Monday, March 27, 2006

Why BC buys our power cheaper than we do.

The following email initiated the exchange:

(1)Subject: Cost of producing Electricity.
Your assistance required; correct me where I error please.

Coal fired generation (such as Genesee) cannot be turned down or shut down in order to flex with the local demands on power. These demands drop off sharply at 18:00 hours through to 07:00 hours.

In this window, power must be exported to get rid of it.

BC import our power for less than it costs them to produce Hydro power.

This begs the question of cost of operation. How much does it cost to produce power at Genesee? Dollars per mwh? Dollars per day? Total production if relative.

A re-direct may be needed

(2) The second item is the detailed response from the EUB, readable and understandable.
Dear Mr. Clark:

Thank you for your e-mail concerning the cost to generate power with coal.

I can advise that you are correct that coal fired generation does not normally get shut down except for maintenance, unlike gas fired generation which will be used only when market prices for power are sufficient to warrant the higher cost of natural gas fired generation.

Unfortunately the Alberta Energy and Utilities Board (EUB) does not set the rate for power generation and therefore cannot advise of the cost to produce power at Genesee. Power generation is a competitive market in Alberta and the EUB only sets rates for monopoly utility services such as the cost of delivery, which has and will continue to be provided on a monopoly basis because it is not economically feasible to have competing utility lines.

Alberta's competitive wholesale electricity market is facilitated by the Alberta Electric System Operator (AESO). Following is a link to AESO's energy trading system reports page.

The "Current Supply Demand Report" provides a summary of the generating units currently providing power to the Alberta grid and also includes current interchange information with B.C./Saskatchewan (note: it appears that a negative flow means Alberta is importing the power and a positive flow means the other province is importing power). The "Forecast and Actual Pool Prices" provides the actual accepted pool prices for each hour of the current day. Therefore through these reports you can determine if B.C. is currently importing or exporting power with Alberta and the market price of that power.

The EUB is not able to advise why B.C. would choose to import power from Alberta.

Joyce Didier Alberta Energy and Utilities Board Phone: (780) 427-8558

(3) I solicited the opinion of the very respectable Mr. Allan Dane Electrical Engineer retiried.

Hi John,

Typical Investor Owned Electric Utilities in the USA have approximately equal amounts invested in generation, transmission, and distribution. In the middle and late 1980's a typical Investor Owned Electric Utility had approximately $1 million invested for every employee on its payroll and most of that investment was borrowed money. In the middle and late 1980's the interest on that borrowed money was about 20% per annum.

No Investor Owned Electric Utility that is regulated can pay 20% interest for borrowed money but, when you have a nuclear powerplant that has been under construction since 1971 what can you do? If you had known that Ron Reagan would appear on the scene with his crazy ideas you might have borrowed enough at the start of the project to complete it but hindsight is 20/20 vision and borrowing enough at that time to complete the project would have entailed huge additional interest charges which the I.O.U. could not afford, either.

The idea that you can separate generation, transmission, and distribution into those categories as to cost and impose competition into any one part of it (or for that matter all of it) is completely ridiculous. These parts of the system must operate together as a unit. As the song goes "Love and marriage, love and marriage go together like the horse and carriage! This I tell you brother, you can't have one without the other!"

One should never spend as much money attempting to discover where the money went as one has already spent.....

It's going to cost billions to fix this mess but, if we don't fix it, the costs are simply going to grow geometrically. Twenty years ago electric energy cost about 4 cents per kilowatt-hour in Edmonton, including the billing costs etc.. Today it costs about 10 cents for the same services. There is no reasonable explanation for this except that our politicians do not understand the nature of electric utilities and bought a pig-in-a-poke.

When there is no elasticity of demand in an industry, trying to force competition into that industry will be wasteful! The Chairman of ATCO attempted to tell the politicians not to attempt this insanity but they persisted....

If you wish to forward this letter to the lady who replied to your questions please do so....

Allan Dane
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