The unintended consequences of massive hydro rate increases

The Province newspaper recently published an op-ed of mine that looked at one of the unintended consequences of our provincial government’s fixation on building the exceedingly expensive Site C hydroelectric dam.

Even though actual construction of the dam has yet to begin, BC Hydro customers are already paying far more for electricity than they were just a few years ago. In 2014, hydro rates jumped nine per cent, the first of five back-to-back annual increases that will by 2018 result in all of us paying 28 per cent more for the power we use.

It’s anyone’s guess how much higher those rates will be when the bills come due for the $8.8 billion and counting Site C dam, which would be the third dam across the Peace River and would result in the permanent loss of some of the most fertile and productive farmlands in the province.

Those paying the highest hydro bills will, of course, be those who use the most power. And in that regard, you would be hard-pressed to find any industry in the province that uses the power that BC’s mechanical pulp industry does.

As I noted in The Province op-ed, some mechanical pulp mills use the equivalent of 70,000 households’ worth of power in a single year.

Shortly after the the 2014 rate increase, the CEOs of the companies operating those mills — Canfor, Catalyst, Paper Excellence and West Fraser — wrote provincial Finance Minister Mike de Jong, warning of troubles ahead and demanding help from the provincial government.

Their June 2014 letter read in part:

We estimate that the 6 mechanical pulp mills purchased 8% of the electricity sold domestically by B.C. Hydro last year. Electricity accounts for approximately 1/4 of the cost of production for our mills and as a result, any increase in the price of the electricity or related taxes disproportionately affects our industry. B.C. Hydro has announced cumulative rate increases of about 30% since the reintroduction of PST on April 1, 2013. The reintroduction of PST increased the cost of electricity by another 6.72% because the Harmonized Sales Tax payable on purchases of electricity was largely refundable.

While our industry prides itself on cost-cutting through constant innovation and improvements in efficiency, the magnitude and timing of the increase in B.C. Hydro rates combined with the increase in tax, may result in many of the mills shutting down. We sell our finished products in a competitive world-wide market and have no ability to pass on costs to customers, and this increased PST burden has made these mills unsustainable.

In response to the industry’s concerns and in a development that most British Columbians and most BC Hydro users are probably unaware of, public money to the tune of $100 million was offered by BC Hydro and the provincial government to the province’s mechanical pulp producers. The money was offered to the companies to help them underwrite the costs of new energy conservation projects at their mills.

We now know that one of those companies, West Fraser, is poised to spend $25 million on energy conservation measures at its Quesnel River Pulp mill, and that 60 per cent of the cost or $15 million will come in the form of a subsidy ultimately paid for by BC residents and BC Hydro users.

Even with the projected energy savings, however, companies like Quesnel River Pulp face an uphill battle to stay profitable in a market where hydro rate increases show no sign of stopping.

In fact, the ever-escalating cost of obtaining hydroelectricity to run the mill has forced Quesnel River Pulp to consider investing another $25 million (this time with no help from provincial taxpayers) to install a natural gas-fired turbine at its mill. The new turbine would allow the company to produce 15 megawatts of power and reduce its hydro purchases.

The irony of such an investment should be lost on no one.

As Premier Christy Clark vows to push preparatory work at the Site C Clean Energy Project “past the point of no return,” one of the province’s most established industries — and a significant employer and economic presence in rural communities — is being forced to contemplate burning more fossil fuels.

Makes you wonder what Site C really stands for.

Site Contradiction?

Topics: Climate change & energy policy, Environment, resources & sustainability, Transparency & accountability