By Norman Farrell – republished from In-sights
Readers may tire of reports on BC Hydro but the more I examine this public utility, the more convinced I am that citizens of BC are victims of massive financial deception.
In 20 years leading up to 1996, BC Hydro’s average annual revenue from trading in North American electricity markets was $115 million. In three years ended March 2003, the utility realized gross trading revenue of $11.25 billion, although that sum was tempered by the $1 billion or so BC Hydro paid to end a subsequent lawsuit by California.
Transferring risk
Although the American power market had been manipulated by Enron and other criminal fixers, Gordon Campbell and his colleagues believed that British Columbia could become a permanent power supplier to the western USA. Liberals wanted the electricity to be created by private operators, but it was soon clear that private entrepreneurs were not prepared to take significant financial risks.
The provincial government was determined to proceed so it decided that BC Hydro would sign long-term contracts to purchase power produced by independents at prices that made projects attractive to investors. This effectively transferred all business risks from private operators to the public. While dumb, it’s a fairly common occurrence today when governments are keen to be seen as business-friendly.
Compounding the situation was the Liberals’ misjudgment of future markets because they didn’t anticipate improved technologies and growing availability and affordability of alternative power. Consumption efficiencies, declining heavy industries and falling costs of solar and wind permanently changed the energy industries.
A losing proposition
BC Hydro has contracted with independent power producers for increasing quantities at prices adjusted upwards each year for inflation. But, domestic demand has been flat for a decade and the export market in the last five years has returned only 2.8¢ per KWh, a fraction of the 22.8¢ gained in the heyday of 2001.
Because it is buying each KWh from IPPs at over 9¢ but has no need for the total it must buy, BC Hydro is left with two choices. One is to generate less power in its own facilities and the other is to dump power outside the province at prices less than 1/3 of the amount IPPs are paid. BC Hydro is doing both.
Spending more to make less
I’ve had utility defenders argue the company has never reduced its own output to accommodate private power so I reviewed sources of power reports for more than two decades. Here is a chart showing the last five years under Premier Clark’ leadership and the five years between 1996 and 2001.
The situation is not improving. In FY 2015, BC Hydro facilities generated 41,443 GWh of electricity. In FY 2001, those very same sites produced 49,940 GWh, which is 20% more.
However, here’s a vital point. In 2001, BC Hydro had assets of $12.6 billion. In 2015, assets had grown to $27.8 billion. The company has been spending heavily, allegedly to make the system more efficient. In fact, what is continuing is misappropriation of public wealth for the benefit of suppliers, contractors and other BC Liberal friends.
Some people believe the government intention is to privatize BC Hydro. However, I believe the present situation, with another $10 billion of public funds being thrown at Site C, is working just fine for Christy Clark, her cabinet colleagues and their sponsors.
Citizens should be asking for explanations, from politicians and the pro-media journalists who choose to ignore these facts.
A longtime blogger and publisher of In-sights, North Shore resident Norman Farrell has experience in a broad range of small business activities with a particular focus on accounting and financial management.
Why do folks trash talk when they don ‘t like what they read and are too lazy to explore the various public financial statements that disclose all.
Being wilfully ignore has been and is the new norm for those among us who are always saying yes.
On top of all that financial statements reveal, there are costs they do not reveal. Accountants and their fellow travellers call these unreported costs “externalities” which is merely air brushing out of existence what is inconvenient or not in the narrow confines of formal accounting.
For those who wish to gain an understanding of the financial workings of the IPP and P3 industries I refer you to a 90s report done by RiskMetrics of New York. The locally familiar name of MacQuarrie International was prominently featured in this report as one of the bad apples populating the planet.
BC does business with them all.
$10’s of Billions!
That’s a lot of Billions.
What is your proof?
Or are these 10’s of Billions needed to pay for services rendered to those that bid and won various contracts?
I thought so.
Good headline though.
Hydro’s own figures, David. As Norm points out, “In 2001, BC Hydro had assets of $12.6 billion. In 2015, assets had grown to $27.8 billion.” That’s 15 Billion there. There are another $60 Billion in private power contracts, well documented in these pages for years now. That’s “tens of billions”. On power we do need and sell at a loss to the public and ratepayers. Where is your confusion? What’s ambiguous to you about the situation and the facts as they’re presented?
