You are hereB.C.’s financial honeymoon ends with Columbia River Treaty anniversary
B.C.’s financial honeymoon ends with Columbia River Treaty anniversary
Vaughn Palmer, Vancouver Sun, June 17, 2013
VICTORIA — As newly appointed cabinet minister for BC Hydro, Bill Bennett inherited the provincial share of an emerging challenge in Canada-U.S. relations.
“Conclude the provincial consultations on the Columbia River Treaty and present options to cabinet for any improvements that can be made to the treaty,” was the way Premier Christy Clark put it in her mandate letter to Bennett last week.
The international treaty marks its 50th anniversary Sept. 16 of next year. After that, either Canada or the U.S. can give notice of an intention to renegotiate or terminate in another 10 years.
In anticipation of the first opportunity to revisit an agreement that predates modern-day concerns on a variety of fronts — environmental, aboriginal, economic — both countries are conducting public consultations and technical reviews to determine what, if anything, to do when the threshold arrives.
But the main sticking point is already evident on this side of the border. For the Americans are proposing to drastically reduce the main financial reward this province has realized from the treaty, namely “the Canadian entitlement” or “downstream benefit.”
The 1964 treaty established an elaborate flood-control and hydroelectric generation regime, sustained by a network of dams and reservoirs. Three of the four dams and most of the dislocations were in this province. BC Hydro, which assumed the treaty obligations on behalf of Canada, was also obliged to manage water levels to reduce flood threats in the U.S.
Consequently the parties agreed that B.C. was entitled to 50 per cent share of the power that would be generated on the American side as a result of steady management of water flows on the Columbia.
B.C.’s visionary premier of the day, W.A.C. Bennett (no relation to the current minister Bennett), sold those benefits back to the Americans for the first 30 years in exchange for the money to build the dams.
Then in the 1990s, the B.C. government began to recover the benefits in the form of cash payments, selling the designated Canadian entitlement to power-hungry consumers in the U.S.
The market for power has been depressed lately. But over 15 years, the province has reaped more than $3 billion from selling electricity to Americans that is, in fact, generated on their side of the border.
However that handsome revenue stream should be greatly diminished come 2024, according to the Bonneville Power Authority and the U.S. army Corps of Engineers, the two entities handling the American side of the treaty review.
“We are paying the mortgage for those dams,” Birgit Koehler, a power operations specialist for Bonneville, told a public meeting in Yakima last month.”We way have overpaid the mortgage.”
The Army Corps of Engineers argues the Canadian entitlement should be scaled down and the savings distributed on the American side, according to a May 2 news report in the Yakima Herald-Republic.
“If we kept those resources in the United States, they could reduce power rates, fund ecosystem restoration,” said Matt Rea, a program manager for the Corps. “That’s a lot of resources that are being sent out of the country.”
Bonneville and the Corps lay out their case in a brochure posted at www.crt2014-2024review.gov, the U.S. website for the treaty review.
“The delivery of all this power enables Canada to avoid building roughly 1,300 MW of new generation to meet its demand for electricity,” they say. “When the value of the energy, capacity and flexibility are factored together, Bonneville currently estimates that if Canada were to replace the entire entitlement with its own new gas generating resource, the cost would be roughly $250 million to $350 million each year.”
Here’s the rub as the Americans see it: “Canada’s treaty dams are in place and will be more than fully paid for by 2024. Given this reality, the U.S. entity prefers to evaluate the entitlement value not in terms of whether the treaty dams exist, but on whether Canada and the United States continue to work together to coordinate hydro system operations or choose to operate independently.”
Proceeding from that assumption, they go lowball on the future value of the Canadian (meaning the B.C.) contribution to the treaty: “Initial estimates indicate that the power benefit from coordinated treaty storage operations, compared to uncoordinated operation, is $26 million a year, a sum much smaller than those produced using either the current Canadian entitlement calculations or the estimated cost of a replacement resource.”
So $26 million versus the payout under the current terms of the treaty, which have averaged $220 million annually over the last decade-and-a-half. A reduction of almost 90 per cent? That’s some haircut.
But also the hypothetical opening position in a negotiation. “The U.S. entity is evaluating what changes to propose to the Canadian entitlement calculation. Bonneville also must estimate the value of power benefit associated with continuing the treaty. Any proposed change in the calculations would have to be mutually agreeable to the United States and Canada.”
Still, given the U.S. propensity for playing hardball on international treaties, B.C., with all due assistance from Ottawa, had better be ready with a strong comeback.
Happily, Bill Bennett knows the file and he’s no pushover. But that is a topic for another day.
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