08/30/2013 06:48 EDT | Updated 10/30/2013 05:12 EDT

BC Hydro Power Contract Cancellations A Cost-Cutting Measure, Minister Says

VANCOUVER - At least 10 contracts with independent power producers will be cancelled and another nine will be put off as BC Hydro looks for ways to cut costs for rate payers, says Energy and Mines Minister Bill Bennett.

Friday's update by Bennett came only one week after BC Hydro released its draft power plan, which included recommendations on how the public utility could keep rates affordable while meeting an electrical demand that's expected to increase over the next 20 years.

One way to cuts costs, the report recommended, was to spend less on the contracted-energy supply after BC Hydro achieves energy self sufficiency, something the utility is required under the Clean Energy Act to achieve by 2016.

Bennett said the province has 130 electricity purchase agreements, and in the 19 cases the companies had not met their contractual obligations.

He disputed suggestions the cancellations were a policy shift away from the goals outlined in the Clean Energy Act or support for independent power producers.

"If we don't need to buy this electricity right now or within the next couple of years, it seems the right thing to do for ratepayers is not buy it," he said.

The Clean Energy Act, which was revised last year to exclude liquefied-natural-gas facilities, requires B.C. to generate at least 93 per cent of all electricity from clean or renewable sources.

For New Democratic energy critic John Horgan, though, the announcement was a bit of an "I told you so," and something from which he drew little comfort.

"It confirms what I and others have been saying for some time that we were purchasing more power than we needed at prices that were not sustainable based on what the market was showing for electricity on the west coast of North America," he said.

He said BC Hydro is in a difficult position because it has a "huge amount" of surplus electricity that it paid a lot of money for and it can't get rid of.

Horgan said he'd like BC Hydro to assess all of its contracts with power producers to ensure they're in the public interest, adding the consequences for rate payers are still not known.

Meanwhile, Joe Foy of the Wilderness Committee said BC Hydro has signed more than $50 billion worth of long-term contracts for energy that's grossly overpriced and not needed.

"These projects are a double whammy," he said. "They can really nail you with environmental impacts, but they are terrible economically for the people of the province because they don't rely on the open and free market to determine the price of the product.

"They don't rely on a free and willing buyer. What they rely on is the government of British Columbia guaranteeing that electrical rate payers will pay a set price, which is set very high in long-term contracts, the opposite of free enterprise."

Foy said there's also environmental concerns because run-of-river projects divert huge amounts of water and 70 per cent are located in fish habitat.

Bennett said he couldn't give any details on the companies involved because voluntary negotiations were ongoing and he expects the talks to wrap up in the coming days and weeks.

None of the projects were in "serious construction mode," he said, and the companies were seeking permits or raising money. In some cases, he added, the companies had only completed site preparation.

As part of the cancellation, Bennett said the utility has agreed to pay some of the companies' "sunk costs," such as environmental studies, work with First Nations, engineering drawings and site preparation.

He said paying those costs will be less expensive for BC Hydro in the long run, and the utility doesn't want to end up in court.

Bennett said the projects were "all over the place," geographically, and many were run-of-river operations.

In a followup email, his ministry said BC Hydro expects to reduce its contractual commitments by 1,600 gigawatt hours per year by the fiscal year of 2012.

According to BC Hydro's draft plan, the utility plans to renew contacts with those facilities that have the lowest cost and greatest certainty. Since many of those projects will have already recovered their costs when their contracts come up for renewal, BC Hydro expects to be able to negotiate lower energy prices.

Consultations on the draft plan will be held from Sept. 3 to Oct. 18, and a final report is expected to be submitted to the government in November.

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