BC Hydro is keeping rates artificially low by funnelling billions of dollars in expenses into deferral accounts, the province's auditor general says.
And the day of reckoning for ratepayers will come, Auditor General John Doyle warns, because BC Hydro has no clear plan to repay those burgeoning accounts, which now stand at $2.2-billion. By 2017, BC Hydro expects to have deferred $5-billion in expenses.
"It is a bit like using a credit card: You have to pay it off or you have lots of problems," Mr. Doyle said Thursday.
While the B.C. government defended the accounting tactic, Mr. Doyle says Canada is moving to new standards next year that would disallow the practice. In response, the province says it will exempt BC Hydro from the new rules rather than force its Crown corporation to book those expenses.
"The response is a disappointment," Mr. Doyle said. "I have difficulty with a province that once led the country in accounting standards and now we have to move away from Canadian accounting standards, and the transparency they are providing, and adopt an American standard which perpetuates the deferral of expenses."
By not counting some of its expenses – such as the costs of developing plans for the Site C dam – BC Hydro has been able to record higher profits. And that means the cash-strapped government, which has been struggling to eliminate its deficit, has been collecting higher dividends.
In the past 10 years, BC Hydro has paid the province more than $2-billion in dividends while its deferral accounts ballooned from $200-million to $2.2-billion.
"There does not appear to be a plan to reduce the balance of these accounts, let alone halt their growth," the auditor's report states. "If overused, rate-regulated deferrals can mask the true cost of doing business, distort the financial condition of an enterprise and place undue burdens on future ratepayers."
Energy Minister Rich Coleman dismissed the concerns, saying he is confident BC Hydro will repay the expenses once projects like Site C are completed and can bring in revenue.
"This allows us to shape certain types of events for our ratepayers," he told reporters. "As the pieces of investment come on board, they are brought into the fiscal plan of Hydro, and then the revenues associated with the improvements actually come in to support that debt.
"So it's a question of whether people like deferral accounts or not."
Bruce Ralston, the New Democratic Party finance critic, noted that other Canadian utilities are using deferral accounts as well, but those accounts are relatively stable.
"This technique is being abused," he said. "In British Columbia, it's out of control."
He said the province has been encouraging the practice so that it can make its own books look better.
"It distorts the financial condition of BC Hydro and it also has an impact on the finances of the province, because when you create a phony profit at BC Hydro and take a dividend, you are understating the deficit."