Dr. Harry Swain knows more than most about the Site C dam.
With a Ph.D. in economic geography and 22 years of federal civil service under his belt, Swain spent two years as chair of the federal-provincial joint review panel tasked with evaluating the environmental, economic, and First Nations impacts of the largest public works project in B.C.’s history.
Part of the job included reading through upwards of 24,000 pages of submissions from BC Hydro and other interveners.
But two years after the panel concluded and issued its report and recommendations to government, Swain has become an increasingly outspoken critic of the $8.8-billion dam.
“I've gotten an education on these issues at great public expense,” Swain said in a recent interview. “So I figure that the people that paid for it should get what they paid for.”
It's not clear whether there is precedent for the chair of a review panel later criticizing the project publicly.
Still, Swain believes British Columbia does not, and will not in the foreseeable future, need the new energy Site C is expected to produce. If it does, he argues there are cheaper, less invasive sources of power that should be used instead of a new hydroelectric dam.
“The environmental and First Nations land rights issues are serious costs that would have to be borne if the project goes ahead. You would only want to do that if there were an overwhelming economic case that this was the best and cheapest way, including all external effects, of providing something that the provincial economy absolutely required,” Swain said.
“And I'm saying since you can't pass that test then the rest of it is moot.”
Swain’s criticism reiterates in many ways what the BC Utilities Commission (BCUC) said in 1983 when Site C was first evaluated. The commission, established as an independent evaluator of public works projects, concluded that while the project would make clean energy, BC Hydro failed to demonstrate that the province needed the power.
Thirty years later, when the panel reviewed Site C again, it concluded the same thing: the project would make clean energy, and lots of it, but the province doesn’t need it on the timetable put forth during public hearings in the region in late 2013 and early 2014.
BC Hydro has been criticized for overly optimistic forecasts: domestic demand for energy has been flat in B.C. for the last number of years, though exports have increased by 47 per cent since 2005.
Swain says there’s a built-in “asymmetric reward” for utility companies to inflate demand forecasts.
“If a utility produces too much electricity, what happens? There might be a penny or two on the rates somewhere. But if they produce a kilowatt hour less than the demand, what happens? Well, brownouts, angry people, questions in the legislature, headlines in the newspaper,” Swain said.
“The asymmetric nature of the rewards that they face means that there's a strong, if unspoken, (built-in) incentive to get those load forecasts up a bit.”
When asked for a response to Swain’s criticism, Site C spokesperson David Conway reiterated the project is needed to meet domestic energy demands over the coming 20 years, which is forecast to increase by 40 per cent.
BC Hydro’s load forecasts are based on population growth, industry and commercial growth. Conway told the Alaska Highway News that residential, commercial and industrial make up the company’s three customer bases.
“They each use about a third of the province’s electricity demand,” he said.
According to BC Hydro’s annual financial reports, domestic energy sales have hovered around an average of 52,000 gigawatt hours a year since 2005, peaking at 57,000 gigawatt hours in 2013.
Exports, however, have increased 47 per cent between 2005 and 2015, from a low of 29,706 gigawatt hours in 2005 to a high of 59,957 gigawatt hours sold in 2013.
Sales to Alberta and the Western United States through Hydro’s wholly-owned subsidiary Powerex made up almost half of all Hydro’s production in 2015 at 43,565 gigawatt hours exported compared to 51,213 gigawatt hours sold within B.C.
Conway couldn’t immediately comment on this trend, saying he “(hadn’t) seen the information for the last 10 years.”
Export energy prices are lower than residential rates, averaging $45.10/MWh for export compared to $100.43/MWh for residential customers.
Swain spoke at length with the Alaska Highway News about the dam--from the battle between its cost to ratepayers and the number of jobs it's expected to create, to the limitations he felt were placed on the joint review panel and BC Hydro, to whether he believes the dam has passed Premier Christy Clark's "point of no return" and whether Site C should be built at all.
The interview has been edited for length and clarity.
Alaska Highway News: At what point in the review process did you realize something was really wrong with the project?
Harry Swain: It was a long, slow process during the entire work of the panel that led us to the conclusion that the load forecasts were seriously amiss, and that there wasn't any need for the project on the schedule they had set out. There was no eureka moment. Remember that since we were not allowed to make conclusions on the First Nations stuff, we really couldn't make a conclusion on the whole project. So there was no overall recommendation. But we laid out the concerns as best we could.
AHN: Do you feel that the concerns have been adequately listened to?
HS: No, in the sense that some of the central issues related to the project economics—you may recall that we felt quite strongly that they should be looked at by an expert body, namely the BC Utilities Commission (BCUC). And that recommendation has been declined.
AHN: Why do you think?
HS: Ask them.
AHN: This is one of the things I'm trying to figure out. A lot of people are asking for it to go through the utilities commission.
HS: The government exempted the project from consideration by the BCUC and also by the Agricultural Land Commission, on the rationale that the panel was doing all the work and this would be merely duplicate. But the panel had very limited resources and very limited time, and frankly just didn't have the time to examine, for example the capital costs for reasonableness.
AHN: What was the mandate of the joint review panel? It seems to me, as I was reading through the report, that you felt limited by the mandate, and you mentioned earlier you couldn’t make a full conclusion because you couldn’t speak to Treaty 8 issues. So talk to me about what the mandate was and how that perhaps limited you to actually do the full review that the government suggests you were doing.
HS: The terms of reference, which had been hammered out by officials of the provincial and federal governments before the panel was ever involved, said that we were to look at environmental effects, look at the assertions of First Nations about their rights and the infringement, and to look at project economics.
Now, it was clear that what they meant by the economics of the project were the effects on local businesses and labour markets in the Fort St. John area. And we didn't like that very much, so we kind of stretched the issue a little bit using exactly the work they had given us to look at the larger considerations about the economics of the project itself, its potential effects on the borrowing costs of British Columbia, and so on. And even though Hydro was not anticipating having to answer those kinds of questions, when pressed, they responded quite decently. No problem with that. They were possibly a bit surprised, but nonetheless.
The other major limitation, I think, on the terms of reference was that all of this assessment was to be done within existing public policy.
AHN: What do you mean by that?
HS: That means that the Clean Energy Act of 2010, BC Hydro's act, which sets out a number of very severe limitations on what Hydro can do, was to be accepted without question. We weren't to have a poke at that at all.
Likewise, the federal government had completely revamped the Canadian Environmental Assessment Act in 2012. You may recall that there was a complete rewrite of the Act stuffed into the thousand-odd pages of the budget bill. But frankly, of all those things, it is the provincial policy issues that has led me to speak out a little bit, because they are deeply irrational.
AHN: Why?
HS: For example, they say we cannot count on the Columbia River Entitlement as part of our base supply.
AHN: And why do they say that?
HS: Well because it's foreign! (laughs) And the (Clean Energy) Act says we must be self sufficient. Now that's kind of an astounding thing from a province and a country that relies on trade as much as we do. But there it is, that's what the Act says. Now the Columbia River Entitlement, as you know, is bought and paid for a long time ago, and it's about the same size as Site C. We can, in effect, cash in on that for about $30 per megawatt hour as opposed to the roughly $100 that Site C costs.
AHN: So with the Columbia River, do you think there's political reasons why they don't want to?
HS: I refuse to speculate on what the reasoning of the elected officials might be.
AHN: Do you think the States would react badly if we decided to enact the entitlement?
HS: No. No indication that they would. The scheme is managed by officials on both sides of the border very efficiently. This is a half century of good engineering and utility practice. That can be accommodated without any problem that I know of.
It has a 10-year denunciation clause, but 10 years is plenty of time if anyone was crazy enough to pull the plug—and there’s no indication that would ever happen. To say that's a reason for not counting it is a real red herring.
But there were other things in the Act. For example, it said that BC Hydro is the only entity that can build heritage hydro, which means dams on the Columbia or Peace systems. And they are forbidden to build anything else. Any renewable energy projects, or wind or whatever the heck, have to be provided by independent power producers rather than BC Hydro.
AHN: Any idea why?
HS: Well, again, this is a political preference upon which I decline to speculate on in public. But that's the fact. So what happens institutionally is that BC Hydro as an organization focuses on what its allowed to do. And it wants to build that dam. Boy do they want to do it. It's part of their DNA.
If BC Hydro were—if it's mandate were changed to become British Columbia’s energy corporation, and were allowed to make the most rational choices over all the technological possibilities, then I think we would have seen a different proposition.
AHN: Do you think that it's strange or even unprecedented for someone in your position to become so vocally critical?
HS: It's unusual. And I thought hard about whether I should or not. But the panel has been out of business for two years. And I've gotten an education on these issues at great public expense (laughs), so I figure that the people that paid for it should get what they paid for.
AHN: Reading through the panel's report, for example, in the summary it says “The benefits are clear. Despite high initial costs, and some uncertainty about when the power would be needed, the Project would provide a large and long-term increment of firm energy and capacity at a price that would benefit future generations.” When I read that, and when I read your editorial in the Vancouver Sun (‘Site C: Truly awful economics,’ June 16, 2016), they seem kind of at odds.
HS: OK, so what's happened since the report came out is the demand forecasts on which the project relies have continued to substantially overstate the demand for power. We feared that at the time, but now it has come to pass. Nor is there any indication that there is any huge load-growth lurking out there. In fact, quite the contrary.
As the price of electricity rises in real terms, the more people will start conserving. People and businesses and industry and so on will start conserving. This is pretty simple stuff. The higher the price the lower the demand, right? But Hydro's load forecasts in my view do not take into account the price elasticity of demand in an adequate way.
The truth is power demand in B.C. has been flat since 2005. Just flat. It's not going up. And nor is—the things in the margin that some people think might cause a large increase in demand like, for example, 'Well, the LNG industry is going to require a lot of power.' No, they're not. If there is an LNG export industry, it will use its own natural gas for power. It's the practice all around the world. So yeah, there will be some for, as they say, house load. The lights, air conditioning in a building. But for compression, transmission, and liquefaction, which is a huge energy requirement, they'll use gas. There's nothing else on site that would be a really big thing.
The industrial demand for electricity has declined over this past decade, in part because of the difficulties of the forest industry. And there doesn't seem to be an end in sight to that either.
AHN: I'm kind of confused at why BC Hydro's demand forecasting seems to always be optimistic. It's the same thing the BCUC said when they reviewed Site C in 1983. Any thoughts on why? I mean do they not have great economists there?
HS: They have very solid, technically competent people. They're fine. But think of it this way: if a utility produces too much electricity, what happens? There might be a penny or two on the rates somewhere. But if they produce a kilowatt hour less than the demand, what happens? Well, brownouts, angry people, questions in the legislature, headlines in the newspaper—it's a very asymmetric reward.
Think of the public and political pressures that would come about if you get a brownout because you haven't got enough juice. And this isn't really a comment about BC Hydro, it's a comment about electrical utilities everywhere. The asymmetric nature of the rewards that they face means that there's a strong, if unspoken, inbuilt incentive to get those load forecasts up a bit.
There's nothing evil here, this is just the way the world works. But, by the way, it does say something about the usefulness of having an alternate source. And frankly, I think the Ministry of Energy Mines and Petroleum Resources should have it's own quite independent forecasting capability. Or the Utilities Commission, or somebody who doesn't face that particular set of incentives.
AHN: B.C. seems to be pretty adamant that we need to be self-sustaining. Do other regions have that same desire to be self sufficient for energy?
HS: No, I would say that's uncommon. A friend of mine who used to be the federal minister of finance, Fred Gorbet, is the chairman of the North American Electric Reliability Council (NERC). And that's the body that sets the rules and provides some of the facilities for sharing electrical energy back and forth between utilities and between jurisdictions in northeastern North America, including eastern Canada. And there's a whole lot of technical stuff to make it work, and that's partly what NERC does, but that's just an indication of how ordinary, every day, expected, energy trade is.
