Hydro Rates and Liberal ErrorsThe Liberal platform from the May 2013 election is still on their website and it is easily searchable. BC Hydro was mentioned seven times. Hydro rates only received passing reference by way of a paragraph header:
"Reducing pressure on ratepayers"
"As the BC Prosperity Fund reduces public debt, this will include reducing the debt for BC Hydro and the Port Mann Bridge by allowing us to accelerate the paydown of debt for capital projects that are helping build the province."
Five of the seven references to Hydro in the Liberal platform were in the context of paying down its debt through the use of LNG revenues. (The other two were to continue to purchase private power and a boast about implementing audit recommendations regarding executives and their compensation.) Having opened Pandora's box, the principle of reducing Hydro’s debt through the use of resource or other government revenue needs to be fully explored. Reducing the debt pressure on rate payers through such payments can be thought of as little more than repaying what amounted to a shift of debt from government to Hydro; that is what happened when Hydro paid water rentals and dividends to the province when those funds could have been used to reduced Hydro's debt.
BC Hydro's total revenue in the 2012-13 fiscal year was $4.9 billion. In that fiscal year, Hydro paid $348 million in water rentals as well as $509 million in dividends to the province, which amounted to 17.5% of the corporation's total revenue.
Many families who use natural gas to heat water and their homes have very low electric bills. Reasonable attention to turning off the lights can result in monthly bills of under $40 for such families, but those who use electric baseboard heaters and electric hot water tanks face much higher bills, averaging over $200 per month. For those families a rate increase of 9% on April 1, 2014 and another 6% on April 1, 2015 hurts. If they have wage earners who work in industries that will be facing millions in increased costs because of the 15% two year rate hike, they could be looking at job losses. Boards of education and hospitals were told by the government to find "savings" elsewhere in their budgets to pay higher Hydro rates; schools and hospitals may have to cut services and layoff staff to pay the higher electric bills! Premier Clark's Liberals would have you believe the rate increases are necessary in order to make up for decisions made by the NDP more than twelve years ago. Even their strongest supporters can't believe that nonsense. After more than a decade the Liberals must accept responsibility for their decisions and many of those decisions were massive mistakes that inflicted billions in unnecessary costs on Hydro.
BC Hydro's power distribution was stripped away into BC Transmission Corporation in 2003 only to see the experimental company dissolved and reabsorbed by Hydro in 2010 under the inappropriately named "Clean Energy Act". Will McMartin described how many Liberal friends benefited from that failed experiment which cost rate payers $65 million. That was small potatoes as Liberal waste at Hydro goes.
The Clean Energy Act excluded many pet projects from independent review by the BC Utilities Commission (BCUC). Energy economist Marvin Shaffer warned that the Act would cost BC billions, and he has been proven right. The Act essentially required Hydro to buy high and sell low. In the fiscal year ended March 31, 2013 Hydro paid Independent Power Producers (IPPs) $760 million (annual report page 45) for 10,675 gigawatt/hrs of power, an average cost of $71.23/MW/hr. Average power cost for Hydro was $17.96/MW/hr for 62,529 gigawatt/hrs of power. The Liberal's concept of "self-sufficiency" required Hydro to buy expensive IPP power as if every year were a drought, even if it didn't need the power.
