Why has BC Hydro gone so Big?
 
Over the past few years a number of us have puzzled over this question. The Crown Corporation, in most people’s minds, was given its natural monopoly status in the belief that the Board and Officers will prudently manage Hydro’s assets so as to deliver adequate electricity to British Columbians at the lowest rates possible. For decades this seemed to be what happened, making BC the place in North America with the lowest electricity rates. It was held to be an achievement to celebrate and certainly gave our province an energy edge when it came to attracting new businesses. This is fast becoming no longer the case.
 
Let’s take a look at the record. In 2000 total assets were $11.596 billion; by 2011, assets had ballooned to $19.479 billion. In 2000, total liabilities were $9.320 billion; by 2011 they too had ballooned to $16.599 billion. If one were to add the yet-to-be-collected amounts held in the “Regulatory Assets” accounts (money we owe as ratepayers) that BC‘s Auditor General discovered, BC Hydro would be negative equity, more liabilities than assets.

Had there been a matching increase in demand it would make some sense but in the chart below you can see that has never been so. For several years the unanswered question has been: How could financially literate people steer our crown corporation on such a perilous course? The enormity of this financial fiasco places the prized assets of BC citizens directly in harm's way with no credible explanation as to why.
 
Through the decades BC Hydro has consistently shown a passion to have more generation and transmission capacity than was ever necessary to fulfill its real purpose of satisfying its BC customers. In support of this assertion please consider the Chart below (credit: Sandra Hoffman, PhD.).
 

 
The forecasts for all businesses are corporate manifestations of a course to be navigated. Forecasts drive investment planning and by extension, borrowing.
 
In his 1999 book, White Gold: Hydroelectric Power in Canada, Karl Froschauer , writing about BC Hydro, stated “By the early 1980s, the ‘unplanned surplus’- the equivalent of the entire capacity of the $2 billion Revelstoke dam (1,843 MW)- became evident, and BC Hydro was called to account for its planning decisions. The statement of Robert Bonner, BC Hydro chairman at the time, was reported as follows: ‘ Hydro was merely responding to what its corporate customers thought they would need. He said those industries could not have forecast plant closings and the general slump in the economy that resulted in a drop in the demand of electricity.’”

It is worth borrowing a military concept at this point. The best commanders are those displaying “situational awareness”. It is part of the art of valuable leadership. Chairman Bonner was simply excusing himself and his management team from their dearth of “situational awareness”. There are numerous indicators to call upon plus more than a hundred years of formal economic literature that would provide “situational awareness” for those wishing to avoid making “stranded investments” - those investment that no longer can produce revenues but still must be paid for.
 
Mr. Froschauer goes on to write that “There is no evidence that these companies were held responsible for not purchasing the electricity for which they had made firm inquiries…Upon revising and reconfirming the inquiries made by potential industrial customers, BC Hydro found that its estimates were now less than half of the original forecast.”
 
BC Hydro forecasts have consistently being far too optimistic because the corporate leadership and Governments have sought to turn electricity into an export product, forgetting along the way to ask the ratepayers in BC if that is a good idea and at what cost. The most recent forecast is no different than what Mr. Froschauer critiqued.

Demand for electricity in BC is from three categories: residential, business and large industrial. According to BC Hydro’s forecasting manager, the first two categories are driven by population and economic forecasts obtained from provincial sources. It is the third category where the trouble arises, much as described above. BC Hydro’s corporate development officer, Warren Bell, is tasked with taking expressions of need from would be new customers. He has demand growth for this group increasing from 15,722 GWhrs in 2010 to 22,271 GWhrs by 2017. In this group would be the Northern Gateway Pipeline, which has yet to clear environmental hurdles and get the support of the Provincial Government. Mr. Bell is tasking the corporation to be ready to provide electricity to what history tells us are the most fickle people BC Hydro could want as customers.
 
So does an unblemished record of demand exaggeration and an explosion in new investing/borrowing bring one closer to understanding why? I doubt it. So what else is there?
 
The answer may be found in another location. Most readers will not have heard or read of a private US corporation, the “North American Electric Reliability Corporation” (NERC). This private enterprise came into existence in 2006 and has the stated intent:
 
a. to promote the reliable planning and operation of the electric bulk power systems of North America;
b. to act as the electric reliability organization for the United States as certified by the Federal Energy Regulatory Commission and for Canada and Mexico as recognized by applicable government and regulatory authorities in such countries, all pursuant to law;
c. to develop, implement, and enforce, consistent with executed agreements with regional entities and approvals by applicable regulatory authorities, standards that provide for reliable planning and operation of the electric bulk power systems of North America; and
d. to conduct such other lawful business and activities, not otherwise inconsistent with specific purposes set forth herein, in which a corporation subject to the New Jersey Nonprofit Corporation Act may engage.
 
Since 2006 our Federal Government has caused the National Energy Board to complete a memorandum of understanding with NERC. In its 2010 Annual Report NERC states that its “standards are mandatory and enforceable in Ontario and New Brunswick as a matter of Provincial law. NERC has an agreement with Manitoba Hydro, making reliability standards mandatory for that entity.” MOUs also existed with Nova Scotia, Quebec, Saskatchewan and Alberta. Learn about the nature of BC Hydro's obligations to NERC in this report.
 
So what has been taking place is the rearrangement of control of bulk electricity production in North America by a private US entity. NERC has the power to enforce its will on producers and looks to have the legal authority to by-pass local utility commissions. It is this development that might be the key to the understanding of why BC Hydro has indulged in its aggressive contracting with Independent Power Producers in BC when domestic demand increases are non-existant.

This is neither a complicated nor a long story – but it’s a tragic vindication for a hell of a lot of people who have been telling the story, ignored at best, more often vilified.
 
Look at page 1 of the story in the Vancouver Sun, May 11 under the heading "HYDRO AWASH IN PRIVATE POWER", where you’ll see that BC Hydro is spilling water over its dams and missing a chance to make a huge profit and is, instead, sustaining a crippling loss all by reason of corrupt bargains it’s been forced to make with private companies.
 
Ask yourself how Hydro could lose money in one of the wettest years in history, when their reservoirs are chock-a-block full?
 
It’s because of the gross negligence of the Campbell/Clark government – supported by the mainstream media (which has refused to do its job and investigate the private power plan – a plan which compels Hydro to buy private power at double+ the market price.)
 
Yes, folks, the chickens I’ve been writing about for years have indeed come home to roost – BC Hydro is buying private power while spilling its own water over the dams. Your power company, instead of using the water in its reservoirs to make power for British Columbians, lets it spill away, unused, while it pours money into grasping private hands at immense profits to them and immense losses to us.
 
Moreover, BC Hydro – such is the surplus of power in the US – could be buying Bonneville Dam power for a song and flipping it into a neat profit.
 
The exposure of the evils of the so-called “run of river” scheme was first published by Dr. John Calvert in his book, Liquid Gold, which exposure has been re-emphasized by too many power experts to mention – though one must point out the work of our resident economist Erik Andersen, who has been putting the price of these corporate rip-offs in language we can all understand.
 
We at the Common Sense Canadian have had super back-up from our contributors. It’s dangerous to list some for fear of offending others but as the official spokesperson for the Common Sense Canadian I must give special thanks to John Calvert, Marvin Rosenau, Larry Dill, Joe Foy, Otto Langer, Rex Weyler and so many others who weren’t afraid to stick their heads above the parapet.
 
Do Damien and I feel vindicated?
 
You're damned right we do, though it leaves a very bitter taste. For nearly three years we’ve traveled this province from meeting to meeting, trailed by power company stooges putting out the bullshit that we weren’t telling the truth while having no “facts” of their own to put forward. We’ve seen local media reporters have their reports of our meetings spiked by editors told from above to make no mention of our evidence. We’ve searched and waited in vain for just one major media editor to back up the simple truths we were disseminating.
 
