Why the Site C Dam Fails Economic Test: NDP Critic

This is a guest piece by Adrian Dix, the MLA for Vancouver-Kingsway and the NDP critic for BC Hydro and ICBC.

BC Hydro and the provincial Liberal government are playing a reckless game with British Columbians. They are building the Site C dam even though it is apparent that we do not need the power.

The consequences will include lost jobs, higher electricity rates and long-term damage to BC Hydro and provincial finances.

Does Premier Christy Clark think BC Hydro's customers in this province would support a $9-billion-plus project to offer subsidized power to American and Albertan consumers? Could this ever make any sense?

B.C. has seen this story before with respect to Site C, but with a very different ending.

In September 1980, BC Hydro applied to the government to build the Site C Dam. The Social Credit government led by then-premier Bill Bennett referred the project to the newly formed BC Utilities Commission for review.

Looking back at the justification for Site C at that time, we see a familiar argument. In 1980, BC Hydro presented a 20-year forecast for electricity demand that was exaggerated and, we know now, massively in error.

In the cost-benefit analysis produced for the utilities commission, BC Hydro predicted that the load forecast — the demand for power — would increase from 29,163 gigawatt hours in 1978/79 to 92,000 gigawatt hours in 1999/2000.

BC Hydro argued that we needed Site C, in addition to the then under-construction Revelstoke Dam, to meet that growing demand. It was wrong.

Dead wrong. Comprehensively wrong. Catastrophically wrong.

Had it not been for that BCUC review, BC Hydro, its owners (that's us) and its ratepayers (that's us as well) would have lost their shirts. In fact, it would have undermined the very foundations of BC Hydro and the government's finances.

Instead, Bennett's referral of the project to the BCUC saved the day. The independent utilities commission review rejected BC Hydro's exaggerated load forecast and the Site C project along with it.

Fast forward to today.

Hydro's Forecast of Growing Demand 'Fundamentally Wrong'

The Liberal cabinet has ordered BC Hydro to proceed with the Site C project. In announcing the project, Clark and BC Hydro justified the action by predicting an increase in domestic demand of 40 per cent over the next 20 years. Even with BC Hydro's inflated forecast, according to economist Robert McCollough, Site C will initially be a money loser. Delaying the dam for five years would save $1.19 billion.

However, just as in 1980, BC Hydro's forecast is proving to be fundamentally wrong. Over the past 10 years, energy demand has been flat, even dropping slightly from 2007 to this year.

And since the 2013 energy-demand forecast the government used to justify Site C, domestic demand has cratered.

In response to my questioning in this year's budget debate, Energy Minister Bill Bennett confirmed that domestic demand has dropped. Domestic demand is forecast to be 2,300 gigawatt hours below BC Hydro's projections this year. That's equal to more than 40 per cent of the 5,100 gigawatt hours of electricity to be produced by Site C. Instead of going up, demand is going down.

The reasons for this are numerous — low economic growth, the decline of our energy-consuming pulp and paper and forestry sector, increasing industry energy efficiency, high electricity rates that depress demand, and a small but growing number of consumers who are going "behind the meter" with alternative energy sources. The latter trend is likely to continue to grow in B.C. as it has in our export markets such as California.

Even BC Hydro and the Liberal government are being forced to acknowledge the problem of falling energy demand as they continue to pump massive amounts of cash into their Site C project. The reality of demand is so bad for their argument supporting Site C that they have again delayed the scheduled update to their Integrated Resource Plan, BC Hydro's long-term strategy document.

BC Hydro is also proposing new transmission lines in a desperate search for customers, including a new line to allow electricity sales in Alberta.

Site C has become a project in search of a market, a caravan in search of an oasis. Clark's desperation to justify the project going into an election does not bode well for taxpayers, or BC Hydro ratepayers.

Here is what makes the desperate search for export markets such a bad idea. BC Hydro has three rates for its domestic customers — one for residential customers, one for commercial customers and another rate for industry customers. These rates have gone up significantly in recent years, so much so that our struggling mining industry has sought and received a deferral of BC Hydro payments.

The export price of electricity is currently less than half the domestic price. So Site C power sold to other markets is worth less than half of what it would bring in domestically. The difference in returns, based on current prices, is about $250 million annually. And ratepayers would make up the difference — yet another huge rate shock for BC Hydro customers.

Solar, Wind Power Alternatives Increasingly Competitive

Moreover, the cost of generating electricity from renewable sources such as solar and wind is going down because of technological and manufacturing advances. There has been massive deflation in the cost of generating electricity. We are so used to inflation, that when deflation occurs we fail to notice the change or consider its impact. (The cost of generating electricity using natural gas has also gone down because of technological change, but this source carries a lot of environmental baggage such as greenhouse gas emissions.)

The advantage of large hydro projects used to be that because of inflation they appeared to become cheaper over time. The newest dam was always more expensive than the last dam. Hydro technology changed very little over the last 100 years. There was no competition from other renewables.

Now, not only is there competition, the competition is cheaper, getting cheaper still and increasingly efficient.

There is always a concern that solar and wind generation is less reliable — if the wind doesn't blow, there is a danger we will be left in the dark. Our existing reservoirs act as giant batteries, effectively storing generating capacity for when it's needed. But work on other types of batteries is advancing rapidly — efficiency is increasing and costs are declining. Even five years ago, who would have thought battery technology would be at the point where we could have rechargeable cars?

We are going to be paying for Site C for about 70 years, and we have locked ourselves into a very old technology. Our current dams are paid for and will always be competitive for that reason, but not Site C.

It is like entering into a 70-year contract for a flip phone at exactly the wrong time. In fact, would you sign any high cost 70-year deal for your hand-held device when prices are dropping?

The project will do fundamental damage to BC Hydro, and resulting high rates mean the Crown corporation will lose customers. Once the cost of new supply drops below the cost of Site C power, BC Hydro ratepayers and B.C. taxpayers could be stuck with a job-killing white elephant.

As part of its spin efforts, BC Hydro recently commissioned a poll on Site C by Abacus Data. It asked "Is the idea of building Site C, a new hydroelectric dam, to help meet the rising demand for electricity in B.C., an idea you support?" Almost half — 49 per cent — said yes, and 25 per cent said no.

The key words here are "rising demand for electricity."

What if BC Hydro was asking the true questions facing British Columbians: "Would you support building Site C at a loss to export power, subsidizing B.C.'s competitors and leaving BC Hydro ratepayers with large domestic rate increases? Would you support Site C if it cost jobs? Would the agricultural land lost to Site C development be worth it then?"

But Premier Clark and BC Hydro didn't ask those questions in their polling, and they're not telling the truth about the real cost of Site C to the people of B.C. It's a cost even higher today than the last time Site C was rejected in the 1980s.

In her eulogy for premier Bill Bennett, Clark claimed she was completing his legacy by building Site C: "Premier Bennett, you got it started and I will get it finished. I will get it past the point of no return."

The opposite is true. Bennett acted in the public interest by forcing BC Hydro to justify Site C before an independent regulator. He saved BC Hydro from itself.

Clark, in contrast, exempted BC Hydro from the BCUC and is putting our economy and largest Crown corporation at risk in order to create an electoral wedge issue.

What we are seeing now is an irresponsible government busy signing billions in Site C contracts — one that won't be around when the bills have to be paid.