On Hydro, B.C. Premier John Horgan borrows a trick from the Liberal repertoire

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When he sat on the opposition benches, John Horgan blasted the Liberal government of the day for using an accounting sleight of hand to mask the deteriorating state of BC Hydro's balance sheet.

Now he is Premier, however, and his government has promised a BC Hydro rate freeze next year that will be funded through the very same technique he criticized: loading up the so-called "deferral accounts" to spend money now, and leave the bills to be paid by ratepayers some other day.

In a legislature debate in May, 2016, Mr. Horgan explained what was wrong with that tactic: "Under the BC Liberal watch, it's now heading towards $6-billion of deferring debt, not for this generation and not for the people incurring the cost, but for future generations."

Future generations of Hydro ratepayers already face a tremendous burden.

The Crown-owned utility that provides electricity to 95 per cent of the province is on weak financial footing, with an aging infrastructure that requires costly upgrades, plus $5.6-billion (at last count) in deferral accounts.

The NDP's promised rate freeze will add another $140-million to the rate-smoothing account (one of the many deferral accounts) that continues to grow because rates haven't kept up with the Crown corporation's real revenue requirements.

The accounting shuffle isn't unique to BC Hydro. In October, Ontario's Auditor-General found that the Liberal government is using inappropriate accounting to keep billions of dollars in red ink off the public books to conceal the financial impact of cutting electricity bills by 25 per cent.

But the problem with BC Hydro's practices have been charted for years – B.C.'s Auditor-General first called out the deferral accounts in 2011, describing them as a smokescreen that creates the illusion of profit when there is none.

The NDP, while in opposition, piled on to denounce the practice.

Adrian Dix (now the minister of health) wrote to the Auditor-General last year, calling the use of rate-smoothing accounts "an audacious attempt" to fool the public. "They are essentially taking unapproved revenue from [future years] and applying [them] to the present fiscal year, providing a misleading impression of BC Hydro's and the government's finances."

Mr. Horgan and his cabinet are weeks away from a decision that will have a significant impact on Hydro's finances: whether to continue with construction of the $10-billion Site C dam. The Premier has said that his decision to kill or continue with the megaproject will be decided by the net effect on Hydro rates. If the rates and the book-keeping continue to be manipulated by his government, however, the decision-making process becomes opaque.

The NDP came into office knowing that BC Hydro's balance sheet contains a massive challenge to the government's finances as a whole.

In January, the bond-rating agency Moody's flagged Hydro's rapidly growing debt – in part because of the Site C project – as a concern to the province's triple-A credit rating. "The anticipated increase in debt continues to pressure the province's rating since it raises the contingent liability of British Columbia," the Moody's report stated.

BC Hydro can increase utility rates to ensure that its own revenues will continue to support its operations and debt payments, it noted, but when those deferral accounts are considered, "BC Hydro posts some metrics that are among the weakest of Canadian provincial utilities."

Economist Jock Finlayson of the Business Council of B.C. grudgingly supports the continued construction of Site C, and he blames the former Liberal government for allowing Hydro's finances to decline. But he said the current government is going to have to face up to the need for rate hikes.

"The reality is, the cost of power is going to be going up in British Columbia, Site C or no Site C. All you have to do is look at Hydro's balance sheet to understand why," he said in an interview. "It's a huge dilemma for our elected officials, because they know the public doesn't want to hear that – a lot of my members don't want to hear that, to be candid."

Mr. Horgan's government made a rate freeze part of its election platform, and the freeze was incorporated into its September budget – even though it has yet to be approved by the independent utilities regulator.

The B.C. Utilities Commission has said it will begin to look at the request for a freeze on Nov. 23. Its task is to ensure the cost of service is adequately funded, and if it concludes that Hydro needs a rate hike, that will put the NDP government in a bind. Energy Minister Michelle Mungall was not available for comment, and her officials would not say if cabinet intends to overrule its independent regulator.

The cabinet is still puzzling over what impact Site C will have on Hydro rates. Cancel or build, the pressure on rates will rise, and a rate freeze next year isn't going to do anything to help restore BC Hydro's finances.