When it comes to demand forecasting, BC Hydro is not trustworthy. Similar errors year after year prove its senior officers aim to mislead. Well managed businesses make projections but monitor results, recognize error and alter estimates and actions. Not doing that ensures bad decisions and leads to financial disaster.
In the real world, inept officers may ignore reality but directors are obligated to hold them to account. If oversight fails, shareholders suffer. Unfortunately, with politicians involved, willingness to admit error is often compromised.
The Campbell Government erred by guaranteeing rewards to private power producers. Liberals assumed BC Hydro could resell high cost power outside British Columbia. Risk seemed acceptable since exports had been strong.
But, in late 2001, the American market blew up. Enron’s senior management went to jail, export prices collapsed and BC Hydro was headed for trouble. However, Campbell’s people hoped that growth in domestic consumption would absorb surplus private power. Another mistake because new technology had begun to moderate consumption.
In the latter years of this century’s first decade, Liberals believed flat power demand was a symptom of recession and growth would resume. It was another fundamental mistake. By 2012, higher electrical sales were not happening but politicians and BC Hydro pinned new hopes on sales to mining companies and gas processors. They so believed their own fantastical LNG press releases, previous errors were compounded by approving construction of Site C. Clearly, the dam was not justified by power needs but capital megaprojects fit Premier Clark’s borrow and spend policy.
Liberals concealed errors and missteps by false accounting. They hide more than $6 billion by pushing expenses into deferral accounts to be recognized as some time in the future. This is like a restaurant deciding that some of its food purchases and wages paid to staff are actually assets that can be amortized in the future.
Private business simply cannot make these moves but the BC Government writes its own rules. Liberals want BC Hydro to keep borrowing money and paying fake dividends. More importantly, they don’t want any revelation of failed policies.
Michael Roberto, a faculty member at Harvard Business School, wrote about creating a climate that makes admitting and learning from mistakes equal to persistence and perseverance. He said:fc
Leaders cannot keep marching in the same direction simply because they have invested heavily in a particular course of action. Instead, leaders must react to changing conditions and be willing to shift direction accordingly, perhaps even to pivot one hundred eighty degrees if the situation warrants it.
This is not a complex direction but it doesn’t resonate with the small minds running government in Victoria. They are overly committed to announced policies despite consistently poor results and clear evidence of failure. As explained below, Liberal leaders are the like the limbless Black Knight vowing to carry on regardless. Human psychology discourages people from admitting need for new strategies and unethical politicians believe every fault can be concealed by secrecy and spin doctoring. Political office holders care more about image making than decision-making.
I’ve written much about BC Hydro and my presentations are based on the corporation’s own documents, with my attention paid most particularly to audited financials. I’ve talked privately to working and retired executives but BC Hydro repeatedly refused to answer questions or engage in conversation with me. However, I have company documents dating back more than two decades. There is a clear record of deception and delusion.
Annual Report 2006:
…the growing “gap” between existing supply and customer demand… Based on current demand forecasts, the province is expected to need significantly more electricity over the next twenty years.
Annual Report 2007:
…facing us are the need to meet the growing demand for electricity in B.C. …our forecasts indicate that B.C.’s demand for electricity will grow by up to 45 percent over the next 20 years.
Annual Report 2008:
Energy demand is increasing as B.C.’s population increases and its economy grows…
Annual Report 2009:
To meet the growing demand for electricity, BC Hydro also contracts with IPPs to buy electricity on a long-term basis…
Annual Report 2010:
With the province’s demand for electricity expected to grow by 20 to 40 per cent over the next 20 years…
Annual Report 2011:
We are currently forecasting demand for energy to increase as much as 40 per cent in the next 20 years…
Annual Report 2012:
B.C.’s electricity demand is expected to increase over the next 20 years from economic expansion, population growth and customers’ changing electricity consumption habits.
Annual Report 2013:
…demand for electricity continues to grow, along with population increases and economic expansion…
Annual Report 2014:
Meeting current and future demand for electricity is the foundation of BC Hydro’s planning activities. B.C.’s economy has continued to expand, bringing new businesses, industry and people to the province. At the same time, new consumer technologies are becoming available, and more of B.C. is becoming electrified.
Note the 2007 expectation of 45% growth over 20 years. That colossal misjudgment was revealed in a statement signed by BC Hydro Chair Larry Bell, a Liberal operative with connections to natural resource companies and real estate developers. A 2010 article by Will McMartin shows that early on, Bell was trusted by Gordon Campbell to reshape the public utility:
Within weeks of winning power, in August 2001, the BC Liberals appointed Larry Bell — a provincial deputy finance minister in the early 1980s, BC Hydro’s chair in the late 1980s, and a prominent BC Liberal strategist in the 1990s — as both chair and CEO of the publicly owned utility.
Had BC Hydro’s 2007 estimate been accurate, nine years later, demand growth would have been 18%. Instead, consumption in BC fell by 3%, according to the utility’s sales figures.
Customer demand at BC Hydro since 2007 has been similar to the experiences of other North American utilities. The primary reasons are device efficiency and de-industrialization. Lighting and drive motors consume around two-thirds of all electricity and technological improvements reduce consumption. Even with natural change, if modern upgrades were mandated or more encouraged, substantial conservation would occur. The following is from the U.S. Energy Information Administration:
Despite its own experience and North American sales figures, BC Hydro clings to an unreasonable expectation of substantial sales growth. In 2012, it was predicting 40% more demand over 20 years. Although domestic consumption dropped in the next four years, BC Hydro only reduced the 20 year growth forecast made in 2016 to “34% before LNG and 39% with LNG.”
The utility doesn’t just ignore its own and the continent’s reality, now established for a decade. Management is untruthful when reporting to citizens. In a presentation recently made to media and published on its website, the company showed an almost 4% increase in energy sales between 2010 and 2016. However, it did that by using fudge factors to adjust actual power deliveries in the province.
It restated sales with unspecified weather adjustments and further altered consumption to remove the imputed effect of demand-side management. In other words, BC Hydro said that its actual sales numbers don’t matter; citizens should pay attention to what the company says they might have been, if conditions had been different that they actually were. With that unscientific reasoning, they could have reduced the numbers instead of increasing them.
This year, BC Hydro managers are claiming they have maximized conservation and must reduce programs to save power, particularly among residential users, the most profitable customer group. The reality is they are dumping surplus electricity, have committed to buy more private power and are building Site C.
BC Hydro encouraging conservation now is like a car dealer giving out free bus passes to prospective customers. Reduced sales are an inconvenience when you intend to spend $20 billion on new capital projects.
Sadly, the real financial condition of BC Hydro is not reported in corporate media. In the economic battle between haves and have-nots, broadcasters and newspaper publishers have chosen a side. To them, the interests of ordinary Canadians matter little.
Why is the company’s telling lies? Why is Premier Clark’s Government tolerating misinformation? It is no accident that the Board Chair and the CEO have close personal relations with Premier Clark. Their interests and skills are political, not managerial. They continue to deposit cheques they are not qualified to receive.
Retired utility executives have told me they fear retaliation for going on record about the company’s troubles. I have been gathering information and conducting detailed research for an extended period and I conclude the company’s senior management is both corrupt and incompetent.
When that condition changes, we will be forced to recognize losses measured in the tens of billions of dollars. It will be a sad end to Premier W.A.C. Bennett’s 1961 dream of reliable, low-cost power throughout the province.