Canada: "Zapping" Back: Clean Energy BC Responds To Critical Review Of BC Hydro's Purchase Of Power From BC IPPs

In a document released March 21, 2019 (the "Response"), the Clean Energy Association of BC (CEBC) has responded to a critical report released in February that alleged that BC Hydro, in entering into agreements to purchase energy from independent power producers (IPPs) in British Columbia, "bought too much energy, paid too much for the energy it bought, and undertook these actions at the direction of the Government".

The "Zapped" Report

The Response aims to rebut various assertions made in a recently released report commissioned by BC's Minister of Energy, Mines and Petroleum Resources, entitled "Zapped: A Review of BC Hydro's Purchase of Power from Independent Power Producers" ("Zapped"). In Zapped, author Ken Davidson strongly critiques the procurement of power from IPPs by BC Hydro and lays the blame squarely on the government policies, legislation and directives that Zapped concludes had driven misguided energy practices.

Zapped asserts that while BC Hydro began purchasing power from IPPs in the mid-1980s at low volumes and without impacting market prices, this practice evolved in the early 2000s, starting with the 2002 BC Energy Plan, which directed BC Hydro to purchase energy from IPPs rather than constructing its own power-generation facilities, and continuing with the 2007 BC Energy Plan, which mandated (1) that at least 90% of all energy generated in BC be from "clean", renewable sources and (2) that the province become self-sufficient, meeting power demands from facilities within the province. Zapped states that the 2007 BC Energy Plan also directed BC Hydro to price energy procured from IPPs at set prices based on its most recent power call, rather than by market value. When combined with various government directives to BC Hydro to change its energy planning processes in a manner that, according to Zapped, "created the appearance of an urgent need" for 8,500 GWh per year of new firm energy, Zapped concludes that BC Hydro was left with no option other than to meet inflated power demand by procuring energy in earnest through electricity purchase agreements (EPAs) with IPPs at non-market rates that delivered non-firm energy in excess quantities.

Zapped also alleges that the BC government had been advised by early 2009 that energy prices could be expected to drop as gas production volumes increased from shale gas and fracking sources and that industrial load was declining, but that it nonetheless proceeded with procurement of energy from IPPs at a premium Zapped concludes was "far in excess" of what would have been sufficient to incentivize IPPs. According to Zapped, BC Hydro could have avoided purchasing 8,500 GWh of energy per year—which Zapped concludes it does not need—had the government responded properly to market changes and directed BC Hydro accordingly.

Zapped also critiques BC's 2010 Clean Energy Act, which exempted a number of major capital projects and programs, including the Site C dam and the power calls and standing offer program pursuant to which BC Hydro entered into EPAs with IPPs, from the need for approval by the British Columbia Utilities Commission (BCUC), the regulator tasked with balancing energy ratepayers' interests in receiving reliable energy at fair rates with service providers' interests in earning a fair return on their investments. Zapped contends that "the effect of this change was to move the approval of all the projects into the unfettered control of the Government, without the independent oversight and protection for ratepayers typically provided by BCUC." Simultaneously, Zapped claims, the Clean Energy Act severely limited the ability of the BCUC to approve rate proposals, since it required the BCUC to approve rates sufficient for BC Hydro to recover the costs of energy procurement from IPPs that the BCUC had not had the opportunity to approve.

Zapped draws three overarching conclusions: that BC Hydro bought too much energy and energy with the wrong profile, that it paid too much for the energy it bought, and that it undertook these actions at the direction of government without BCUC oversight.

Zapped pegs the financial impact of the EPAs entered into with IPPs as a result of the government directions critiqued in the report at an estimated $16.2 billion over 20 years—the period during which Zapped estimates BC Hydro is unlikely to require all of the purchased energy—with an estimated annual impact of $808 million per year or approximately $200 per year per residential ratepayer over that term. Moreover, Zapped claims that even if energy demand grows such that the additional load is required, BC Hydro will lose an additional ~$6.8 billion selling energy to ratepayers at rates lower than the rates BC Hydro has contracted to pay IPPs for that energy.

