually overestimate benefits. Again, from the Oxford research:
The Typical Forecasted Benefit-to-cost ratio was 1.4. In other words, planners expected net present benefits to exceed the net present costs by about 40%. Nearly half the Dams suffered a cost overrun ratio of 1.4 or greater breaching this threshold after which the asset can be considered stranded — i.e. its up front sunk costs are unlikely to be recovered. This is assuming, of course, that the benefits did not also fall short of targets, even though there is strong evidence that actual benefits of dams are also likely to fall short of targets..
According to the authors, flawed decision-making results from psychological delusion and political deception. It is difficult to disentangle the two.


ADDENDUM:
As I was completing this item, a reader drew my attention to a CBC report, Hydro-Québec posts net income of $3.1B for 2015:
Hydro-Québec released its financial results for 2015, a year in which it posted net income of $3.1 billion.

It was the second straight year the utility had topped the $3-billion mark.
BC Hydro is reporting profits but only by capitalizing and deferring expenses. Without doubt, it uses accounting trickery to conceal the impact of having paid billions more than market prices to independent power producers. (More on that subject is coming later.) In addition, the utility has been forced to borrow billions for transfer to provincial general revenue. The extra interest paid on behalf of government increases the burden imposed on residential and commercial users of electricity.




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6 comments:

  1. In late 2014 Energy Minister Bill Bennett gave the Americans a ten year a British Columbian 'Declaration of Independence' that he was about to spend $9 billion for a BC Hydro project, Site C, rather than negotiate with the USA over A New Deal on the Columbia.

    "The Columbia River Treaty has no expiration date, but either country may cancel it or suggest changes beginning in 2024, with 10 years' notice."

    http://www.cbc.ca/news/canada/british-columbia/5-reasons-the-columbia-river-treaty-is-a-big-deal-1.2464531

    ReplyDelete
  2. And that's why Christy Clark made her promise to former Premier Bill Bennett's family, and followers. Christy had already told the Americans to take a hike with their demands and she was just waiting until Old Bill wouldn't be able to disagree with her to make the pitch.

    Christy is spending $9 billion today to save $100 million each year in loss revenue from the Columbia Treaty deal. Let's see 9,000,000,0000 / 100,000 = 90 years. Hey, Site C warranty runs out ten years later!

    ReplyDelete
    Replies
    1. And $11 Billion /$100 million = 110 years! Whoops, Site C warranty 10 years ago!

      Delete
  3. The hijacking, from the BC Clean Energy Act:

    Exempt projects, programs, contracts and expenditures
    7 (1) The authority (BC Hydro) is exempt from sections 45 to 47 and 71 of the Utilities Commission Act to the extent applicable, and from any other sections of that Act that the minister may specify by regulation, with respect to the following projects, programs, contracts and expenditures of the authority, as they may be further described by regulation:

    (a) the Northwest Transmission Line, a 287 kilovolt transmission line between the Skeena substation and Bob Quinn Lake, and related facilities and contracts;

    (b) Mica Units 5 and 6, a project to install two additional turbines and related works and equipment at Mica;

    (c) Revelstoke Unit 6, a project to install an additional turbine and related works and equipment at Revelstoke;

    (d) Site C, a project to build a third dam on the Peace River in northeast British Columbia to provide approximately

    (i) 4 600 gigawatt hours of energy each year, and

    (ii) 900 megawatts of capacity;

    (e) a bio-energy phase 2 call to acquire up to 1 000 gigawatt hours per year of electricity;

    (f) one or more agreements with pulp and paper customers eligible for funding under Canada's Green Transformation Program under which agreement or agreements the authority acquires, in aggregate, up to 1 200 gigawatt hours per year of electricity;

    (g) the clean power call request for proposals (IPPs), issued on June 11, 2008, to acquire up to 5 000 gigawatt hours per year of electricity from clean or renewable resources;

    (h) the standing offer program described in section 15;

    (i) the feed-in tariff program described in section 16;

    (j) the actions taken to comply with section 17 (2) and (3);

    (k) the program described in section 17 (4).

    (2) The persons and their successors and assigns who enter into an energy supply contract with the authority related to anything referred to in subsection (1) are exempt from section 71 of the Utilities Commission Act with respect to the energy supply contract.

    (3) The commission (BCUC) must not exercise a power under the Utilities Commission Act in a way that would directly or indirectly prevent the authority from doing anything referred to in subsection (1).

    From:

    http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/00_10022_01

    ReplyDelete
    Replies
    1. This is politicization of a crown corporation to "enable" a serving political party, under the guise of a democratic government, to manipulate "regulatory and political controls and guidelines, thereby subverting this same regulations and "legally binding" controls. This "subversion" has led to over priced power contracts, from not only IPP's, but also for a dam that is not needed.
      Its called " fraud" where I come from...yes its a criminal charge, and in the political realm of the BC Liberal party, a charge that must be pursued with rigorous prosecution.
      This government is a travisty as far as responsible and transparent governance is concerned.

      Delete
  4. Defendant's response to BC Hydro's Site C injunction:

    http://www.scribd.com/doc/299710142/Defendant-response-to-BC-Hydro-Site-C-injunction

    ReplyDelete

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