BC Hydro's deferred debt set to jump to $4.5B
The amount of debt that BC Hydro has "deferred" into special accounts is expected to more than double to $4.5 billion in the next two years, the province has acknowledged.
The news comes as Premier Christy Clark is touting an imposed cap on rate hikes to about 17 per cent over three years, despite the utility's request for a 32-per-cent increase. At a press conference Wednesday the premier called the move a "common sense decision" that will still allow BC Hydro to pay off the billions in its deferred accounts.
"People are struggling, it's a tough economy, and hydro rates are just one other burden that government puts on people in terms of cost. We're finding a way to pay down the deferral accounts," she told reporters Wednesday.
But that deferred debt, estimated at $2.1 billion in the 2011 fiscal year, is expected to keep climbing to reach $4.7 billion by 2014, according to the latest numbers from the Ministry of Energy and Mines. By March of that year, BC Hydro will have paid off only $250 million of that amount.
The ministry says that about half of the increase in deferred expenses is related to the smart meter program, expenditures on the Site C dam proposal and conservation programs.
Just last fall, Auditor General John Doyle expressed alarm over the massive amounts of expenses that BC Hydro has deferred to future years through a practice known as rate-regulated accounting.
"There does not appear to be a plan to reduce the balance of these accounts, let alone halt their growth," Doyle said in October.
"[Rate-regulated accounting] can mask the true cost of doing business, create the appearance of profitability where none actually exists, and place undue burdens on future ratepayers."
Rate-regulated accounting lets companies defer revenues and expenses to future years. According to the auditor general, the utility has used deferral accounts to cover things like foreign exchange gains and losses, negotiations with First Nations and environmental compliance.
Government estimates from 2011 predicted that BC Hydro's deferred expenses would reach $5 billion within the next six years. Revised estimates were not available by late Wednesday afternoon.
Still, the government is defending the use of deferral accounts at BC Hydro as a way to protect ratepayers.
"Without the use of regulatory accounts, all expenditures would be accounted for in the fiscal year the money was spent. This would cause significant and unpredictable rate changes for residential and business customers as they plan their budgets," a Ministry of Energy and Mines spokesperson said in an email.
The ministry says BC Hydro is coming up with a long-term plan to deal with its deferral accounts that it will file with the BC Utilities Commission, but the deferred debt could take as long as 40 years to pay off.
Rate hike cap delays the inevitable: critics
Meanwhile, the opposition NDP and other critics are accusing the Liberals of making a desperate grab for votes when big rate increases are inevitable at BC Hydro.
The government's decision to cap rate hikes means the cancellation of a public hearing that was set to begin on June 18 at the BCUC. Evidence would have been presented about the deferral accounts, alongside information about the financial implications of costly programs like the installation of smart meters across the province.
NDP energy critic John Horgan said he believes the Liberals did that to intentionally keep the public in the dark.
"It's a cynical, crass vote grab," he told reporters Wednesday.
"What the Liberals have done is, they've pulled the rug out from under due process. The citizens of B.C. will not have an accurate understanding of how bad things are because the Liberals have shut it down."
Marjorie Griffin Cohen, a professor of political economy at Simon Fraser University, told CTV News that the B.C. government is to blame for rising hydro costs because of a number of political directives it has handed down during the last decade.
"The government has required BC Hydro to buy very expensive private electricity at a time when it basically doesn't need it. It has also introduced the smart meter program, which is very expensive," she said.
"Basically, Hydro needs this. It's not as if they're wasting money, as much as the government would like people to believe they are, but they need that money in order to be able to do various kinds of things like upgrading aging facilities."
She believes that taxpayers will have to pay for the real cost of BC Hydro's expenses eventually.
"If the cost increase is not what BC Hydro needs, it will be delayed, and it will have to happen in the future," she said.
With files from CTV British Columbia's Scott Roberts