Private Power Benefits BC Hydro

For a time I worked at the Business Development Bank of Canada. Part of the mandate of this bank was to support the development of small to medium sized businesses. This is how this federal mandated bank maintained its stature in a world dominated by the fab five (RBC, BMO, TD, ScotiaBank, CIBC). In fact, the structure of the bank is such that directors from each of these banks make up a board that regulates how the BDC operates within Canada.

In addition to having good credit, strong liquidity, and a working capital ratio greater than 1; the BDC’s policy on lending meant that you could only provide capital to a business that was creating gainful employment for the constituents of Canada. How does this relate to BC Hydro? Over the course of my employment at BDC, we had the opportunity to finance several IPP’s (Independent Power Producers). These projects required extensive capital to build, but once operational, cost little to maintain (if memory serves me correctly, a battery operated fan was the extent of the complexity). The only challenge was to make sure the estimates of water flow were correct and did not exceed or recede the levels agreed to in the 99 year energy contracts with BC Hydro.

We didn’t finance any of them (the IPP’s). I thought my branch manager was crazy as a steady cash flow and a contract as good as the government would appeal to anyone. Anyone but the BDC! As I mentioned before, any business that we were financing had to provide some notion of gainful employment to the community. Unfortunately for IPP’s, the employment to project ratio consisted of the two very rich owners and one maintenance guy that came around once or twice a year for service.

A new angle on the debate beyond the fact that BC Hydro is looking for private sources of power is who this deal with IPP’s really benefits. According to a Simon Fraser University economist (link) no one benefits from IPP’s except BC Hydro. Aside from the fact that these are lucrative contracts, BC hydro is looking to save energy from public facilities so that they can be sold at a higher value on the open market (mainly the US). What this means is that we could potentially be paying more for local sources of energy contracted at higher prices while cheaper public facilities sell energy also at a premium to benefit only BC Hydro. There was another article in BC Business that provides a good background on private power (link). “The 2002 BC Energy Plan (revised in spring 2007) is transforming BC Hydro from a generator of publicly owned electricity to a purchaser of energy from private power producers.”

Call me crazy but doesn’t it make sense for us to conserve energy so that we infact conserve energy (as opposed to using surplus energy to turn a profit on the open market)??

My 2 thoughts anyways….