BC Hydro

Financial fraud at BC Hydro?

What is a deferred expense?

The term “deferred expense” is used to describe a payment that has been made, but will not be reported as an expense until a future accounting period.

In 2002, WorldCom, a company with a peak net worth of $100 billion, submitted the largest bankruptcy filing in United States history. The action followed an accounting scandal that created billions in illusory earnings. Edmonton born Bernard Ebbers, WorldCom’s former CEO, is now in Louisiana, serving the tenth year of a 25-year sentence.

Fraud at WorldCom
WorldCom was accused of having inflated profits by $3.8 billion over a period of five quarters. The company undertook the massive fraud by capitalizing costs that should have been expensed. Capitalization of these costs allowed the company to spread the expenses over several years instead of recording all the costs as expense in the current period. Such deferral of costs allowed the company to report lower expenses and therefore inflated income.

But, beyond its flawed financial reporting, WorldCom was spending huge sums to add capacity when the market was already oversupplied. Similarly, BC Hydro, despite 10 years of flat domestic demand, is proceeding with unprecedented additions to its power capacity. In addition, the utility has contracted for so much high-cost power from private producers that it has at times been forced to turn off its own low-cost generators.

In fiscal year 2015, BC Hydro purchased 13,377 GWh of electricity from independent power producers for $1,064,000,000 ($79,540 per GWh). In the same period, BC Hydro sold 14,020 GWh to large industrial users for $748,000,000 ($53,250 per GWh).

In other words, each GWh of power purchased from IPPs was resold for $26,290 less that it cost. However, the loss was not limited to $352 million since the utility had to pay distribution, administration and other overhead costs in addition to the power acquisition price.

Note: The chart above is created by using BC Hydro reports that disclose purchases from independent power producers and electricity sales to residential, commercial and industrial users. The quantity of power from publicly owned generating facilities is calculated as the difference between domestic user demand and private power supplied.

What is the driving force between BC Hydro’s style of operations? Clearly, it not a desire to meet needs of the province’s electricity consumers.

Not to be forgotten is that term-debt of BC Hydro is rising rapidly. With current capital projects estimated above $10 billion and with British Columbia’s record of exceeding initial estimates by 100% and more, long term-debt of the utility may exceed $30 billion within five years.

That borrowing is in addition to the more than $50 billion in long term energy purchase commitments.

Since Liberals assumed power, BC Hydro has paid $10.8 billion to the provincial and local governments. In the same time period, the utility’s long term-debt rose by $9.4 billion. Consequently, it is a simple argument to say that every dollar transferred to government was a borrowed dollar.

ADDENDUMS:

Justine Hunter at The Globe and Mail provided BC Hydro preps for rate review. It contains this statement:

Because rates haven’t kept up with Hydro’s real revenue requirements, the corporation has been amassing debt in what it calls “deferral accounts” – those accounts will reach more than $5-billion by 2018.

It an analysis that is less than honest. First, the deferred charges already exceed $5-billion by hundreds of million of dollars and that would have been apparent to Ms. Hunter if she’d read the 2015 annual report of the public utility. Secondly, the idea that debt and deferrals are caused because “rates haven’t kept up” – as if prices have some animate existent of their own – is errant nonsense.

Readers here will know the reporting tricks are there to disguise actual results and facilitate transfers of “surplus equity” to government accounts. Thee Liberal Government defers BC Hydro expenses, then skims its pretend-profits to create pretend-surpluses. However, revealing that inconvenient truth would not serve groups the media wishes to serve.

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29 replies »

  1. Sadly, this how government run organizations are forced to operate by cynical and corrupt political masters.

    The same is true of TransLink, where the provincial government, wanting glitzy vanity projects, force TransLink to build with very expensive transit options, which far exceeds the consumers demands. The result, the taxpayer is burdened with the massive extra expenses in the form of higher taxes and user fees.

