Canadian company reaps the benefits of California's power problems

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Canadian company reaps the benefits of California's power problems BY KRISTI HEIM Mercury News Seattle Bureau VANCOUVER, British Columbia -- John Walters pulls out a folded check from his denim shirt pocket, opening it slowly and reading it over with a mixture of curiosity and delight -- as if he'd just won a lottery he didn't remember entering.

He skims the print with his finger, chuckles, then refolds the white paper worth $32.

He's holding a little piece of California's hide.

For residents of British Columbia, California's energy crisis has created an unprecedented boon. The government-owned electricity provider, BC Hydro, made such a windfall from selling power to the Golden State during the past year that it issued $130 rebates to all 1.6 million customers and $32 cash refunds this month to more than a million low-income residents like Walters -- $260 million in all.

BC Hydro broke provincial records as the first corporation in the province to earn a profit of more than $1 billion Canadian, or about $712 million U.S. During the last nine months of 2000 it brought in $3.2 billion Canadian -- $2.5 billion U.S. -- in electricity trade revenues.

Gov. Gray Davis this week berated publicly-owned utilities, such as BC Hydro, for charging ``unconscionable'' market prices to the state. In a meeting with California municipal utilities, the governor asked that they sell power to the state in contracts based on their production costs. Negotiations will begin next week, he said.

BC Hydro officials said Davis hasn't directly contacted them. But Davis press officer Steve Maviglio said the state's Department of Water Resources is discussing similar contracts with BC Hydro.

The flip side

At a personal level, the international energy highway has linked the fates of strangers north and south of the border. One's good fortune is another's bad luck.

``I guess they need energy and we have it,'' said Walters, a retired construction worker. He's thinking of using part of his refund to splurge on a good bottle of wine.

While Walters' electricity rates haven't changed in seven years and remain among the lowest in North America, it's a different story for senior citizens in California.

Morgan Hill resident Dorothy Tykol, who lives on a fixed income, said her energy bill has doubled over the past year and it's only going to get worse. She's cutting back on an already frugal budget and preparing to endure a warm summer without air conditioning.

``They did this deregulation thing all wrong and now we're going to pay for it,'' she said.

Californians won't find much sympathy in Canada. British Columbia residents see their province profiting from its foresight, while California pays for its shortsightedness.

Treaty a benefit

In 1964, Canadian Prime Minister Lester Pearson and U.S. President Lyndon Johnson ratified the Columbia River Treaty, which expanded into a 30-year power-generation deal. The treaty turned out to be enormously favorable for the province.

The United States paid British Columbia $254 million, which helped finance construction of three major dams along the Columbia and Peace rivers. Under the treaty, power was equally divided between British Columbia and the U.S. Northwest. But the province didn't need its share of the power, so it signed a deal to sell it to the Northwest.

In 1990, Canada estimated the downstream benefits to be worth about $5 billion and to represent about 1,400 megawatts of power capacity. At the end of the decade, when the treaty expired, the British Columbia government reclaimed its 50 percent stake, free to sell it on the open market or keep it.

``We're not short of power. We had the foresight to build,'' said businessman Lynn Holmes, who manages a Vancouver import-export company.

As for BC Hydro's profit, ``of course they made a fortune off California,'' he said. ``But that's not our problem. It's a free market.''

But that profit has come under scrutiny. California officials have accused BC Hydro's trading arm, Powerex, of some of the most egregious price gouging of any supplier on either side of the border. California utilities owe the Canadian power company $300 million. BC Hydro says that when the state faces critical power shortages this summer it won't provide more power unless California pays up.

On the morning of May 7, BC Hydro underscored that threat: it cut electricity to California for two hours until the state wired a payment. That disruption, however, did not contribute to the day's rolling blackouts across the state, officials said.

``California is a valued customer of ours and we want to help meet their power needs,'' said BC Hydro official Wayne Cousins. ``We understand they're in a desperate situation. We're in a buying mode, too. Our first priority is meeting needs of B.C. We may be constrained ourselves this year.''

To make sure its power supply isn't cut off again, California, which imports between 5 and 10 percent of its daily load from BC Hydro, is paying BC Hydro daily. But the utility has at times demanded double what other suppliers charge for electricity on the spot market, said Oscar Hidalgo, Department of Water Resources media officer.

He wouldn't say how much that is, but a BC Hydro report notes that average electricity sales prices quadrupled from $48 per megawatt hour last year to $194 per megawatt hour this year. California paid as much as $500 per megawatt hour in February, according to the Independent System Operator.

``They're not doing anyone any favors,'' Hidalgo said.

A seller's market

BC Hydro says it simply seized market opportunities.

``The prices charged by Powerex have been entirely in line with prevailing market conditions throughout the West and prices received by other suppliers,'' said Brian Smith, chairman of BC Hydro.

But even as they marvel at their good fortune, British Columbia residents have their own energy problems -- a drought and a doubling of natural gas prices. To help Canadians pay their gas bills, the provincial government directed BC Hydro to cut checks and disburse the profits made off California.

Some people in Vancouver worry about their own power company is depleting its reservoirs to sell to California at a time when snowpack is 20 percent lower than normal. The province gets 90 percent of its electricity from hydropower.

``There are some concerns that we're damming our rivers to provide energy to a society that doesn't seem to be conserving,'' said Neil Bailey, an employee in the Vancouver planning department.

But even if British Columbians would prefer not to export their power, they may not have a choice, noted Ray Warkentin, a nurse, sipping coffee with Walters at a Starbucks near Vancouver's English Bay.

``We've given away the right to say no,'' he said. ``With the free-trade agreement we can't deny exports to the U.S. We're locked into it.''

``California blew it big time,'' he continued. ``The price signals are so distorted. If they weren't, there would be natural conservation going on and people would have made changes in their lifestyle.''

-------------------------------------------------------------------------------- Mercury News staff writer John Woolfolk contributed to this report.

-- (jus@stupid.enough), May 27, 2001

Answers

$3.2 million in Canadian dollars = about $2934.31 in U.S. funds. LOL!

-- jammy (jammin@with.jammy), May 28, 2001.

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