Irrational Economics of Site C Dam Project
by Peter Ewart - BC Worker
April 28, 2017
The BC Liberal government is plunging ahead with its controversial Site C dam project in the northeast of the province, despite more dire warnings from researchers and experts in the fields of energy and water, and broad community, Indigenous, and environmentalist opposition. Because of its colossal costs, as well as the importance of lower cost electricity to the BC economy, many feel this project could seriously harm or even destabilize the provincial economy in the future.
In that regard, on April 19, researchers with UBC's Program on Water Governance issued a report calling for a suspension of the construction of the Site C Dam on economic grounds. Site C, a mega-project undertaken by BC Hydro and promoted by the BC Liberal government, is estimated to cost $8.8 billion (and likely more after all costs are factored in), making it the largest public works infrastructure project in the province's history. One estimate puts the cost at about $5000 per BC household.
The researchers argue that the "business case" for the dam project is weak as a result of a "dramatic decline in projected energy needs," continued low prices in the US, and a significant reduction in the cost of alternative sources of electricity such as wind, solar, geothermal, and natural gas.
Once in operation, the dam will generate a 100 per cent surplus of electricity. This excess will extend for nearly a decade after commissioning, resulting in as much as a $1 billion loss (in addition to construction costs).
The shortfall will have to be made up for by BC Hydro which likely means dramatically jacked up power rates for home, commercial and industrial users across the province.
In the opinion of the researchers, suspending the construction of Site C (and having the project reviewed by the BC Utilities Commission) is still within the realm of possibility economically speaking. Using BC Hydro's own figures, either suspending or canceling the project "would save between $500 million and $1.65 billion, depending on future conditions."
Many hundreds of people from across BC have come forward to express their views on Site C and have a say on matters that affect their lives, but they are blocked by the political system. Photo shows hundreds of "Stake in the Peace" stakes purchased by BC residents and planted at a farm in Bear Flat along the Peace River, with money going to fund the resistance
to the Site C project.
In their conclusions, the researchers note that without a suspension or cancellation, the economic risks of Site C will likely only magnify as time goes on.
This particular report is just the latest in a number of reviews and reports, as well as expert statements, slamming the Site C project as an economic boondoggle and potential disaster. Indeed, even sections of the corporate establishment have expressed their doubts in past years.
In the early 1980s, BC Hydro put forward a proposal to build a Site C dam. However, the BC Utilities Commission, a regulatory body established by the provincial government, recommended the dam proposal be rejected on the grounds that it was not needed then, and that BC Hydro's forecasting of electricity demand was faulty.
In the late 1980s, the proposal was resuscitated; but, by 1993, even the head of BC Hydro at that time, Marc Eliesen declared that the Site C project was dead, because "the fiscal exposure [was] too great ... the dam too costly" and the environmental impact unacceptable.
However, despite previous verdicts and longstanding opposition from various quarters, the BC Liberal government in 2010 announced to the surprise of many that Site C was "on again" as a "clean energy project." The government also announced that Site C and various other projects would be exempted from review by the BC Utilities Commission. In making the decision, then-Premier Campbell claimed that demand for power was to increase by 20 to 40 per cent in BC over the next two decades. This claim has subsequently been proven wrong as electrical energy demand has remained more or less flat since 2005.
In 2013, a Joint Review Panel was commissioned by the federal and provincial governments to review the proposal. It concluded that BC "will need new energy and new capacity at some point" and that Site C would be the "least expensive of the alternatives." But it also stated that BC Hydro "had not fully demonstrated the need for the project on the timetable set forth" and recommended that the project demand estimate and other aspects be referred to the BC Utilities Commission for review.
Since then, Dr. Harry Swain, former Chair of the Joint Review Panel, has come out fully against the project arguing that the electrical power will not be needed and that the government's failure to explore alternative energy sources amounts to a "dereliction of duty." He has further stated that "people are going to wind up paying for a stranded asset through their taxes for years and years to come. Hydro will not have the financial capacity to pay it, so it will fall the guarantors of their debt, that is, the taxpayers."
