Decree that B.C. become an electricity autarky will burden ratepayers and damage economy

Self-sufficiency sounds like a good idea. Dependent on no outside aid or trade for survival, the self-sufficient nation would be completely autonomous and free to do whatever it is autonomous nations are supposed to do.

Another word to describe self-sufficiency is autarky. There have been few but notable examples of autarky throughout history. Nazi Germany was one. Others include Afghanistan under the Taliban, Burma under Ne Win, Cambodia under the Khmer Rouge, Spain under Franco, Italy under Mussolini, Romania under Ceausescu and, of course, North Korea, which has developed an ideology of isolation called Juche. Self-sufficiency and repressive, autocratic failed states seem to go hand in hand.

British Columbia is not a failed state yet but the decree that B.C. become self-sufficient in electricity by 2016 will impose an unprecedented burden on ratepayers and cause incalculable damage to the economy all for no discernible purpose.

Studies done after the policy first surfaced in 2005 in a BC Hydro service plan (later confirmed in the 2007 Energy Plan) warned that electricity rates would have to increase by 7.5 per cent annually for a decade, raising the power bill for a customer paying $715 a year to $1,618. It will likely be a lot higher than that. On March 1, BC Hydro asked the B.C. Utilities Commission for an interim rate increase of 9.73 per cent to take effect May 1 but scaled it back to 8.23 per cent after the government ordered a review of the 32-per-cent rate hike over three years that the utility was seeking.

Rate increases spun as the price for domestic energy security might sell with the public. But the energy plan goes well beyond energy security. It requires that BC Hydro in its calculations of the amount of electricity required for self-sufficiency assume a worst-case scenario of the most adverse water conditions in the historical record. As well, it must achieve a 3,000 GWh surplus by 2020. Will the public still be willing to pay much, much more for electricity when the objective is no longer just self-sufficiency but rather generation of surplus power presumably destined for export?

The argument for self-sufficiency is based on the misguided notion B.C. must address the issue that in recent years it has been a net importer of power. However, the cause of this reversal has less to do with B.C.’s capacity to generate electricity than it does with the decline in demand from customers in the United States. Indeed, revenue from the sale of electricity and natural gas dropped 50 per cent in fiscal 2010 as the U.S. dollar weakened and the recession continued to dampen the American economy. B.C. didn’t import more, it exported less. Net imports is a relative and not necessarily negative term.

Consider tomatoes. In a typical year, Canada imports roughly the same volume of tomatoes as it exports. Why? Because it makes economic sense. It costs too much to produce tomatoes profitably in Canada through the winter months so they are imported from Mexico and California. During the rest of year, Canada exports tomatoes to the U.S.

It is the same with electricity. Demand for power goes up in winter for heat and lighting and B.C. often imports power to meet that demand. In summer, demand drops in B.C. but spikes in the U.S. southwest thanks to air conditioning, allowing B.C. to export at a profit.

In fact, demand varies by time of day as well as by season and Powerex, a BC Hydro subsidiary, is charged with keeping an eye on the spot market 24/7 and handling cross-border trading, including negotiating contracts to deliver power to U.S. utilities. The activities of Powerex have generated hundreds of millions of dollars for the B.C. government and kept rates lower than they would otherwise have been.

The self-sufficiency objective throws a wrench into the symbiotic trading relationship. Firstly, the government has instructed BC Hydro to buy only renewable energy from independent power producers. The prices being negotiated range from $76.20 to $133.80 per megawatt-hour. Meanwhile, the spot price for mid-Columbian electricity in recent days has ranged from $8.73 US to $30.92 (off-peak and peak respectively).

Barring dramatic changes in market prices, Powerex will be trying to peddle B.C. power at more than double the going rate, or take a loss on every sale.

The market imbalance is purely hypothetical, of course, because no one would trade with B.C. if the province makes good on its threat to build a barrier of self-sufficiency. Trading is a two-way street that benefits both parties. The U.S. would look to alternatives to trade with B.C. in the absence of reciprocity.

BC Hydro customers have already seen electricity bills skyrocket since 2008, when the utility decided to penalize families by introducing a stepped rate that charges users above a certain threshold 40 per cent more per kWh.

The pointless goal of self-sufficiency will drive rates much higher, diverting consumer spending from goods and services that fuel economic growth to artificially overpriced power. Companies will also see their electricity bills soar at the same time as consumers cut back on purchases and may seek more business-friendly places to set up shop. Job losses, lower tax revenue and weaker economic growth will follow.

Self-sufficiency is the philosophy of failure. The B.C. government should abandon this destructive path.