The Clean Energy Act was really an Act to promote the profits of IPPs and to strip BCUC of its regulatory role in protecting ratepayers. Section 7 of the Act removed the following projects from BCUC scrutiny:
- the Northwest Transmission Line, a 287 kilovolt transmission line between the Skeena substation and Bob Quinn Lake, and related facilities and contracts;
- Mica Units 5 and 6, a project to install two additional turbines and related works and equipment at Mica;
- Revelstoke Unit 6, a project to install an additional turbine and related works and equipment at Revelstoke;
- Site C, a project to build a third dam on the Peace River in northeast British Columbia to provide approximately (i) 4 600 gigawatt hours of energy each year, and (ii) 900 megawatts of capacity;
- a bio-energy phase 2 call to acquire up to 1 000 gigawatt hours per year of electricity;
- one or more agreements with pulp and paper customers eligible for funding under Canada's Green Transformation Program under which agreement or agreements the authority acquires, in aggregate, up to 1 200 gigawatt hours per year of electricity;
- the clean power call request for proposals, issued on June 11, 2008, to acquire up to 5 000 gigawatt hours per year of electricity from clean or renewable resources, and
It is hard to say whether some of the projects listed above would have proceeded if they had to satisfy BCUC. If some had not, ratepayers might not be looking at a 15% rate increase over the next two years. Smart meters cost over $1 billion and there is no evidence of any significant savings. The cost of site C is anyone's guess but some suggest it could reach $10 billion. Even Hydro's 2011 estimate pegged it at $7.9 billion. Remember all that power is designated for producing LNG in BC and we've yet to see whether LNG can be sold at a profit for the province, let alone at rates that will pay off all provincial, Port Mann and BC Hydro debt. Nevertheless, the Liberal platform promised to accelerate the paydown of debt at BC Hydro, BC Ferries and the Port Mann Bridge once the core provincial debt is paid down.
While not acknowledging their mistakes, the Liberals could argue that (except for Site C) they are mostly water over the dam, or is that water under the bridge. One way or another, the promised pay-down of Hydro's debt is a long way in the future and it needs money now. Of course part of the reason it needs money now is to continue paying the government almost a billion dollars a year in combined water rentals and dividends. A background note to the government's news release on the rate increase said government would be: "Reducing dividend payments to the Province over five years starting in Fiscal 2018 to allow BC Hydro to keep more cash for infrastructure investments." Those paying 9% more next year and another 6% more in 2015 might notice that the government's promise to stop draining so much from Hydro doesn't take effect until after the 2017 provincial election. When you think about it, much of what the Liberals promised for the May 2013 election won't be seen or proven until after the 2017 election. It all requires a great deal of faith.
November 27, 2013
"Employment growth in BC has been nearly flat during the first ten months of 2013, as year-to-date data show a 0.1 per cent contraction compared to the same period last year. This decline translates into about 2,600 fewer jobs, as a loss of approximately 11,400 part-time jobs more than offset a gain of about 8,800 full-time jobs."The Minister of Finance acknowledged what Jobs Minister Shirley Bond and Premier Clark seem reluctant to talk about. In BC job growth has come to a halt. He could have said that job growth has stalled for 16 months, since April 2012, not just the first 10 months of 2013. The Quarterly Report also drew attention to "nearly flat" retail sales growth. The June update (post-election budget) assumed nominal consumer expenditure would grow by 3.9% in 2013-14; in the first six months of the fiscal year it has grown by only 0.8%.
Second Quarterly Report p. 26
The Report showed that the predicted surplus, before subtracting the forecast allowance, was $303 million in the June update, $286 million in the First Quarterly Report and $265 million in the Second Quarterly Report. The Second Quarterly Report said that total revenue is expected to be $44.293 billion. That means the $265 million hoped for surplus is only 0.6% of total revenue. Most accountants would acknowledge that on a base in excess of $44 billion there is more than enough wiggle room with accrual assumptions to assure a surplus if the trial balance is in deficit by less than 1%. We’ll have to see what the experience is over the last six months of the fiscal year and what the Auditor General says before much credibility is placed in the Liberal's claim that the accounts are balanced at the end of the fiscal year.
Those listening carefully to the Premier's unbounded optimism for LNG realize that all of the government's eggs are in that basket and virtually none of the benefits flow for two or three more years. Even then the initial benefits will be limited to construction jobs, many for out of province workers only temporarily visiting BC. We won’t see another economic and financial update from the government until the 2014-15 budget and Third Quarterly Report for 2013-14 is tabled in the legislature in February. In the meantime keep an eye on the monthly employment and retail trade data from Statistics Canada. We can all hope they start to show an upturn.