Internationally recognized energy expert Robert McCullough and economist Dr. Murray Shaffer issued a research report in 2013 that concluded "there is not a need and justification for Site C as proposed by BC Hydro" and that there were far cheaper energy alternatives.
For his part, Marc Eliesen, who is no longer with BC Hydro, has also become a fierce critic, predicting that the final cost "will be in the range of $11 to $12 billion," that the dam project "is scheduled to become a big white elephant," that the project is "totally irrational," and that it "does not make any economic sense."
David Austin, a lawyer who specializes in energy issues, was able to cross examine BC Hydro executives in front of the BC Utilities Commission in August 2016. In the course of the cross examination, the executives revealed the astounding news that the Site C project would not be paid off for 70 years after it is finished (in 2024). Austin noted that the provincial government was proceeding from "a completely unorthodox financial analysis" and that "you just don't do that in this day and age."
While some sections of the corporate establishment, like the BC Chamber of Commerce, have expressed full support for the Site C project, other sections over the years have expressed reservations or have come out in direct opposition. For example, Richard Stout, the then-executive director of the Association of Major Power Customers of BC, stated in 2014 that the "original load forecasts [put forward by BC Hydro] are going to be wrong" and that "it's not the right project right now." The Association is made up of some of the largest BC Hydro customers including pulp & paper, solid wood, mining, electrochemical and petrochemical corporations representing about 20 per cent of the domestic electricity load in BC.
Another former executive director of the Association, Dan Potts, argues that "the huge cost [of Site C] will rob the province of valuable resources that could be used to deliver other needed government services as well as burden the BC economy with debt and high electric power rates that will sap our competitiveness."
Since 2014, the Association has not made any further statements about Site C, either for or against. However, Stout and Potts continue to speak out strongly against the project.
What has become clear is that sections of the corporate establishment have clashing interests in regards to Site C, with the government favouring certain sectors over others, and the oligarchs over everyone else. For example, the BC Liberal government has promised liquefied natural gas exporters and fracking companies electrical power from the Site C dam to be provided at below cost.
Yet other sectors of industry have expressed worries about future power costs for them. For example, the Canfor Taylor pulp mill is one of the major customers for electricity generated by BC Hydro. Craig Thomson, energy and environment supervisor at the mill, was quoted in 2014 as saying that "industry in BC was built with a foundation of low power rates, but in the last five years that has changed and Site C would be the final straw .... Possibly it's going to drive our industry out of business."
Interestingly, in 2015, Susan Yurkovich, who was executive vice president at BC Hydro, and led the development of the Site C project, left that position and became president of the Council of Forest Industries, an organization that includes many of the major customers of BC Hydro, some of whom would likely also have been members of the Association of Major Power Customers of BC. As noted before, the Association, although speaking out against Site C in 2014, has been quiet about it since then. Was this the result of some kind of compromise or deal struck between the BC government, BC Hydro and the major power customers? If so, that is similar to what happened when BC Rail was privatized. In that case, it seems the big forest companies were given lower shipping rates for a period of time in exchange for holding back their concerns about the rail sell-off.
For its part, the news website Business in Vancouver published an editorial in 2015 arguing that "the potential for runaway costs on Site C is significant, and the rationale for investing in the megaproject remains questionable."
Over the years, Site C proponents, including BC Hydro and the BC government, have put forward various, often shifting, reasons to justify the construction of the dam, including meeting future provincial energy needs, supplying fracking operations and the LNG industry, creating jobs, and exporting power to Alberta and the U.S. But the purpose of this huge and costly mega-project remains hazy with many observers and critics left scratching their heads. Certainly, when stacked up against the greater good of the province and its people, it is irrational and reckless.
