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December 5, 2013

Hydro Rates and Liberal Errors

The 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: Section 17 of the Act imposed the smart meter program and exempted it from BCUC review.

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.