On August 2, 2024, the BC Minister of Energy, Mines and Low Carbon Innovation wrote to the BC Utilities Commission (BCUC) giving it advance approval to exempt a wide category of BC Hydro capital projects from independent review, even though the BCUC hasn’t asked for that approval.
What could be wrong with that? Well, plenty.
Background
In January, the Premier announced that BC Hydro will invest an “unprecedented” $36 billion in “community and regional infrastructure projects”, an increase of 50 percent over the utility’s previous 10-year capital plan. The government claims this new spending will support up to 12,500 jobs, as “major projects like Site C are completed.”
The government has since made a series of local announcements to explain where this money will be spent. For example, $1.25 billion in Burnaby, $1 billion in Surrey, and nearly $6 billion across the southern interior of the province.
There’s just one small problem – BC Hydro needs the approval of the BCUC before it can make these investments. Section 45 of the Utilities Commission Act is clear – nobody can start construction of new utility systems or extensions to current ones unless the BCUC decides it is in the public interest.
The BCUC review of utility investments is intended to protect the interests of ratepayers, examining whether the investment is needed at all, and if so whether BC Hydro has chosen the best alternative (not necessarily the cheapest). But the BCUC also seeks to protect the public at large, for example testing whether BC Hydro has consulted with the public and any First Nations whose rights might be affected.
The Minister of Energy has the power under Section 22 of the Act to exempt these projects from the BCUC’s review. However, the government is currently under some scrutiny as a result of previous directions it has given to override the powers of the BCUC, and it’s possible the BC Auditor General might take a dim view of further government interference.
The election is coming up fast, so what’s a government to do? Well, if you don’t want to be accused of bypassing the BCUC, why not suggest to the BCUC that it bypass itself?
BCUC exemptions
The BCUC also has the power (under Section 88 of the Act) to exempt BC Hydro from the need to justify its investment projects, but only with the advance approval of the Minister.
Possibly for the first time ever, the Minister has provided advance approval for a BCUC exemption without even being asked. She says that, should the BCUC receive a request from BC Hydro to exempt certain types of projects, then it has her blessing to grant this exemption without further ado.
What is BC Hydro after?
BC Hydro has asked for nothing so far, but it’s pretty clear it will. The Minister innocently says in her letter that BC Hydro “may” choose to seek such an order from the BCUC, but this would surely not be a great surprise to her. She is the minister responsible for BC Hydro, after all. And the government appoints the utility’s board, including the board chair, a former deputy minister to the Premier – it’s hard to imagine they don’t chat from time to time.
BC Hydro could ask the BCUC to exempt it from review for specific projects, or it could go so far as to ask that its entire $36 billion investment program is not reviewed by the BCUC.
The Minister has helpfully provided the BCUC with guidance on which projects it could exempt from review (this privilege is only being extended to BC Hydro, which is owned by the government – all other electric utilities are still expected to seek BCUC approval for their capital projects).
The Minister’s definition of projects includes those in BC Hydro’s capital plan (approved by its board, not the BCUC) which meet certain criteria set out in the letter.
The possibility of such a “class exemption” where all projects meeting certain criteria are exempted from review is problematic. It is hard to define in advance which projects would be in the public interest without examining them individually. The Minister’s criteria, if adopted uncritically, would be particularly problematic.
Why this is not a good idea
There’s no requirement to demonstrate that any project is actually needed, or that the proposed project is the best alternative. Ratepayers will end up paying for these investments whether they are needed or not.
There’s no cap on the total investment. The cap on any individual project is $750 million, but there could be any number of projects that meet the criteria, and there is no time limit for making the investments. To put BC Hydro’s planned $36 billion capital program into perspective, the utility’s current rate base, the depreciated value of all the assets it has ever built that remain in service, is only around $24 billion (forecast figure for F2023).
Even the $750 million cap for each project is problematic. First, it’s BC Hydro’s estimate, not reviewed by any independent party. Further, the government only requires a “Class 4” estimate, which is considered less accurate than the Class 3 estimates required by the BCUC in its application guidelines. BC Hydro’s recent record in estimating the cost of large-scale projects is not good, the worst example being the Site C dam project currently expected to cost at least $16 billion compared to a budget of $8.335 billion.
Then there are the types of projects that the Minister considers worthy of exemption. These include projects such as substations and transmission upgrades on “previously disturbed land”, which sounds reasonable enough. But projects are not limited to land that has been previously disturbed, they must only “involve” such work.
There is no requirement that BC Hydro do any of the public or First Nations consultation that the BCUC would usually require. It was partly this lack of consultation that led to the lack of public legitimacy for the Site C dam project.
This is as close to a blank cheque for BC Hydro’s capital investment program as it gets.
The BCUC’s independence will be tested
The Minister is careful to say that “it is up to the Commission to decide whether to grant the request for an exemption, following a procedure it considers appropriate.”
So it’s all up to the BCUC then, that’s good.
But just in case the BCUC is concerned about perceptions of its independence, here are some ideas it might consider.
First, should BC Hydro request an exemption, the BCUC could conduct an open and transparent proceeding to review whether the proposed exemption meets the BCUC’s Exemption Test. Established in 2006, this states the BCUC will only grant an exemption when it “serves the objects and purposes of the [Utilities Commission Act] and it is in the public interest to do so.”
Second, the BCUC chair could decide not to participate in the proceeding. The decision by the government to fire his predecessor has already tainted the public perception of his independence. Even more pertinently, he was reportedly on the BC Hydro Task Force that recommended the increased spending in the first place. It is hard to see how he could independently adjudicate an exemption request without the perception of bias.
Third, if BC Hydro applies for a class exemption rather than merely exemptions from specific projects, the BCUC could examine very critically the conditions by which projects are exempted, and not be bound by the suggestions provided by the Minister’s letter. If tighter criteria would ensure exempt projects are in the public interest, the BCUC could propose these to the Minister instead.
Conclusion
It’s good to see the Ministry working so hard during the dog days of summer, when those who might scrutinize this letter are enjoying their vacations.
The Minister clearly wants the BCUC to exempt BC Hydro’s capital plan from review, but this has put the BCUC in an almost impossible situation. If the BCUC grants the exemptions, it will be very hard to convince anyone that it made the decision independently. If it doesn’t grant them, the commissioners involved will surely be wondering how long their tenure at the BCUC will last.