Subsidizing dirty industries with expensive clean electricity is a recipe for major rate hikes

June 25, 2012

Premier Clark's recent decision to cap the BC Hydro rate increases next year may have ratepayers breathing a sigh of relief. But it’s a short term fix that will only delay addressing the major financial challenges now facing our Crown utility. Once the 2013 election is over, whoever forms BC's new government will inherit an enormous problem.

Higher prices for electricity in BC are inevitable because of a decade of bad policy choices. While BC Hydro will get blamed, the key decisions have come from the BC government. The need for new electricity supplies is often explained away as "keeping the lights on in Vancouver," but the reality is that residential demand growth is projected to be flat, with increases in population offset by energy efficiency and conservation measures. Ditto for commercial buildings.

In fact, the demand for new power is coming from big, dirty industries. The province has pursued the growth of energy-intensive resource industries by offering them cheap electricity. But because new electricity is much more expensive than our existing supply, residential and commercial customers will end up paying more to subsidize heavy industry.

In its Jobs Strategy, the government outlines a vision for BC’s economic development based on the premise that boosting our exports of oil, natural gas and minerals will create jobs and wealth for British Columbians. In fact, these sectors are very capital intensive and create very few jobs. Even worse, their operations will make it impossible for BC to meet its legislated targets for greenhouse gas reductions.

Shale gas fracking and accompanying liquid natural gas (LNG) plants require enormous amounts of new energy. Even if it builds the controversial Site C dam, BC Hydro will not have sufficient electricity to meet the demands of the natural gas industry, while new coal and mineral mines in the northwest will also require significant amounts of electricity to power their operations.

BC Hydro and its ratepayers should be alarmed about the financial implications of this strategy. Under the current rate structure, all major customer classes – residential, commercial and industrial – share the cost of high priced new power. But the benefits will accrue almost entirely to resource projects. In other words, residential ratepayers will end up subsidizing the government’s resource development agenda by paying more – a lot more – for their electricity in the future.

BC Hydro is already saddled with $40 billion in signed contracts to purchase private power. This is one major reason why it told the BCUC in 2011 that it would need an increase of almost 100% in revenues during the next decade. Directing BC Hydro to acquire even more power in the coming years to meet resource sector demands will only exacerbate this problem.

What are the options, then, for BC?

A first step is for the government to recognize the seriousness of climate change. Its economic policies must incorporate an understanding that BC must reduce, not increase its climate footprint. This means that a range of government policies which currently are targeted at expanding export-oriented resource development must be curtailed. Providing energy intensive projects with subsidized electricity encourages these industries to develop in BC while providing little incentive to conserve.

New resource projects, minimally, should pay the marginal cost of the new electricity BC Hydro has to acquire to meet their needs. The government should stop subsidizing new transmission infrastructure, new roads and other services for resource projects and end its policy of requiring BC Hydro to continue to purchase large volumes of over-priced private power. BC also needs to revamp its generous tax and royalty regime which currently focuses not on getting full value of resources for the province, but rather getting as many new projects started as quickly as possible in the short term. 

BC also needs to implement many of the conservation options outlined in BC Hydro’s 2007 Conservation Potential Review. Instead of planning to develop more and more power, we need investments that will use our existing hydro power more prudently. We need tougher building codes for new construction, mandatory energy audits and other regulatory tools to push energy conservation. We also need a concerted effort to retrofit the existing stock of buildings, which consume about 40% of the total energy we use. Investments in building retrofits, new public transit and other conservation measures are a much better – and more cost effective –  approach to job creation.

Unlike other jurisdictions, BC generates over 85% of its electricity from our historic renewable hydro facilities. We have an excellent base on which to build a low carbon economy. But none of this will happen without a fundamental change to the government’s current resource based economic development agenda.

John Calvert and Marc Lee are the authors of Electricity, Conservation and Climate Justice in BC: Meeting Our Energy Needs in a Zero-Carbon Future, released today by the Canadian Centre for Policy Alternatives’ BC Office. Download the study at: