The Crown corporation's monopoly is hurting B.C., the energy minister tells The Sun's Scott Simpson
Saturday, June 29, 2002

B.C. Hydro must be broken up and private sector companies given better access to the Crown corporation's assets so that British Columbia can participate in a rapidly evolving continental market for electricity, Energy and Mines Minister Richard Neufeld says.

In an interview with The Vancouver Sun on B.C.'s proposed new energy policy, Neufeld described B.C. Hydro as a "gorilla" monopoly that is scaring off private sector investment and threatening this province's participation in cross-border energy markets.

The Fort St. John MLA said that the government now considers the proposed breakup of British Columbia's biggest Crown corporation as a matter too urgent to be delayed until the release of the province's entire energy policy.

Electrical demand will exceed supply in British Columbia by 2007 and B.C. will be forced to buy electricity on continental markets -- at volatile market prices -- unless it adds capacity and stability, Neufeld said.

B.C. Hydro's fate could be announced as soon as July, and the rest of the policy could remain in development for several months, he added.

Power rates in B.C. have been frozen since 1992, leaving B.C. Hydro too cash-starved to finance any major new generation capacity to address the shortfall.

Neufeld notes that in three of the last 10 years, British Columbia was forced to import electricity to meet demand.

He supports the entry of independent power producers into the B.C. market to address the shortfall, saying it makes more sense than expanding B.C. Hydro's generating capacity and adding to public debt.

The fate of B.C. Hydro is just one consideration in a wide-ranging energy policy now in development in Neufeld's ministry.

The ambitious policy was supposed to be presented for final public comment in February, covering everything from the development of new energy sources to the augmentation of traditional ones with private sector investment in electrical generation.

The government is basing the policy on a report that went to government last December.

"We'd love to have it out by now. But obviously you get the report and you have to go from there," Neufeld said.

The report recommends breaking up Hydro into discrete smaller companies that would deal separately with generation, transmission and distribution of electricity. Neufeld did not address whether the smaller companies should remain Crown corporations or become private companies.

"I think we won't have all of [the energy policy] complete but as soon as we get the major part completed, which is Hydro, we're going to let it go. It might even be out by the end of July," Neufeld said.

"There will probably be few things that we will rejig but generally speaking it will be close to the final version."

Deliberations about electricity policy aren't exclusive to B.C. -- and Neufeld said one important motive for creating a new policy is to make sure that this province continues to fit into an emerging continental market.

A recent National Energy Board report noted that the power industry across North America is undergoing substantial change as many jurisdictions --including Alberta, Ontario and Quebec -- introduce competition in generation and access to some wholesale and retail markets.

The report says events in Canada are driven in part by developments in the United States, where the Federal Energy Regulatory Commission (FERC) is changing the rules that allow competition in the world's biggest electricity market.

For better or for worse, British Columbia is part of a newly created electrical grid organization, the Western Electricity Coordinating Council, which encompasses 71 million people living in the western half of North America, from B.C. to Mexico.

Think of the western electricity grid as a big pool of electricity with power sellers and buyers constantly taking buckets out and dumping them in -- making or spending money on each bucket while being careful that the level of the pool remains stable.

The grid was created last year out of smaller regional entities.

Reforms continue south of the border as FERC looks to create a stable price and supply environment for the public and for industry.

Canada owns half the hydroelectric generation capacity in North America and in Canada only Quebec has a bigger share than British Columbia.

It's an asset that gives B.C. an enormous and lucrative competitive advantage when it trades into the U.S. market because hydro is the only form of electricity that can be turned on or off instantly in order to satisfy fluctuations in demand.

Electrical utilities are willing to pay a premium for hydro generation that smooths out the supply bumps and protect their customers from brownouts.

One of the conditions of western grid membership is that B.C. Hydro voluntarily put its transmission system under control of a non-profit organization.

What the Americans don't like to see is a company that uses its monopoly position on transmission lines to extract higher prices from power generation companies that want to feed into it --they compare it to a company that owns a highway and won't let other company's trucks drive on it, with consumers being the losers.

"What our major U.S. buyers are saying in that trading area, that hub, is that you have to separate generation from transmission. The generator can't be the same company that runs transmission," Neufeld said.

"What's happening now in B.C. is that Hydro owns it all. They're kind of like the big gorilla. They can control a lot of things.

"What everybody else is trying to say, mainly the U.S. -- and we need them, we need that trading power -- is to break transmission off into a separate corporation."

Energy lawyer David Austin points out that this sort of market transformation has taken place in other industries such as telecommunications, airlines and banking.

Which is not to say that everyone likes the idea.

Austin notes that the grid organization is still controlled by big electricity industry players like B.C. Hydro and the Bonneville Power Authority -- leaving small independent power producers with little input into the system.

He doubts that independents looking to jump into a post-Hydro market in B.C. will have much influence on the big guns in determining policy on the new Western grid.

But he says it will still be better than what's happening now, where anyone looking to build a power plant in B.C. has no choice but to sell their electricity to B.C. Hydro -- and pay B.C. Hydro a 20 per-cent premium for selling into the U.S.

"Real, transparent and open access to B.C. Hydro's transmission lines is a key driver for developing B.C. electricity policy," said Austin. "Without it, B.C. Hydro risks losing its access to the U.S. market."

