Subject: Western Update 5/7/01
From: [email-masked]
To: [email-masked], [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Mon, 7 May 2001 13:47:00 -0700 (PDT)

Executive Summary

?	The likely outcome of the 16 May elections is a victory by the BC Liberal Party (currently holding polls at 70%), a pro-business, right-of-center party led by Gordon Campbell.  
?	Major changes in British Columbia energy policy are likely under a Liberal government.
?	A low snow pack, a return to regulation by the BC Utilities Commission and public concern about outstanding debts owed by US power consumers could force BC Hydro to stop out-of-province power sales once existing contracts expire
?	BC Hydro's additional generation at Williston is likely undeliverable

Liberal Party Platform

?	Income tax cut that would make BC's income tax the lowest in Canada
?	Independent audit of the province's books amid allegations of NDP mismanagement and incompetence
?	Review of all Crown corporations (including BC Hydro) to enhance efficiency and management quality
?	Campbell has also said that he wants to scrap the Corporate Capital Tax, the Machinery Equipment Tax and the Corporate Income Tax.

Energy Agenda

According to sources, under the Liberal party's rule, significant changes in the BC government's energy policy could include a move toward the privatization of some BC Hydro assets, perhaps including its transmission assets, as well as increased government support for independent power producers and coal-fired production.  At the same time, a rate review and attempts to establish a broad electricity strategy for the province could lead to a lack of clarity about the province's overall energy strategy over the next few years.  Campbell reportedly is a proponent of deregulation and of expanding coal-fired production.  Campbell calls thermal coal, "an asset that we want to be able to move forward with and to encourage once again in BC."  A high-ranking NDP source believes that Campbell will take the province back along the path of natural resources extraction rather than promoting new technology.  The source expects this to lead to strong protests from environmentalists.  "These are confrontational moves, and people will be on the streets." 

Campbell's most likely choice for energy minister is Richard Neufeldt, though we caution that this decision depends on the make-up of the legislature after the election.  Neufeldt is responsible for the Liberal Party's energy, mining and northern development portfolio.  Sources speculate that if right-wing Liberals are dissatisfied with the party's performance after the May election, Neufeldt could again defect to the Opposition.  However, this gives Campbell even greater incentive to name Neufeldt energy minister, a high-profile position.

Should the Liberals win the election, Gordon Campbell has indicated that he would return BC Hydro to regulation by the BC Utilities Commission.  The BC government has derived $5.5 billion in revenue from BC Hydro since 1991 (roughly 85 percent of its profit).  Critics say this has undermined the utility's ability to pay down approximately $7.5 billion in debt and invest in the future. This also has left Hydro without a rate stabilization fund, something that sources feel may be needed this year.  Campbell reportedly intends to address these issues, and one can expect this to lead to calls for change.
 
Electricity Export Policy

Currently the BC Utilities Commission is demanding more information about BC Hydro's out-of-province sales.  The Commission has warned that, given the low snow pack, the utility could be a net importer of power this year. Supporting this view, the Northwest Power Planning Council, representing BC Hydro's key trading partners in the US, has said that it would not be able to rely upon British Columbia or Alberta during peak consumption periods over the next few years, and that its customers face a 25 percent chance of not making it through the winter without power losses.  The combination of a low snow pack, a return to regulation by the BC Utilities Commission and public concern about outstanding debts owed to BC Hydro by US consumers may force BC Hydro to stop out-of-province power sales once existing contracts expire.

BC Hydro Privatization

A key campaign energy issue for the Liberal party is the privatization of BC Hydro.  Campbell has urged greater electricity competition, saying, "We need to ensure the transmission infrastructure is available to all, producers and consumers, on an equal and non-discriminatory basis." He stated that independent power producers have been discouraged at every turn. "I want to change that big time," he told the Canadian Institute of Energy.  Campbell also urged more natural gas development, including pipelines and co-generation plants.

Campbell backtracked on this stance last week after being challenged by NDP leader Ujjal Dosanjh.  Campbell stated on 25 April, "We have no intention of selling BC Hydro; we have no intentions of selling their transmission lines, no intention of selling their dams, we have no intention of selling their reservoirs."  Liberal Party spokesman Mike Morton also reiterated on 29 April that BC Hydro would not be for sale.  A high-level NDP source commented that Campbell has been extremely careful in his choice of words regarding BC Hydro, essentially saying that he would not privatize the dams, transmission lines or generating stations, but that he is in favor of opening the sector up to competition.

However, local sources believe that some parts of BC Hydro might be sold as part of an overall review of BC Crown Corporations to enhance efficiency.  Likely sale prospects include BC Hydro's distribution channels and its energy trading subsidiary, Powerex.  In addition, Gary Farrell-Collins, the Liberal finance spokesperson and possible second choice for energy minister (after Neufeldt), has stated that public ownership of BC Hydro's non-core businesses, such as Westech, its systems division, and customer billing, could come under review.

BC Hydro Williston Generation

Current reservoirs levels at BC Hydro's Williston hydro-generation facility are at 2,150ft, which allows BC Hydro to drop levels another 35 ft (170 Gwhs/ft) under their current permit.  The one drawback to this plan's additional generation involves the Mackenzie pulp mill that would have to cease operation if water levels were to fall below 2,140ft.  Sources close to the Minister of Mines & Energy - elect, Richard Neufeldt, indicate that levels at Williston probably will not be drawn down below Mackenzie's operational limits due to concern over political backlash.