The momentary pleasure that comes with vindication is massively overwhelmed when one tots up the damage including the destruction of 75 rivers and streams and the ecologies they sustain, with hundreds more to come; the destruction of salmon runs and resident Rainbows, Cutthroat, Dolly Varden and Bull Trout; clear-cuts for utterly unnecessary roads and transmission lines; the incalculable loss of wildlife; and last but scarcely least, the bankruptcy of BC Hydro (the only reason it isn’t officially bankrupt is that it can always raise money by raising rates and obtaining grants from the government – this means that British Columbia, its citizens and industries are bankrolling slick, greedy corporations as they cheerfully comply with the secret sweetheart deals the Campbell/Clark government has forced BC Hydro to give them. Yes, the profits from these corrupt deals are, for the most part, sailing out of the province directly out of your pockets and mine..
 
British Columbia has the right to have this whole sordid mess investigated – we are also entitled to a media that delves into this grossly negligent government action and lays the facts out before us.
 
I cannot leave without making special mention of Tom Rankin, who spent a fortune in his Save Our Rivers Society bringing the truth to the people. Damien and I are both much in his debt and the Common Sense Canadian was, in large part, inspired by Tom’s sacrifices.
 
There it is, folks, the truth is out and, in all likelihood, they’ll all get away with it.

Read this story from Scott Simpson in the Vancouver Sun, reporting on the glut of cheap hydroelectric power in BC and Washington State due to overflowing reservoirs from a big Spring runoff; despite this, BC Hydro is forced to pay top dollar for private power, unable to avail itself of more affordable alternatives. (May 12, 2012)

After a bumper year for precipitation in the Pacific Northwest, BC Hydro stations around British Columbia are sitting idle while independent power producers run flat out.

There’s so much water available for hydroelectric power that a Washington-Oregon utility, which runs full-time to protect salmon and trout, is paying other utilities to take electricity off its hands.

That means bargain-priced import electricity is available to BC Hydro from the Bonneville Power Authority, but it’s a bittersweet opportunity.

It’s difficult for BC Hydro to tap into the cheap power because of contractual obligations to purchase power from about 75 independent power producers (IPPs). Hydro is forced to buy from IPP operators, including big industrial ones such as Rio Tinto Alcan and Teck Resources, even as its own generation stations wait on standby. For example, at Peace Canyon generating station downstream of W.A.C. Bennett Dam on the Peace River, the primary source of hydroelectricity for all of B.C., the turbines are sitting idle for the first time in a decade.

Prices paid to IPPs vary by season, from an average winter high of $100 to a springtime low of about $60. By contrast, the Bonneville price in recent weeks has averaged less than $20 US.

Overall, according to Hydro’s 2011-12 annual report, IPPs earned $676 million from Hydro in the 12-month period ending March 31 ­— at a price per megawatt of power that was more than twice the cost of imported electricity during the same period of time

The water is pouring in just as warmer spring temperatures push down electricity demand. Data this week from the U.S. Energy Information Agency shows Oregon with 172 per cent of its long-term average precipitation supply, and B.C. with 131 per cent.

Meanwhile, a continuing U.S. economic recession is curtailing industrial power requirements south of the border.

That means there’s no market for B.C. electricity exports to the U.S. Nor do B.C. residents need Hydro to crank up domestic production.

Read this story from the Victoria Times-Colonist on more revelations from the BC Auditor General on Hydro's shady accounting practices - this time involving hundreds of thousands in executive bonuses paid on non-existent profits.

"B.C. Hydro executives have taken home hundreds of thousands of dollars in bonuses based on profits the province's auditor general says didn't really exist. Senior Hydro officials have their performance bonuses determined in part by the corporation's ability to turn a profit. But auditor general John Doyle's scathing report on the Crown corporation's finances, released Friday, showed Hydro actually lost money recently, and managed to show a profit only by deferring hundreds of millions of dollars in expenses to the future using debatable accounting methods. Nonetheless, the corporation paid out sizable incentive-plan bonuses to its CEO, vice-presidents and chief financial officer." (Nov. 1, 2011)

Read article: http://www.timescolonist.com/business/Hydro+paid+bonuses+existent+profit/5635771/story.html

This month (October 2011) The Auditor General of British Columbia presented his report to Government titled “BC Hydro: The Effects of Rate-Regulated Accounting”. For most folks this is not be a gripping story they will want to master. That of course is exactly what your Government is counting on.
 
