Should children not yet born help pay for the $4 billion spent on a hydro-electric dam that was never built?
If the answer is no, should current BC Hydro ratepayers cover the sunk costs of a cancelled Site C dam project through a 10% rate hike, or should the write-off be covered by taxpayers?
These are some of the questions the B.C. government’s ministries of Finance and Energy, Mines and Petroleum Resources have put to the BC Utilities Commission (BCUC).
In a final report released earlier this month, the BCUC concluded that the worst and most costly option for Site C dam would be mothballing it and restarting it later.
It concluded the dam could likely cost $10 billion to complete – which would be $1.7 billion over budget. Cancelling it would mean a $4 billion write-off.
After acknowledging that the BCUC was given an extraordinarily short timeframe in which to review the project, deputy ministers ask for clarification on several key points.
One is whether the BCUC, when calculating the cost of alternative energy portfolios, included the sunk costs of cancelling Site C.
Those alternative energy portfolios include a mix of new wind farms and conservation measures, like time of use pricing (i.e. charging users more during peak times) and industrial curtailment.
Should the dam be cancelled, $2.1 billion will already have been spent, and another $1.8 billion would have to be spent on contract termination fees and site remediation.
“Our review of the commission report suggests that the alternative portfolio does not include termination costs,” the letter to the BCUC states.
If the sunk costs were not included, it asks the BCUC to provide a calculation of how much alternative energy portfolios will cost if they are included.
The most important question for ratepayers, however, is who would cover the $4 billion cost of cancelling Site C: Them or their children and grandchildren.
BC Hydro planned to spread the cost of Site C ($8.3 billion, if built on budget) over 70 years.
The notion there is that, since a hydroelectric dam typically can produce power for 50 to 100 years, future generations who benefit from that power should help pay for it. That same principle would be harder to justify is the project is cancelled.
“Fair and appropriate rate setting principles for rate-regulated utilities typically aim to avoid causing future generations to pay for investments from which they will derive no benefit,” the letter to the BCUC reads.
It therefore asks the BCUC for an opinion on whether it would be appropriate to spread the costs of cancelling Site C over periods of 30 to 70 years.
Should the government decide to contain the cost recovery over 10 years, and should it be covered with a BC Hydro rate hike, it has been calculated at 10%, although the government could opt to simply have taxpayers cover the write-off.
The government has already asked the BCUC to approve a one-year freeze on a 3% rate hike that BC Hydro had planned.
So should Site C be cancelled, and should the government go with a 10-year amortization period, that could mean a sudden 13% rate hike.
The government letter also seems to question the BCUC’s decision to base its calculations on BC Hydro’s low load forecast.
BC Hydro uses three load forecasts: low, medium and high. It uses the medium forecast as part of its resource planning.
The BCUC agreed with the many critics who said BC Hydro has consistently over-estimated B.C.’s future power needs.
In using BC Bydro’s lowest load forecast, the BCUC is assuming B.C. will have low economic growth. The government is asking why it is making that assumption.
It also picks up on a point that has been made by sustainable energy experts like Mark Jaccard: the BCUC appears to assume that governments will not meet their climate change objectives.
If they do, it would mean a greater demand for clean power, as cars and homes transition off of fossil fuels to electricity.
The letter also picks up on another point Jaccard has made: while the capital cost of wind may be lower than hydro power, it’s not dispatchable.
“It would also be useful to know if the commission examined the value of ‘dispatchable’ resources versus intermittent resources, particularly as applied to the goal of moving industrial energy requirements now and in future to low carbon electricity,” the letter states.
Although the BCUC’s final report assumes that B.C.’s future power needs will not grow, should there be a demand for new power, it could be met with new wind power projects and conservation measures.
But the BCUC appears to have assumed that any new wind farms or geothermal power plants would be built and financed by BC Hydro. That’s not how other renewable energy projects have been built in recent decades.
Existing wind and run-of-river projects were built by the private sector, using private capital, but with long-term power purchase agreements from BC Hydro. This allows BC Hydro to avoid assuming debt to build the projects.
In calculating its alternative energy portfolios, however, the BCUC assumes BC Hydro finances those projects.