BC Hydro & Power Authority

CAARS B.C. Hydro Site C Report - May 3, 1983 1 PART ONE SUMMARY AND RECOMMENDATIONS CHAPTER I - REPORT SUMMARY l.0 INTRODUCTION In September l980, Hydro applied to the government of British Columbia for an Energy Project Certificate to allow it to build a hydroelectric generating station and related transmission facilities. The hydro station, known as Site C, would be located approximately 7 km southeast of Fort St. John on the Peace River (see Figures l and 2). The government referred Hydro's application to the B.C. Utilities Commission under Part 2 of the new B.C. Utilities Commission Act for review and recommendations. The terms of reference for this review call for an examination of the project's justification, design, impacts and other relevant matters. They specifically direct the Commission to recommend whether an Energy Project Certificate should be issued, and if so, what conditions should be attached. The Commission held formal, local community and special native hearings to hear and examine evidence on all aspects of the project. Over 70 panels of witnesses made presentations during the formal hearings and over l00 individuals made presentations during the local community and special native hearings. The Commission's conclusions, based on the evidence and submissions, are summarized in this chapter. 2 FIGURE l 3 FIGURE 2 4 2.0 PROJECT JUSTIFICATION 2.l Electrical Energy Demand Hydro's latest (September l982) "probable" forecast of electricity demand shows Hydro's load growing from 32,359 GWh in its fiscal year l98l/l982 to 5l,l50 GWh by l992/l993, an average annual growth rate of 4.3%. The September l982 "low" forecast indicates an ll-year growth rate of 3.0% ; the "high" forecast a rate of 5.3%. This compares to Hydro's September l98l "low", "probable" and "high" forecast growth rates (l980/8l to l99l/92) of 3.4%, 5.7% and 8.0% per year. The Commission examined the methodology and underlying assumptions of Hydro's forecast in detail. The Commission concludes that, while Hydro has made significant improvements in its forecast methodology, further improvements can and should be made. Hydro's forecasts, like those of the Ministry of Energy, Mines and Petroleum Resources, neither explicitly take energy prices into account nor rely on statistically significant past patterns of behaviour. Incorporating econometric methods into the forecasting process in a total energy context could improve the reliability of Hydro's forecasts, which, as Hydro itself noted, have been unreliable in the recent past. Gross provincial domestic product (GPDP), the measure of total economic activity in the province, is a key variable underlying the forecast of electricity requirements. Hydro's latest GPDP projections were prepared in July l982 and were predicated on an immediate turn- around in the U.S. economy, shortly followed by a turn-around in the provincial economy. On that basis Hydro projected that GPDP (adjusted for inflation) would only fall 2% in l982 and would increase by 3.2% and 4.4% in l983 and l984 respectively. Over the long 5 term, steady growth between 3.5% and 4.0% per year was expected. The Commission notes that Hydro's l982 projection has now proven overly optimistic and the l983 and l984 projections may prove overly optimistic as well. The Commission concludes that, unless very high economic growth rates are realized in the late l980's, Hydro's GPDP projections will be too high for the entire period. In terms of specific industry outlooks, the Commission notes that Hydro's forecasts assume considerable expansion in all sectors, with major expansions in forestry, mining, petrochemical and other industries. Seven new chemi-thermal mechanical pulp mills are assumed to come onstream by the mid l990's. All existing and newly constructed coal mines are assumed to be operating at full capacity by l990. A liquefied natural gas plant, natural gas liquids extraction plant, an ethylene and derivatives plant, and an ammonia/urea plant are all assumed to be constructed by l992. The Commission concludes that these forecasts describe the maximum potential outcomes rather than the most likely. Hydro's evidence clearly indicates that electricity prices can be expected to rise in real terms over the next l0 years with particularly pronounced increases over the next five-year period. The Commission concludes that these increases are not fully reflected in Hydro's load forecast. Hydro explicitly incorporated conservation allowances in its forecast, and attributed these allowances to price impacts. The Commission concludes that Hydro's treatment of conservation is inadequate and confusing. It is not clear how much of the allowances are due to appliance standards or regulatory measures, and how much are due to B.C. energy prices and conditions. The Commission notes that the conservation allowances are lower in Hydro's September l982 than in its September l98l forecast, even though higher real electricity prices are now forecast. 