Site C Dam Over Budget, Behind Schedule and Could be Replaced by Alternatives: BCUC Report

Site C construction September 2016

A highly anticipated review of B.C.’s Site C dam has found the project is likely to be over budget and behind schedule and alternative energy sources could be built for an equal or lower unit energy cost.

The report from the B.C. Utilities Commission released Wednesday confirmed many of the concerns that have been raised about the project for years.

The panel found BC Hydro’s mid-load forecast for electricity demand in B.C. “excessively optimistic” and noted there are risks that could result in demand being less than even BC Hydro’s lowest demand scenario.

The panel was “not persuaded that the Site C project will remain on schedule” and found “the project is not within the proposed budget of $8.335 billion.”

Currently, completion costs may be in excess of $10 billion, the report read.

The panel concluded it would be too costly to suspend the dam and potentially re-start construction later and focused its efforts on laying out in detail the consequences of either abandoning or completing the dam. The decision now rests with the B.C. government.

Site C, the third dam on the Peace River, has been controversial for many reasons — but perhaps most of all because the project was exempted from review by the province’s independent utility regulator, the B.C. Utilities Commission.

After coming to power this July, B.C.’s new NDP government immediately sent Site C — which has been under construction for two years — for an expedited review by the commission.

The commission considered 620 written submissions and 304 oral submissions from experts and members of the public in preparing its report.

Minister of Energy, Mines and Petroleum Resources Michelle Mungall said the government plans on making a final decision on the project by the end of the year.

Now it is our turn, as government, to determine whether Site C is in the best interests of British Columbians, after considering the BCUC’s findings and other issues outside the scope of this review,” Mungall said in a statement.

This will be an extremely difficult decision. We inherited a project that was advanced by the previous government without proper regulatory oversight, is now more than two years into construction, employs more than 2,000 people, and on which about $2 billion has already been spent.”

The government will meet with First Nations before making a decision, Mungall said.

Energy analyst Robert McCullough, working on behalf of the Peace Valley Landowner Association, said he believes the BCUC report spells the beginning of the end for Site C.

He called the report “courageous” because it basically rejects every part of BC Hydro’s submission, McCullough said.

Faulty Demand Forecasting Used to Justify Site C

The panel’s report finds BC Hydro has continued a historical pattern of over-forecasting electricity demand and notes the accuracy of BC Hydro’s industrial forecasts has been “considerably below industry benchmarks.”

The failure of an LNG export industry to materialize in B.C. has significantly reduced the likelihood that BC Hydro’s load forecasts will be accurate, the panel found.

The panel also found BC Hydro failed to accurately account for the impact that rising electricity costs have on consumption.

Additionally, given current low market prices and the likelihood of increasing supply, the panel found that BC Hydro’s proposed export price forecast “should not be relied upon.”

An independent analysis provided to the BCUC by the auditing firm Deloitte found between 1964 and 2016, BC Hydro overestimated future electricity demand in B.C. 77 per cent of the time.

The panel’s critique of BC Hydro’s demand forecasting falls in line with the analyses and opinions of numerous experts who have pointed out the crown corporation’s long history of inaccurate forecasting and the potential for costly oversupply.

Alternative Energy “Increasingly Viable,” Panel Finds

The panel critiqued BC Hydro’s modelling of alternatives as unreliable, saying it is “opaque in its assumptions” and uses out-of-date cost estimates for wind and solar.

The panel stated it found a pairing of alternative energy sources and conservation efforts “increasingly viable” at an equal or lower cost than Site C

During two days of technical briefings by experts, the panel heard BC Hydro consistently ignored or over-inflated the costs of wind, solar and geothermal.

In a submission prepared for the BCUC, North American hydroelectric expert Robert McCullough noted the price of renewables has dropped dramatically since 2010, when the Site C project was resuscitated by the B.C. government. During the last seven years the price of solar dropped 74 per cent, while wind dropped 65 per cent.

In August, BC Hydro submitted to the BCUC that it had screened out solar energy on the basis of a cost estimate in 2025 of $97/MWh. In response to a follow-up question from the commission, BC Hydro provided updated cost estimates of $48/MWh.

Marc Lee, a senior economist with the Canadian Centre for Policy Alternatives, is calling for a public inquiry into how BC Hydro and the former Liberal government made the case for the project.

It’s amazing. I would like to see a full inquiry to investigate how BC Hydro executives and the previous government essentially conspired to manufacture the case for Site C,” Lee said.

As someone who strongly believes in public sector institutions and Crown corporations, to have our electricity utility lying to us, making up numbers and doing all sorts of spurious comparisons between its preferred option and the alternative is shameful,” he said.

ICYMI: Geothermal Would Create 15 Times More Permanent Jobs Than Site C, Panel Told

The panel developed its own model for assessing Site C alternatives and found “it is possible to design an alternative portfolio of commercially feasible generating projects and demand-side management initiatives that could provide similar benefits to ratepayers as Site C.”

Further still, the panel found B.C. could pursue alternative energy and swallow the estimated $1.8 billion cost of terminating Site C and still end up with overall electricity costs comparable to building Site C.

