Premier Christy Clark will announce her new cabinet on Friday: Pity the new energy minister who has to find a credible way to power all her liquefied natural gas ambitions, while managing a gaping financial hole in BC Hydro’s books.
Rich Coleman currently stickhandles the file for Ms. Clark, along with his pet hobbies of housing and liquor. After his role in helping Ms. Clark secure a victory on May 14, he can likely write his own ticket. He might have his eye on a new empire – the Premier has promised to create a new ministry of natural gas development. For whoever assumes the energy portfolio, there are a series of challenges looming:
BC Hydro’s balance sheet
The latest financial update from BC Hydro shows declining revenues, rising energy costs and about $2-billion each year in capital obligations just to maintain aging infrastructure – never mind the cost to meet growing demand for electricity.
The Crown corporation has made a show of reining in its spending after being accused of “gold-plated” empire-building. But its total compensation bill has still steeply escalated over the past five years.
The Premier says the proposed third hydro-electric dam on the Peace River, currently budgeted at $7.9-billion, must be built to supply the LNG industry that was the foundation of her election campaign. But there’s a catch: It won’t be built in time. It won’t be in service until 2023 at the earliest, while Ms. Clark is banking on at least three LNG plants running by 2020.
The process of liquefying natural gas is an energy-intensive business, but the additional electricity load to get the natural gas out of the ground will also be significant. A private electricity company in Alberta is already looking at building a transmission line into northeastern B.C. to meet the demand that it believes won’t be met by BC Hydro.
The looming skills shortage also presents a problem – if the construction crews are already busy building pipelines and LNG plants, BC Hydro may face a bidding war to retain the crews required to assemble the kilometre-wide dam.
LNG, what LNG?
It’s not clear Hydro is pursuing this new “once-in-a-generation” opportunity with the same vigour as the Premier’s office – officials recently cancelled plans for a transmission line that would have provided a secure supply of electricity for the Kitimat and Prince Rupert LNG projects.
In fact, demand for growth to supply LNG does not exist in Hydro’s forecasts, because the requirements have not yet been determined. A good possibility is a hybrid option, where gas turbines drive the main compressors, and BC Hydro supplies the electricity for the balance of the power needed by the industry. Even if natural gas provides 80 per cent of the energy, the electricity requirements would drive a huge spike in demand, which is already expected to increase by 40 per cent over the next 20 years.
GHGs – targets and realities
The province says there could eventually be 10 LNG export terminals dotting the coast, with four applications in Prince Rupert and six in the Kitimat area. But government officials are “absolutely confident” at least five LNG export terminals will be in operation by 2020 – the same year the province is required to make a dramatic reduction in its greenhouse-gas emissions.
By law, B.C. must cut GHGs in 2020 by at least 33 per cent from 2007 levels – a reduction of 36 million tonnes. The Pembina Institute estimates that just two LNG plants would render the targets unachievable – the GHG output from extracting, processing, transporting and liquefying the gas would produce 17 million tonnes of emissions per year.
Those, ahem, assets
At the end of 2012, BC Hydro had amassed $4.2-billion in what it calls its deferral accounts – “assets” because it is what ratepayers owe the corporation.
The Crown corporation now has 21 deferral accounts that allow it to smooth out rate increases. The Auditor-General has blasted the practice, saying it simply allows the Crown to claim profits where none exist. But BC Hydro needs to collect those costs eventually – tough when the provincial government has imposed a cap on rate increases.
The day of reckoning is coming, and Ms. Clark’s new energy minister will have to face it.