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Power struggle

Ryan Starr, Business Examiner — Fraser Valley, June 2, 2008

In late March, a throng of about 1,000 protesters, politicians and ordinary folks packed the gymnasium at Pitt Meadows Secondary School to pillory Jako Krushnisky.

Krushnisky, the president of Delta-based Run of River Power Inc., was seeking permission from the province to remove 4.6 hectares from nearby Pinecone Burke Provincial Park.

The boundary adjustment would enable his firm to run a transmission line through the park to connect a proposed cluster of 180-megawatt hydro-power projects on the Upper Pitt River to a BC Hydro substation in Squamish.

The Pitt Meadows open house was the second community consultation in a month. An earlier event had been shut down by the fire marshal after a raucous crowd overran the banquet room at the local Ramada Inn.

Things weren’t looking any better for Krushnisky this time. Indeed, he was subjected to a two-hour verbal battering from a parade of objectors.

Some were dead set against a transmission line running through the park; others were opposed to private developers seeking to profit off publicly-owned natural resources. Still more saw run-of-river projects as a threat to fish and wildlife in the area.

Motivations varied, but the overflow crowd shared an objective: kill the project at all costs.

Ultimately the backlash proved too much for B.C. Environment Minister Barry Penner, who announced shortly after he would not recommend the boundary adjustment to cabinet.

For Krushnisky, it was a big blow. He fired off an angry dispatch to Premier Gordon Campbell complaining the process had been “prematurely short-circuited” — that Penner pulled the plug even though the project was still undergoing assessment from his ministry.

In late May, the Katzie First Nation — whose territory the watershed runs through — announced it is suing the B.C. government over the decision.

Katzie Chief Mike Leon said the First Nation has lost $400,000 in annual royalties, not to mention jobs, training and an equity position in the project promised by the company.

“The opposition were effective at creating a court of public opinion about the projects,” Krushnisky told Business Examiner last month. “They were able to get the decision by smearing the science in advance of a review even occurring.”

It was a critical setback for Run of River, who had invested considerable time and money to get the Pitt River project through its preliminary stages.

The debacle has also raised concerns among fellow independent power producers (IPPs) and clean energy advocates that it might be only a harbinger of what’s to come.

Innovative and entrepreneurial by nature, IPPs are well-suited to deliver on the province’s future clean energy needs.

But many hurdles stand in their way, none greater than a determined opposition that has vowed to fight them at every opportunity.

Driven by NDP apparatchiks, environmentalists and a BC Hydro union, the anti-IPP crowd has called for a moratorium on all private power development.

“These guys have got a whack of money and they like to go out guns-a-blazin’ and shoot at anything that smells of private sector,” says Bruce Sanderson, a founder of B.C. Citizens for Green Energy (BCCGE).

Sanderson and his associates launched the group earlier this year to counteract what they describe as the “overheated rhetoric,” “irresponsible allegations” and “real whoppers masquerading as facts” that colour the debate over independent power.

What’s at stake? The way BCCGE sees it, nothing less than B.C.’s green energy future.

“We’re very concerned,” Sanderson says. “We have all the resources in B.C. to do clean energy projects. They could be the environmentally-friendly version of Alberta’s oil and gas. But we’ve seen a lack of progress here compared to other countries.”

B.C.’s 2007 Energy Plan mandates that the province is to become energy self-sufficient by 2016. At the moment we are a net importer of power, drawing the bulk of our outside electricity from coal-fired plants in Alberta and the U.S.

Half of B.C.’s future supply growth is to be met through conservation. The province is looking to clean energy sources to provide the remainder, in accordance with its goal to reduce one-third of B.C.’s greenhouse gas emissions by 2020.

While BC Hydro has been exploring the development of Site C — a third dam on the Peace River in Northeast B.C. — and is planning enhancements to existing dams in the Interior, the province believes IPPs are the best-equipped to deliver smaller-scale clean energy projects.

Run-of-river projects like Krushnisky’s are the most common at present, but progress is also being made across B.C. in wind, solar, geothermal and biomass energy.

“The fundamental point is that we need power,” says Robert Fraser, CEO of Vancouver-based Max Pacific Power Inc., which is currently working on developing several run-of-river projects near Chilliwack and Hope. “The days of being able to put in a mega-dam or a nuclear power plant are gone. These days, we have to move towards green energy that is non-invasive.”

