For years, BC Hydro has reported profits that did not exist. The company’s Statements of Comprehensive Income (Loss) have been coloured with crayons, like ones used by late Ponzi schemer Bernie Madoff when he reported fictitious returns to investors.
As a result, BC Hydro’s financial statements carry billions of dollars of worthless “Regulatory Balances” as well as a whack of intangible assets. While kilowatt-hours delivered by the utility to residential, commercial and industrial consumers were less in 2020 than in 2005, assets employed to provide service grew in that 15 year period from $12 billion to $41 billion.
Site C and other projects will see BC Hydro assets top $50 billion within a few years.
Regulatory balances cannot grow continuously. Used properly, these do not create counterfeit results; they rise and fall over short periods to smooth operating costs. Unrestrained capital spending and needed write-offs of valueless items will result in major rate increases. But that presents a critical problem.
In earlier times, electricity demand was relatively inelastic. If a utility raised prices beyond the rate of inflation, consumers had little choice but to pay.
However, large consumers have an alternative today. Simply put, it is self-generation. As efficiencies rise and generating equipment prices fall, dependency on major utilities drops as well.
Corporate Clean Energy Buying Grew 18% in 2020, Bloomberg NEF
Corporations purchased a record of 23.7GW of clean energy in 2020,.. The increase came despite a year devastated by the Covid-19 pandemic, a global recession and uncertainty about U.S. energy policy ahead of the presidential election.
… Clean energy contracts were signed by more than 130 companies in sectors ranging from oil & gas to big tech. Underpinning the market is surging stakeholder interest in corporate sustainability and expanding access to clean energy globally.
To discourage heavy industry users from turning to self-generation, BC Hydro knows it must keep their electricity prices low and limit extra charges such as those for transmission equipment and service modifications.
Yet BC Hydro needs more revenue. In the near term, residential consumers and small-to-medium enterprises (SME)—who already pay much higher prices than heavy industry—will carry the burden.
But as costs of small-scale wind and solar power generation drop and viability of battery storage increases, even residential and SME consumers will turn to self-generation.
When customers get so good at energy efficiency that they need less of it. They also find outside sources for electricity, including distributed energy resources (DERs), which also leads to a decrease in their use of utility services.
Decreasing prices for storage options and mandates from cities and states for new construction to be green construction are contributing factors. All these conditions, when presented by numerous customers, cause utilities to lose revenue. – Energy Central
This is called the utility death spiral. Sadly, BC Hydro executives and BC’s politicians have demonstrated they are not prepared to adapt. Inevitably, they will move on and leave the serious problems for other people to solve.
There’s another cost factor that’s never mentioned, but we all see on a daily basis. The replacement of Hydro Poles, and all the galvanized metal fasteners (which was corroded by the type of copper preservative on the old poles).
PERFORMANCE OF WOOD POLES IN B.C. HYDRO’S DISTRIBUTION SYSTEM
INTRODUCTION The service life of wood poles are influenced by many factors such as wood species, initial preservative treatments, climate, location and maintenance practices. The poles are subject to deterioration caused by fungal attack in the ground line and pole top regions, insect invasions, and woodpecker damage
Need for This Study B.C. Hydro has a large investment in wood poles. For example, the replacement value of B.C.Hydro’s approximately 860,000 distribution poles is estimated at $1.6 billion, based on an average replacement cost of $1800 per pole. The annual cost for purchasing new pole materials each year has been $6 million for B.C. Hydro. Pole maintenance and replacement accounts for a significant percentage of the total cost of maintaining wood pole lines. B.C. Hydro’s cost is approximately $2.3 million.
It is disgraceful that BC and Alberta are still suffering the effects of the Enron con job that made dupes of utility customers 20 years ago. Snowhomish County in WA sued and repudiated this profit maximization fraud https://www.snopud.com/newsroom/SpecialReports/enron.ashx?p=1326.
It is a tragic situation that the NDP has become a pawn of the neoliberal predators. Like PG&E in California, which Mayor Sam Liccardo is organizing mayors in California to transform into a consumer co-operative, perhaps the same may be appropriate for BC Hydro. We should be joining with other regions that are interested in replacing predatory short term profit values with social and economic democracy in electric power generation. This comes under #SDG7 in the 17 Sustainable Development Goals for 2030.
Great article Norm. Are you mostly referring to “externalities” , you know those expenses and stranded capital amounts that are never meant to show up in a financial report?
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For readers not familiar with the term “externalities” as used by economists, that refers to impacts on third parties of activities in which they play no direct part.
If you ride a bus instead of driving your big dual-wheel diesel pickup, others benefit from reduced pollution, which is a positive externality. If you dam a river where salmon spawn, the loss of future fish stock is just one of the negative externalities.
BC Hydro has been responsible for many non-financial costs that are not recognized on financial statements. Flooding land to create a reservoir changes that land dramatically. More than 50 years after Arrow Lakes flooding in southeast BC, residents there are still affected.
BC Hydro’s destructive legacy
Indigenous groups in Alberta, N.W.T. say they’ve borne ‘enormous costs’ from B.C. dams, call for end to Site C
By the way, one BC Hydro official referred to Site C as a run-of-river project despite it flooding 23,000 acres. The company underestimates negative externalities of the project and at the same time overestimates the need for it.
But my article refers more to overuse of accounting tricks to distort financial results. BC Hydro booked as revenue the figures they had expected, instead of the figures that reflected ACTUAL sales. BC Hydro incurred operating expenses but treated them as asset additions by over-capitalization to property, plant and equipment or by using deferral accounts that were treated as assets even when there was no future intrinsic value.
BC Hydro has relied on false and misleading information to keep the public from knowing the company’s true state. Both BC Liberal and BC NDP government decided that disguising truth provided political benefits. Politicians revealed themselves as dishonest, cynical and corrupt.
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Hi again Norm. I sure hope some folks wearing “long-pants” take the trouble to read what you have written.
The ENRON fraud is only about 20 years past but they did much the same re. accounting. There were a lot of willing passengers on that bus who not only knew what was happening but also saw ways to help the fraud along.
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You wonder how NERC and FERC had to do with BCHydro?
That is a good observation, Erik. Alberta and BC had governments 20 years ago that suppressed evidence of Enron manipulation of utility billing that cheated account holders. The governing regulators in Snohomish County said to hell with that noise and they recovered ~$170 million from Enron in a legal judgement.
The corporate shill attitude of Ralph Klein and Gordon Campbell’s desire to ape Klein did not serve the economic interests of people in BC or Alberta https://albertapolitics.ca/2016/08/dispatch-road-enron-power-boys-played-ralph-kleins-government-suckers/