In-Sights: Reward without risk for worthless surplus power (2010 Repeat)

Checking up on Government

British Columbia’s government believes less in free enterprise than in assisted activities for approved associates. Entrepreneurs saw potential for a private power generation industry in the province but didn’t want to risk their own money. Instead, they arranged with the Liberal government for the public to accept all risks and guarantee substantial profits to the schemers.

This was done by designing long term (20-55+ years) power purchase agreements whereby BC Hydro is obliged to purchase power at values well above current market with prices additionally sweetened by annual consumer price index (CPI) escalators. To ensure a need for additional suppliers, BC Hydro was prevented from developing its own new sources. Will McMartin of The Tyee describes irony in the situation:

It is impossible not to see irony in how the City of Edmonton has unleashed its publicly-owned utility, EPCOR (and its subsidiaries) to expand operations and generate profits across North America, while the Province of British Columbia — under Gordon Campbell’s BC Liberal government — has stunted the growth of our publicly-owned utility, BC Hydro and Power Authority.

(Supporters of independent power production in this province often argue that BC Hydro staff do not have the skills needed to build and operate clean or green energy projects. Can it be true that Edmonton’s public-sector possesses the requisite skill-sets, but British Columbia’s does not?)

Clearly, Edmonton’s elected officials have not been frightened by the financial “risk” associated with public-sector power generation, transmission and distribution — the risk that Campbell, Jaccard and the IPPBC so loudly decry in our province.

Indeed, in BC Hydro’s most-recent clean energy call, EPCOR and its related companies continue to seek profit-making opportunities in B.C.

On March 11, an EPCOR-related entity, CP Renewable Energy (B.C.) Limited Partnership won a new, long-term energy purchase agreement from BC Hydro for a wind farm near Tumbler Ridge.

BC Liberals distrust the capitalist concept of competitive markets where rewards are associated with risks. Instead, they scrambled to eliminate energy investor downsides. That makes no sense in honest government. Of course, BC Liberal governments have been called many things, but never honest. Perhaps, the methodology is revealed. For some years, we were sold the concept of endless growth causing insatiable appetites for energy, leading to unrestrained demand and ever rising prices.

In 1980, oil was in short supply, line-ups formed at gasoline stations and pumps ran dry. Experts predicted that oil reserves would be exhausted by the turn of the century. Thirty year later, the end of oil is not in sight, except in the eyes of pessimists who have been predicting the demise of oil throughout their careers.

So it is with electricity. We remember frequent brown-outs in the USA although it turned out that the smartest guys in the room were playing games to manipulate prices. Nevertheless, deregulation and dishonesty meant higher prices and uncertain supply. Citizens were programmed to believe that energy prices would rise dramatically and power would always remain scarce.

That consumer conditioning presented a perfect opportunity for profiteers in British Columbia. However, while BC Hydro rushes to contract for more capacity, there is already surplus electricity that cannot be absorbed in the Pacific Northwest.  Two giants, Babcock and Wilcox and Bechtel, have teamed to complete development of a small light water reactor, a modular 125 MW system that might be a power industry game changer in a decade. Another company, Hyperion Power Generation (now Gen4Energy) claims its refrigerator-sized Mini Power Reactor, capable of powering 20,000 homes, will be soon ready to license. Japan and China are involved in advanced small scale nuclear generation programs. The BC Government is foolhardy to make 55+ year purchase agreements with automatic price escalators. The only thing certain about these provincial commitments is that they will create assured profits for the developers.

Today’s excess electricity is likely to increase in the short run even without nuclear creating a new market in the USA. Ted Sickinger at The Oregonian writes Too much of a good thing: Growth  in wind power makes life difficult for grid managers:

During the last three years, the building boom spawned by green energy mandates in Oregon, Washington and California doubled the generation capacity of wind farms in the region. By 2013, it’s expected to double again.

That seems like great news. Plenty of carbon-free energy with no fuel costs. Jobs. Property taxes.

