BC Hydro

Damn the torpedoes…

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,

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.

picture-blackknight_montypythongrailThis 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 misjudgement 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.

Consumption 2007 2016

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-industrilization. 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:

US generation 2007 2015

Despite its own experience and North American sales figures, BC Hydro clings to an unreasonable expectation of substantial sales growth. In 2012, it was predicticting 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.

Assets and consumption 2005 2016

per capita

liabilities
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Categories: BC Hydro

18 replies »

  1. “…the company’s senior management is both corrupt and incompetent.” So it would seem. Fortunately you don’t go to jail for being stupid, otherwise a whole lot of Hydro personnel would be joined by all the Liberal voters. There would be more on the inside than on the outside!
    On the other hand (I have five fingers), there is enough corruptness to fill our jails, IF there was a mechanism to prosecute the corrupt ones. And to think that we pay them a pension on top of all else! Whew!!

    Liked by 1 person

  2. Thank you for all your hard work, Norm.
    Most intelligent people I know are blissfully unaware of your research and the disturbing facts you ceaselessly reveal. I find it frustrating how brainwashed the voting public seems to remain. I find it equally frustrating to find no significant political opposition, given the unconscionable evidence.

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  3. This is called corruption and on a massive scale.

    It starts in the premier’s office and trickles down to every ministry and crown corporation. Everyone is infected by corruption and what was deemed a lengthy criminal sentence in the federal gaol, is now deemed today’s business ethos.

    The trickle down theory is not about the economy, rather it is about political deceit.

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  4. Thank you Norm once again. You obviously care about truth and the lives of BC residents . Clark does her best to ignore truth. She’s trained all of her ministries to act irresponsibly just like her. With an election coming she’s ticking off her list of things that must be done before her next acceptance speech. I hope that speech never takes place.

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  5. The Clean Energy Act provides in part at s8(1) that “In setting rates under the Utilities Commission Act for the authority, the commission must ensure that the rates allow the authority to collect sufficient revenue in each fiscal year to enable it to recover its costs incurred with respect to
    (a) the achievement of electricity self-sufficiency, and
    (b) a project, program, contract or expenditure referred to in section 7 (1)…”

    Section 7(1) includes projects like Site C, Revelstoke Unit 6, the Northwest Transmission Line, and IPPs, among others.

    But the BC Liberals have overruled that provision and neutered the BCUC with respect to setting rates. A statement in the propaganda included with the 10-year rate plan announced by Bill Bennett in 2013 proclaimed, “Government and BC Hydro have worked together to reduce pressure on rates. The 10 year plan will keep electricity rates as low as possible while BC Hydro makes investments in aging assets and new infrastructure to support British Columbia’s growing population and economy.”

    Think about that. What it really means is that the BC Liberals have set very artificially low rates and are using massive deferral accounts so that unsuspecting voters won’t feel any pain or realize there is massive public debt with no viable plan to repay it, until as Christy Clark so artfully puts it the projects are past the point of no return.

    They are aided in their subterfuge by the usual suspects in the corporate media; some dangerous to the taxpayer because they have a brain, and some just as dangerous because they don’t. Keith Baldrey recently wrote, “Those deferral accounts now total almost $6 billion, which is money B.C. Hydro essentially owes itself.”

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    • Money BC Hydro owes itself?

      I missed that gem of ignorance. I wonder if that’s the original creation of a Liberal Party flack or one paid by BC Hydro.

      Deferrals are costs that BC Hydro incurred but didn’t want to declare as expenses because their fake profits would have disappeared and dividends would have to be returned, meaning no more claims of surpluses. So they decided: “We’ll treat those payments as assets that someone else can write off in the future.”

      Can’t you just imagine. Real managers eventually take over operations at BC Hydro and eliminate the faux assets, which are $6+ billion of deferred costs and countless rate manipulation accounts, thereby declaring a massive 10-figure loss. Suddenly, Baldrey and Press Gallery friends will be declaring a financial emergency 50 times worse than fast ferries.

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  6. That same neutered and castrated BCUC is requesting comments from affected customers about a substantial rate increase to step 2 electrical rates for customers who because they do not have access to natural gas as an alternative heating source for their homes must pay tier 2 rates in winter. Their are thousands of customers in and around small rural towns and the Gulf Islands who are affected. The Public Notice was featured in several obscure weekly papers and after receiving a very well written complaint from Nicholas Marty, the BCUC has graciously agreed to feature said notice in The Vancouver Sun and Province, papers which many of the harsher critics of Liberal tactics have long since given up on perusing. They also extended the deadline to Sept. 2 instead of August 15th. The comment form that you are told to download is in an obscure format that very few regular computer users can download and even after being apprised of this problem, 7 days later it has not been corrected. Since their initial call for comments went out on July 15 to purposefully obscure weeklies, there have to date only been 135 comment letters submitted. The form in .pdf format is included in the following link:
    http://static1.1.sqspcdn.com/static/f/1330286/27188747/1470884968773/Letter-of-Comment-Word.pdf?token=aY2kh6cExikEKZU%2FX1Sc93APEx0%3D
    It would be good to have thousands of well-written critical comments arrive before the deadline. I am not optimistic that the BCUC is any more legitimate than the National Energy Board and such criticism will probably fall on deaf ears, but at least they couldn’t say no one, statistically speaking cares about the ever increasing money grab from the taxpayer to subsidize the Murray Edwards and their ilk. It is a pity that Robyn Allen and Marc Eliesen couldn’t hold BCUC to the same criticism that they subjected The NEB to when they both withdrew as intervenors to what they called a “rigged game”.

