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The Ruskin Dam and Powerhouse in Ruskin October 17, 2013 which is currently being upgraded to improve seismic performance and upgrade the powerhouse. (John Lehmann/The Globe and Mail)
The Ruskin Dam and Powerhouse in Ruskin October 17, 2013 which is currently being upgraded to improve seismic performance and upgrade the powerhouse. (John Lehmann/The Globe and Mail)

B.C. Hydro on the edge of change as huge growth planned for North Add to ...

B.C.’s north is in a frenzy of planning. There are applications for port expansions, coal and mineral mines, oil terminals, pipelines, synthetic fuel plants, liquefied natural gas facilities and hundreds of new drill rigs for shale gas extraction. Pinned on a map, the proposals create a porcupine of industrial intentions.

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While the North is poised for unprecedented growth, B.C. Hydro is at pivotal moment in its history. Key energy decisions remain undecided by the policy makers in Victoria who will shape how big, how fast and how green that development will be.

Competing interests are demanding lower rates, more flexible service, a tougher watchdog, a leaner corporation.

Since 1962, the Crown utility has played a fundamental role in opening up the province to industrial development. What happens next in the North will determine what role B.C. Hydro plays in the province’s in the future.

The electricity grid mostly runs one way: The North supplies 35 per cent of all of B.C.’s hydro-electric power, but half of that is consumed in the South.

For all the North’s new, energy-hungry endeavours – which could easily double B.C. Hydro’s current industrial demand if only a third of them are built – the power isn’t set to return.

Sandwiched between demands for huge dividends to the provincial government and outrage from its ratepayers over threatened rate hikes, B.C. Hydro is prepared to walk away from its new customers. If these developments are built, many will have to provide their own power by burning natural gas.

This runs counter to the government’s legislated targets to reduce greenhouse gas emissions.

But that core agenda of Gordon Campbell’s B.C. Liberal government no longer resonates with the Liberals under Premier Christy Clark. The clean-energy mantra has been replaced by one that puts investment first, and fiscal restraint a close second.

But B.C. Hydro is poised to pass along hefty rate increases – as much as 26 per cent – to its 1.9 million industrial, commercial and residential customers.

That figure, contained in a leaked draft document, has become a lightning rod for customer complaints about bloated Hydro salaries, the $1-billion smart-meter program, contracts with private power producers, and more. In that framework, Hydro can use the need to contain spending as insulation against demands to offer new supplies of clean, renewable power.

“The challenge is that we find ourselves, in 2013, with limited options for taking that pressure off,” Energy Minister Bill Bennett said in an interview. Months ago he was vowing to “get a grip” on Hydro’s gold-plated operations. Now, he warns it is a long-term turnaround project. “It’s a large Crown, under repair.”

Residential customers – who still enjoy some of the lowest rates in North America – would direct their anger at the B.C. Liberal government that promised to keep rates low, but the next election is more than three years away. In 2006 British Columbia had the second lowest rates of 22 jurisdictions and in 2012 B.C. was fourth lowest.

Bigger customers have other leverage: Investment decisions may hinge on what Hydro will or will not offer. And those already on the grid warn the threatened rate hikes would lead to job losses.

Catalyst Paper is Hydro’s largest industrial customer, consuming 5 per cent of the entire provincial electricity load. The company sent every MLA a warning this summer: The company contributes $2-billion annually to the provincial economy across 25 communities – and that is at risk in the face of double-digit rate hikes.

“Energy is a big cost item for us,” said Lyn Brown, Catalyst’s vice-president for marketing. It is the company’s second-largest expense, after fibre. Having just climbed out of creditor protection through a major restructuring last year, “any rate increases could wipe all that heavy lifting away,” she said.

Part of the difficulty in tackling rate hikes is that the government has been circumventing the utility’s regulator to suppress rates in advance of the election.

By “smoothing” rates, B.C. Hydro has racked up billions of dollars in “deferral accounts” which it now must start to repay.

And, the aging infrastructure needs to be maintained. The Ruskin dam in the Fraser Valley is more than 80 years old and increasingly unreliable. B.C. Hydro is now spending more than $700-million to reduce earthquake risk and upgrade the powerhouse. It’s just one part of the $2-billion it is spending each year to maintain the grid.

