The Yukon shouldn’t imitate British Columbia by selling its power grid to private energy companies, says a BC professor visiting Whitehorse this week.
Premier Dennis Fentie’s decision to examine the potential of independent power producers is wrongheaded and risks leaving taxpayers with a raw deal, says John Calvert, a Simon Fraser University associate prof who recently published Liquid Gold: Energy Privatizationin British Columbia.
Since Gordon Campbell’s government began opening the door to private investment in 2001, BC has diminished the public’s role in new power plant construction and policymaking, said Calvert.
“There’s little evidence that BC Hydro couldn’t do all of this on its own,” he said, referring to BC’s publicly-owned utility.
An ideological harmony between the Liberals and the private sector have allowed the experiment to chug along for a decade, but there is little proof that energy production is done better by companies rather than government, he said.
“For them, private is just inherently better,” said Calvert.
The experiment could result in lower revenues for government, unnecessary power plants and even higher rates.
The Yukon – which is served by both a public utility and a well-established private energy company – shouldn’t take the same chance, he said.
Calvert’s been invited to speak in Whitehorse on behalf of the Yukon New Democratic Party and several union groups on Friday night at Hellaby Hall.
He will add some academic muscle to the labour groups’ pushback against the Fentie government’s infatuation with the independent power producer gospel.
He’d like to dispel certain myths about the privatization philosophy, a trend aggressively promoted as a green solution to BC’s energy shortage.
The province’s 200 or so private companies get contracts from the government during energy calls, when BC Hydro makes a request for projects to fill in a certain amount of power.
The Liberal government has banned the publicly-owned BC Hydro from building any new run-of-the-river hydro projects or wind-farm projects, said Calvert.
Not only has the government emasculated BC Hydro’s ability to build its own generation, the government’s ordered the public utility to buy power from private power plants.
The controversial bit are the contracts between BC Hydro and the private plants, said Calvert.
They’re called take-or-pay contracts and they stipulate that even if the government doesn’t need the power, it needs to pay the private companies a firm rate.
These longterm power-purchasing contracts – forced upon BC Hydro by the government – allow private companies to secure financing for their projects.
Because the government is guaranteeing a revenue stream for these companies, they are able to get bank loans that can last decades.
In other words, the public is shouldering the financial risk.
“These contracts are a way in which the private sector is effectively being subsidized by the public and they have the downside of leaving ownership with the proponent,” said Calvert.
At the end of the contract, the power plant remains in private hands.
So the public doesn’t effectively get anything back for its subsidy.
The cozy relationship between the Liberals and the private energy companies will one day leave BC Hydro’s broad mandate in tatters, said Calvert.
The high costs of those contracts will force BC Hydro to either raise rates or to lower its dividends to the government.
“Neither of these are good (options), in the view of the public, as either users of electricity or as owners of BC Hydro,” said Calvert.
But the private companies influence spreads beyond the terms of the contract to the whole regulatory and policymaking process.
Calvert’s point: the bigger story behind the rise of independent power producers is a push to increasingly deregulate and privatize energy markets.
A private energy company can theoretically exist in a heavily-regulated market, assuring profit-seeking companies are working in the public interest.
But that’s not the case in practise, said Calvert.
“The problem that you quickly run into is that, for understandable economic reasons, private industry wants to have a role in shaping the regulatory system as much as it can,” he said.
Private energy companies tend to have deeper pockets than their publicly-owned counterparts.
Their financial edge allows them to lobby political parties more aggressively.
And the privatization of BC’s power grid wouldn’t have been possible without its shepherds in the provincial Liberal Party.
“In BC, there’s a convergence of views and interests between the current provincial government and the approach it takes to the electricity system in BC and the private power industry,” said Calvert.
With political parties in cahoots with private companies, there isn’t really any other public participation in the energy world.
“Electricity is an area where a lot of members of the public are not all that involved,” said Calvert. “You end up with an asymmetrical pattern of involvement.”
There is one other place where the public interest is meant to be protected.
And that’s the BC Utilities Commission, the province’s equivalent of the Yukon Utilities’ Board.
But private companies’ deep pockets also allow them to get better results at the regulatory level, said Calvert.
“To be an active participant in many of these processes, you do need resources to do economic and technical analyses,” he said.
“The companies are normally in a fairly good position to do that whereas other members of the public might not have that level of resources available to them.
“The interest of the companies tend to have a disproportionate impact on the way the regulatory regime operates.”
That leaves few public advocates in the nitty-gritty world of energy regulations, despite the fact that our lives are structured around electricity.
“The more the private sector is involved, the more likely they are able to influence how the regulatory regime operates,” said Calvert.
Decreased public involvement in the energy business is one thing.
But it doesn’t mean private companies aren’t delivering a good power system.
Maybe private companies are better at doing the job. Or, maybe the public interest and private interest aren’t that different in practise, as the BC Liberal Party’s ideology would seem to attest.
Not according to Calvert’s thinking.
If you look at the big picture, it makes financial sense to keep energy public.
Public coffers will one day have to shrink to accommodate for those expensive contracts.
The fixed prices at which BC Hydro buys private power are very high and will slowly impact electrical rates, said Calvert.
“We’re already seeing the beginning of that,” he said.
“They’re around double or more for that kind of energy.”
And the oft-repeated criticism government’s can’t pay for large utility projects is hogwash, said Calvert.
“It’s always cheaper for governments to borrow money,” he said.
And the way the contracts have worked out in BC, the effective debt situation is no different than just borrowing money.
“Because they’re making a financial obligation,” he said.
BC Hydro subsidizes the financial risk of these projects while leaving the companies safe.
“The rational thing is for the public to borrow the money directly at lower interest rates,” said Calvert.
Privatization also threatens public control of energy policy.
“Many of (these private companies) are American, like General Electric,” said Calvert.
“Many of these companies are well protected under NAFTA’s investment chapter – Chapter 11,” he said.
Chapter 11 allows a company to sue any government if a policy decision is “tantamount to appropriation.”
“So future regulatory changes that the government might want to put in place, that in any way adversely affect (a company’s) ability to make the anticipated profits over time, anything that would threaten that, is subject to a NAFTA challenge,” said Calvert.
“This is going to greatly reduced the provinces’s policy flexibility.”
So what’s left of the BC experiment with private companies in Calvert’s view?
The light at the end of the tunnel is becoming a mecca for green power innovation.
But it isn’t clear to Calvert why public power couldn’t build the energy sources of the future on its own.
“The more you bring those (private) firms into the picture, the more they change the dynamic of decision making,” he said
Calvert will be speaking at Hellaby Hall at 7 p.m. on Friday night. It will be followed by a discussion on independent power producers.
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