BC Hydro

Lesson to be learned

A Bloomberg Quicktake video, How Boeing Lost Its Way (embedded below) put me in mind of BC Hydro. Years ago, both companies were effective in delivering value for money to customers. Then attitudes changed. Growing bigger became more important than growing better.

Boeing had been a principal war manufacturer and played key roles in securing victory for Allied forces. In post-WW2 years, Boeing became the dominant supplier of passenger airplanes. However, while the company was seen as an excellent builder of airplanes, its stock price languished. So, the smartest guys in the room effected change.

There were negative consequences from altering the company’s focus. These were not immediately recognized. In fact, Boeing became a darling of investors.

From 1989 to 2009, company stock increased by $20 a share. Ten years later, the share price had increased an addtional $380. The difference resulted from a change in focus, from engineering excellence, innovation and addressing customer needs to pleasing the nation’s money manipulators and rewarding executives and board members.

In 1999, Boeing Chairman and CEO Phil Condit earned about $3 million. In 2018, Boeing CEO Dennis Muilenburg earned $23 million and when fired after the 737 MAX debacle, he walked away with $60 million more.

Chair of the U.S. House Committee on Transportation and Infrastructure Peter DeFazio (D-OR):

Boeing was a magnificent company who made, in my opinion, the best airplanes in the world until some of these recent cultural changes which all came from pressure to Wall Street and bad management.

Stan Sorcher, physicist at Boeing for over 20 years:

There was a great deal of dissatisfaction with the way our problem solving culture was being displaced, and we thought it was just much more difficult for us to do our job.

Boeing’s 787 project, initiated in 2003, was late and wildly over budget. The plane was grounded in 2013 because of fire risks and another grounding order was issued for 787 aircraft in 2020 over concerns that flaws could result in structural failures.

We learned that Boeing officials conspired to conceal problems, saying no one outside the company could know about an issue that related to 737 MAX safety. As a result, hundreds of lives were ended and thousands more disrupted. Boeing lost $20 billion and a large part of its reputation. The company is playing second fiddle to Airbus in 2021.

Analyst Richard Aboulafia, VP Teal Group Corporation said it was clear that the one big cultural change at Boeing had been a disruption in the communication between engineers and top management.

While a private manufacturer and a public utility are not directly comparable, I see parallels. I’ve been told the decision makers in charge of BC Hydro are unreceptive to feedback from engineers and other technical staff if that information conflicts with the company’s chosen strategies. We know BC Hydro concealed fundamental problems with Site C from regulators and the company and has been reluctant to produce timely and useful public information, both technical and financial.

The utility consistently produced fallacious demand forecasts, not because people creating those documents were incompetent but because they were directed to use unsound assumptions. When demand flattened in 2005, the company believed it was a temporary effect best ignored. The 2008 economic meltdown strengthened that conviction. Unit sales had always risen between one and two percent annually and executives wrongly expected normal trends would return. They discounted energy saving efficiencies being embraced by consumers.

By 2012, BC Liberals were suffering LNG fever and wanted to add generating capacity to feed the 20 gas liquefaction plants that occupied prime time in their dreams. Political direction to BC Hydro was clear: BUILD SITE C.

Utility leaders did not object, either in the boardroom or at the senior executive level where new projects were more important than sound financial management. One professional told me that managers at BC Hydro pride themselves on the size of their budgets, not the usefulness of their work. A person supervising a $500 million project is considered more important than one running an undertaking worth only $50 million.

Indigenous rights, financial viability, failure risks and best use of land studies were not the concerns of people whose careers depended on the dam proceeding. As with the 737 MAX test pilots, the objective was not to proceed safely, it was just to proceed.

Empire builders always want larger empires.

Consultants are useful in many circumstances but sometimes they are hired simply to approve management goals. BC Hydro paid Ernst & Young big dollars to provide plaudits for publication.

Companies like E&Y are perceived by many to be reliably expert in all fields and dependably independent. People forget that consultants desire repeat business and unhappy clients are unlikely to call again. That may colour reports. Ernst & Young was just plain wrong in 2016 when they reported to BC Hydro.

They’ve been wrong in other cases too, as reported by BNN Bloomberg:

A special parliamentary investigator lists far-reaching shortcomings in Ernst & Young’s audits of Wirecard AG before the German financial technology company collapsed last year, a person familiar with the report said.

The investigator lists about 11 incidences where EY failed to take measures to uncover the multibillion fraud, said the person, who spoke on the condition of anonymity because the report is classified as secret. It concludes the quality of the documents presented to EY were not very reliable as they came from the company’s verbal or written statements and not from neutral third parties such as the banks, the person said.

The investigator also comes to the conclusion that a systematic analysis of fraud patterns, particularly in relation to Wirecard’s third-party acquirers business, would have added more critical perspective and could have helped to uncover the fraud, the person said. The Financial Times reported on the findings earlier Saturday.

EY has come under fierce criticism for its auditing of Wirecard, with Germany’s audit watchdog filing a criminal complaint against the firm. EY audited Wirecard’s books until the money-transfer company collapsed last year with a 1.9 billion-euro ($2.3 billion) hole in its books. The firm argues it was the victim of an elaborate fraud.

Categories: BC Hydro, Site C

6 replies »

  1. So who can be trusted? The banks have their money in ‘lost asset’ oil companies and auditors aren’t independent.
    The money says ‘in God we trust’, but perhaps that truth comes with a bit of salt.

    I’m looking for a mattress to stick my cash under.


  2. BC Hydro lost its way in 2001 when its role changed from being a provider of affordable electricity for residents and businesses of BC to a provider of $$$ for IPPs.

    In May 2001 the BC Hydro rate was 5.7 cents per kWh.

    The Step 1 BC Hydro rate is now 9.4 cents per kWh.

    The Step 2 rate is now 14.1 cents per kWh.

    BC Hydro debt is huge (est. $27 billion) and growing at over 7% a year.

    See page 170 of BC Budget and Fiscal Plan 2021


  3. We leave a lot of people coming out of their education thinking that their ambition is the key, and they let that become their goal. The economics schools bring sanctions against any economist who disagrees with the predominant economic games. And we, as Canadians are too dammed, and too damned nice.


  4. I have enjoyed following your recent posts illustrating new technologies and power generation trends that are revolutionizing power generation elsewhere in the world. Alas, BC Hydro senior management continues to be oblivious to innovation and likely will doom BC becoming a high cost power generation backwater. Isn’t power generation their supposedly area of expertise?

    Another example of a very promising and well supported innovation is Vortex Bladeless Wind Generators (https://vortexbladeless.com/). My rough calculations suggest that BC Hydro could easily produce more reliable power using this technology at a small fraction of the cost of either Site C or the IPP boondoggle. BC could easily have both more than adequate power and all the benefits of the farmland that will be lost to Site C.

    The combination of, for example, Vortex Bladeless generated power in combination with one of the evolving power storage systems (such as liquid air – https://www.youtube.com/watch?v=tMLu9Dtw9yI) would solve the intermittency problem. as well as providing low cost clean power.

    Alas, as things stand today, such innovations will never be considered and BC Hydro will continue to waste massive sums of public monies on 20th century technologies.

    Liked by 1 person

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