Sep 23, 2011

A ‘Jobs for Jobs’ Strategy


It is ironic that within weeks of its much publicized report and stated concern about the upward pressures on BC Hydro rates, the government announces a job strategy that will drive up electricity rates more than anything else — more even than the self-sufficiency policy government has belatedly recognized must go.

The plan for new jobs is concentrated on the development of very electric intensive projects that will impose major financial losses on BC Hydro — losses that existing ratepayers will have to make up.

The proposed LNG plant in Kitimat provides a good example. The first phase of that project reportedly needs 1.5 million megawatt hours of electricity per year, and apparently the developer hopes to buy that power from BC Hydro instead of producing it itself (which LNG plants in the rest of the world commonly do). With that additional demand for power, BC Hydro will sooner or later have to acquire or develop 1.5 million megawatt hours of additional supply. And the cost of that will greatly exceed what the LNG plant will pay under BC Hydro’s current rate policy.

The average cost of new sources of electricity supply in BC Hydro’s last call was over $125 per megawatt hour. The revenues BC Hydro receives from industrial customers averages less than $40. Based on those new supply costs, the loss to BC Hydro would be over $85 per megawatt hour, or over $125 million per year.

BC Hydro should be able to acquire or develop new supply at a lower cost than what it did in its last call — an expensive vestige from former Premier Campbell’s Energy Plan. But new electricity supply is still expensive and the loss will be substantial, at least $60 million, likely closer to $100 million per year. That is the amount that the rest of us will have to make up just for the first phase of the LNG plant to proceed. Then there are the next phases, and the next plants, each adding to the losses BC Hydro incurs and we have to pay.

Though not to the same extent as LNG, metal mines, another major component of the government’s jobs strategy,  are also very electric intensive. Each one of those that go ahead will be purchasing power from BC Hydro at far less than the cost they impose on BC Hydro, contributing tens of millions of additional losses per year.

The problem is that we have a jobs strategy premised on the offer of cheap power that BC Hydro does not have. The cheap power that was developed years ago is fully committed. New demands for power  require new supply, and new supply even without the nastier provisions of the Clean Energy Act is costly, both in economic and environmental terms.

And here is the ultimate irony. The answer to the upward pressure on rates, at least in the government pronouncements to date — is to lay off more BC Hydro workers. Beyond that, rates will simply go up whatever adverse disposable income and jobs impact that may have. It isn’t a jobs strategy. It’s a jobs for jobs strategy.



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