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Government will complete Site C construction, will not burden taxpayers or BC Hydro customers with previous government’s debt

Press Release

Dec. 11, 2017

VICTORIA – The British Columbia government will complete construction of the Site C hydroelectric dam, saying that to do otherwise would put British Columbians on the hook for an immediate and unavoidable $4-billion bill – with nothing in return – resulting in rate hikes or reduced funds for schools, hospitals and important infrastructure.

“Megaproject mismanagement by the old government has left B.C. in a terrible situation,” said Premier John Horgan in making today’s announcement. “But we cannot punish British Columbians for those mistakes, and we can’t change the past. We can only make the best decision for the future.

“It’s clear that Site C should never have been started. But to cancel it would add billions to the Province’s debt – putting at risk our ability to deliver housing, child care, schools and hospitals for families across B.C. And that’s a price we’re not willing to pay,” said Premier Horgan.

Had government decided to cancel Site C, it would have taken on the project’s $3.9 billion in debt, made up of $2.1 billion already spent and another $1.8 billion in remediation costs. As public debt, it would become the responsibility of BC Hydro customers or taxpayers.

“We will not ask British Columbians to take on $4 billion in debt with nothing in return for the people of this province and, even worse, with massive cuts to the services they count on.

“The old government recklessly pushed Site C past the point of no return, committing billions of dollars to this project without appropriate planning and oversight. Our job now is to make the best of a bad deal and do everything possible to turn Site C into a positive contributor to our energy future.”

Premier Horgan said that in moving forward with the project, his government will launch a Site C turnaround plan to contain project costs while adding tangible benefits. The plan will include:

  • A new Project Assurance Board that will provide enhanced oversight to future contract procurement and management, project deliverables, environmental integrity, and quality assurance – all within the mandate of delivering the project on time and budget. Based on current projections, BC Hydro has revised the budget to $10.7 billion.
  • Establishing new community benefits programs, mandated with making sure that project benefits assist local communities, and increasing the number of apprentices and First Nations workers hired onto the project.
  • A new BC Food Security Fund – based on Site C revenues – dedicated to supporting farming and enhancing agricultural innovation and productivity in the province.

In addition to funding for provincewide food security projects and programs, the turnaround plan will:

  • Ensure the Peace River Legacy Fund implements solutions to longer-term environmental, social and economic issues.
  • Activate the $20-million agricultural compensation fund to offset lost sales and stimulate long-term productivity enhancements in Peace Valley agriculture.

“We’re taking the steps the previous government showed no interest in: a solid budget, enhanced review and oversight, community benefits, and an eye to the future,” Premier Horgan said.

“We’re putting an end to the years of energy policy that put politics ahead of people – where government forced BC Hydro into costly contracts, hiking rates for homeowners and renters, and delivering dividends to government it simply couldn’t afford.”

Premier Horgan added that his government will also be pursuing an alternative energy strategy to put B.C. more firmly on the path to green, renewable power that helps the province exceed its climate goals.

“I respect and honour the commitment of people who oppose Site C, and share their determination to move B.C. to a clean, renewable energy future and to embrace the principles of reconciliation with Indigenous communities,” said Premier Horgan, who acknowledged that Site C does not have the support of all Treaty 8 First Nations. “We know this decision is not what some First Nations wanted. Their voices were heard and their perspectives were an important part of the deliberations on a very challenging decision.

“As we move forward, I welcome ideas from across our province as we define an energy strategy that protects our environment, delivers on our climate responsibilities, powers future generations, and creates jobs and opportunities for all British Columbians.”

Three backgrounders follow.

Contact:

Jen Holmwood
Deputy Communications Director
Office of the Premier
250 818-4881


BACKGROUNDER 1

Dec. 11, 2017

Site C Quick Facts and Mitigation Elements

Quick Facts:

  • The Site C project is two years into construction.
  • To date, $2.1 billion has already been spent. It is estimated that another $1.8 billion would be needed for site remediation (which, even then, would not restore the site to its previous condition).
  • The $4 billion in Site C termination costs is equivalent to $860 for every British Columbian, or eliminating taxpayer-supported capital projects:
    • 66 secondary schools ($60 million each); or
    • 11 hospital projects similar to the North Island hospitals (Province’s share, $365 million); or
    • 12 highway projects similar to the Okanagan Valley Corridor Project (Province’s share, $330 million); or
    • three Pattullo Bridges ($1.3 billion each).
  • 99% of Class 1-5 agricultural lands (capable of crop production) in the Peace Agricultural Region will not be affected by Site C. Permanent loss of approximately 3,800 hectares of class 1-5 agricultural lands leaves approximately 2.7 million hectares of Class 1 to 5 lands available for agricultural production in the Peace Agricultural Region.