Zapped also critiques the inflation protection mechanisms in EPAs with IPPs, which in some cases provide full Consumer Price Index (CPI) protection to the applicable IPP. This is notably the case for the 60-year EPAs for the Forest Kerr, Volcano, and McLymont Creek hydroelectric projects, for which Zapped states that the estimated impact of inflation risk could potentially add another $1 billion in estimated costs over the next 20 years and incremental inflation risk over the balance of the EPA terms of approximately $7 billion.

Report Recommendations

While Zapped notes that there is no quick fix to the problems it identifies, it sees opportunities to address them when EPAs expire by renewing the EPAs on a market-rate pricing basis. In the case of EPAs that relate to projects offering intermittent energy, Zapped recommends that BC Hydro offer to renew EPAs only at the applicable "Mid-C" rates (the price at which energy trades at the Mid-Columbia power trading hub), and for terms of only five to ten years. This would constitute a significant shift from the EPA renewals BC Hydro has engaged in to date, which Zapped states have considered the IPP's cost of service and rate of return in rate-setting.

Rather than engage in bilateral negotiations with IPPs, Zapped recommends that BC Hydro determine a single commercial proposal to present to all IPPs upon EPA renewal. Although it states that the province faces a projected energy surplus until sometime in the 2030s, Zapped recommends that BC Hydro renew all EPAs if it can align future energy prices under the EPAs to Mid-C rates and rely on Powerex Corporation (BC Hydro's electricity marketing subsidiary) to trade excess power in the interim at Mid-C rates.

If IPPs feel they can get a better price for their energy than Mid-C rates, Zapped asserts that they have the option to trade energy directly in the market, but that the costs of shaping and firming energy would then fall on the applicable IPP.

To the extent that an IPP cannot meet its operating costs at the Mid-C rate, in an effort to control site remediation, Zapped recommends that BC Hydro take into account potential liquidation scenarios in its commercial arrangements with IPPs, offering to purchase at a pre-set percentage of original cost the assets and undertakings of any failing projects that do not result in sales to third parties.

In the case of biomass EPAs, Zapped recognizes ancillary benefits, such as support for the forestry sector and communities and use of wood waste, that would be lost in the case of a project failure, and therefore suggests that current biomass EPAs will likely need to be renewed at a rate above Mid-C in the short term. Zapped therefore suggests that the policy rationale for what the report considers non-commercial terms may need to be the subject of a government directive and the renewal terms exempt from BCUC oversight for a period.

Zapped also recommends:

  1. Reversing the "self-sufficiency" mandate that Zapped says interfered with BC Hydro's energy planning processes, allowing a reasonable level of trading by Powerex and not requiring "insurance" energy availability.
  2. Terminating BC's Standing Offer Program by legislative action.
  3. Improving transparency of non-commercial transactions involving BC Hydro that are mandated by government, to avoid the potential for provincial expenses to be "buried" in BC Hydro and passed on to ratepayers in rate increases. Zapped recommends that BC Hydro be required to disclose any difference between Mid-C and contracted energy rates and any case where the business case supporting procurement of energy is not commercial. As part of this, Zapped recommends transparency with respect to any Impact Benefit Agreements entered into between BC Hydro and First Nations that relate to energy procurement.
  4. Reinstating the full oversight mandate of the BCUC and reversing the changes implemented through the Clean Energy Act.
  5. Caution with solar and wind energy projects. Zapped concludes that it is unlikely that wind and solar energy can be generated in a competitive manner in BC under current conditions, and that BC Hydro holds sufficient "green certified" energy to meet limited trading opportunities with California. As such, it recommends scrutiny of any business case for new IPP projects on the basis of producing green-certified energy for export.

As a whole, Zapped constitutes a sharp rebuke of government policies, legislation and directives with respect to BC Hydro's energy planning and purchasing practices from the early 2000s onward. If its recommendations are implemented, Zapped is likely to have a significant impact on the renewal terms and process for EPAs reaching the end of their terms. Its impact is already being felt: BC Hydro swiftly followed up Zapped's release by announcing that its Standing Offer Program has been suspended indefinitely as of February 14, 2019, and its publication coincided with the release of the Phase 1 Final Report of the Comprehensive Review of BC Hydro by the Ministry of Energy, Mines and Petroleum Resources.