AHN: Something people have talked a lot about with Site C is that we would share the energy with other people, but for some reason we're not willing to be shared to.
HS: Yeah. It's really kind of weird.
AHN: Particularly, as you mentioned in the report, with all the other renewable resources for energy that we have here, the fact that we’re not really looking into them is curious to me.
HS: There's another thing that BC Hydro made clear in the hearings, a very interesting technical point. You can really exploit these intermittent renewable resources efficiently if you've got storage in your system. And our big reservoirs are nothing more than just a huge storage battery. So they were saying that they could accept something in the order of 35 to 38 per cent of their total supply coming from these renewables.
AHN: Really?
HS: Yeah.
AHN: And they have the capacity to store it already.
HS: Yeah. And moreover, since British Columbia's geographically large, you get a big benefit on renewables from having, let's say windmills, several hundred miles apart. The wind's always blowing somewhere, you know, so I mean we are extraordinarily favoured in our capacity to utilize renewables.
AHN: Premier Christy Clark has been quoted as saying she wants to push Site C “past the point of no return” before the next election. What do you make of that?
HS: Just that. I take her at her word. I think she wants to do that.
AHN: Do you think we have passed the point of no return?
HS: No.
AHN: Construction has just barely started. There's still a lot of opposition from landowners in the Peace River Valley, still a lot of opposition from First Nations. What can be done at this point to actually stop Site C?
HS: Well, you mean aside from a decision from the province?
AHN: Yeah, assuming they're not going to do that.
HS: Then I think it's probably a matter for the courts. I mean the federal government. You've seen the representations by the Royal Society of Canada?
AHN: Yes.
HS: Their argument is, you know, “Hold the phone here. The issue of Native land rights has not been adequately dealt with, and you feds are blindly relying on legal advice provided to the last government, which was not particularly concerned about Section 35 rights. You ought to ask the question again. And you ought to suspend your approval until you've done that homework.” That's their argument. Well, that would certainly do it.
AHN: The federal government is in the process right now of looking at permit approvals—does it have the power to stop this project?
HS: Yeah, theoretically. More than theoretically, they do. But it would be an almighty row. Did you see today's newspaper headline about the feds putting a stop to some real estate development in Quebec? It was in a small town somewhere. In order to save the habitat of a certain kind of toad, whereupon the government of Quebec went ballistic and said this is intolerable intrusion.
Now, what we're talking about is a couple hundred housing units on a hundred acres. And a particular species at risk. It's interesting that they're willing to act on species at risk there but not on those that we identified in the Peace. If you even whisper this stuff, federal officials quail in terror.
AHN: Specifically, about Site C?
HS: Well, no. Put it this way: the federal government does not want to start wars with the provinces. It would have to be an overwhelming consideration before they would do that. They would be—I think in the present circumstance it would be if the Minister of Justice concluded on the basis of analysis and advice that there was a treaty rights infringements of a serious nature. It would take that to make it happen.
AHN: What, in your mind, is the major problem with Site C? There's economic, social, environmental, cultural, and political issues, and they're all intertwined and important. You've already said it was the demand forecasting that caused you to start speaking out.
HS: Yeah, and the fact that there are alternative supply arrangements that are cheaper. Let me put it this way: the environmental and First Nations land rights issues are serious costs that would have to be borne if the project goes ahead. And you would only want to do that if there were an overwhelming economic case that this was the best and cheapest way, including all external effects, of providing something that the provincial economy absolutely required. And I'm saying since you can't pass that test then the rest of it is moot.
AHN: What impact will Site C have on ratepayers and taxpayers?
HS: Don't know, can’t say. That depends on future rate hearings by the BCUC. And the details of BC Hydro’s corporate finances. Also on the future rate of inflation and things like that. But, it would be substantial.
