We’ll Eventually Pay For Cost of BC Hydro’s Rate Deferral

May 22, 2012

This Op-Ed by MoveUP Legal Director Jim Quail ran in the Vancouver Sun on February 6, 2012. Re-posted today due to the BC government’s move to halt BCUC hearings and push rate increases further into the future without oversight.

Political manipulation of BC Hydro rates is not new, but it has reached new depths in the rollback of increases slated for the next two years, from 9.73 per cent to 3.91 per cent. The provincial government is cynically disguising the real costs of a decade of bad policy, and punting them past the May 2013 election.

The result is an enormous increase in Hydro’s “deferral accounts” – accounts that were blasted last fall by B.C.’s auditor-general. Using deferrals accounts to cover BC Hydro’s costs is like charging a credit card: not the government’s card, and not BC Hydro’s, but yours and mine. They are a forced loan from BC Hydro’s customers, and we will pay through the nose when they have to be settled.

Like a credit card, charging costs to deferral accounts costs us money – a lot of money. If Victoria gets its way, by April 1, 2014 customers will owe BC Hydro more than $2.5 billion. Not only do we pay interest and even dividends on deferrals, but they distort Hydro’s overall financial position and inflate the total government dividend. The estimated extra cost of the planned new deferrals is $579 million.

The provincial government is gambling that we will jump at the short-term rollback, even though the underlying costs are still there. BC Hydro has put off some infrastructure upgrades that cannot be put off forever. Hundreds of staff positions are being shed, but the entire workforce represents only about 12 per cent of Hydro’s total costs – decimating the staff has only nibbled the edges of the rate pressure.

The B.C. Liberals have laid a time-bomb, set to go off after they ask for another term in office. They may be gone by then, but BC Hydro’s customers will still be here to pick up the pieces and pay the bill. The government is creating a kind of Ponzi scheme, luring us with deceptively low rates that will somehow be paid later.

The utilities filings show BC Hydro’s costs will rise about 10 per cent per cent annually for several years. Some increases are necessary: the huge dams built decades ago need upgrading and retrofits. But much of the cost is the result of misguided provincial government policy.

The government has been betting with our money that it can turn private-sector renewable electricity generation into a major export industry. It vows to turn B.C. into a “clean energy powerhouse.” BC Hydro is forced to buy power exceeding our real needs from “Independent Power Producers” (IPPs) at prices up to $129 per megawatt hour (MWh) under long-term contracts, and sell the surplus into California.

This strategy has been a disaster. IPP run-of-river power flunks Californian environmental standards. Hydro can’t price it as premium “green” energy, but has to dump it into the regional glut of dirty power, between about $5 and $50 per MWh, leaving BC Hydro’s customers to make up the difference. This private power represents nearly half of our total energy costs, but supplies only 15 per cent of the energy.

It gets worse. Other government policies, including the mandatory $1 billion smart meter program, are loading more cost onto ratepayers.

The rubber is now hitting the road. BC Hydro asked the Utilities Commission to approve an April 1 interim increase of 3.91 per cent. If it’s approved, Hydro will under-collect millions of dollars per day. The interim rates will remain until final rates are set next fall. Even if the commission rejects Victoria’s plan to shovel hundreds of millions more into deferral accounts, it will be too late. By then there will be no practical way to make up the shortfall, and the only option will be to again defer the difference, unless the provincial treasury reduces its own huge take from Hydro.

That’s why BC Hydro’s union has asked the commission to reject some of the deferrals and set more realistic rates for April 1.

It’s either pay a bit more now or pay a lot more later. Our members – like BC Hydro’s customers – have an interest in a financially strong and stable electrical utility. We should not let cynical political manipulation by Victoria throw that away by bribing us with our own money … plus interest.

Jim Quail is the legal director and B.C. Utilities Commission liaison for the Canadian Office and Professional Employees Union, local 378.