    With the party faithful of who ever is in power, bleating half truths and utter lies like Orwell's sheep in Animal Farm, the truth is buried under an oppressive weight of deception.

    Welcome to the new politic of Canada, where government rules by decree, just like Charles the First, who went on to lose his head so to speak.

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  2. “What is the driving force between BC Hydro's style of operations? Clearly, it not a desire to meet needs of the province's electricity consumers.”

    Clearly.

    WTF is Bennett thinking bringing more IPP's on line? The Narrows Inlet Hydro project has not even started construction yet, nor received final clearance of the conditions on its EAO assessment , nor got the necessary zoning in place from the SCRD. As a matter of fact final design details are still being worked on.

    Plenty of time for Bennett to nix the deal because he “always looks after taxpayers”. But no, Bennett wants Calgary based BluEarth Renewables and the Ontario Teachers Pension Fund to take the profits generated (no pun intended) off our backs as ratepayers. This 25-30 year contract (who knows because everything is secret) is one more long term debt for BC Hydro that could easily still be avoided. Penalties would be minimal as the contracted COD date will be very difficult for them to meet……unless of course they fast-track construction and don't worry too much about poor workmanship along the way. Penalties would pale in comparison to long term burden.

    At what point does our BC Liberal government become an accessory to fraud?

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  3. After what I’m sure was an exhaustive search for the most qualified candidate in all of North America to run a multi-billion dollar public utility, by pure coincidence a long-time public servant with credentials as Gordon Campbell’s faithful right hand woman turned out to be the most qualified to be CEO of BC Hydro. The fact that her husband is described by Christy Clark as “one of my oldest friends”, was the co-chair and manager of her leadership campaign and subsequently her chief of staff, was also complete coincidence and had nothing whatever to do with her appointment.

    So we can’t blame the BC Liberals for what’s going on at BC Hydro. Jessica McDonald was simply the best CEO available bar none, and whatever the current problems at BC Hydro they would be much worse if Ms. McDonald hadn’t been appointed to save the day. Don’t take my word for it; just ask Bill Bennett.

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  4. When they did hire David Cobb, a real professional manager, for the CEO position of BC Hydro, he had a strange idea of wanting to run it like a business aimed at delivery power efficiently and economically. That was simply not on for BC Liberals. There was too much to be done for insiders and friends. Pension and procurement fraud is just too rewarding for Christy's friends.

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  5. One important difference between WorldCom and B.C. Hydro is that taxpayers didn't serve as a complete backstop for Bernie Ebber's fraud. His customers could also take their business elsewhere.

    We're stuck with what Liberals built for us. Those bad deals made with government pals are there for decades to come. Just as the new ones they are “negotiating” with gas producers that require BC Hydro to build new distribution facilities into the northeast gas fields so that electricity can be delivered at a fraction of its real cost. Again, taxpayers lose and a few Liberal contributors win large. It is a fraud that citizen now unborn will be paying toward.

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  6. Happened in Kelowna.

    Rightwingers loaded the local electric utility with debt in the form of left-for-dead maintenance, and then sold it to a foreign interest for a song.

    Current ICBC Chair and Kelowna ex-mayor Walter Gray did well for himself though with a cushy appointment… not that I'm saying they're linked or anything. NO sir!

    As soon ass BC Hydro is finished building Site C we can expect to see a 'for sale' sign and massive rate increases… probably being shopped around already.

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  7. 45% increase in hydro rates is not enough because they've made deals to buy private power at more than double the rate they're selling it to industrial users. Site C power will cost more than current selling prices. In addition, that $5.5 billion in deferred costs has to be recognized; it can't grow forever. I estimate that rates per KWh that user now pay will rise by 125% to 175%. The consumers suffering the largest increases will be residential, commercial and light industry.

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  8. Privatization was a gleam in eyes of the Campbell brothers in the early 2000s. However, that would have provided a single opportunity to a single group of friends. Once the privatization was complete, the new owners would have been in control of where and how profits flowed.

