BC REQUIRES A MARKET FACILITATOR (2007) While The Energy Plan provides a forward-looking framework, it falls short of charting a course to fully achieve industry potential without the appointment of an “Independent Market Facilitator (IMF)”.
The Energy Plan has addressed functional concerns, but has not assigned strategic accountability for market/industry development. In short, BC has restructured its electricity industry, but no single unbiased entity has been vested with accountability for long-term growth, investment and security of supply.
As a regulated utility with responsibility for domestic supply, BC Hydro does not appear to have the mandate or appetite to undertake market facilitation and share risk with private investors in order to facilitate a long-term supply cushion.
Further, BC Hydro has been tasked with awarding Energy Purchase Agreements to IPP’s to meet a portion of future demand growth while also wishing to increase capability at existing generating stations (Resource Smart) and building new generation (Site C, Revelstoke 5, Mica 5). The Chamber is concerned that these tasks are often in conflict with one another and that, at a minimum, a perceived conflict of interest exists. The unfortunate result has been a shortage of generation construction in British Columbia over the past several years for a variety of reasons. Evidence of this generation deficit can be found in British Columbia’s increasing levels of imports and the cancellation of the Duke Point project on Vancouver Island. It is worth noting that BC Hydro’s supply/demand forecast strongly supported BC Hydro building the VIGP project when it was before the BCUC in 2003 and again during the BCUC proceeding in 2005 to review the Duke Point contract. The Chamber is concerned that damage to the integrity of BC Hydro’s supply-demand forecasts have been an unfortunate consequence of the ultimate cancellation of the Duke Point project. This creates one element of The Chamber’s logic in recommending that an Independent Market Facilitator be created immediately.
Since The Energy Plan was promulgated, the number of actual generation plants constructed or under construction has been very disappointing. There are very few strong balance sheet companies even exploring opportunities in British Columbia. The Chamber believes the process currently in place is fundamentally flawed. The Chamber would note that the province must address the shortcomings in the execution of The Energy Plan to ensure the vibrant BC economy is not adversely affected by an inability to construct the necessary electric infrastructure in a timely manner.
The Chamber submits that an IMF is the most optimal solution to addressing these contracting practices to ensure the province can become self-sufficient with respect to energy and capacity.
The lack of electric generation construction in BC, plus the rising level of electricity imports, has combined to create greater levels of dependence on neighbouring jurisdictions. Ironically, this means that in the present paradigm, BC Hydro is facilitating power production investments in Montana, Alberta and Washington at the expense of the BC economy.
The Chamber believes a new independent market facilitator should be created. As a potential alternative, perhaps market facilitation is an expanded role that could be assigned to PowerEx, provided it is “spun-off” into a separate crown corporation. PowerEx has a secure US marketing licences and can act as a power aggregator for domestic utilities while selling the provincial surplus power into the US. This model would allow for a long-term perspective around the provincial interest, sharing of risk between the private and public sectors, and accelerated development of BC’s electricity portfolio, which comes full circle to meeting long-term security of supply. The Chamber believes that a new entity should be formed to undertake this Market Facilitation role given that PowerEx has some historic reputational issues that may not be conducive to it playing this role in a credible manner, even as a non-BC Hydro affiliated crown corporation.
Without a market facilitator, BCTC’s effectiveness will be in jeopardy. While BCTC must reinforce the system and build for the long-term, as a poles and wires operator, it cannot fully act without investment on the generation side. And generation investment is stranded by the notion of “least cost supply”.
In the purest sense, “least cost supply” is a venerable principle. It served BC well through periods of excess supply. However, the province’s supply fortunes have changed. We are a net importer of energy and soon will be a net importer of more expensive capacity.
The Chamber believes the industry is at a crossroad. Bold leadership is required to build a “supply cushion” that will support economic recovery and reduce our dependence on producers in other jurisdictions. This will lead to a more self sufficient position for the British Columbia economy and will create investment, jobs and related economic multiple effects across the province.
We have the resources. All BC needs is a market facilitator with the mandate to share a bit of medium-term risk in exchange for long-term independence and control over long-term cost exposure. There’s little or no downside compared to the collision course we are currently on.
THE CHAMBER RECOMMENDS
That the provincial government legislate a market facilitator with a clear mandate to accelerate supply-side additions, with the goal of making BC energy self-sufficient and the powerhouse of the Western seaboard;
