BC Hydro cost deferrals create huge shortfall appointed, creating, increase, released, create

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BC Hydro cost deferrals create huge shortfall

The B.C. Liberals have quietly allowed a massive increase in deferred costs at BC Hydro, creating a multibillion-dollar shortfall that will have to be repaid out of future rate increases or an injection of cash from provincial taxpayers.

So suggests one of the less-widely publicized findings by the three senior public servants appointed by the B.C. Liberals to review the upward pressures on electricity rates.

The review panel report, released last week, documents the “significant growth” in cost deferrals at Hydro, from less than half a billion dollars in 2007 to $2 billion today and a projected $4.7 billion in 2014.

The 10-fold increase in the space of seven years means “additional pressure and reduced flexibility to Hydro’s efforts to keep rates competitive,” according to the panel review.

“The impact is likely to be significant,” they say, though hard to quantify precisely because some amounts can be offset by future revenue windfalls and others remain undefined. Repayment terms are subject to regulatory approval and in some instances left deliberately vague.

The panel took a stab at one possible repayment scenario with a “rough estimate” that by 2014 “annual recovery from ratepayers could be approximately $450 million a year.”

The latter amount would translate into a rate increase of roughly 13 per cent, above and beyond the now-scheduled 17 per cent, based on the panel’s reckoning that each one per cent equates to $35 million at current rates.

But that’s the panel’s scenario, not Hydro’s. Though the Crown corporation professes to be minimizing the impact of deferrals on ratepayers, the report says “the company and its external auditor have not made any allowance with respect to the ability of BC Hydro to recover the (deferred amounts) through future rates.”

The absence of any plausible recovery plan “could be a potential future concern given the projected size of these accounts and the desire to keep rates competitive,” continues the panel, putting it mildly. “If BC Hydro is unable to recover any of the deferred amounts, the costs would be passed on to the province [as sole shareholder] and covered by taxpayers.”

One way we’d be covering the cost through electricity rates, and the other way we’d be paying via taxes.

How did things get so far out of whack? The starting point was a legitimate concern to stabilize electricity rates in a world of fluctuating water levels and volatile prices in the market place. Your basic deferral account is intended to smooth out the bumps and as such, is a mainstay at Hydro and any other regulated utility.

But as the panel tells it, the practice here in B.C. has lately expanded well beyond the commonplace. Hydro, with government and regulatory acquiescence, has set up some 29 “deferral and regulatory” accounts of one kind or another and is seeking approval to create more of them in future.

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Purposes range from the relatively benign — offsetting the cost of negotiating and litigating with first nations — to the highly controversial — the tab for buying out homeowners along the notorious transmission line through residential Tsawwassen.

One account is home to almost $1 billion in costs associated with Power Smart and other programs for energy conservation. Another will shelter an estimated half a billion dollars of preparatory work on Site C, the still-subject-to-environmental-approval third hydroelectric dam on the Peace River.

The review drew particular attention to Hydro’s plan to defer fully half of the estimated $1-billion cost of the Smart Meter program with no intention to commence payback until 2015.

“We have concerns, “ said the panel members. “The scheduled completion date for the smart meters component of the program is in 2012, yet no costs are to be recovered until three years later.”

The report acknowledged a valid basis for deferring costs where the benefits — Site C would be an example — won’t be flowing to ratepayers for many years down the road.

“However, “ continued the panel, “it is important to find the right balance between smoothing out the significant and unexpected amounts, while preventing excessive or unwarranted deferral of costs to future generations of ratepayers.”

The latter concern has been taken up by Auditor-General John Doyle, who last spring launched a review of Hydro’s burgeoning stock of deferral and regulatory accounts with a view to focusing on “minimizing inter-generational inequity.”

Pending those findings, the panel suggested the province and Hydro might want to rein in the use of those accounts on their own. “We recommend that BC Hydro work with the province to perform a more in-depth review of the growth of regulatory accounts and determine a more sustainable approach to utilizing them over the long term.”

A suitably guarded bit of advice from three senior bureaucrats. But no mistaking the upshot of their report.

Either Hydro and its political masters find a way to stop putting off ’til tomorrow what ought to be paid for today. Or a few years from now, ratepayers will be picking up a tab that is already running to the billions of dollars.

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The Burrard Thermal generation station is used as a source of backup energy and for voltage stabilization.