VZCZCXYZ0075
RR RUEHWEB

DE RUEHVC #0042/01 0262232
ZNR UUUUU ZZH
R 262231Z JAN 10
FM AMCONSUL VANCOUVER
TO RUEHC/SECSTATE WASHDC 0065
INFO ALL CANADIAN POSTS COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS VANCOUVER 000042 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG ECON CA
SUBJECT: AS BC POSITIONS TO BECOME A CLEAN ENERGY LEADER, CRITICAL 
POLICY GAPS REMAIN 
 
¶1. Summary:  Stakeholders in British Columbia's electricity sector 
are finally beginning to see some clarity in the BC government's 
approach to the procurement and possible export of electricity in 
the province.  The independent regulator, the British Columbia 
Utilities Commission (BCUC), sent shock waves through the industry 
in July, issuing a controversial ruling rejecting several major 
premises of provincial Crown-owned BC Hydro's Long Term Acquisition 
Plan, including the mandate for purchasing green renewable power 
over traditional natural gas and large hydro projects.  In October 
and November, the administration of BC Premier Gordon Campbell 
responded, issuing a Special Direction effectively sidelining the 
aging natural gas generation plant in question and striking four 
Green Energy Advisory Task Forces to provide further guidance. 
Critical gaps remain in BC's electricity policy, including a clear 
export policy and clarification on private power procurement 
practices. In the long run, however, Campbell's administration is 
pressing forward with a strong mandate for independent renewable 
power for both domestic consumption and export to the U.S. End 
Summary. 
 
 
 
Background 
 
 
 
¶2. BC Hydro is the dominant player in the generation, domestic 
sales and export of electricity for British Columbia.  As directed 
by Campbell's administration in 2002 and reaffirmed in its 2007 BC 
Energy Plan, BC Hydro must procure all new generation (with the 
exception of one possible future source - the Site C dam on the 
Peace River) from Independent Power Producers (IPPs) using 
renewable sources, such as wind and water.  Ninety percent of the 
electricity generated in the province emits no greenhouse gases 
(GHGs), and the administration has mandated via the Energy Plan 
that it remain this way.   All new generation must be GHG net 
neutral, and coal and nuclear generation are prohibited for the 
foreseeable future. The province must be "self-sufficient" in 
energy production by 2016, with the ultimate goal of becoming a 
consistent power exporter. 
 
 
 
BCUC Says "No" to Private Renewable Power 
 
 
 
3.(SBU) Against this backdrop, in its July ruling, the BCUC 
rejected BC Hydro's heavy reliance (up to 72%) on Demand Side 
Management (DSM)(conservation measures by BC Hydro customers via 
various incentive and penalty programs) as being unrealistic, and 
declining to endorse BC Hydro's estimates for purchasing IPP 
renewable power to meet government's self-sufficiency standard. 
Because the BCUC was unconvinced by BC Hydro's argument for DSM to 
achieve self-sufficiency, it  directed the utility to use the aging 
and GHG-emitting 900 megawatt (MW) Burrard Thermal natural gas 
power plant located in Metro Vancouver (at present only used for 
emergency backup, at ten percent or less of its capacity 
annually)to meet power consumption marks. The BCUC justified its 
ruling on the basis of cost and reliability, arguing that 
acquisition of power from Burrard was cheaper and more reliable 
than using the IPPs (particularly given the higher price and 
attrition rate of previous IPP projects).  In doing so, it appeared 
to ignore environmental concerns and goals outlined in the BC 
Energy Plan.  The July ruling was interpreted by most stakeholders 
as a challenge to the government's policy on procurement of 
additional renewable power from private producers. The ruling also 
jeopardized the much-delayed results of BC Hydro's "Clean Power 
Call" - its request for proposals (RFP) from the IPPs.  The impact 
of the ruling on the industry was immediate. Publicly listed IPPs 
experienced sharp declines in their stock values. One IPP President 
told us his stock has declined 40% since the BCUC decision was 
announced in July. Prior to the BCUC decision, the IPPs had become 
a favourite of investors looking to enter the clean energy market. 
Companies such as U.S.-based General Electric have invested 
significant funds in burgeoning IPPs in BC since 2008. 
 
 
 
¶4. Analysts also suggest that the decision points to incomplete 
policymaking on the part of the BC government in its directives to 
the BCUC.  They note that the Campbell administration is struggling 
with setting appropriate guidelines for the independent regulator, 
which should be considering power procurement decisions on the 
basis of broader criteria than the traditional economic efficiency 
model of low cost and reliability of sources.  In jurisdictions 
 
 
where renewable power is a policy priority, green attributes are 
beginning to matter at least as much as reliability and low cost. 
The critics argue that unless regulators have their decision 
criteria re-aligned through legislation or special orders, 
disconnects will continue to occur between government policy and 
regulatory action. 
 