BC Hydro really does not have much in the way of equity or cash. They will build this project with debt. And that debt will be cheap because interest rates are cheap, and they are able to borrow very long term under very advantageous rates. They are accumulating their expenditures so far in regulatory accounts, they are accounting for future revenues in deferral accounts, they're engaging in rate smoothing in lots of ways, which have the effect of keeping rates relatively low in the short term. This can't continue. Eventually something has to give.
As you know, they've started on a program of rate increases. They started two years ago, they're sort of half way through their first five year set of rate increases and they've got another set for another five years—all this is before the dam comes into production, and those rate increases are forecast to increase the rates by on the order of 50 per cent real over that decade. This is before you start paying for Site C. This is for deferred capital maintenance, the building of transmission lines, you know, the stuff they normally have to do. When I say 50 per cent, take that with a large margin of error, but it will be substantial. And that's critical because essentially for the 40 years before 2014 we had very low, on a world scale, very low electrical energy prices in B.C. And more or less constant in real terms. The rates were so low that a lot of people really didn't have to pay attention to them, and most didn't. And now as prices start to climb, people look at their monthly bill and say “holy cow, maybe next time I buy a stove I'll look at the energy guide rating on it.”
And commercial users certainly do, industrial users and so on. At a certain point, a long way away as far as B.C. is concerned because of our low base, people are going to start going off grid in a big way.
One arresting little factoid that came up during the panel's work was, do you know who the biggest user of photovoltaic (solar) energy is in the United States?
AHN: No.
HS: Wal-Mart. Ha! Isn't that interesting? Wal-Mart and Costco and the other big box retailers, are massively installing photovoltaics to run their heating and air conditioning and all that stuff.
AHN: And as that continues to happen, the prices go down for installing solar equipment.
HS: Yes. But at the same time, if you read the regulatory filings of privately-owned utilities in the States, you find that they start worrying about, can they really cover their interest costs as they lose customers.
So, the meaning of that is that they will be forced to go to their regulators and ask for increased rates. So the grid rates will be going up while the off-grid stuff goes down. Pretty awkward times. BC Hydro does not have to make those kinds of confessions in public because they're not publicly traded.
AHN: It seems reasonable to think the same thing is happening here, though, or will be.
HS: Yeah. Allow for the fact that we're farther north and cooler and all that kind of thing, but yes. It will be happening.
AHN: Now what about impacts on the Peace Region. You mentioned that the panel rejected the premise of evaluating this project based on the economic impact in that area, but the fact remains that there are a lot of people here that are for the project for the jobs. And it kind of seems that there's a battle between economics and the economy. The price and the need for the dam against the argument for eight years of good-paying jobs. How do you see that balancing out?
HS: I think this clearly puts two interests in opposition. But, put it this way: from the provincial point of view, to look at this in terms of local benefits is misleading. Because this is just a pure displacement effect. If I borrowed $9 billion and spent it on colleges and universities, on new tunnels beneath the Fraser River, on transit in Vancouver, it would produce thousands of jobs, right? Big pay cheques. Lots of happy Chambers of Commerce in the Lower Mainland.
So, as with some of the environmental effects, what we're doing here is moving some of the economic and financial benefits up to the Peace River Region, up to Fort St. John, at a cost to the rest of the province that most people would ignore it, right?
We’re doing the same thing on environmental effects. If the problem is really peak power, peak capacity on a cold winter's day, then far and away the most sensible thing to do would be to fire up the old Burrard thermal plant for three days a year. Well, that would produce smog in the Lower Mainland! Now, of course, those are the folks that are benefitting from the power production. Nonetheless, it is convenient to export the environmental costs to a relatively unpopulated region a long distance away.
AHN: Should the dam ever be built in your opinion?
HS: As far ahead as I can see, a matter of some decades, I would say no. There may come a time when B.C.'s population has doubled, you know, when we really have gotten off carbonaceous energy and so on and so forth when we may need it, but that's farther ahead than I can see.
reporter@ahnfsj.ca
