Thursday, June 27, 2013

The rising costs of the Northern Transmission Line

I heard about this for the first time yesterday from John Horgan when I ran into him in the legislative rose garden and he told me that the Terrace Standard had a story about this.   He talked about a $300,000,000 cost over run but when I read the story the cost over run over is not that high.

The initial estimates for the Northern Transmission Line was $404,000,000 but that cost had already been superseded by estimates this spring of a cost in the range of $561,000,000 to $617,000,000.  It is now estimated it will cost $736,000,000 to $746,000,000 - this is a rise of $119,000,000 to $185,000,000 from the last estimates.    It is of concern that the price has risen.

The nature of large government managed capital projects is that they go over budget and this was to be expected on this project.   The only mechanism that seems to have any significant impact on this happening is if there is a P3 in place.   How much of the costs are the public on the hook for?

BC Hydro has contributions from the Federal Government and AltaGas totaling $310,000.000 meaning the cost to BC Hydro of the line is now estimated to be $406,000,000 to $416,000,000.    The BC Utilities Commission has granted the right for BC Hydro to apply higher tariffs to users along the NTL though not enough to recover all of the costs of the line.   It does seem that BC Hydro will need to figure out how to cover capital costs in the range of $175 million.   If the costs of line can be spread out over enough years, the sale of power on the NTL should cover the costs and then some.

The NTL is not being randomly built for no reason.  The development of the Red Chris mine alone will bring in a lot of new government revenues through the production of 250,000,000 pounds of copper and 365,000 ounces of gold per year.    This is a combined gross mine revenues of $1,100,000,000 per year.   The scale of the annual taxes on this project alone will justify the construction of the NTL.   Interestingly, the capital costs of building the Red Chris mine have also risen though not quite as much as the line.

It is a project worth doing.   There is a huge amount of green power that will become economically viable when the line is completed.   The potential for green power in the northwest of BC is huge and has the potential to displace more fossil fuel produced electrical power.   The potential is higher than what Site C can bring online and at no capital outlay to the province along with a vanishingly small environmental footprint

It also means the potential of connecting Yukon and Alaska to the North American grid is there.   The end of the grid will be just 300 kilometers from the nearest part of the Yukon grid.

Here is a BC Hydro video of the NTL

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