Tag Archives: BC Hydro

Jessica McDonald Appointed CEO of B.C. Hydro

The appointment of former B.C. Liberal deputy minister to Premier Gordon Campbell as CEO of B.C. Hydro shows the Liberals plan to continue to play politics with the public utility, say the New Democrats.

“B.C. Liberal mismanagement of B.C. Hydro has already driven up rates for British Columbians. Another Liberal appointment will only make things worse,” said New Democrat Leader John Horgan.

“Jessica McDonald has no experience in the energy sector,” said Horgan. “Her only relevant experience is as a deputy to the premier who put B.C. Hydro in the mess it’s in today.”

Horgan said he finds it remarkable that the energy minister refuses to let the independent experts at the B.C. Utility Commission review important projects, due to what he absurdly refers to as a lack of experience; yet he has no problem letting someone with absolutely no energy experience run the entire show.

“Before the last election, the premier said they had rates under control,” said Horgan. “As soon as the election was over, B.C. families and businesses were hit with a massive 28-per-cent hike.”

“British Columbians can’t afford more political mismanagement at B.C. Hydro,” said Horgan.

B.C. Liberals Order Utility Commission to Raise Hydro Rates

The independent B.C. Utility Commission is being forced to implement the Liberals’ hydro rate increases – making life less affordable for British Columbians, say the New Democrats.

John Horgan

John Horgan

“Once again, the Liberals are stripping independent government agencies of their ability to do their job of looking out for the best interests of ratepayers,” said New Democrat energy critic John Horgan. “Instead, the Liberals prefer to issue heavy handed edicts that make life less affordable for British Columbians.”

“This time it’s their massive increase to hydro rates that will make customers pay $477 more on their bills over the next three years.”

Special orders issued Thursday force the BCUC to implement the Liberals’ hydro rate increases “for fiscal 2015 and 2016 at 9 per cent and 6 per cent respectively.” The orders also set into stone the Liberal plan to continue raiding money from the utility while they make B.C. families pay more.

“The Liberals’ hydro hike is on top of a flood of other hidden tax hikes discovered in Premier Clark’s budget,” said Horgan. “The Liberal budget makes families pay $400 more for Medical Service Premiums. The Liberals also will be taking in $162 million more in revenue from coastal communities and businesses who rely on ferries.”

Horgan said whether it’s through hydro rates, MSP, or other fee and fare hikes, families across B.C. are paying the price for Liberal mismanagement.

“Before the election the Liberals cancelled public rate hearings and continued to tell British Columbians that they had the situation under control. Now we know they never did,” said Horgan.

“If the Liberals allowed the BCUC to do their job in the first place, we wouldn’t be in this mess. Instead, the Liberals robbed them of their powers to oversee countless expensive private power contracts, the massive Site C project, and the billion dollar smart meter mess.”

UBCM Votes for Moratorium on Smart Meter Implementation

Today the Union of B.C. Municipalities voted in favour of calling for a moratorium on the implementation of the BC Liberal’s plan to have smart meters installed on every home and business in BC.

In response Rich Coleman, Minister of Energy, said that it doesn’t matter how they voted, the contracts have been signed (and you know the BC Liberals would NEVER break a contract) and the implementation plan is set to proceed.

New Democrat energy critic John Horgan then weighed in and said that the BC Liberals should put the entire smart meter project on hold until a full independent review can be completed.

“We’ve had serious concerns from the beginning that this is a billion dollars wasted on a bad idea. With the Union of B.C. Municipalities voting in favour of a moratorium this morning, it’s clearly time the Liberal government started listening to communities and to ratepayers,” said Horgan.

The one question that I continue to ask is, what is the purpose of the smart meters?

The BC Liberals have mandated the replacement of analog hydro meters with new digital “smart” meters on every home in the province by the end of 2012 at a cost of nearly a billion dollars.


Sinister Financial Vectors at BC Hydro

The following information came to us from Erik Andersen, through the indefatigable Rafe Mair. This information is interesting in that it gives some insight into the direction that the Campbell administration is taking BC Hydro.

A “vector” gives information as to direction and the magnitude of a changing position. A series of financial statements can also provide vector information about the financial health or otherwise of corporations.

