Decades of political interference to suppress electricity rates in British Columbia has left BC Hydro’s future ratepayers with significant debt that must be repaid, Auditor-General Carol Bellringer says.
Under direction from government, the Crown utility has used “inappropriate” accounting to pile $5.5-billion in what are known as deferral accounts without a clear repayment plan. The debt can be tackled by raising rates or a government bail-out, the auditor said in a report released Wednesday.
“BC Hydro was not allowed to charge its customers enough to cover its operating costs each year,” Ms. Bellringer wrote.
That debt amounts to $1,300 for every residential customer, more than $10,000 for each commercial and light industrial ratepayer, and almost $5-million for each large industrial consumer.
Bruce Ralston, the acting minister responsible for BC Hydro, said Wednesday his government is committed to fixing the problem, but said it will take time given the size of the debt. "We are going to keep rates affordable. No one’s rates are going up by $1,300 in a year.”
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Provincial governments going back to the 1980s have used deferral accounts to smooth rates – avoiding politically unpopular rate hikes – but the practice increased significantly since the early 2000s under the former BC Liberal government.
The NDP government has promised to restore the role of Hydro’s independent regulator, the BC Utilities Commission (BCUC), and to ensure that BC Hydro falls into line with other Canadian utilities by adopting ordinary accounting practices.
“It would be wrong to promise overnight change, but we have changed direction,” Mr. Ralston said. He noted that the government has already reduced the deferral accounts by $950-million, bringing that portion of the debt onto direct government books. “It’s a start,” he said.
Richard Stout, an expert in hydro rates who represents some of the utility’s largest industrial customers, said Hydro’s customers should not have to absorb the shock of getting Hydro back on sound financial footing.
“No customer wants to wake up to the bill for this," he said. “Industrial customers have been concerned about the size of this debt overhang for some time.” He said the government, by repeatedly usurping the independent regulator, should be on the hook. "I think most would agree the appropriate source of paying down the debt should be from government, rather than the ratepayer.”
Ms. Bellringer acknowledged the NDP government that took power in 2017 has promised reforms, but she said she will wait to see results before she is satisfied that the government’s financial statements accurately reflect Hydro’s balance sheet. “The ability of BCUC to regulate BC Hydro and its regulatory accounts remains hampered by government direction.”
The BCUC is supposed to set utility rates that reflect the cost of service, but governments – including the current NDP government – have repeatedly intervened and set directives to control rates and financial reporting. The NDP government is expected to release a report later this month on how it will address the Crown utility’s finances. The options are limited by two things: The New Democrats’ commitment to voters to keep residential rates affordable and the government’s plans to tackle climate change by encouraging industry to switch from fossil fuels to electricity for power.
Ms. Bellringer said her team was unable to determine how much higher Hydro rates would be if the BCUC was setting rates to meet Hydro’s real costs. “While rates are expected to increase, no one can predict exactly what the impact will be,” she told reporters at a news conference. “You can either have a rate increase or you can end up with a deficit that ends up getting covered by the government at some point.”
While other major Canadian utilities also use regulatory accounts, the auditor noted that BC Hydro’s accounts stand out in scale. The total amount in BC Hydro’s regulatory accounts equals 87 per cent of its total revenue for last year. Hydro-Québec, which holds a similar profile to BC Hydro, has regulatory accounts that amount to one-third of its total revenue last year. Manitoba Hydro, another similar utility, has regulatory accounts that equal 42 per cent of revenue.