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B.C. Finance Minister Carole James delivers her budget speech in the Legislature in Victoria on Feb. 20, 2018

Chad Hipolito/The Canadian Press

B.C. Finance Minister Carole James’s latest budget update set a cheery tone – the surplus has tripled in size, economic growth is leading the country, the job market is growing. A slowdown in real estate revenues was characterized as a positive sign for those who have been priced out of the housing market.

After a year of NDP government, the province is not in financial ruin. "There are some very positive results,” Ms. James told reporters Friday.

There are, however, some large risks to the fiscal plan.

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A summary of what can still go wrong is a routine part of budget reports. The latest update included what has actually happened in the first three months of the fiscal year, and then pointed to the risks that remain for the next nine months.

Some of those risks are beyond the control of the provincial government – global economic uncertainty in general, and the outcome of trade talks on softwood lumber and the North American free-trade agreement in particular. The province remains vulnerable to shifts in commodity prices for mining, natural gas and forestry, but 2018 so far has proven to be a strong year for the forest sector, and resource revenues are up overall.

The ongoing struggle to rein in costs at the Crown-owned Insurance Corporation of B.C. is another potential threat, after a surprise $1.3-billion loss the previous year. And the devastating wildfires of the past two summers are forcing a rethink of how much the province needs to set aside for firefighting and compensation costs in future years.

The single largest question mark, however, involves a problem that the NDP inherited from the previous Liberal government: billions of dollars in debt piled up by a commercial Crown corporation which has not been accounted for to the satisfaction of the auditor-general. The NDP, while in opposition, complained about the “misleading” accounting tricks by BC Hydro that allowed the government of the day to claim massive dividends for the treasury, while avoiding unpopular electricity rate hikes.

Late in August, Ms. James acknowledged the problem by shifting $950-million to the government’s direct debt.

But she has left another $4.5-billion in Hydro's so-called deferral accounts without a clear plan to satisfy the auditor-general’s concerns.

Instead, Ms. James said that decision will be made after she sees the results of an internal review of BC Hydro’s finances, which is due to be released in the fall. The review will include recommendations on Hydro rates, which have been kept artificially low through the use of the deferral accounts.

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The office of B.C.'s Auditor-General has been raising the alarm for almost a decade about the use of rate-smoothing accounts, which have allowed BC Hydro to create the illusion of profit where there is none.

Auditor-General Carol Bellringer is calling on the government to eliminate the remaining $4.5-billion in deferred expenses by shifting the entire amount to direct government debt.

At the very least, she said, the government needs to quit interfering in Hydro rates, and to allow the independent regulator, the BC Utilities Commission, to decide if the rate-smoothing accounts are justified. Until those changes are made, she has refused to provide her stamp of approval for the government's financial books.

BC Hydro has been a difficult beast to manage for the NDP government under Premier John Horgan. Choosing to continue with the construction of the Site C dam – the province’s most expensive public works project in history – has been divisive for the New Democrats. But letting go of the ability to tinker with Hydro rates will not be easy for a government that was elected on a promise to make life more affordable. The decision to spend at least $10-billion to complete the dam will only add to the challenge of keeping electricity rates low.

But someone, at some point, will have to settle Hydro's accounts. That will be either Hydro's ratepayers, or taxpayers directly. If Ms. James accepts this fall that it is time to set the books to right, her next fiscal update will be a more dismal affair.