    What Liberals decided was to require BC Hydro to act as broker, buying high priced power from private producers – who carried almost no commercial risks – then selling it to consumers at prices subsidized with profits from electricity generated by heritage facilities. That ensured ordinary citizens didn't get benefits that could flow to a rather wide and diverse group of pals. When IPPs were being set up, the politically connected deal makers were big financial winners without risking anything.

    Had BC Hydro been privatized, how would generous mining companies like Imperial Metals and Teck Resources been able to acquire cheap power for mines like Mount Polley, Red Chris and Highland Valley? A private utility owner would have at least required costs to be covered but with Liberals maintaining control, BC Hydro can supply power at a fraction of costs.

    Additionally, a private utility would have hired its own set of consultants, suppliers and contractors and Liberals wouldn't have been able to direct the benefits of, for example, a billion dollars for smart meters elsewhere worth only a portion of that amount.

    In fact, as long as Liberals remain government in BC, there's no chance of privatizing the public utility. The way it is now allows profits to be privatized and all of the risks to remain on the shoulders of the public.

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  9. R v Boulanger 2006 SCC 32 at para. 58:

    58 I conclude that the offence of breach of trust by a public officer will be established where the Crown proves beyond a reasonable doubt the following elements:

    1. The accused is an official;

    2. The accused was acting in connection with the duties of his or her office;

    3. The accused breached the standard of responsibility and conduct demanded of him or her by the nature of the office;

    4. The conduct of the accused represented a serious and marked departure from the standards expected of an individual in the accused’s position of public trust; and

    5. The accused acted with the intention to use his or her public office for a purpose other than the public good, for example, for a dishonest, partial, corrupt, or oppressive purpose.

    Does deliberately planning and setting up a network through legislation that forces a public utility to unnecessarily acquire its core public deliverable from favored private sources at a price far above what it can produce on its own, and then sell the deliverable to other favored private interests at a loss subsidized through deferred public debt meet the test above?

    When the public trust is that our public resources will be managed by public officers for the public good, I believe the test has been met. Where are the good members of the RCMP?

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  10. This should not be a surprise to anyone, and yes, at what point does the BC government, ( read liberal party) become complicit in a fraud? At what point does this constitute an organized white collar crime worthy of investigation by “federal” authorities, under the organized crime and anti gang law in this country?
    It is incredible how much the ordinary person in this province is being deceived, manipulated and ultimately being robbed blind, by a political party whose prime focus seems to be the enrichment of its insiders and political “friends”, while ripping off the taxpayers and citizens of this province.
    The corruption runs deep, and seems to have no means of being stopped by either legal or political means. Our system is essentially been hijacked for the use of a select group of sociopaths, who seem bent on the use of malfeasance to redistribute taxpayer resources for their own enrichment.

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  11. Well done, Norm. In these few paragraphs, you've encapsulated this whole shell game that Gordon Campbell started and the BC Liberals have kept going. Big corporations get the cheap, subsidized power… while the rest of us pay boutique prices for the IPP power.

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  12. The writer states “In addition, the utility has contracted with so much high-cost power from private producers that it has at times been forced to turn off its own low-cost generators.” I'm curious where this information comes from.

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  13. When the public trust is that our public resources will be managed by public officers for the public good, I believe the test has been met. Where are the good members of the RCMP?
    Neutered in the corner waiting their masters call. Knowing what we know about how they have handled the other BC Neo-Liberal malfeasances ie BC Rail, quick wins etc did you really expect anything else ?

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  14. There have been many instances of this. Information is available, but it requires a Freedom of Information request to obtain month by month supply by the IPP being queried. You have to file a separate FOI for each time period and each IPP project. Then you can reconcile with BC Hydro historical capacity for each water level.