    Liked by 1 person

  7. Thanks for the link, Dave. I saw the notice in The Sun yesterday.

    I tried the pdf form provided at the link and it is not editable. However, if I copy-paste it onto a word-processor or even onto an e-mail window, it is editable (though the formatting needs to be pushed around a bit.)

    But yes: let’s get on this and send in submissions.

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  8. My submission:

    Members of the board of the BC Utilities Commission:

    I wish to record my opposition to BC Hydro’s proposed rate hikes, hikes which will continue to outstrip inflation and put extra burden on residential and small business users.

    As reported by Dermod Travis of Integrity BC, from 2007 to 2015, BC Hydro increased the rates by 63.2% — while Hydro Quebec only increased theirs by 17.1%. The former were presumably all approved by the BCUC.

    BC Hydro has surely laid out their need to increase their rates — but there should be emphatic push-back from the BCUC, as our public utilities watchdog.

    In my mind, the BCUC should have said — and should be saying: “What’s with these IPP’s? You’re paying them 3x as much as you can sell their power for. This has got to stop. No more IPP approvals! And when these contracts come up for approval, tell them you’re doing them a favour, taking their unneeded power at market price.”
    The next question should be: “What’s with all these wild increased demand forecasts? BC’s population has increased but our demand for electricity has flat-lined for more than a decade. This pattern is also seen in the USA, so you won’t be selling excess production there, either. Yet, you are predicting a 34% increase in the next 20 years. Where will that demand come from? If we allow you to keep jacking up the rates, people will get even more efficient with their use, or adopt new technologies and you’ll be stuck with excess power that no one will want… unless you lower the rates.”

    As well, you should be asking: “Where is your business case for Site C? Without a buyer for your costly power, you’re going to sell it on the cheap and go further into debt… or ask us to approve rate increases to cover the losses. Go back and do your homework.”

    As respected BC political blogger writes: “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.” https://in-sights.ca/2016/08/18/damn-the-torpedos/

    I understand the BC Liberals have taken away your ability to speak frankly to them or BC Hydro, so I am doing that for you. I look forward to seeing these words in the public record.

    G. Barry Stewart
    Chilliwack, BC

    Liked by 2 people

  9. I spoke with BCUC to inquire as to why there had been no more comment submissions posted since August 15. The young woman said they had a backlog of submissions to post and extra staff had been brought in to process them. I suspect the commission was quite happy to only receive 140 submissions after advertising in 200 small town weeklies. They would then be able report to their masters that there is no significant opposition. The whole process is reminiscent of hiring a consultant and dictating the conclusion desired.

    Liked by 1 person

  10. Thank you for this post. Now if the MSM ever reported on this subject the rest of the province would know also. This province’s debt continues to grow and grow. At some point the bills will have to be paid, but then I think it reasonable to conclude Christy either thinks she will be gone on to bigger and better things or the whole thing will blow up and she will retire on her taxpayer funded pension while another government and the tax payers deal with it. At this rate at some point we will become Detroit North and the people of this province will have only themselves to blame. They continued to vote for this cabal and its photo op queen.

    Liked by 1 person

  11. Name the author and the date:

    “Ms. Clark, who has active political antennae, knows that Families and Children will not be the big election issue but that BC Hydro and the environment will be.”

    I’ll reveal the answers later.

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  12. Well, that created quite a buzz, I see!

    I trust that our friend Rafe will recognize his words — from 2011! Media, the Opposition and voters missed their chance to make Hydro a major issue in 2013.

    I can only hope that won’t happen again in 2017… there are no guarantees.

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  13. I don’t yet see G.Barry Stewart’s comment to BCUC posted on their site. I wonder if there is some cherry picking going on (i.e..- no links to that pesky Norm fellow) To view all 240 comments just type in BCUC Rib Rate Report in your search engine and scroll down to Exhibits E. Still an unbelievably small number of submissions . My Regional District received an email requesting them to publish BCUC’s Public Notice on their website, libraries and recreation centres. They received the request on July 7th and have just today posted it on the CVRD website with only 4 days remaining. What a rigged game all levels of government engage in.

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