CEBC Response

Not surprisingly, Zapped's conclusions and recommendations elicited a strong response from participants in BC's IPP community, including CEBC. In the Response, CEBC sets out to rebut a number of assertions in Zapped, which it dismisses as "a political document designed to make news headlines." In particular, the Response critiques the three figures factored into Zapped's calculation that EPAs entered into with IPPs since 2007 will cost BC ratepayers an unnecessary $16.2 billion over 20 years: Zapped's estimate of 9,500 GWh per year of "unnecessary" and "forced" energy demand, its use of the Mid-C rate to calculate the cost of that surplus energy, and the duration of that surplus volume.

The Response counters Zapped's allegation that the 2007 BC Energy Plan was intended to create the appearance of an energy shortfall, pointing instead to statements and figures indicating that the self-sufficiency mandate in the plan was a response to high levels of importation of energy at spot-market prices over the years preceding the plan and a determination that acquisition by BC Hydro of an additional supply of "insurance power" beyond projected load growth would be prudent. The Response argues that the calls for IPP energy in 2008 and 2009 were based on BC Hydro forecasts of load growth at the time (which the Response claims remained bullish through 2010) and that BC Hydro, like many utilities, businesses and financial organizations, did not and could not have foreseen the dramatic and long-lasting impact of the 2008 financial crisis on load growth in BC. As EPAs entered into after August 2010 totalled only 40% of the 9,500 GWh "unnecessary" energy figure used in Zapped to calculate the impact on ratepayers, the Response suggests that the calculated impact is considerably inflated.

The Response also counters assertions in Zapped that the 2007 BC Energy Plan required BC Hydro to close down the Burrard Thermal Generating Station and that the plant was as clean or cleaner than gas generation relied on in California today, stating that the plan only mandated reduced use of the plant and that the aging facility was outdated, inefficient and expensive to operate, in addition to producing higher greenhouse gas emissions than the average plant.

The Response also critiques Zapped's use of Mid-C rates to calculate the amount by which Zapped alleges BC Hydro has overpaid for the energy it has agreed to purchase under EPAs with IPPs, claiming that volatile spot prices such as Mid-C are not used by utilities or other relevant industry players as the basis for building new electrical generation projects, since they provide none of the assured return on capital necessary to obtain financing to build an energy project; instead, competitive calls are issued and long-term EPAs are entered into with the lowest bidders to ensure security of supply and price for the utility and return on capital for the energy project. The prices arrived at by this competitive process, the Response emphasizes, are market rates. The Response points out that the Mid-C rate was not used as a comparator for the Site C project or other new projects and asserts that it is not used by the BCUC, Canadian Environmental Assessment Agency or other utilities. Accordingly, the Response claims the use of Mid-C rates as a measure of overpayment by BC Hydro for IPP power is misguided and that, in any event, the $25/MWh Mid-C price used in Zapped is too low, given that it is less than half of the $54/MWh forecasted average Mid-C price between 2020 and 2040 suggested by BC Hydro's Mid-C forecasting.

Lastly, the Response argues that on the basis of both historical and forecast surplus figures from BC Hydro, Zapped inflates the province's actual and expected energy exportation. The Response asserts that between 2009 and 2018, the total of the actual net exported energy surplus based on BC Hydro figures was 15,531 GWh, versus the 95,000 GWh estimated in Zapped, and that between 2019 and 2028, the forecast total exported surplus, after deducting Site C, is expected to be 7,925 GWh, versus Zapped's estimate of  95,000 GWh, which is 12 times higher. Cumulatively, the Response estimates that surplus energy exports will amount to only 12% of Zapped's estimate.

In light of its critique of these three measures used to calculate the estimated $16.2 billion overspend claimed in Zapped, the Response claims that the estimate is "totally incorrect and unfounded".

The Response also appends responses to Zapped with respect to BC's wind power and solar power industries. The wind response argues that Zapped failed to consider the "current economic and technical reality" that it claims has led costs for utility-scale wind and solar energy to decline to a price below most other alternatives, while the solar response claims that Zapped's dismissal of BC's solar energy industry and potential is "misleading and unfounded".

While the Response does not attempt to rebut all of the claims or recommendations made in Zapped, its focus on the figures factored into Zapped's assertion that the actions, agreements and policies it critiqued would cost BC ratepayers an unnecessary $16.2 billion over 20 years provides a detailed counter-argument to one of Zapped's most headline-grabbing conclusions.

To view the original article click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions