November
26, 2002
BC's
Costly Energy Policy
The
Campbell
government's energy plan was to be released in February.
Nine months late, its gestation is a sign of things to
come. Like a child growing, it will take years to see
the consequences of a few changes to fundamental rules.
The energy plan consists of 26 "actions"; three
of the key ones are:
IPP
stands for independent power producer, and that means
private power company. Gordon Campbell is privatizing
BC Hydro by breaking up the crown jewel, freezing its
growth and operating it for the benefit of private power
companies.
Hydro
as we know it will be gone when legislation is introduced
in the spring of 2003 and implemented in 2004; however,
residential consumers are unlikely to notice any substantial
differences until Premier Campbell's energy baby is in
its teens. Government is apparently relying on the maxim
that voters have short memories, and some would say even
shorter time spans when it comes to looking forward.
"Price
signals" mean only one thing, higher costs. The
BC government took a page from the strategy David Anderson
used to beat Glen Clark in the fight over BC salmon. Anderson
turned the tables by framing the debate as one of conservation.
Gordon Campbell's government has done the same thing with
its energy plan. Higher prices are described in terms
of sending the right signals for environmental protection.
In the words of the executive summary "It is possible
to design electricity rates to give consumers the right
signals for this energy saving activity." Using higher
prices in order to encourage conservation may be a good
thing IF government could capture the revenue from the
higher prices and use part of it to compensate those who
are harmed (cannot heat their houses). The Campbell energy
plan makes reference to revenues from "heritage resources"
(the dams) but it ignores the windfall profits that private
power producers will make from their new role.
The
Campbell government has a habit of making promises that
are so vague that it has to turn to others to fill in
the details. When government talked about making education
an essential service, they handed the job of defining
what they meant to the Labour Relations Board and then
stepped in before the Board could finalize its ruling.
When government promised to give municipalities more power,
a committee was set up to study the "community charter"
and define what Campbell meant by his promise. That work
is still incomplete. Government promised electoral reform
through a "citizens assembly" but it has had
to hire Gordon Gibson to say what a citizens assembly
looks like. The same trademark vagueness is stamped on
a key piece of the energy plan.
The
energy plan claims that " a legislated heritage contract
will preserve the benefits of BC Hydro's existing generation."
After stalling on the release of its energy plan for nine
months, the government is not ready to say what will be
in its "legislated heritage contract". Like
other vague promises from the Campbell government, the
heritage contract will be defined by others. In this case,
government says "The BC Utilities Commission will
conduct an inquiry and recommend the terms and conditions
of the heritage contract legislation. " This is déjà
vu all over again!
The
difference in annual value between market prices and the
power generated by the "heritage resources"
is approximately $1 billion. That is $1 billion every
year for decades to come. A lot is at stake for those
who get the benefits of the heritage resources. The government's
response, with its vague promise about a legislated heritage
contract, is that the distribution arm of what is left
of BC Hydro will "will obtain heritage energy from
the generation business at a rate to be determined by
the BC Utilities Commission." Keep in mind that
over the years distribution companies, and the plan uses
the plural, will acquire an increasingly large portion
of their power from private power companies. The lower
"heritage resource" price will be used to cushion
the blow from the higher private power company price.
BC
Hydro currently buys power from some independent power
producers but the difference is it selects the producers
based on low bid. Under the new scheme, private power
companies will participate directly in US markets through
the use of public transmission lines. If they produce
power at one price, say 3.5 cents per kilowatt hour, and
can sell it at another to the US, say 5.5 cents per kilowatt
hour, why would they ever sell to BC Hydro at anything
less than the US market rate? The new energy policy
means that all new power will be produced by private companies,
and BC consumers will pay US determined market rates for
that power. The only offset will be the gradually diminishing
role that the lower cost power from the dams has in averaging
the price down. The energy plan changes the management
of electricity so that private companies benefit at the
cost of BC consumers.
The
energy plan makes reference to other forms of energy including
offshore oil and gas, but those details are even less
clear than the yet to be written heritage contract. The
energy plan is about the breakup of BC Hydro. Privatization
by stealth, by phase out, or by stopping Hydro's growth,
is still privatization.
