[BC省新聞] BC Hydro customers facing even more rates hikes customers, industry, because, annual, future

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BC Hydro customers facing even more rate hikes, industry warns

http://www.vancouversun.com/Hydro+customers+facing+even+more+rate+hikes+industry+warns/5625447/story.html

BC Hydro customers should brace for large annual rate increases for the foreseeable future because of the Crown corporation’s controversial bookkeeping methods, a veteran industry observer said Friday.
Richard Stout, a one-time BC Hydro executive who now represents the interests of Hydro’s large industrial customers, said the company is “hiding from everybody what the financial consequences are, to the organization and to the ratepayers.”
Stout also warned that Hydro’s decision to segregate $2.2 billion of debts – rising to $5 billion by 2015 – from annual financial statements will make it more difficult to attract new, large-scale industrial development to B.C.
That’s because potential investors – proponents of a new metal mine, for example – are unable to calculate the full effect that energy costs will have on their proposed operations.
“There are a lot of future developments that would require electricity, that may or may not materialize in B.C. because of concerns over rate increases — without even taking deferral accounts into the picture,” Stout, executive director of the Association of Major Power Customers of B.C., said Friday in a phone interview.
Stout’s comments reflect warnings issued Thursday by British Columbia Auditor-General John Doyle in a 19-page review of Hydro’s reliance on so-called “deferral accounts” that take debt off the books in order to inflate profits.
The B.C. government is the main beneficiary of this practice — it collected $900 million from Hydro last year, including a $400-million “dividend” that is essentially financed through earlier electricity rate hikes.
Doyle said Hydro’s murky bookkeeping methods – as mandated by the provincial government – need to be amended to bring them in line with generally accepted accounting practices.
“We’re [already] looking at a 50-per-cent rate increase over the next little while. You throw in your deferral accounts and it’s probably another 50-per-cent rate increase,” Stout said.
A five-year chart included in Doyle’s report shows that three major Canadian utilities, BC Hydro, Manitoba Hydro and Hydro-Québec, all use deferral accounts to some extent.
Energy Minister Rich Coleman defended Hydro’s deferral practices Thursday, saying such accounts are regularly used by energy utilities in other provinces.
However, deferral amounts in Quebec and Manitoba have been relatively stable since the 2006-2007 fiscal year – and even fallen back on occasion. In comparison, the amounts have grown fivefold at BC Hydro from about $400 million to $2.2 billion.
Hydro’s growing reliance on the accounts means there’s much less incentive inside the Crown corporation to ensure that it balances its books, Stout said.
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It takes away any incentive to manage Hydro efficiently. If the organization spends too much money it should result in a reduction to the [province’s] dividend but in this Bizarro world of deferral accounting, it doesn’t.”

It’s as if the province has invented a way to guarantee itself a high, steady rate of return on its asset, BC Hydro, even as its customers see their income and the value of their investments rise and fall with the economy and the value of the Canadian dollar, Stout suggested.

Energy sector lawyer and commentator David Austin had a more moderate reaction, saying he was “perturbed” that the auditor-general recommended BC Hydro follow generally accepted accounting principles (or GAAP) without providing recommendations on how to accomplish this.

Not all of the deferral accounts established by Hydro are questionable, Austin said, citing a $400-million account relating to aboriginal treaty negotiations and land claims settlement costs.

“First nations deferral accounts make perfectly good sense because we are going to have to spread it across a number of generations and customers.”

Nor does Austin dispute the dividend payment to B.C. – Hydro returns money to government at about the same rate that a regulated private sector utility such as Terasen would generate on behalf of shareholders.

He said many of the current financial challenges date back to the 1990s, when the province froze electricity rates and stopped Hydro from developing new generation facilities that would have allowed it to stay a step ahead of demand without creating huge costs or risks for ratepayers.

He does, however, agree with the auditor-general that present-day customers need to be billed for the costs Hydro is incurring on their behalf, instead of enjoying rates that are lower because customers at some unspecified future date will be hit with the bill.

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BC Hydro customers should brace for large annual rate increases for the foreseeable future, according to reports.