On August 3, 2017, John Horgan’s BC NDP government gave the British Columbia Utilities Commission (BCUC) an impossible charge: review the then-$8 billion Site C project (now the $10 billion Site C project) in three gruelling months.
At the time, little information was available about Site C. The calculations were opaque and idiosyncratic, the underlying forecasts confidential and the cost components unknown outside of BC Hydro.
The BCUC’s first step was to assign the fact finding to the well-respected Deloitte accounting and professional services firm, which did an excellent job. Its first report clarified the quagmire the project was sinking into – identifying a likely year delay and the presence of massive cost overruns. Never has a forecast been so immediately validated when BC Hydro announced the delay of the river diversion and an additional $610 million cost overrun, just days later.
As an expert retained to work on the Site C inquiry, I participated in this gruelling schedule, reviewing and filing hundreds of pages of testimony and analysis. I testified twice during the expert sessions and worked with other experts to untangle the facts from BC Hydro’s filings and responses.
On November 1 at 10 a.m., my staff and I started reading the BCUC’s 299-page final report. To put it mildly, we were impressed. Actually, we were more than impressed. The BCUC had digested and reviewed the thousands of pages of submissions, winnowed the wheat from the chaff and made some courageous decisions, including:
•delaying the project is not viable;
•Site C is not going to save anyone money;
•the Site C risks dwarf the alternatives;
•BC Hydro’s load forecast is unsupportable;
•BC Hydro’s export plans are unrealistic;
•wind, solar and geothermal are commercially viable (the rest of North America sighed with relief at this); and
•both Canadian power treaty storage and non-treaty storage need to be added back into the calculations.
BC Hydro had dismissed the significant benefits of the Columbia River Treaty out of hand because the 60-year relationship between the owners of dams in Canada and the U.S. might not survive more than 10 years. This is an odd idea that old friends would dismiss a mutually beneficial undertaking simply because their respective accountants could not agree on future payments. The BCUC wisely rejected this idea. It also recognized that an enormous amount of non-treaty storage is lent to the Bonneville Power Administration (located on the U.S. side of the Pacific Northwest) outside of the treaty and that this becomes available in 2024 to firm and shape wind and solar.
On both sides of the border I have been asked what happens next. I don’t believe economists make good political forecasters; however, in this case I think the BCUC has given Premier Horgan the right facts to make a good decision.
One of the other major concerns with cancelling Site C has been the $2 billion already spent on the project, causing many people to feel the project is past the point of no return. The facts show this is not the case. In fact, there is a name for this: the sunk cost fallacy. It is never a good idea to throw good money after bad. Our calculations put the Site C termination dividend at between $2 billion and $3.6 billion – approximately $1,000 for each adult in British Columbia. The alternatives are commercially viable and cost-effective – something already recognized from Quebec to California.
With these economic considerations in mind, the way forward seems clear: cancellation. The billions saved can be put to good use in education, infrastructure and the creation of long-term jobs, including far more lifelong high-paying careers for many more workers than the Site C project would provide in its lifetime. The facts have now been set out in a coherent, well-written document for everyone to see. The BCUC took on a momentous challenge and delivered admirably. •
Robert McCullough is principal of McCullough Research and for over 37 years has advised governments, utilities and Aboriginal groups on energy, metals, paper and chemical issues.