November
15, 2002
Nettleton
Exposes Privatization Trick
The
Campbell government can privatize BC Hydro without selling
the core assets. We should all thank Paul Nettleton
for helping people understand how deceit and misappropriation
makes that possible. Think of it like a car theft. The thief
gets the use of the car but no one has sold it. In the case
of BC Hydro, by destroying the ability of the public utility
to co-ordinate generation and transmission, independent
power producers (IPOs) would be able to capture value that
otherwise belongs to the public. Putting the transmission
capacity in a separate utility that does not give Hydro
preferential treatment would lead to higher prices for BC
consumers and higher profits for private power producers.
Paul
Nettleton was first elected in 1996 as MLA for Prince
George-Omineca. His November 13th letter provides some insights
into how the BC Liberal caucus operates. The BC Liberal
damage control crew (caucus whip, caucus chair, etc.) appear
to be painting Nettleton as an odd ball. The best way to
judge that criticism is to read his 4,000 word, 7 page,
letter. It is thorough and well reasoned.
The
kernel of Nettleton's analysis is that the BC Hydro system
operates as a whole with tight integration between generation
and transmission. Efficiencies in the system depend on the
ability to operate the entire system so as to make transmission
capacity available to whatever generation facility is brought
online by Hydro. Separating transmission from generation
introduces inefficiencies at the cost of the public system
in order to benefit independent private power producers
selling to an export market. BC consumers could be asked
to pay more so that private producers can earn more.
No matter
how much Nettleton's detractors may attack his character,
they should respond to the essence of his argument.
The
Premier's Energy Task Force presented an interim report
that was made public just before Christmas 2001. The final
report was to be made public in February but government
backed off when on January 9, 2002, the major industrial
users, represented by the Joint Industry Electricity Steering
Committee which includes 30 industrial companies, wrote
a scathing letter that was almost as blunt as Nettleton's.
The letter from the industrials said the interim report
"lacks substance, contains inconsistencies and generally
demonstrates a glaring lack of knowledge and understanding
of the electricity market in BC, its relationship to industrial
operations and the role it plays in attracting new investment
to the province. No substantive study or analysis has been
undertaken to assess the economic implications of the recommendations
being made, recommendations that if adopted as government
policy would have profoundly negative consequences. In short
it is a dangerous piece of work with dangerous consequences
for the province." Facing heat from industry, government
quickly extended the deadline for consultation.
Government
received the final Energy Task Force report in March 2002
but as of the date of Nettleton's letter it has not been
made public. Nettleton's letter to his colleagues said "Neither
the draft legislation nor the final report of the Energy
Policy Task Force have been made available to the public,
or to me, or to most of you I'll wager". He went on
to discuss government's denial that its deal with Accenture
involves privatization and wrote "I do not think British
Columbians are so credulous that such a fiction can now
be maintained. Perhaps we have not yet explicitly mandated
further privatization of BC Hydro but, if the separation
of the transmission function is actually implemented, we
will have set out on a road from which there is no return."
A page later Nettleton warned "Make no mistake: taking
control of transmission from BC Hydro is the key move, the
death knell of BC Hydro."
In
view of the earlier warning from the association representing
BC's major industries, Nettleton's warning cannot be easily
dismissed.
November
14, 2002
Higher
Hydro Rates
Where
are the open and honest Campbell government and BC Liberal
caucus? Have they abandoned their rhetoric about tolerating
differences within their ranks and encouraging free votes?
Since Paul Nettleton's letter to his colleagues became public
information, the chair of the Campbell caucus, the Minister
of Energy and the Premier have been quick to criticize the
backbench MLA. The opening paragraph of Nettleton's lengthy
letter says:
It is
no wonder Joy MacPhail called Nettleton courageous. His
letter goes on in similar language to offer the harshest
criticism yet of any Campbell initiative.
Energy
and Mines Minister Richard Neufeld is in major damage control,
with the backdrop of Ontario Premier Ernie Eves admitting
that their experiment with privatization was a disaster.
Ontario will now be spending hundreds of millions of dollars
to make people whole for the harm they suffered as a result
of the Mike Harris experiment. Now Neufeld also has to deal
with Nettleton's analysis.
