BC Business
Bob Elton, President and CEO, BC Hydro
BC Hydro has taken a lot of flak in recent years for failing to move quickly enough in a rapidly shifting energy market increasingly shaped by deregulation and privatization. No new major electricity generation projects have come online in B.C. since the 1950s and 1960s, and the lumbering Crown corp. has floundered in its attempts to bridge the growing gap between demand and domestic supply. Hydro’s 2002 energy plan was supposed to answer the critics. It paints a vision of a dynamic new era when nimble private power producers will step in to pick up the slack between demand and supply. But one failure after another has plagued the Crown corp. A 2003 call for proposals from independent power producers led to a 20-year agreement with a wind-power company, which subsequently collapsed due to either lack of wind or lack of money, depending on who you talk to. Then, last year, Hydro was forced to scrap plans for a $285-million natural-gas-powered plant near Nanaimo when the project proved uneconomical. Meanwhile, plans for a major new hydro generation plant – the so-called Site C dam – remain in limbo, with the current private-enterprise government in no hurry to approve a public mega project, and the public showing no appetite for another flooded mountain valley. On July 27, BC Hydro took a tentative step in a new direction with the announcement of an agreement to buy 7,000 gigawatt hours of electricity a year from 38 independent power producers by 2010. You’ve previously announced agreements with independent power producers that never came to fruition. Do you really expect that all 7,000 gigawatt hours contracted for in the recent agreement will eventually come online? Most of them. You can never say all. This time we’ve been through a more extensive process of pre-qualification. The power producers have to put more money up before they sign the contracts. And it’s not a surprise that the prices we’re offering are a bit higher this time. Seven thousand GWh sounds like a lot. How does that compare to what Hydro currently puts out a year? We’re in the 42,000- to 49,000-gigawatt-hour range for our generation. A large project, like the Site C dam, might be 5,000 GWh or less. A decent-sized natural gas plant is about 3,000. This is a big deal. And how does that compare to current domestic demand? What’s the gap between demand and supply? The gap over the last two or three years has been in the range of 5,000 to 7,000 GWh. Our load growth is about 1,200 a year. So over the next five years, we’ll grow by about 6,000 GWh. This call is going to make a big difference, but there’s still going to be a gap. What’s the long-term plan? If this barely meets the gap, what’s next? I didn’t say it barely meets the gap. It deals with five years of growth. The plan is a combination of conservation, more calls for power from IPPs, and investing in our heritage generation assets. What does that mean for the status of Site C? Is that plan dead, or just sleeping? It’s neither sleeping nor dead. That’s the government’s decision to make. In the meantime, though, we’re going to be very proactive in doing these kinds of calls for power from independent producers. We expect another call next year and one the year after. We’re also very proactive in promoting PowerSmart and energy efficiency, and we’re very proactive in working on our own assets. How much more will you be paying these IPPs than in the past? The average price is $74 a megawatt hour. In the past it’s been more in the $55 range. Construction materials, construction labour, interest rates; they’ve all gone up. So we expected these prices. We’ve also checked with other jurisdictions, and we have pretty well the lowest rates in North America. Our commitment is that we keep that competitive advantage. We believe we will preserve our competitive advantage, but that doesn’t mean the rates won’t go up. They will go up. How can you maintain the same price when it costs more to buy electricity from lots of small producers? This is why conservation is so important. As the price goes up, then conservation will become more and more cost effective. The second point is, whatever you do, whether you buy from IPPs in B.C. or whether you get long-term contracts from outside the province, or whether you build BC Hydro assets, it’s going to cost more. And by a similar amount. So the range of extra costs is the same. But as long as we are more efficient than our neighbours, we will keep our competitive advantage. Will B.C. ever be a net exporter of electricity again? Some of these independent producers will inevitably say when their contract expires, “Look, I want to export some of this.” And then I think you’ll see producers that are doing well say, “I want to build another project, but this time I want to build it for export.” As long as there is public support for that, I definitely could see that. Do you envision the day when BC Hydro will exit the business entirely of developing new power-generation plants? The energy plan says that we will continue to work on our existing assets, and that new generation will come from the private sector. That’s obviously what this call for power reflects. The question of whether we would build another large dam, as I said, that’s something the government is looking at. What will it take to see these projects through to successful completion? It’s very important that the province as a whole, and I’ll include in that the general business community, really recognizes the importance of these projects for us to supply reliable power. What we want to do is encourage the conversation. The more people talk about this, the more they’ll say, “You know, I really want electricity. I’m not going to give that up. What do I have to do to get it?” That means getting the general business community to step forward and say, “Yeah, we need this to happen.”