 
 
BC Pushing Ahead with Clean Power Call 
 
 
 
¶5. The BC government undertook several actions throughout the fall 
of 2009 to mitigate the effects of the BCUC decision and get its 
green Energy Plan back on track.  In late October the Minister for 
Energy, Mines and Petroleum Resources, Blair Lekstrom, issued a 
Special Direction to the BCUC, clearly signalling the BC 
government's intent to end reliance on the Burrard Thermal plant. 
This in turn clears the way for BC Hydro to continue with its Clean 
Power Call for up to 6,000 gigawatt hours (GWh) of renewable power 
(1,000 GWh of which is expected from bioenergy).  The much-delayed 
call (results were expected in June 2009), has re-started, with a 
more limited pool of proposals.  The utility has dropped 21 of the 
68 proposals initially submitted, accepted another 13 to move 
forward, and invited 34 proponents to sharpen their pencils and 
re-submit proposals to make them "more cost-effective".  This move 
has reassured some ratepayers with an interest in continuing to pay 
among the lowest electricity rates in North America, while some IPP 
project proponents feel that they are taking a loss by having to 
re-quote at lower price levels. One IPP contact told us that the 
high rate of project failures seen in earlier calls suggests that 
the lowest-cost project is not necessarily a more viable project. 
 
 
 
¶6.  In other actions, the BC Premier announced the formation of 
four Green Energy Advisory Task Forces, to incorporate expert 
opinions on BC energy policy in the following areas: 
 
 
 
a.      Procurement and Regulatory Reform - will recommend 
improvements to BC Hydro's procurement and regulatory regimes, 
particularly concerning the promotion of clean and cost-effective 
power generation. 
 
b.      Carbon Pricing, Trading and Export Market Development - 
recommending ways to advance BC's interest in national or 
international cap & trade system(s), and to maximise the value of 
BC's green-energy attributes in power generation, domestic 
distribution and trading. 
 
c.      Community Engagement and First Nations Partnerships - will 
recommend ways to ensure First Nations and communities benefit from 
renewable electricity generation, and have the opportunity for 
input into project development in their regions. 
 
d.      Resource Development - will identify impediments to and 
best practices for planning and permitting renewable generation in 
an environmentally sustainable way, and will work with clean energy 
sectors (including for forest fibre) to enhance competitiveness. 
 
Most stakeholders view these task forces, which have been given a 
very short time frame to deliberate and report (second week of 
January 2010), as a tool to help close some of the policy gaps and 
give rubber stamps for the Campbell administration's policies. 
 
 
 
¶7. (SBU) Commentary:  The BC government has brought the turmoil of 
the BCUC decision on itself, providing inadequate guidance to the 
regulators on evaluating future power sources in light of GHG and 
climate change concerns, and more generally neglecting strategic 
policymaking on resource procurement and distribution/export. 
There is certainly much more to come with the results of the task 
forces' reports, although it is unclear whether these will be made 
public. However it likely that an updated Energy Plan is 
forthcoming.  With such a short time frame, and given the 
composition of the task forces, it is safe to guess that their 
conclusions and recommendations are pre-ordained.  On the input 
side, confidential readouts from our contacts suggest that the 
relevant task force will recommend feed-in tariffs for IPP 
renewable energy, as was recently legislated in Ontario (which 
bills itself as the first North American jurisdiction to do so). 
Feed-in tariffs set a guaranteed price paid by the utility for 
 
 
renewable power (set higher than the market rate), typically 
combined with ensured access to the electricity grid.  On the 
output side, there will more than likely be an overt export policy. 
IPPs are calling for it, and have calculated that there will be too 
much power procured for merely domestic consumption.  Further, 
their business cases are premised on profits from eventual exports. 
It remains to be seen, however, if the domestic constituency will 
support the BC government's plan of becoming a major power 
exporter, particularly if it means paying higher electrical bills 
at home to tap into all that renewable energy from the IPPs.  BC 
also faces other hurdles in becoming a net power exporter, 
including aging transmission infrastructure and U.S. regulations. 
We will report in later cables on the outcome of the task forces' 
reports and BC's power export challenges. In particular, we will 
report on whether BC follows Ontario's domestic input content 
requirement for its feed-in tariff.  End Comment. 
CHICOLA