New Management Direction

  • A new Project Assurance Board – made up of BC Hydro, independent experts and government representatives – will provide enhanced oversight to future contract procurement and management, project deliverables, environmental integrity, and quality assurance – all within the mandate of delivering the project on time and budget. Based on current projections, BC Hydro has revised the budget to $10.7 billion.
  • EY Canada has been retained by BC Hydro to provide dedicated budget oversight, timeline evaluation and risk assessment analysis for the duration of the project.

Agriculture

  • Activate the $20 million agricultural compensation fund established to offset lost sales and stimulate agriculture enhancements in the Peace region.
  • Government will establish a new dedicated BC Food Security Fund – based on Site C revenues – dedicated to supporting farming and enhancing agricultural innovation and productivity throughout B.C.

Community Benefits

  • New Community Benefits Programs will be established with a mandate to ensure that project benefits flow to local communities, and increase the number of apprentices and First Nations workers hired onto the project.
  • The Peace River Legacy Fund will be used to implement solutions to longer-term environmental, social and economic issues.
  • Government will explore options for relocating Site C worker accommodations, post completion, to a local skills-training institution.

First Nations

  • As a component of the comprehensive review of BC Hydro, the Province and BC Hydro will consider the development of a new procurement stream for smaller-scale renewable electricity projects where Indigenous Nations are proponents or partners to create local employment and commercial opportunities throughout B.C. as well as environmental benefits with the replacement of diesel or fossil fuel-based energy installations. The Ministry of Energy, Mines and Petroleum Resources and the Ministry of Finance will bring these proposals to government by fall 2018.
  • BC Hydro and the Ministry of Transportation and Infrastructure will work with Treaty 8 First Nations and others to redesign the Highway 29 realignment at Cache Creek to reduce the effects on potential burial sites and sacred places. BC Hydro will invite proposals from Treaty 8 First Nations for this roadbuilding work.
  • The Ministry of Indigenous Relations and Reconciliation and BC Hydro will continue to engage Treaty 8 First Nations to seek additional solutions to mitigate the adverse impacts of Site C, and to advance reconciliation.
  • The Province will continue recent direct government engagement with First Nations to seek input into the design of a Peace River Legacy Fund and establish a collective Treaty 8 project advisory committee.
  • Work will continue in addressing cultural concerns, enhancing business opportunities, and retaining funding/land transfers and contract opportunities.

Contact:

Suntanu Dalal
Media Relations
Ministry of Energy, Mines and Petroleum Resources
250 952-0628


BACKGROUNDER 2

Dec. 11, 2017

From private power to Site C: Bad decisions that shaped B.C.’s electricity policy

Government’s decision to proceed with the completion of Site C was driven, in large part, by a series of bad energy policy decisions made over the past decade and a half that put politics ahead of people. These decisions significantly increased the province’s intermittent electricity energy supply and forced upward pressure on electricity rates.

In 2002, the previous government introduced the Energy Plan that mandated that all new power generation opportunities were reserved for private power producers. Through the extensive use of electricity purchase agreements, the board of BC Hydro made long-term commitments to purchase a large supply of new intermittent power, primarily through run-of-river power projects, at prices considerably higher than produced by BC Hydro’s heritage hydroelectric assets.

The board of BC Hydro committed to more than 135 contracts with an average term of 28 years. And while power generated by BC Hydro’s heritage assets cost $32 per MWh, power from IPPs cost $100 per MWh. Today these contracts represent future financial commitments of over $50 billion.

The Energy Plan also changed the structure of BC Hydro and established a standalone BC Transmission Corporation to allow private power producers to access the transmission system and to sell directly to large consumers.

At the same time that BC Hydro was directed to accommodate this new supply of intermittent power, the previous government also instructed BC Hydro to decommission its Burrard Generating Station in Metro Vancouver to address growing concerns about local air pollution and greenhouse gas emissions.

As BC Hydro lost needed electrical capacity to backstop its new intermittent power supply, it was forced to seek new capacity or “firm” power, the type traditionally provided by hydroelectric facilities like Site C.

In 2010, the old government introduced the Clean Energy Act, which exempted a number of BC Hydro projects and power procurement activities from independent review by the BC Utilities Commission including Site C, the Clean Power Call, the Smart Metering Program and the Northwest Transmission Line.

The former government then compounded the financial problems at BC Hydro by directing the corporation to pay dividends to the province from funds BC Hydro had to borrow. The cost of this debt is a direct cost to BC Hydro ratepayers.

