As I’ve written here before, financial expert Richard McCandless is a source of intelligent analysis of public issues in British Columbia. His website, BC Policy Perspectives, pays particular attention to ICBC and BC Hydro.
Richard’s commentaries are more technical than mine but his work is helpful to anyone seeking better understanding. He also circulates occasional emails to a list of people interested in public policy.
The latest posits that future BC Hydro ratepayers will be paying excessive rates for electricity and it describes how BC Hydro financial statements have been distorted by non-standard accounting methods. These allowed the provincial government to direct payments of dividends funded by borrowing, not by real profits of the utility.
The previous government utilized three interrelated techniques to manipulate BC Hydro’s finances to achieve high net income and lower than required rate increases.
These actions included:
(a) using non-standard (“prescribed”) accounting which did not require an independent regulator to oversee the regulatory accounts
(b) a high net income target which assumed much greater risk than actually existed because of
(c) the over-reliance on deferral (regulatory) accounts which practically eliminated the risk to the shareholder’s profit target by transferring cost and revenue variances to future generations of ratepayers.
Credit rating agency S&P Global recognizes that utilities are protected from competition by government regulation and because high capital costs mean very few companies are capable of entering the sector. While utilities are typically unconcerned about competitors, S&P believes most management teams remain mindful of the benefits of limiting risk and maintaining a strong financial profile. It notes that utilities are typically downgraded by
- poorly executed strategic plans,
- stretched financial profiles from expansion,
- adverse regulatory rulings,
- or pressure from operational stumbles.
The BC Government protects BC Hydro from adverse rulings of BCUC, so that is not an issue. However, by any objective measurement, past and present BC Hydro executives clearly fail on the other three points.
With the Milburn Report soon to suggest yet more vaporous promises for effective oversight, the Horgan Government will announce continuation of the Site C megaproject.
How do I know? Because work on the project continues and the top management at BC Hydro is unchanged.
Minister Ralston and BC Hydro ought at least to have the courage to release the Milburn Report and overdue quarterly reports for Site C. The last one made public was for the period that began more than a year ago.
However, courage and transparency are not two qualities displayed in public management of British Columbia’s energy sectors.