To get everyone’s attention here are in his words the financial dimensions of the issue. "As of March 31, 2011, a net total of $2.2 billion in expenses had been deferred and, by government’s own estimate, the balance is predicted to grow to nearly $5 billion by 2017". Since this is a total of deferred expenses one could add current total liabilities and get per capita liability for everyone in BC in 2017 of $4,600 at a minimum. That is for BC Hydro liabilities alone.
 
The Auditor General’s Report describes what the "Regulatory Asset Account" is about. Theoretically it is about smoothing large incomes and expenses across several years. As used by BC Hydro it has been about exaggerated use of credit to fund questionable expenditures.
 
Perhaps a personal analogy might help. Let’s say that in 2006 your house was assessed at $124,840 and you were carrying a mortgage of $65,420 plus credit card/overdraft debt of $42,350. Your real job produced $27,270 before income tax and HST. Your creditors knew that your dad was a good credit risk and in fact had co-signed your mortgage and credit lines.

Now fast forward to 2011. Your house has an assessed value of $194,790 and you have used your new equity and your dad’s credit standing to re-mortgage to $106,320 plus you now have $59,000 of short term debt. In that 5 years you have managed increase your income from your day job to $34,380. Over the five years you have also managed to run up extra expenses of $22,000 which your dad is on the hook for and you have to tell him the amount will increase for certain by $30,000 more 5 years out. Your creditors are okay with this because you have convinced them that the $22,000 and extra $30,000 of future income will materialize because you own a business that is in fact a monopoly.
 
The above values are taken from BC Hydro’s Annual Reports, only the decimals are moved. The guarantor (AKA dad) in BC Hydro’s case is every citizen of BC.
 
Since 2005 when the “Regulatory Asset Account” was zero, about $4.4 billion of expenses have been designated as accounts receivable from rate payers in BC. As the Auditor General mentioned about $2.2 billion remains today. Brace yourselves for higher rates needed to pay this off and more.
 
Erik Andersen; Economist
 

Read this story from the Vancouver Sun on Auditor General John Doyle's new report, which slams BC Hydro's bad accounting practices - which will add enormous upward pressure to Hydro's already skyrocketing power rates.

"Questionable bookkeeping methods by BC Hydro have put ratepayers on the hook for $2.2 billion in public debt — with no apparent plan in place to recover the money, Auditor General John Doyle warned in an audit report on Wednesday. Doyle said that if BC Hydro stays with the practice of deferring large debts rather than paying them back and balancing their books each year, the total debt will swell to $5 billion by 2017.

At $2.2 billion, BC Hydro would need a one-year rate increase of 60 per cent to pay off the debt. At $5 billion, the increase would be 150 per cent." (October 27, 2011)

Read full article: http://www.canada.com/news/Hydro%20bookkeeping%20creates%20billion%20risk%20ratepayers%20auditor%20general%20warns/5619234/story.html?mid=51435

Read this essential op-ed from SFU's Marvin Shaffer in the Vancouver Sun, exposing the real cost to British Columbians of a heavily subsidized liquid natural gas boom on BC North Coast.

"A striking feature of the government's jobs strategy is the number of very electric-intensive projects it entails. The strategy calls for the development of new mines and liquefied natural gas (LNG) facilities, all of which will require very large amounts of electricity.

The first phase of the proposed LNG plant at Kitimat in itself will reportedly consume some 1.5 million megawatt hours of electricity per year, or roughly one-third of the entire output of the proposed Site C dam project.

Media commentators have questioned whether BC Hydro will be able to supply these large new requirements for electricity. Some worry that it will not be able to do so because of the capital spending and other constraints that were recommended in the government's recent review of BC Hydro's rapidly rising costs and rates.

However, the real issue here is not whether BC Hydro can supply the electricity these projects will need. It no doubt could by acquiring or developing new sources of electricity supply. The issue is whether, or at least under what circumstances, it should.