The first vector to consider is of the direction and speed of change for the operating net income at BC Hydro. As recently as fiscal 2007 (financial year ending March 31, 2007) BC Hydro’s net operating revenues, less financing expenses, produced earnings of $379 millions.

The 2008 report was the first time these earnings went negative (loss from operations after financing expenses) by $72 million.

The report for 2010 of the operating results, after financing expenses, indicates a loss of $249 million.

In the four year period there has been a $628 million reversal of net operating income after including provision for financing expenses. As a device to offset this deterioration in net operating earnings, the Board elected to greatly increase transfers from the “regulatory account.”

An amount of $28 million was used in 2007 but by 2010 the amount increased to $696 million.

Calling upon the “regulatory account” seems capricious and dependent upon how good or not so good are net earnings from operations. There is a sense that this is an accounting manoeuvre to compensate for the reality of revenue and operating earning reversals.

This opinion is supported by evidence of the growth of “other assets” which includes intangible assets like “goodwill.”As a proportion of total assets, “other assets” amounted to 13% in 2008 but by 2010 were 16%.

Another vector worth examining is the change in total liabilities versus total assets. In the fiscal year ending March 2008 total liabilities were $12,526 million. Three years later they now amount to $15,419 millions; up 23% or $2,893 million. In the asset category, totals increased from $14,447 million to $16,093 million; an increase of only 11% or $1,646 million.

The absence of symmetry between the two sides of the balance sheet is very worrying as there is certainty with liabilities but not so with asset values which in turn means a financial condition of increasing risk of insolvency.

An examination of the demand for electricity vector is also instructive. From page 30 of the 2010 Annual Report, BC Hydro presents the record of this dynamic.

“The growth rate is calculated as the year-over-year change in domestic load. However, despite higher customer numbers, overall load decreased due to the economic impact on BC Hydro’s industrial customers. Slower growth in residential and commercial sectors, and the negative growth rate in the industrial sector, added up to a decline in total BC Hydro firm sales in fiscal 2010 relative to 2009”.

This deteriorating demand condition was detectable as long ago as 2006. In 2006 the growth rate over 2005 was 2.7%; in 2007 it was 1.3% over 2006; in 2008 it was -0.3% over 2007; in 2009 it was -1.8% over 2008 and by 2010 it was -3.8% over the previous year.

Expressed in GWhs (what BC Hydro sells) total volume of sales went from 52,512 units in 2009 to 50,233 units in 2010.

Another vector is the ratio of debt-to-equity. A ratio of 0/100 is the extreme where the corporation or individual has zero debt and as a consequence, an almost perfect credit score. The other extreme is 100/0 where there is no equity. There can even be conditions where the debt is greater than 100. A ratio of 100/0 can be evidence of insolvency.

At BC Hydro this ratio had traditionally hovered around the 70/30 mark. The 2009 Annual report showed a remarkable change to 81/19 which meant no dividend could be paid to the Government. After calling upon the “Regulatory Account” for the 2010 year a small dividend was paid and the debt-to-equity ratio is now presented as 80/20.

If the “regulatory account” transfers were removed from the BC Hydro financial statements, the ratios for 2009 and 2010 respectively would be 87/13 and 89/11. This ratio is an accepted shortcut to demonstrate financial health or otherwise.

The final vector of note is the immediate prospect of new and expensive contractual obligations associated with the call for power from Independent Power Producers (IPPs). From page 10 of the 2010 Annual Report BC Hydro states that they presently have “89 Electricity Purchase Agreements (EPAs) with IPPs, including four EPAs in non-integrated areas, representing about 14,244 GWh/year of energy purchase.

During fiscal 2010, IPPs provided 8,893 of energy to the BC Hydro system, which accounted for about 16 per cent of total domestic electricity requirements.”

From page 40 of the same Report;

“In late November 2008, 68 proposals were received from 43 proponents representing over 17,000 GWh/year of firm energy. In March 2010, BC Hydro selected 23 proposals for the award of Electricity Purchase Agreements, amounting to almost 3,000 GWh per year of clean or renewable firm energy. In May, a further two proposals were selected — representing 287 GWh per year of firm energy.”