What advantages do independent power producers offer? To start, they have the innovative drive and engineering expertise.

“Smaller projects are much better handled by independent power producers,” says B.C. Energy Minister Richard Neufeld. “They have the entrepreneurship and the ability.

“B.C. Hydro is a great distributor of electricity and generates almost all our energy in the province from clean sources. They’re great at running dams, but not 10 megawatt plants, that’s not their forte.”

And in more remote areas of the province, where towns like Golden, Valemount and Bella Coola have long suffered from unreliable electricity supply, smaller IPPs offer an effective means of reinforcing regional power grids.

But private power producers face a host of logistical and financial hardships simply getting these projects through their fetal stages.

Before being able to formally submit a bid to BC Hydro, producers spend vast amounts of time and money carrying out research and development.

An IPP proposal then goes through a battery of feasibility studies, environmental reviews and public consultations — including First Nations in certain cases — and requires approvals from a host of government agencies. (See sidebar)

“I would characterize the process as grueling,” says James Gemmill, vice-president of business development for Hydromax Energy, which is currently working on two run-of-river projects near Sechelt. “Usually by the time it’s all over and you get your water licence, two to three years have gone by.”

And if construction costs go up — which they inevitably do — producers must anticipate this and factor it into their bid. Once BC Hydro has agreed to purchase power from them, the IPP can’t pass the increases on to taxpayers.

“Trying to hold construction costs firm while you go through a bidding process is unnerving,” says Gemmill. “The costs go up after you put in your price, and the rate of return on your project goes down.”

This points to another advantage of private producers: they determine whether or not a project is viable, and assume the financial risk if it proves not to be.

“That’s a risk BC Hydro is not taking,” says Gemmill. “That’s where the public should take some consolation.”

When BC Hydro plugs the independent project into its grid, it’s a well-vetted and proven source of power.

“What you’ve got is an industry that’s maturing and looking at building out the grid in a green, reliable way for BC Hydro, at no cost to the taxpayer,” says Fraser.

That said, there are serious concerns within the IPP industry that what happened to Jako Krushnisky with the Upper Pitt project is only a taste of what’s to come. (Though some observers say his attempt to change the boundaries of a beloved provincial park was ill-conceived and likely doomed from the start.)

The anti-IPP campaign has been effective at grabbing headlines and getting top billing on newscasts.

But an examination of the opposition’s main arguments reveals inaccuracies, misinformation and, in some cases, outright myths.

The central claim in the case against run-of-river IPPs is that as many as 500 waterways are being “sold” to private producers. In fact, this figure represents a rough estimate of the amount of applications made for water licences over the past two decades, not the number of actual licences.

“Unfortunately too many people, especially our opponents, call them water licences and forget the word ‘application’,” says Steve Davis, president of the Independent Power Producers Association of B.C. “So people fall into thinking that as soon as an application is filed, that’s a licence. Well it’s only an application.”

Most projects don’t make it past the early stages of development — proving unfeasible for any number of engineering, economic or environmental reasons. According to the IPPBC, in the last 20 years there have been as many as 900 water licence applications filed, but only 35 run-of-river projects currently are in operation.

Even if a project is approved, however, the notion that rivers are being sold to IPPs is patently false. Private power producers operate projects under 40-year energy purchase agreements with BC Hydro, giving them the right to use the water for that time. In effect, they pay rent on it.

This is the same type of arrangement the province has with contracts for the extraction of minerals, oil and gas or any other natural resources. The government owns the resources and allows tenants to use them for a fee.

“The irony is that with run-of-river and wind projects, we’re not consuming resources,” notes Davis. “They’re entirely renewable.”

At the end of the licence term, the independent producer must then renegotiate its contract.

“So a government in 40 years is going to be able to say either you’re going to be decent with us on your pricing or we won’t give you a water licence and you have to tear everything out of here and move it out,” Neufeld says.

Opponents also claim when an IPP’s contract expires, private producers have the option to sell their power to the U.S.

Under BC Hydro’s 2007 standing offer program, however, every project 10 megawatts or less has a clause in its contract stipulating that 100 per cent of the power must be sold to the Crown corporation.