    Or, you can just read this newspaper article in the Vancouver Sun…

    http://www.vancouversun.com/business/2035/Water+glut+stalls+Hydro+production/6603020/story.html?__lsa=9198-501c#ixzz1ufZdKs7J

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  15. Yes Jason, I expect better. I have a right to expect them to act on their duty, and their failure to do so will not prevent me from asking why they are missing in action. The BC Rail debacle you cite is a prime example. The very ministry of government we should be able to trust to administer the law definitely arranged contravention of the Financial Administration Act and very, very likely contravened the Criminal Code of Canada in the Basi/Virk payoff. The RCMP tells us to call someone that cares. So far I haven’t found that someone anywhere in the gutless local mainstream media, including over forty members I’ve directly asked to dispute my rationale. One of them as recently as this morning displayed his useless timidity. Sooner or later I’ll find a way to get accountability for that payoff, and it won’t happen because I lower my expectations.

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  16. really? from yesterday? I emailed Horgan and Nic Simons just yesterday about how Narrows Inlet IPP on the Sunshine Coast was still on the books even though final approvals have still not been granted and the final design not even done….asked them to stand up in the House and ask reasoning why Bennett and Polak did not put the kibosh on the thing……fits the description of “intermittent resources”…..of course it is only intermittent when we would need it the most and not when BC Hydro is spilling in high water months

    wait a minute, you must be fooling me Hugh……the BC Liberals never said “intermittent” and “IPP” in the same sentence before….and they would never have lied…..must be a glitch in the voice recording technology on Hansard (they are not big on IT that works)….yeah, that must be it

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  17. Norm: what is Bennett talking about when he says that the Revelstoke dam is at 100% now… that the 6th generator will not produce any more electricity?

    He also says they are going ahead with installing it — and it may be in place before Site C is finished. Why would they add a sixth generator that did nothing? Sounds fishy…

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  18. Bennett can't be believed since he's demonstrated repeatedly that his statements are guided by political expediency, not by a commitment to truth and accuracy. This appeared at In-Sights in December 2014:

    “October 15, I listened to Energy and Mines Minister Bill Bennett provide detailed assurance that, unlike budgets of numerous BC megaprojects that suffered runaway costs, the $7.9 billion Site C dam budget was final, fully reviewed by specialists and reliable because it included a contingency well above prudent amounts. Nothing left to chance, uncertainty or politics because number were developed by the world's top experts.

    “Well, that was then… this is now.

    “Liberal spokesman Vaughn Palmer is explaining that “$8.5 billion is within the range of the revised cost estimate.” Put simply, in two months, costs escalated $600 million, a rate of more than $10 million a day.”

    Lies my energy minister told me

    In fact, the ability of any dam to produce water is determined by the capabilities of its physical plant, including generators, but those are dependent on available flows of water. If there's no water, there's no power, no matter how many generators are ready to produce. Water levels are of course dependent on snow packs, rainfall and alternative uses that require water, like agriculture, fracking and domestic/industrial uses. 2015 is a dry year but in 2012, they were dumping water unused from Revelstoke because there was too much flowing into the reservoir.

    Does Bennett think BC Hydro would be spending half a billion dollars on Revelstoke if no additional power would be gained? Well, given their track record under Liberal patronage appointees, that could be possible. They proved willing to waste hundreds of million on smart meters by paying much higher prices that other utilities paid.

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  19. When its a dry year for heritage BC hydro large reservoirs its a really, really dry year for small ruin of river IPPs…to the point of them being called “renewable” is questionable….it takes a lot longer for the small mountain lakes to replenish once they're drained down 60 feet in depth

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  20. Good point. Some people think of hydro power as clean but it brings with it numerous problems, including severe damage to ecosystems and disruptions to communities, farmlands and wilderness regions.

    Indeed, small water systems have less ability to recover from fragmentation and injury to biological systems. When the only demonstrable purpose of projects – as in Narrows Inlet – is the enrichment of few private users of public lands, the negatives outweigh perceived values.

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  21. In a little more than a decade, the Liberals have ruined BCH which was once one of the leading electrical utilities in the world.
    Purposefully.

    Like

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