The Flying Shingle
Site C not needed
by Erik Andersen, Economist
Monday, August 15, 2011

Dear Editor,

Site C: a poster project for British Columbia’s command economy

So what is a “command economy”? Most readers will immediately think of examples like North Korea, the former USSR and China. The term is used as a put-down by smug westerners dismissing socialist, centrally-planned states that generally suppress freedom and private ownership.
But it is not really at all about politics, but about control of public assets by an individual or a small group who usually have self-interest as their principal reason for all they do and say. There are many definitions of the term and here is one.
“An economy in which business activities and the allocation of resources are determined by government order rather than market forces”.
Consider the government’s directions to establish a power generation facility on the Peace River, known as Site C. The place to begin is at “Bill 17- 2010: Clean Energy Act” followed by “The BC Energy Plan”. In the words of “West Coast Environmental Law” the Clean Energy Act “eliminates independent oversight of the BC Utilities Commission for the Site C dam”.
This act also establishes a mandate that “BC must achieve energy self-sufficiency, that it must have an electricity surplus of 3,000 gigawatt hours by 2020, and that it will become a net exporter of electricity”. These governmental commands are not based upon any credible and independent market information.

Propaganda vs facts
The measure of propaganda being used by our government can be seen in a policy action statement presented in the “2010 Energy Plan” that says BC will “Maintain our competitive electricity rate advantage”. In 2006 Quebec Hydro began producing an annual report showing electricity rates for various places in North America. In 2006 BC was the place with the lowest rates for almost all customer categories. By 2010 we had slipped to being the fourth or fifth from the lowest. The minister had to have known of this report and of the vector for BC rates before writing the above drivel in “The BC Energy Plan” he signed.
Besides giving commands to borrow, spend, and build, our government has also decided it knows just how much electricity we will need in the foreseeable future, regardless of costs. In 2006 the official electricity demand “forecast” for BC customers was 58,159 gigawatt hours (GWh). This was 14 per cent greater than the previous year’s recorded sales. By 2011 this exaggeration had increased to a 23 per cent differential with further widening all the way out to 2025.

Expensive errors
It would not matter if these purposely generated errors were cost-free. Unfortunately, acting on mistakes of this type becomes terribly expensive.
Building generation plants like Site C, and contracting for energy from the Independent Power Producers (IPP) using this exaggerated outlook as the justifying rationale, means unnecessarily high and fast-rising rates. Even without Site C it now takes 60 per cent more asset value to generate and deliver a GWh to BC customers than it did 10 years ago. The associated debt has the same vector.
Without exaggeration, BC Hydro has presented the citizens of BC with the best possible example of how NOT to get efficiencies from new investments. The notion of failing to gain efficiencies from new investments is thought to be evidence of the worst feature of a “command economy” and is rightly the subject of ridicule.

No need for Site C
In a recent public presentation, David Conway from BC Hydro proclaimed that Site C would produce electricity at about $90 per megawatt. He was also reported to have said that “BC Hydro can’t keep up with peak demand”.
To put these statements in context you should understand that traditional BC Hydro generation assets produce electricity at about $35 per megawatt. During recent periods, up to and including a few days ago, the Pacific Northwest futures trading prices per megawatt for the most expensive electricity (firm delivery) was between $35 and $45, or less than half of what Conway thought was so great about Site C costs.
Further, per capita consumption of electricity is declining in BC, a not unexpected reaction to rising rates in a quiet economy.
Conway should also have mentioned that in recent years BC Hydro has been blending IPP-contracted energy with energy from legacy assets. Of the total annual amount consumed in BC – 50,000 GWhrs – about 10,000 comes from IPPs. This means in turn, that traditional generation assets are being partially placed on standby. More importantly this reserve of generation capacity provides the insurance needed to meet unpredictable periods of peak demand. The further irony is that with the introduction of the controversial new “smart metering” technology, BC Hydro is giving itself a new tool to manage demand peaking.
The “Command Economy” model has been the style in BC for the past decade. About $80 billion in contracts have been signed by your government outside the legislature, and Site C will be an addition to this total. A “Command Economy” is invariably one that uses the public’s assets to make very poor investments that are nowhere close to being in the public interest. That is the reality with Site C. It is not needed by any independent evidence and certainly not at the projected cost of production nor the cost to the environment.
We in BC desperately need to recover our democracy before our government signs us into debtor’s prison.

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