As a
result of the Vancouver Sun running a front page story on
the possible breakup of Hydro into seven separate companies,
on November 12th both the Premier and the Minister admitted
that Hydro would be separated into two separate companies.
When pressed for further details, Neufeld said that the
full energy plan would be released in three weeks (after
the legislature adjourns). Paul
Nettleton was so shocked by the news of the separation
that he sent a letter to his colleagues expressing his strong
opposition to the breakup.
The
Campbell government's justification for separation is based
on the claim that if BC wants to continue to take advantage
of export sales, it will have to move the transmission arm
of BC Hydro to an independent company. Separating the generation
and transmission arms of BC Hydro means that each company
might have to appear before the Utilities Commission for
separate rate hearings. Higher transmission rates could
be passed on to consumers rather than be taken out of the
profits of generation companies.
In the
US the Federal Energy Regulatory Commission (FERC) regulates
interstate wholesale trade in electricity. The rulings of
FERC suggest that BC Hydro's ability to export without restrictive
"pancaking" of transmission rates (stacking of
multiple fees) would be determined on the particulars of
the case. Separation of the transmission and generation
functions of BC Hydro is not as important as how the transmission
function treats customers, regardless of its ownership or
control. Separating BC Hydro's transmission and generation
functions into distinct companies may have more to do with
the Campbell government's ideology than it does with requirements
for participating in the US market. Perhaps that is
why BC
Liberal MLA Paul Nettleton is objecting to a move he
says will have disastrous implications for BC.
On November
12th, in a highly spirited interview on the Rafe Mair show,
guest host Jon McComb repeatedly asked Neufeld when the
final version of the Energy Task Force Report would be released.
Ten minutes into the interview, Neufeld insisted that the
interim report wasn't from his ministry. It was the Premier's
report, with one of his Deputy Ministers playing a prominent
role. The interim report talks about the "legacy dividend"
- that is more than $1 billion a year that the government
could grab by selling cheap power from the major dams if
Hydro rates went to market levels.
Following
his interview with McComb, Neufeld sent a letter to the
editor to papers throughout the province. In his letter
he said "There will be no deregulation. After years
of political interference, BC Hydro rates will be re-regulated
and fairly set by the independent B.C. Utilities Commission."
Unfortunately,
Neufeld hasn't explained the concept of "re-regulation".
He said that the new system will keep Hydro rates "as
low as possible". However, those who read the footnotes
on the financial statements from Gary Collins know that
the government grabbed $59 million from Hydro's rate
stabilization fund thanks to the approval by the BC Utilities
Commission of an accounting change that violates generally
accepted accounting principles. That is the government
appointed Utilities Commission that Neufeld hopes will offer
comfort to the public.
Even
if the Utilities Commission behaves in an independent manner
and puts the public interest first, Neufeld said on CKNW
that the Commission will have to rule on rate applications
by BC Hydro. Guess who appoints the board of BC Hydro! When
McComb commented that the government receives over $300
million a year from Hydro by way of dividends, Neufeld muttered
about earning a fair return for the shareholder, which he
said is the "Province of British Columbia which happens
to be the people of British Columbia." So far so good,
but money in the government's pocket is not the same as
lower rates for consumers. The government's recent depletion
of the rate stabilization fund, made possible by funny accounting
so as to inflate the corporation's "level of equity",
gives a pretty good hint on who is going to get the money
and who is going to pay higher rates.
Neufeld
said that Hydro rates would not rise to market rates. Unfortunately,
he wasn't asked if Hydro would be instructed to request
that rates rise closer to market rates as was suggested
in the interim Energy Task Force Report.
--------------------------------
For
background see: (US) Federal Energy Regulatory Commission
at http://www.ferc.gov/index.htm
and read page 531 in one of its rulings at http://www.ferc.gov/news/rules/pages/RM99-2A.pdf.
Also see the US Energy Information Administration's fact
sheet on electricity transmission at http://www.eia.doe.gov/cneaf/electricity/page/fact_sheets/transmission.html.
For
the full text of Nettleton's letter, see http://www.bc.ndp.ca/news/021113_nettleton.html
and go to the bottom to click for a 2 meg pdf file.
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