6 Hydro's forecasts assume technological shifts to more electricity- intensive industrial processes. This is most important in the forestry sector, where some 73% of the forecast growth in forestry electricity requirements is assumed to derive from electricity-intensive mechanical pulping. The Commission questions whether such shifts will take place as extensively or rapidly as Hydro has forecast in light of rising electricity prices and deferrals of new capital spending. In forecasting the amount of electricity it will have to supply, Hydro deducted from its forecast of total electricity requirements the amount that will be supplied by industry itself. The Commission concludes that the potential for industry self-generation and co- generation is greater than Hydro has assumed, but whether that potential will be realized is unclear. In part, this will depend on whether various pricing and institutional impediments to self-generation are removed. The Commission concludes that Hydro's demand forecast should be viewed as an upper limit to possible future electricity requirements and that for all of the foregoing reasons, a lower demand than Hydro has forecast in its "probable" case is likely. The Commission reviewed demand in the export markets. The Commission concludes that markets do and will continue to exist in California where hydroelectric power can be used to displace oil and gas-fired thermal power generation. Because of Hydro's ability to store water and to time its sales to when intertie capacity is available, transmission constraints should not pose an insurmountable impediment to export sales destined for California. However, the value of these sales will depend on oil and gas prices and on the extent of electricity surpluses in other regions, both of which are likely to constrain export prices until the late l980's. The market in the Pacific Northwest is less certain, depending on water conditions and future developments in both demand and supply in the region. 7 2.2 Electrical Energy Supply On the basis of its September l982 probable forecast Hydro indicated that a new energy source will be required by October l990 to avoid shortfalls of firm supply. Hydro recommended Site C as the best feasible source of supply to meet the forecast requirements. Hydro defines firm supply as the sum of its hydroelectric capability under critical water conditions, plus the energy capability of its Burrard thermal plant using gas supply available during off-peak periods, plus the energy available from firm purchase contracts. Hydro tries to time new facilities to ensure that probable demand does not exceed this firm supply. The Commission notes that if better than critical water conditions prevail, if more than just off-peak gas could be made available to Burrard, if firm purchase or contingency planning agreements could be negotiated with neighbouring utilities or if new purchase contracts could be negotiated with industrial producers, the need for a new project could be significantly deferred. With respect to water conditions, the Commission concludes that, while it is prudent to plan on the basis of a recurrence of a series of low- water years, Hydro should give high priority to investigating other ways of dealing with this possibility. One such method would be a planning agreement with Alberta whereby offpeak thermal power could be used to conserve water during low flow periods. Hydro officials cited this as a potential advantage of the Alberta Intertie line when it was proposed and reviewed. With respect to the Burrard thermal plant, the Commission concludes that greater utilization of Burrard could defer the need for a new project by about one year. Policy direction from government on the value and marketability of natural gas and other matters is required in order to determine if greater use of Burrard is in the provincial interest. 8 In light of continuing uncertainties regarding both demand and supply, the Commission concludes that it is unclear when a new source of electrical energy will be needed. While Hydro's "probable" forecast and firm supply indicated a l990 in-service date, its "low" forecast and any new arrangement that would increase its supply capability by 4,000 GWh per year would indicate a l998 in-service date. The latter is only a possibility and is not necessarily the most likely, but it does indicate the wide range of uncertainty. The Commission concludes, that because of this wide range, it is important to consider the consequences and costs of planning errors that result in overbuilding or undersupply. While the Commission recognizes that undersupply can impose serious consequences and should be avoided if at all possible, the Commission also recognizes that overbuilding imposes significant economic costs, particularly in light of the export market conditions currently forecast to prevail over the next decade. The Commission concludes that overbuilding should be avoided if possible, and that overbuilding could occur if a decision to build new generating capacity is made too soon.

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