Given the timing and the certainty that these are high cost purchase contracts for BC Hydro, it is no surprise to see a financial deterioration at Hydro.

Now what to make of this all? First off it was clear as long ago as 2006 that the growth in domestic demand for electricity was slowing and reversing. With this evidence it is hard to understand what could motivate the management and Board at BC Hydro to embark on the massive spending, done and underway, and the aggressive contracting of energy from IPPs. From the 2010 Report it is manifestly clear that sales to outside of BC customers have collapsed. That leaves only the captive domestic residential and commercial/industrial customers to carry the much increased and certain to grow financial burden. Recent rate hikes have added about 10% to customer bills with an interim increase now in the works for another +6%. This is triple or more the alleged increase in “cost of living” in BC and Canada; a highly inflationary vector at a time of a weak BC economy.

As the evidence of need for more electricity in BC is not readily apparent, the aggressive borrowing/investing/contracting with IPPs appears ill-advised if not worse. It is improbable that the BC Hydro team are “financial illiterates” so there must be some other explanation for what is shown above; hence the description “sinister” because these vectors indicate intent.

Erik Andersen, Economist

BC Liberals Commit BC Hydro to Purchase Power from IPPs

It appears that it is too politically risky for the BC Liberals to privatize BC Hydro. The people of BC appreciate the relatively inexpensive hydro-electric power that BC Hydro supplies and would justifiably be upset if Hydro were to be handed over to private enterprise. So how do you privatize something so valued by the people of? Death by a thousand cuts is one way, or death by a thousand contracts is another.

Last summer the BC Utilities Commission (BCUC) ruled that it was not in the public interest for BC Hydro to agree to long term contracts with independent power producers (IPPs). This statement is not completely accurate. In fact, the BCUC ruling was that the BC Hydro Long Term Acquisition Plan (LTAP) was not in the public interest. That means that the BCUC did not approve of how BC Hyrdo planned to acquire electricity in the coming years.

That ruling was based on the fact that large multinational investors would not invest in independent power producers unless long term contracts for the sale of the power were in place. Seeing as BC Hydro is the only buyer in the electricity game in BC, and the BCUC said it was not in the public interest for BC Hydro to agree to long-term contracts with IPPs, the IPPs were thrown into turmoil. The BCUC ruled that the contracts were not in the public interest.

Now John Horgan, New Democrat energy critic tells us that the BC Liberals are forcing BC Hydro to agree to contracts with the private power industry, contracts worth countless millions of dollars. BC Hydro, under the direction of the BC Liberals has made a commitment to buy thousands of gigawatt-hours of electricity…electricity BC may not even need.

The problem is that the long-term contracts that BC Hydro signs with the IPPs only guarantees profits for the investors. If there is no need for the power in BC, BC Hydro is still forced to buy that power. Then they have to try and sell the power on the open market. That sale can be at a rate lower than the rate that BC Hydro has purchased the power at. This is where the death by a thousand contracts begins; the long-term financial sustainability of BC Hydro comes into question.

Two facts to consider; it came to light in the most recent provincial budget that the BC government is making BC Hydro apply for a 29% increase in the electricity rates over the next three years. And in what one can only assume to be an unrelated issue, in the lead up to the last provincial election the private power industry donated more than $300,000 to the BC Liberal party.

More from Rafe Mair on IPPs

This posting is another interesting read from Rafe Mair’s mailing list. The author of this piece is Doug McArthur, Professor and Distinguished Fellow in Public Policy in the Graduate Program in Public Policy at Simon Fraser University.  Prior to that he was Senior Fellow and Special Assistant to the President at the University of British Columbia.

The word corruption is one not normally given much credence as an explanation of government behavior in Canada. I have of late written much about the pervasive corruption of the Karzai government in Afghanistan. Now an essay by a reputable economist and analyst has raised the spectre of corruption in the recent behavior of the BC Liberals in setting hydro electricity policy. (See Marvin Shaffer at http://www.policynote.ca/2009/11/03/you-dont-have-to-sell-bc-hydro-to-give-it-away/ ). Editor’s note, the Shaffer piece is posted just below.