Between 2001 and 2017, the old government directed BC Hydro to increase its liabilities held in regulatory accounts from $116 million to $5.597 billion. These costs will have to be recovered from ratepayers in the future.

As a result of these earlier policy decisions, the old government saddled BC Hydro with a new supply of long-term expensive intermittent power, without the electrical capacity to maintain reliable service to its customers.

Faced with challenges of its own making, the old government decided to push ahead with Site C without allowing review by British Columbia’s independent regulator, the BC Utilities Commission.

Contact:

Suntanu Dalal

Media Relations
Ministry of Energy, Mines and Petroleum Resources
250 952-0628


BACKGROUNDER 3

Dec. 11, 2017

Site C termination implications for BC Hydro customers and British Columbia taxpayers

The decision to proceed with construction of Site C was primarily driven by a determination that British Columbians should not have to take on $4 billion in debt with nothing in return for the people of this province and, even worse, with massive cuts to the services they count on.

Analysis conducted by the Ministry of Finance, Ministry of Energy, Mines and Petroleum Resources, and external experts on the BC Utilities Commission (BCUC), report concluded that completing Site C will be significantly less costly to British Columbians than cancelling the project.

In its report, the BCUC estimated that BC Hydro would need to spend an additional $1.8 billion for termination and site remediation costs if it were to cancel  the project. This is in addition to the $2.1 billion of sunk construction and planning costs that will have been spent by the end of December 2017.

Faced with an immediate and unavoidable $4-billion debt, the Province would have to recover these costs from either BC Hydro customers or taxpayers. As a regulated utility, BC Hydro is obligated to file a plan with the independent BCUC, which would ultimately determine the course of action it deemed most appropriate.

The BCUC did not take a position with respect to the options for debt recovery, however, government conducted extensive analysis of the fiscal and rate implications of likely debt recovery options.

If the BCUC determined that BC Hydro could recover the nearly $4 billion in Site C costs from its customers, the commission would then have to decide what the repayment period should be:

  • Under a 10-year recovery period, BC Hydro customers could face a one-time 12.1% rate increase that would last for the next decade. This would be in addition to any other rate increases required to cover BC Hydro’s ongoing debt servicing and other operating costs, including recovery of its rate deferral accounts.
  • Under a longer recovery period of 70 years, customers would not face short-term rate impacts. Such a move would, however, force future generations to pay for a valueless asset from which they never receive benefits. This course of action would also increase the risk that provincial bond rating agencies would bring into question BC Hydro’s financial sustainability, thus increasing the risk that BC Hydro’s entire debt load becomes viewed as non-commercial. This would place significant pressure against the Province’s AAA credit rating and annual borrowing costs.

If the BCUC decided that BC Hydro should not recover the $4 billion of Site C debt from its customers, the corporation and the Minister of Finance would face two options that would significantly affect B.C. taxpayers.

If BC Hydro retained the $4 billion debt:

  • It would first be obligated to write off the Site C costs as unrecoverable, thus causing BC Hydro and the Province to slip into significant deficits. The corporation would then face an even higher risk of no longer being viewed by rating agencies as self-supporting and having its entire debt reclassified as non-commercial.
  • Such a move would significantly risk the Province losing its AAA rating with a resultant increase in borrowing costs, thus reducing the annual budget available for key priority spending areas.

If government itself chose to assume the nearly $4 billion of Site C debt – thus safeguarding BC Hydro:

  • It would immediately increase B.C.’s level of taxpayer-supported debt from about $44.6 billion to $48.6 billion.
  • This increase would also erode the Province’s key fiscal sustainability debt-to-revenue ratio by seven to eight percentage points – a measure critically assessed by provincial bond-rating agencies and ultimately determines the Province’s borrowing and debt-servicing costs.
  • Taking on the Site C debt into government taxpayer-supported debt would likely eliminate planned increases in provincial capital spending over the next two years. For context, $4 billion in assumed Site C debt could pay for the equivalent of:
    • 66 secondary schools ($60 million each); or
    • 11 hospital projects similar to the North Island hospitals (Province’s share $365 million); or
    • 12 highway projects similar to the Okanagan Valley Corridor Project (Province’s share $ 330 million); or
    • three Pattullo Bridges ($1.3 billion each).
  • This additional taxpayer-supported debt load would also increase operating costs in the provincial budget by $120 million to $150 million annually – putting at risk the services British Columbians count on.

Contact:

Suntanu Dalal
Media Relations
Ministry of Energy, Mines and Petroleum Resources
250 952-0628

Connect with the Province of B.C. at: news.gov.bc.ca/connect

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