Given those limitations, letting industry in the North use cheap, abundant natural gas to satisfy new energy needs offers a tempting relief valve.

The Clean Energy Association of B.C. estimates that, conservatively, the potential load growth in the North could add up to 35,000 gigawatt hours annually by the year 2026. Last year, B.C. Hydro’s load for the entire province was about 51,000 gigawatt hours.

Paul Kariya, executive director for association, believes that B.C. could meet the pending demands in the North with clean energy. But he worries that the government is too preoccupied to consider the long-term planning that is required.

“There are two things on government’s mind: the rate hike and the balanced budget,” he said. B.C. Hydro will contribute about $1.8-billion in dividends over the next three years and that reliance on the Crown corporation limits just how big a stick Mr. Bennett wields.

“They want to get through the next two years somehow, but they’ve got to do something about the bow wave of those rates,” said Mr. Kariya, adding that the government may need to consider a reset for Hydro, to write down some of the debt to start fresh.

There is little appetite in Victoria for such an intervention, however. Mr. Bennett wants the corporation to behave more like a commercial operation, but he appears to be largely in agreement with B.C. Hydro’s current approach to new demand.

The Crown utility will table its integrated resource plan later this month, mapping out how it intends to meet future needs. But its draft plan offers to meet just a fraction of that potential new load. Some of the biggest demand would come from the new LNG industry that the provincial government has made a top priority. B.C. Hydro concludes that most LNG proponents will meet 90 per cent of their energy needs with natural gas. To meet the ancillary demand, Hydro proposes to build its own gas-turbine-powered electrical generation facility in the Kitimat region.

The final plan hasn’t yet been approved by the province, and a backlash is building. An internal report, obtained by The Globe and Mail, shows industrial users are frustrated by the Crown utility’s modern concept of customer service.

“Delays in transmission availability are cited as an obstacle to industrial development in British Columbia. B.C. Hydro’s transmission interconnection process is perceived as slow, cumbersome, unresponsive and expensive by customers,” the draft report, dated Oct. 4, says.

Tom Syer, senior executive for policy at the B.C. Business Council, released a report last week urging the province to take a stronger role in making sure the Crown utility becomes more nimble.

“They were, and remain, a foundation of our industrial infrastructure,” he said. “It is a critical time. We have serious competitive challenges and it is an identified issue for those who want to make big investments – they need to know B.C. Hydro’s system is working for them.”

A major policy obstacle remains the province’s climate-change targets, he said. By law, British Columbia must cut its greenhouse-gas emissions by at least 33 per cent below 2007 levels by the year 2020.

“There is a need to reconcile and where necessary revise climate-change objectives,” Mr. Syer said. “The simple reality is you cannot do this level of development – even if we did choose to use clean electricity inputs – and meet the GHG targets.”

The Energy Minister says those are decisions that still must be made by the B.C. cabinet. But this is a government that has been consumed with the pursuit of a new LNG industry – the climate-change law was the agenda of a previous Liberal administration.

“It may make more sense to let the companies use natural gas to drive their compressors,” Mr. Bennett said. “I’m doing my best as energy minister to try to carve out some opportunity for the clean energy sector in this province to continue investing. Having said that, I can’t do that to the extent that it is going to put pressure on rates. There is enough pressure on rates already.”

Richard Stout, executive director of the Association of Major Power Customers of B.C., said ratepayers big and small all have an interest in seeing B.C. Hydro reined in. He doesn’t quibble about the infrastructure spending but suggests the province is skimming far too much profit.

“Customers would be better off if B.C. Hydro was privatized – shareholders don’t expect that kind of profit.”

The draft report by the government’s industrial rate review, which will be finalized in the coming weeks, points to government intervention as a key problem. Mr. Stout says it is time the B.C. Utilities Commission was restored as Hydro’s watchdog.

“If you don’t allow an independent regulator to get involved, then rates are going to hell in a hand basket.”

The NDP’s energy critic, John Horgan, is not against the notion of burning natural gas in lieu of renewable electricity – especially if it helps B.C. Hydro escape from its present, costly bind.

But choosing the way forward – a future of clean energy or a future that increasingly relies on burning natural gas for power – is a decision that the public should be a part of, he said.

“It’s a big pivot. Let’s let the public decide.”

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