The Trade-Off Government Faces with Site C
There is no 'right' answer as to what government should do with respect to Site C. There will be unavoidable adverse impacts if the project is completed -- impacts that some First Nations and residents argue are unacceptable and unnecessary. At the same time it should be clear that there will likely be significant costs to ratepayers if the project is terminated at this time.
BC Hydro, the agency that by far has the most expertise capable of analyzing the cost consequences, calculated that terminating Site C would be some $7.5 billion (in 2018 present value terms) more expensive for ratepayers than completing the project. BCUC, based on its own set of assumptions and calculations, concluded the difference in cost would be small, within the error of the estimates, but its actual numbers also suggest that ratepayers would likely be significantly worse off if the project is terminated at this time.
After correcting for errors in its surplus sales calculations, BCUC reported that the present value cost of termination would be $295 million greater than completion. And in response to questions from the Deputy Ministers, the BCUC reported that that difference would increase to $900 million if one were to take into account the recovery of sunk and termination costs over a 20 year period in the case of termination and over the expected 70 year life of the asset if Site C were completed.
BC Hydro identified other errors in the BCUC calculations that would would increase the difference in present value cost another $500 million. And then there were the costs that the BCUC failed to take into account -- the costs customers would incur for the demand side management measures it assumed would be undertaken in its alternative portfolio and the cost of advancing the Revelstoke 6 project to deal with shortfalls of peak generating capacity without Site C.
Taking those additional errors and costs into account, but otherwise maintaining all of the Commission's assumptions about costs, surplus sales values, and load growth, assumptions that I and others believe are tilted against Site C, the corrected BCUC estimate of the cost of terminating the project would be some $2 billion greater than completing Site C.
There are of course other issues and risks to take account.
There is the risk that Site C construction costs escalate above the $10 billion BCUC assumed for its analysis. But there is also the risk that load will grow more rapidly than BCUC assumed.
There is the impact on taxpayers as distinct from ratepayers. There is a cost to taxpayers associated with the BC Hydro debt government guarantees. A question government should ask for this and indeed all crown corporation and Ministry investments is what is the magnitude of this cost -- what would government have to charge in a debt guarantee fee to offset the cost taxpayers are effectively assuming. In the case of Site C the issue is how would this fee compare to the very significant water rental payments BC Hydro would pay if the project goes ahead.
There are GHG implications. Surplus sales from Site C will reduce thermal power production and GHG emissions in neighbouring jurisdictions. Government should ask itself here what value it places on the reduction in GHG emissions that can be expected if Site C is completed. It is arguably a significant benefit of proceeding with the project.
There is the loss of agricultural land due to the flooding and related works at Site C. The Joint Review panel concluded that those impacts, while very important locally, would be relatively insignificant from a provincial and national perspective. The government should consider if and why it concludes differently.
I've been involved with Site C for a very long time. I was a consultant advisor to the first BCUC hearing into Site C in the early 1980's. I testified before the recent Joint Review panel on behalf of the Peace Valley Environmental Association. I provided expert testimony for a First Nation in a Court Injunction hearing into the costs of suspending the project after one year of construction. For some time I have been an independent analyst of the consequences of terminating the project now. And this past month I wrote a critique for the Allied Hydro Council of the BCUC's Final report on Site C.
Though people with differing views seldom accept this, in all of this work I have tried to analyze the issues and options as best and objectively as I can. All I hope is that government, however it resolves the politically challenging trade-off it faces with Site C, does the same.
BC Hydro, the agency that by far has the most expertise capable of analyzing the cost consequences, calculated that terminating Site C would be some $7.5 billion (in 2018 present value terms) more expensive for ratepayers than completing the project. BCUC, based on its own set of assumptions and calculations, concluded the difference in cost would be small, within the error of the estimates, but its actual numbers also suggest that ratepayers would likely be significantly worse off if the project is terminated at this time.
After correcting for errors in its surplus sales calculations, BCUC reported that the present value cost of termination would be $295 million greater than completion. And in response to questions from the Deputy Ministers, the BCUC reported that that difference would increase to $900 million if one were to take into account the recovery of sunk and termination costs over a 20 year period in the case of termination and over the expected 70 year life of the asset if Site C were completed.
BC Hydro identified other errors in the BCUC calculations that would would increase the difference in present value cost another $500 million. And then there were the costs that the BCUC failed to take into account -- the costs customers would incur for the demand side management measures it assumed would be undertaken in its alternative portfolio and the cost of advancing the Revelstoke 6 project to deal with shortfalls of peak generating capacity without Site C.
Taking those additional errors and costs into account, but otherwise maintaining all of the Commission's assumptions about costs, surplus sales values, and load growth, assumptions that I and others believe are tilted against Site C, the corrected BCUC estimate of the cost of terminating the project would be some $2 billion greater than completing Site C.
There are of course other issues and risks to take account.
There is the risk that Site C construction costs escalate above the $10 billion BCUC assumed for its analysis. But there is also the risk that load will grow more rapidly than BCUC assumed.
There is the impact on taxpayers as distinct from ratepayers. There is a cost to taxpayers associated with the BC Hydro debt government guarantees. A question government should ask for this and indeed all crown corporation and Ministry investments is what is the magnitude of this cost -- what would government have to charge in a debt guarantee fee to offset the cost taxpayers are effectively assuming. In the case of Site C the issue is how would this fee compare to the very significant water rental payments BC Hydro would pay if the project goes ahead.
There are GHG implications. Surplus sales from Site C will reduce thermal power production and GHG emissions in neighbouring jurisdictions. Government should ask itself here what value it places on the reduction in GHG emissions that can be expected if Site C is completed. It is arguably a significant benefit of proceeding with the project.
There is the loss of agricultural land due to the flooding and related works at Site C. The Joint Review panel concluded that those impacts, while very important locally, would be relatively insignificant from a provincial and national perspective. The government should consider if and why it concludes differently.
I've been involved with Site C for a very long time. I was a consultant advisor to the first BCUC hearing into Site C in the early 1980's. I testified before the recent Joint Review panel on behalf of the Peace Valley Environmental Association. I provided expert testimony for a First Nation in a Court Injunction hearing into the costs of suspending the project after one year of construction. For some time I have been an independent analyst of the consequences of terminating the project now. And this past month I wrote a critique for the Allied Hydro Council of the BCUC's Final report on Site C.
Though people with differing views seldom accept this, in all of this work I have tried to analyze the issues and options as best and objectively as I can. All I hope is that government, however it resolves the politically challenging trade-off it faces with Site C, does the same.
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