One thing is certain. It will be very bad for BC Hydro and consequently all of its existing customers if it does supply electricity to the new mines and LNG facilities at its standard industrial rate. Under that rate, which averages less than $40 per megawatt hour, the amount BC Hydro would receive would be less than half the costs it would incur for the new sources of supply it would have to acquire." (October 205, 2011)

How about a bit of totally nonsensical speculation of the order of “Hitler is alive and well living in Argentina”. Something utterly absurd. I bring to this speculation a very unique history – I’m the only person in captivity who’s been fired twice by Jimmy Pattison.
 
I rather like Jimmy – going out for dinner with Mary and him on his yacht, Nova Spirit, tells you a lot about the way Jimmy’s mind works, for the guests are from different genres and, as often as not, don’t speak with one another. It’s clear that Jimmy enjoys watching the way they interrelate or don’t interrelate at all. Certainly a big man in accomplishments, Jimmy carries with him, dare I mention it in this age of politically correctness, the usual symptoms of, shall we say, height challenge, which accounts for his need to be the big guy at all times, even as he is over 80, to succeed.

Stories about employees abound – the late Bill Sleeman, to whom he gave a new Rolls Royce on his retirement. Long term employees like Enzo (sorry, Enzo I’ve forgotten your surname), Bud Eberhart and Maureen Chant, to name a few, feel or felt a great loyalty to Jimmy who, when concentrating on his car company, routinely fired the month’s lowest salesman saying, “I do them no favour keeping them in a job they can’t succeed in” was his theory.
 
You know the saying, “When a husband sends his wife flowers for no reason, there’s a reason." Enter Dave Cobb, retiring from BC Hydro after 17 months as CEO; I have no trouble understanding why Cobb would leave. You will remember Cobb’s leaked conference call to employees, in which he slammed independent power projects (IPPs); his predecessor Bob Elton evidently bit the dust on the same subject.
 
In assessing this unfolding story we must know that the BC government is bankrupting BC Hydro, and in fact have already done so. As economist Erik Andersen has explained, if  BC Hydro was in the private sector it would be in bankruptcy protection now! The reason they are not is that they can keep raising their rates.
 
From the outset, the government’s IPP policy has been to force Hydro to buy power it doesn’t need thus must either sell it at half to a quarter the price they paid for it or use it instead of their own power at a huge loss.
 
Why would a government do so silly a thing?
 
There are only two reasons: The Campbell/Clark government wants to bankrupt BC Hydro because of The Fraser Institute's embedded “values” in the right wing unassailable tenet that there should only be private corporations because they are better business people; or, I suppose, they’re dumb as a sack full of hammers and don’t know what the hell they’re doing (I suppose we must admit of the possibility of both being true!).
 
This is the point I take leave of my senses. Jimmy Pattison has bought the services of Dave Cobb, for whom he must be paying a pretty penny – I mean this guy’s in the million a year range. What reason is there for this? (NDP leader Adrian Dix got off a good one saying that perhaps Cobb has found a Premier Clark he can work with!)
 
What if Pattison has an eye on BC Hydro? Yes, that’s what I asked – what if Jimmy Pattison, an acquisitor par excellence, buys out the jewel of the BC Crown!
 
If Jimmy were planning that, he would need someone close to home that knew where the bodies were hidden and Cobb squarely meets that criterion.
 
In the first place, Cobb is the only man in Hydro today who has admitted that these IPPs are going to wipe out Hydro’s assets. Knowing this and being the sort who can see the writing on the wall, saying, “Get the hell out before you’re tossed out”, he decided to do that.
 
Taking over Hydro is not a money-winner – at least not now – and won’t be as long as it has liabilities like $50 billion for money-losing (big time) IPPs. But what if Pattison could buy Hydro’s hardware and longstanding customers only, leaving the IPPs in the lurch with no legal rights against the government (the IPP deals were, after all, made by Hydro), nor the new BC Hydro which has no legal connection to the original one.
 
I’m admittedly groping in the dark here – I’ve never seen these private contracts. But what if the government said, “We’re expropriating your companies. Here’s the deal - take it or leave it, thanks a lot and good-by”?
 