"In theory this access is supposed to exist today, but in practice B.C. Hydro uses every trick in the book to maintain monopoly control -- including requiring expensive studies to determine whether there is any space available, and requesting third parties to pay for improvements that B.C. Hydro would have to make as part of its routine maintenance program."

Under the government's new scheme the independents would sell directly to buyers as far away as California because B.C. Hydro will no longer have control over who can or cannot feed into the high voltage transmission lines that carry electricity in and out of the province.

Simon Fraser University energy sector analyst Mark Jaccard says it's overstating things to suggest the U.S. government is compelling British Columbia to remove the transmission system from Hydro's grasp.

But he says it "makes sense" anyway.

"I believe that ultimately we will want to have the transmission system as an open highway and there will be pressure from our trading partners to assure this," Jaccard said.

"You see it clearly today in Europe with Electricite de France. While most Europeans are willing to vertically deintegrate, Electricite de France is dragging its feet, but slowly making changes in order to keep access to export markets."

He supports the entry of independent power producers into the B.C. market to address the shortfall, saying it makes more sense than expanding B.C. Hydro's generating capacity and adding to public debt.

The fate of B.C. Hydro is just one consideration in a wide-ranging energy policy now in development in Neufeld's ministry.

The ambitious policy was supposed to be presented for final public comment in February, covering everything from the development of new energy sources to the augmentation of traditional ones with private sector investment in electrical generation.

The government is basing the policy on a report that went to government last December.

"We'd love to have it out by now. But obviously you get the report and you have to go from there," Neufeld said.

The report recommends breaking up Hydro into discrete smaller companies that would deal separately with generation, transmission and distribution of electricity. Neufeld did not address whether the smaller companies should remain Crown corporations or become private companies.

"I think we won't have all of [the energy policy] complete but as soon as we get the major part completed, which is Hydro, we're going to let it go. It might even be out by the end of July," Neufeld said.

"There will probably be few things that we will rejig but generally speaking it will be close to the final version."

Deliberations about electricity policy aren't exclusive to B.C. -- and Neufeld said one important motive for creating a new policy is to make sure that this province continues to fit into an emerging continental market.

A recent National Energy Board report noted that the power industry across North America is undergoing substantial change as many jurisdictions --including Alberta, Ontario and Quebec -- introduce competition in generation and access to some wholesale and retail markets.

The report says events in Canada are driven in part by developments in the United States, where the Federal Energy Regulatory Commission (FERC) is changing the rules that allow competition in the world's biggest electricity market.

For better or for worse, British Columbia is part of a newly created electrical grid organization, the Western Electricity Coordinating Council, which encompasses 71 million people living in the western half of North America, from B.C. to Mexico.

Think of the western electricity grid as a big pool of electricity with power sellers and buyers constantly taking buckets out and dumping them in -- making or spending money on each bucket while being careful that the level of the pool remains stable.

The grid was created last year out of smaller regional entities.

Reforms continue south of the border as FERC looks to create a stable price and supply environment for the public and for industry.

Canada owns half the hydroelectric generation capacity in North America and in Canada only Quebec has a bigger share than British Columbia.

It's an asset that gives B.C. an enormous and lucrative competitive advantage when it trades into the U.S. market because hydro is the only form of electricity that can be turned on or off instantly in order to satisfy fluctuations in demand.

Electrical utilities are willing to pay a premium for hydro generation that smooths out the supply bumps and protect their customers from brownouts.

One of the conditions of western grid membership is that B.C. Hydro voluntarily put its transmission system under control of a non-profit organization.

What the Americans don't like to see is a company that uses its monopoly position on transmission lines to extract higher prices from power generation companies that want to feed into it --they compare it to a company that owns a highway and won't let other company's trucks drive on it, with consumers being the losers.

"What our major U.S. buyers are saying in that trading area, that hub, is that you have to separate generation from transmission. The generator can't be the same company that runs transmission," Neufeld said.

"What's happening now in B.C. is that Hydro owns it all. They're kind of like the big gorilla. They can control a lot of things.

"What everybody else is trying to say, mainly the U.S. -- and we need them, we need that trading power -- is to break transmission off into a separate corporation."

Energy lawyer David Austin points out that this sort of market transformation has taken place in other industries such as telecommunications, airlines and banking.

Which is not to say that everyone likes the idea.

Austin notes that the grid organization is still controlled by big electricity industry players like B.C. Hydro and the Bonneville Power Authority -- leaving small independent power producers with little input into the system.

He doubts that independents looking to jump into a post-Hydro market in B.C. will have much influence on the big guns in determining policy on the new Western grid.

But he says it will still be better than what's happening now, where anyone looking to build a power plant in B.C. has no choice but to sell their electricity to BC Hydro -- and pay BC Hydro a 20 per-cent premium for selling into the U.S.

"Real, transparent and open access to B.C. Hydro's transmission lines is a key driver for developing B.C. electricity policy," said Austin. "Without it, B.C. Hydro risks losing its access to the U.S. market."

"In theory this access is supposed to exist today, but in practice B.C. Hydro uses every trick in the book to maintain monopoly control -- including requiring expensive studies to determine whether there is any space available, and requesting third parties to pay for improvements that B.C. Hydro would have to make as part of its routine maintenance program."

Under the government's new scheme the independents would sell directly to buyers as far away as California because B.C. Hydro will no longer have control over who can or cannot feed into the high voltage transmission lines that carry electricity in and out of the province.
© Copyright  2002 Vancouver Sun

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