In determining the purpose, perhaps a better idea is to ask the question: Who benefits from this potential stranded asset? Certainly, the monopolies constructing the dam will profit hugely, as will the banks and institutions financing it, and the oil and gas industries which will receive power likely at greatly reduced rates.
So why is the BC government continuing to push ahead with the controversial project? Is this a case of a faction of the financial oligarchy, in league with government, seizing control of a publicly-owned asset for its own narrow interests in defiance of the public interest and even other sections of the oligarchy? Is it yet another example where the oligarchy has discarded the old regulatory structures (like the BC Utilities Commission) that were used in the past for sorting out inter-oligarchic contradictions, as well as giving an appearance of public oversight?
Now what tended to be hidden before has erupted into an open "law of the jungle" situation where the winner takes all and damn the consequences, no matter the destruction wrought upon the economy and people of the province by an out-of-control faction of the financial oligarchy.
Such capture of a public enterprise by private interests has already happened in British Columbia and Canada many times over the last several decades, one of the most notorious examples being the takeover of BC Rail, a Crown corporation, by the private North American monopoly CN Rail.
Indeed, this may well be the ultimate aim of burdening BC Hydro with huge debt and stranded assets like Site C; that is, to eventually break up, sell off and privatize the public enterprise. This privatization is already well on its way. Since 2002, the BC Liberal government has ordered all new power projects (with the exception of Site C) "to be privately built and financed with the new power contracted to BC Hydro at high guaranteed rates."
Given the evidence, it is entirely reasonable that the Site C dam project be halted immediately on economic grounds, let alone the very legitimate other concerns of Indigenous peoples, farmers and environmentalists.
It is also entirely reasonable, and a growing necessity, that British Columbians and Canadians need a new direction for the economy. A direction in which we, rather than out-of-control financial oligarchs, have control over our future. A direction that strengthens the public interest rather than the irrational and reckless schemes and private factional interests of the oligarchy.
Peter Ewart is a columnist and writer based in Prince George, British Columbia. He can be reached at: firstname.lastname@example.org
1. R. Hendriks, P. Raphals and K. Bakker, "Reassessing the need for Site C," Program on Water Governance, University of British Columbia. 2017.
2. "A tremendous cost," www.justthedamfacts.ca.
3. Marc Eliesen, quoted in "Four decades and counting: a brief history of the Site C dam," DeSmog Canada, March23, 2017.
4. Report of the Joint Review Panel. Minister of Environment, Government of Canada & BC Minister of Environment. May 2014.
5. Harry Swain, quoted in Stakeinthepeace.com.
6. Harry Swain, quoted in "Hydro bill madness," Sierra Club BC, March 2017.
7. Marvin Shaffer, "Assessment of the need for and alternatives to the Site C project." Peace Valley Environmental Association, November 25, 2013.
8. Marc Eliesen, quoted in "Hydro bill madness," Sierra Club BC. March 2017.
9. Marc Eliesen, quoted in "They're killing the Peace River Valley now," Andrew Nikiforuk, The Tyee, December 17, 2015.
10. David Austin, quoted in "Taxpayers on the hook for Site C dam until 2094," Nelson Bennett, Business in Vancouver, November 1, 2016.
11. Richard Stout, quoted in "B.C. Business Community Slams ‘Astronomical' Cost of Building Site C Dam," Judith Lavoie, DesmogCanada, June 10, 2014.
12. Dan Potts, quoted in "Site C dam: A waste of your money," Peace Valley Environmental Association.
13. "Hydro bill madness," Sierra Club BC, March 2017.
14. Craig Thomson, quoted in "B.C. Business Community Slams ‘Astronomical' Cost of Building Site C Dam," Judith Lavoie, DesmogCanada, June 10, 2014.
15. "Cost uncertainty a Site C certainty," Editorial, Business in Vancouver, December 1, 2015.
16. "Executive decree hands billions to monopolies to construct and finance Site C dam." BC Worker, February 23, 2016. 17. Edith Cohen, "Liberal government cover-up," BC Worker. Feb. 5, 2014.