This is not to be taken lightly. Shaffer is a careful, thorough researcher highly regarded by experts in the field, including the BC Utilities Commission. There are some extremely sophisticated ways governments can use today to pay off those who have provided support and money to the party in power. Shaffer knows how the hydro power system works. He makes a pretty convincing case that only corruption offers a meaningful explanation of what is happening, or at a minimum that that is where we should look if we are serious about getting an answer.

The government had just announced three highly important moves around hydro power. First it has gotten rid of the top manager at BC Hydro. It is no secret that he and the senior executives of Hydro BC are deeply disturbed by government directives that run contrary to the interests of Hydro and BC citizens. Clearly it was untenable for him to continue in the face of gross government malfeasance.

Second the government has directed that the large, cheap, efficient and clean burning Burrard Thermal generating plant be taken out of the base generating capacity of BC Hydro. This means that Hydro can no longer plan its power development with the Burrard plant as part of its continuing base supply. Because by law, Hydro must have the capacity to supply BC on a continuing basis, Hydro must now find a large new replacement source of power generation. Where is that to come from? The government has directed that Hydro must obtain any new supplies of power from private power producers, therefore, it will come from investors in private power. It is well known that these investors are supporters and close friends of the Liberal Government. It is now clear that they will all at government direction be paid a much higher price than the cost of producing it at Burrard Thermal. BC Hydro eats the loss and power customers must make up the difference in increased power rates. These are the same power producers who helped organize for the Liberals in the last election campaign and who contributed large amounts of money to the campaign. The power deal is the same as a direct transfer of taxpayer money to corporate coffers. If not corrupt, what?

The Government claims that the Burrard power station adds to greenhouse gases. That is a lie, although a somewhat complicated one, as all good lies are. Burrard Thermal uses natural gas, which is one of the cleanest energy sources available. It is very cheap and efficient. True, gas supplies will decline in supply in the future, and so there is an argument for conserving it, but the government will not conserve the gas not burned at Burrard. It will sell it to be burned elsewhere. It aggressively markets BC natural gas in unlimited quantities for shipment to the US and elsewhere, where it is burned. It has no intention of curtailing the overall burning of BC gas to help global warming. Every unit of BC gas not burned at Burrard will be sold cheap to other markets to be burned, with an equal or greater impact on total green house gases. As I explain below, much of it will be sold back to BC in the form of externally generated electricity at much higher gas equivalent prices in the late fall and winter. The claimed benefit in reducing global warming is another of the lies this government has become practiced at telling as a matter or course.

As I said, replacement power capacity will have to be found for Burrard by law. Who in the main will this come from? Surprise, surprise largely from private hydro producers, as set out in the third government directive just issued. Not surprisingly, however this is not quite as the government claims either. Private hydro produces most of its power in the spring and summer when BC already has a surplus of power from Hydro’s already established large Hydro plants. It doesn’t need more power in the spring and summer when the run off is high. But the government is making Hydro buy the power from these producers at inflated prices, even though it will have to turn around and sell it into export markets at much lower spring and summer market prices. Then, in the winter, BC Hydro will have to buy very expensive power from producers in the US. The private hydro producers will make a lot of money, Hydro will lose huge amounts of money on the whole complicated deal, and BC Hydro customers will make up the difference in higher rates. Thus it is that the Liberal Government rewards its supporters with our money. Make sense? Frankly, only if that is its purpose.

Does that sound like corruption to you? The government explanations just don’t add up when subject to scrutiny. If this was happening in India or Pakistan we would call it corrupt. Let’s be honest with ourselves. Probable corruption should be named and exposed wherever it appears.

It is a puzzle as to why this has not been exposed in higher profile media sources. Perhaps the government has made it sufficiently complicated that it is very hard for the general journalist to understand. Cut backs in the media have meant that the experts in fields like energy are no longer around. Still, one would hope that the general outlines of what is happening would be enough to cause journalistic outrage.

Or maybe it points to the failure of the professional training of journalists. Perhaps it is time for the return of the muckrackers. That may be the only way the government will be called to account and the truth will be out.