Other larger-scale independent power producers have had the right to export firm power — or longer-term power — to the U.S. since 1993. But in that time, no one has done so.

Why? Davis says it’s simply not feasible. To start, for IPPs to ship small amounts of power south of the border would cost an enormous amount and result in a paltry pay-off.

By the time each transmission utility along the way charges its fees, a small producer would be left with little to no profit.

What’s more, Davis says, the minimum order size to buy transmission capacity is 25 mega-watts, more than most B.C. IPPs can supply.

As Davis puts it: “To take a tiny amount of electricity and try and fight it through a half dozen utility systems to get it to a buyer — IPPs have simply said ‘Why bother?”

IPP critics further argue that BC Hydro buys energy from private producers at higher prices than it would cost to produce electricity through existing dams, translating into rate hikes for consumers.

Sanderson of B.C. Citizens for Green Energy notes this doesn’t account for the fact that those dams were paid off years ago.

“All they’re doing is calculating the cost of support people sitting on the existing dams and dividing that into the cost of the electrical — that’s ridiculous,” he says.

“The argument that [IPPs] are ripping off the province and the B.C. taxpayer is really nonsense,” adds Guy Dauncey, president of the BC Sustainable Energy Association, a non-partisan group that counts both IPP supporters and critics among its membership. “All new power in the world is costing in the same ballpark range as what we’re now paying.”

In the end, the debate over independent power has little to do with the merits of the projects themselves or the expertise of producers. It is primarily a clash of ideologies.

The leading opponents of run-of-river projects, for example, are a tightly-linked axis: the Citizens for Public Power (CPP), COPE 378 (a BC Hydro union) and Western Canada Wilderness Committee (WCWC).

CPP was launched in 2002 to fight outsourcing of BC Hydro’s billing department and was funded in part by Hydro’s office workers union. CPP’s vice-chair is a director of policy for WCWC, while the group’s secretary-treasurer is COPE 378’s vice-president. “It’s no secret — everyone’s ideological,” says CPP’s executive director Melissa Davis. “We have a diverse group of people involved in our organization. Our different representatives come from organizations that similarly speak against private power.”

The NDP’s recent call for a moratorium on independent power projects has raised eyebrows, particularly given its past support of the industry.

While party leader Carole James recently referred to the Campbell government’s “agenda to bring in privatized power,” half of the IPPs operating in B.C. today were built under the previous NDP government, according to IPPBC.

In a 1992 speech, former NDP energy minister Anne Edwards praised IPPs for offering a “source of expertise and innovation to keep B.C.’s electricity sector efficient and competitive.”

She went on: “British Columbians expect reasonably priced power, with no rate-shocks or unnecessary new projects . . . and long term sustainability in their energy sector.

“Independent power producers have a big role to play in making sure we reach those goals.”

What explains the change in tune?

The NDP might be looking to avenge the Campbell government’s co-opting of its environmental agenda, a policy coup that has won the Liberals high praise.

Moreover, a provincial election is not far in the offing, and some have suggested the anti-IPP stance is part of a strategy to unite the left; to bring Green Party and NDP supporters into the same fold.

Still, for a government so adept at message-control, Campbell’s team appears to be losing the public relations battle over IPPs.

Richard Neufeld insists he’s written loads of letters to editors that take IPP critics to task on their “untruths,” but usually to no avail.

“You could spend endless dollars of the public’s money to tell the good messages, but no newspaper will print that stuff,” he says. “What makes good news is some wacko talking about how terrible things are.”

Bruce Sanderson and the B.C. Citizens for Green Energy have added their voice to the pro-IPP chorus, appearing to have some fun doing so.

BCCGE recently announced it was giving the anti-IPP crowd awards for their “province-wide campaign of misinformation.”

One was for “inflationary hyperbole”; another for “creative hyperbole” and a third for “relentless hyperbole.”

A humorous approach to be sure, but the group’s underlying purpose is a serious one: they’re concerned B.C.’s green future could be in jeopardy because of what he calls “a pile of hooligans going crazy."

As Sanderson sees it: “This kind of opposition has caused B.C. to fall behind in clean energy when we should be leading the world forward.”

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