The advantage of alternative energy, the panel states, is its incremental nature.

Combining energy conservation efforts with “smaller scale renewable projects provides flexibility to better match generation with demand.”

Conservation programs and smaller scale projects built by independent power producers “have project completion times in the range of months to a few years, and each project (or energy contract if it is contracted through an IPP) is much lower in price than Site C,” the panel found.

Site C Behind Schedule and Over Budget

Construction of Site C has been plagued with costly setbacks, the most significant of which occurred with the appearance of tension cracks along the left bank of the Peace River.

In October, the new CEO of BC Hydro, Chris O’Riley, wrote a letter to the BCUC, acknowledging the crown corporation would not meet its own timeline for river diversion due to “geotechnical and construction challenges” — a setback that would add an additional $610 million to the project’s budget.

An independent audit conducted by the firm Deliotte on behalf of the BCUC also identified the risk of construction setbacks inflating the Site C budget.

DeSmog Canada first reported on June 30, 2016, that the Site C dam was behind schedule and over budget. Documents obtained via Freedom of Information legislation later revealed a co-ordinated attempt by BC Hydro and Premier Christy Clark's Office to discredit the story.

Because Site C is in the early stages of construction and due to “the lack of certainty” around persistent geotechnical issues, “the additional $610 million may just be the first in what could be a continuing series of additional risk events occurring, resulting in further cost overruns,” the panel stated.

Infringement of Treaty 8 Rights Still a Question

In addition to cost overruns from construction delays, the panel found unresolved questions regarding the infringement of Treaty 8 First Nations’ rights could further add to Site C costs.

The West Moberly and Prophet River First Nations maintain the Site C dam represents an infringement of their rights guaranteed under Treaty 8. Although the two nations have brought and lost legal challenges in B.C. courts, the question of rights infringement is far from settled, the panel found.

The courts have addressed administrative law issues including the Crown’s duty to consult but have not addressed whether the Crown, by approving Site C has unjustifiably infringed the Treaty 8 rights. West Moberly and Prophet River First Nations submit that the Crown bears the risk that in the event a lawsuit is commenced, the court will find in favour of Treaty 8 First Nations.”

Under Treaty 8, the government of Canada promised to guarantee the rights of local First Nations to hunt, trap, fish and continue their traditional way of life on their land.

The option remains for Treaty 8 nations to file a civil case for damages caused by Site C, a possibility the panel considered.

The panel also noted the protection of Indigenous rights and reconciliation were present as a “major sub-theme” in its community input sessions.

The termination of Site C would be interpreted as a positive and meaningful step in the reconciliation process for those First Nations who did not reach an agreement with BC Hydro,” the panel stated in its report.

So what now?

The panel's alternative portfolio indicated that under the low-load forecast, new power supply wouldn't be needed until 2039 and could be met by the addition of 444 MW of wind and demand-side management initiatives, such as increased energy efficiency and optional time-of-use rates.

The cost to ratepayers of Site C and the Illustrative Alternative Portfolio are virtually equivalent,” the panel states.

But, regardless of the comparative costs, there are other issues to consider when comparing the completion and termination cases, the panel notes.

Both scenarios involve risk that is not easy to quantify. The major risk of Site C in the short term is whether there will be further construction cost overruns. Site C is a major construction project and therefore inherently at risk of larger cost overruns than a smaller project. It has already exceeded its budget, only two years into a nine-year schedule. There are tension cracks and disputes with its contractors both of which remain unresolved,” the report reads.

B.C. Green Party leader Andrew Weaver said he was encouraged by the report's finding about alternative energy sources.

I have long argued that the plummeting cost of alternative renewables makes Site C the unequivocal wrong direction for B.C.’s energy future,” Weaver said in a statement. “Supporting the development of smaller renewable projects presents a significant economic opportunity for all corners of British Columbia.”

It will take leadership to cancel Site C, but it is the right decision, according to Weaver.

It is unconscionable that the BC Liberals demonstrated such reckless disregard for British Columbians and for sound fiscal management by pushing through such a substantial megaproject without proper due diligence and oversight,” he said.

The panel also notes that there are other ways to meet future energy needs that include changes to government policy. These include re-patriating some or all of the Columbia River Treaty entitlement.

This energy is generated from water stored behind BC Hydro dams in British Columbia and is as firm and flexible as the energy from Site C,” the panel notes.

Ultimately though, the panel doesn’t take a position on which of the termination or completion scenarios has the greatest cost to ratepayers.

Galen Armstrong, Peace Valley campaigner with the Sierra Club BC, said the case for Site C fell apart “at the hands of BC Utilities Commission.”

The government is faced with two options: continue with an unnecessary boondoggle, leaving taxpayers and ratepayers on the hook for decades to come, or pivot to a lower-cost alternative energy portfolio including wind and geothermal that would provide jobs for British Columbians at a lower cost,” Armstrong said.

Update Notice: This story was updated at 5:30 p.m. to include additional comment.

- With files from Judith Lavoie

Image: Site C dam construction September 2016. Photo: Garth Lenz | DeSmog Canada

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