Who better than Dave Cobb to help the lawyers and bankers to sort all this out?
 
Probably simply fantasy, idiotic conjecture. Certainly it’s just guesswork. But there have been worse conjectures…I think!
 
This for the closer – Jimmy Pattison has never winced from taking on an unusual proposition.
 
And what was that about the husband and the flowers?
 
 

Read this story from the Province on the unexpected resignation of BC Hydro CEO Dave Cobb to work for Pattison Group.

"B.C. Hydro president Dave Cobb is stepping down after just over a year in the job, in the latest example of the troubled relationship between the government and the Crown corporation. In an interview Wednesday, Cobb said it was a difficult choice to leave after just 17 months, but he has a 'oncein-a-lifetime' opportunity to work directly with Jim Pattison in senior management of the Jim Pattison Group. Cobb said he will stay at B.C. Hydro until Nov. 30 to help with the organization's transition to an interim CEO." (Oct. 20, 2011)

This article was originally published in the Alaska Highway News.

Dave Cobb is president and CEO of BC Hydro. In August, he confirmed what Hydro watchers have been saying for some time: that provincial energy policy is forcing Hydro to buy electricity it doesn’t need at prices higher than it needs to pay. Mr. Cobb said that if the government’s policy doesn’t change, BC Hydro would be “spending hundreds of millions of dollars per year of ratepayers’ money with no value in return” and that Hydro would be required “to buy far more long-term power than we need.”

That means that without changes, your BC Hydro bill will be going up – a lot – when it doesn’t need to.

Cobb was talking about restrictions imposed on BC Hydro by the province’s policies, especially electricity self-sufficiency. Legislation passed last year requires that Hydro hold enough electricity by 2016 to meet all BC needs. By 2020 it must hold 3000 gigawatt hours extra. It must be able to do that in the lowest water year on record. That means BC will have surplus electricity in all years except the very worst one, which might occur once every fifty or more years.

The theory, apparently, was that all the surplus power could be sold to the United States and Alberta. But abundant low-cost natural gas has allowed them to develop their own gas-fired generation, so the export market isn’t as large as anticipated and what market there is won’t command the prices that Hydro needs to cover off the cost of what it’s committed to buy.     

Besides having to acquire more electricity than needed, Hydro is also required to buy that electricity from private independent power producers (IPP’s) operating in BC. Hydro could buy it cheaper on the open market both now and in the foreseeable future.  

Purchases are classified as non-firm, meaning electricity that isn’t available all the time such as wind or run-of-river; and firm, meaning electricity that’s always available.  

Bids from IPP’s to supply electricity to BC Hydro recently came in at an average of $100 per megawatt hour for non-firm and $124 for firm.  Recent spot market prices ranged from a low of  $4.34 for non-firm to a high of $52.43 for firm. Firm power with delivery in 2012 was recently listed at $27-35 on the Pacific Northwest wholesale market. The further into the future you go, the less reliable the price predictions. Keeping that in mind, the 2030 price is suggested to be in the range of  $81-85 per megawatt hour. So relying on the best information available, it seems BC Hydro is being forced to pay artificially high prices for electricity.  

Buying high and selling low doesn’t work for long. So who will pick up the shortfall between what Hydro is paying and what it can sell the electricity for?  

Well, that would be you, BC Hydro customers.

That Energy Act requires that the electricity rates be high enough that Hydro can recover the costs of that electricity it is required to buy.  So your rates go up to cover “spending hundreds of millions of dollars per year of ratepayers money for no value…”

Although rate-payers are on the hook for the costs, they have been noticeably absent from creating the policy that’s pushing up Hydro rates. If there’s to be a change in provincial electricity policy, then rate-payers will have to stand up and insist that seeing as they’re footing the bill, they want their interests to be protected.  

Gwen Johansson has served on numerous energy-related endeavours. She co-chaired the Northeast Energy & Mines Advisory Committee; served on  BC Hydro’s Integrated Electricity Planning Committee; is a former BC Hydro Director and a former member of the BC Energy Council. She lives in the Peace Valley near Hudson’s Hope.