In the real world, however, the pace and geographic concentration of wind development, coupled with wild swings in its output, are overwhelming the region’s electrical grid and outstripping its ability to use the power or send it elsewhere.

BC Liberals assume the grid will take all of the surplus power capacity they plan to bring on stream. Because wind generated or run-of-river electricity cannot be stored, the public will be stuck with high cost off-peak power that has no value. That is the risk the private producers didn’t want to take. BC Liberals took it instead and passed it to you and me, leaving the private producers with rewards without risks. The people stuck with the bills have no say.

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In-Sights: Crime (still) in progress (a 2010 article repeated)

News item:

British Columbia Liberals announce the new Clean Energy Act sets the foundation for a new future of electricity self-sufficiency.

Definition:

Self-sufficiency: The ability to satisfy one’s basic needs without outside help.

News item:

General Electric, the multinational corporation ranked in 2009 by Forbes as the world’s largest, invested $727 million in British Columbia’s Toba Inlet hydro power project and the first phase of the Dokie Ridge wind farm project in the Peace River.

News item:

Finavera Renewables Inc., a Vancouver company with no revenues, an accumulated deficit of $41.7 million and an overall shareholder deficiency of $5.5 million at the beginning of fiscal year 2010,  was selected by BC Hydro to build four electricity-generating wind farms in northeastern B.C. The projects are expected to cost at least $800 million. General Electric has negotiated the exclusive right to provide 100 per cent financing for Finavera’s four wind projects.

I invite readers to consider this statement written by the auditors of Finavera and attached to the 2009 annual financial statements:

The [Energy Purchase Agreements] with B.C. Hydro provide a revenue stream based on a defined price and are the commercial cornerstones of any power project in British Columbia, providing the basis to move forward towards project construction and operation.

Despite all the disingenuous and misleading B.S. issued by Liberal politicians and operatives for private power producers, that single sentence, which is carefully constructed and required by professional audit standards, demonstrates the reason why there is a rush of private power projects.

The applicants do not need money or experience, they simply need political influence with Gordon Campbell and his associates. The energy purchase agreement provided by BC Hydro removes substantially all business risk and the favored ones take the project to the money brokers who readily fund it because the credit worthiness of British Columbia stands behind each EPA. This would be like buying a house you intend to rent to a provincial agency through a 40 year lease at double market rates, with payments guaranteed by the province.
Multinational, multi-industry companies like General Electric are quick to join because they earn giant returns at the capital stage of the project, selling turbines, generators and infrastructure equipment.  As an equity and financing partner, GE guarantees it will provide the hardware. With a guaranteed market and a guaranteed profit, the initial partners can hold shares long term for income or, more likely, dump them into institutional markets for quick capital gains, on which they will barely pay taxes. And that, is ironic because taxpayers are essential elements of the deal.
The whole program of private power production founded on BC Hydro Energy Purchase Agreements allows outrageous enrichment of a small number. The program is facilitated by influence peddling and its government facilitators are either witless or dishonest. One thing I believe about Gordon Campbell is that he is not witless.

Read Will McMartin’s outstanding article at The Tyee. BC’s Energy Independence? Don’t Believe It.

[Energy independence], it’s all a sham. British Columbia under Gordon Campbell’s BC Liberal government has become increasingly dependent on non-B.C. owned corporations to produce high-priced electricity, which BC Hydro is forced (by government edict) to buy, and in turn sell at inflated prices to captive residential and commercial consumers.

See also McMartin’s May 11 piece, General Electric and BC’s Private Power Gold Rush.

In February and March, $142,420 was generated through the sale of just over 2.8 million share-warrant units at five cents apiece. A few weeks later, another 10 million shares were sold at six cents each and fetched a total of $600,000.

The former sale appears to have gone to Anchorage Capital Master Offshore Ltd., a New York-based hedge fund founded in 2003 by Kevin Ulrich and Anthony Davis, a pair of alumni from Wall Street’s largest investment bank and brokerage, Goldman Sachs.

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