BC Hydro Over Supply, Deficit, and IPPs

by Erik Andersen

The Gordon Campbell/Christy Clark energy policies have pillaged BC Hydro of the equity that employees contributed and created. I feel sorry for the employees, who do not understand that their contributions have been squandered for the benefit of others. When the predator class gets sight of a sound balance sheet – as BC Hydro once had – it is slaughtered like an innocentlamb. The gamers and parasites only see an opportunity to exploit.

For the past eight years, the British Columbia government has directed BC Hydro to increase provincial power generation by contracting with private power companies (IPPs) and to build transmission capacity to serve a yet-to-materialize provincial demand. The official 2006 forecast indicated domestic demand almost 25% greater in 2010/11 than is actually the case. Despite multi-year evidence of  over-supply throughout the Pacific Northwest, the government continues to stick with this exaggeration. The generation and transmission of unnecessary power capacity in BC has – and will continue to have – financial consequences for ratepayers and citizens, the guarantors of the BC Hydro’s debt. 

In fiscal year 2006, BC Hydro delivered 52,002 GWh (gigawatt hours) of electricity which was what BC customers required. To do this, BC Hydro used $9.61 billion of fixed assets (property, plant and equipment) and over $1 billion in liabilities.

By Fiscal 2011 the demand for electricity from BC customers had decreased to 50,607 GWh. Next is the worrying part: to deliver less power, BC Hydro increased its investment in fixed assets to $15.211 billion and total liabilities of $16.599 billion. BC Hydro invested and borrowed 60% more money to deliver less power than in 2006. This change represents a breathtaking loss of capital productivity.

Today, BC Hydro’s “Total Liabilities” now surpass “Fixed Assets” by nearly $1.4 billion. This real asset shortfall is covered by fictional assets such as “Goodwill” and the “Regulatory Asset Account,” (ratepayer receivables from pending rate increases). This reckless use of capital shows up as pain for citizens. For a natural monopoly, it translates into what we pay.

The data below is taken from an annual report prepared by Quebec Hydro, titled “Comparison of Electricity Prices in Major North American Cities.” This report covers 22 major cities and is prepared in the 4th quarter annually. The values are as at April 1st in each year and do not include “rate-rider” amounts nor taxes.

The data shows that over 5 years, rates increased by between 21% and 24%. According to the latest BC Hydro Annual Report, they are seeking rate increases of 9.73% in each of the years 2012, 2013, and 2014. If the Government and BC Utilities Commission (BCUC) accommodate this request, residential rates in 2014 will be over 10.1 cents, nearly 60% above those in 2006.

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Erik Andersen is an economist,  formerly with the Canadian Transport Commission; Transport Canada; and Pacific Western Airlines.

[From Watershed Sentinel, Nov/Dec 2011]

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