And thank you – I thought it was a catchy headline too 😉
That type of accounting will only happen when those in a position to undertake it have enough political power to make others accountable and wish to use that power. More than likely everyone will just want to forget the whole business.
Looks like Dix is unraveling another layer of this rotten onion.
http://www.theprovince.com/touch/business/energy/energy+regulator+orders+inquiry+into+hydro+spending/11894461/story.html?rel=838332
When are we going to have a complete forensic accounting ?
Good article, well researched. I would like to hear more particular information about money being funneled to Socred I mean Liberal friends, as suggested in the title. I don’t doubt that it is happening, but is it just engineering and construction firms in general or are there specific companies? Thx
Well done Norman.
Most folks understand the insurance game. They can elect to pay to insurers for health, life, car, home and so on but they are usually smart enough to ask about the exemptions, claim deductibles and most importantly , the premiums. The reason for doing all that is the person is going to have to directly pay premiums and live with the uncovered risks, if any.
The BC government skipped over the part of telling citizens what they would have to pay when Mr. Campbell set out to have every possible risk, real or contrived, of insufficient electricity to serve the needs of BC customers, provided by private and very friendly developers/producers. To help with the fiction of greater future need all their so called forecasts, for at least the past 10 years, have been consistently exaggerated. That is why the avoidance of the BC Utilities Commission , where they are supposed to look at that type of issue, future likely demand.
Norman is so right. No one can convince me that the Hydro managers, Board of directors and the BC government were and are financial or economic illiterates, which means that what has been done with BC Hydro has been done with malice and monetary self-interest, not in the public interest. I would like to be convinced otherwise but doubt no one will try other than perhaps those who have been or are beneficiaries.
For the last decade and a half BC has been an insurance salesman’s heaven so now we have so much extra capacity from the combination of the IPPs and BC Hydro dams that when settling the legal action Norman mentioned, part of the payment was 5,300 GWhrs sent free to California. BC Hydro did not have to buy that amount from the open market, they simply called upon under their under-employed capacity. That amount of electricity, in that one year, was the equivalence of 10% of BC Hydro’s total annual sales to all its BC customers. Not chump change.
There has got to be a way to buy out these contracts and be done with them for once and for all. There will be losses, but, it can’t be as bad as what they are paying now which is more than 6¢ per kwh above what they sell it for. Also, imagine the cost savings of not having to hire staff to manage the accounting for this goose egg.
Get rid of Cheshire Clark before Site C becomes irreversible. The NDP/Greens might not be the best choice, but we’ve got to stop this blatant irresponsible Lieberal behavior.
I was acquainted with one project in the private sector where an industrial entrepreneur wanted to show investors that a project had passed the “point of no return” and there was no alternative but to keep spending. He showed them excavators and trucks busily reshaping large portions of the 500 acre site.
The financiers departed believing that productive work was underway. Additional funds were provided. What the money people didn’t know was that material was being shifted from the south end of the property to the north end where it would be dumped and later moved to the east side, then to the west side.
Activity didn’t mean progress. It just suited the purposes of the small group of people in control of the project. By sheer coincidence, they had financial interests in the contractors hired for the sitework.
I’ve heard reports from Site C that a fair bit of make-work has been happening there as well. In other words, there’s more appearance of activity than productive work because the main foreign contractors have been unready and the Alberta partner is incapable.
Interesting to note as well, that many of the IPP`s donate money to the BC Liberals.
In effect, as the capital comes from ratepayers of BC Hydro, could it be that the ratepayers are donating money to the BC liberal party?
There’s no real mystery here according to John Perkins in Confessions of an Economic Hit Man, version two.
The bankers and their corporations are bringing their formula for exploitation and theft from the third world to the West..
First you manipulate a government through threats and bribery, sometimes called campaign donations. Then you siphon off all the profits, as they are doing now with spin offs like Accucenture, Corix, Run of the Rivers,N.E.R.C.. fancy accounting etc.
Then you unleash these expensive infrastructure upgrade projects like Smart Meters, site C, etc. which always come in waayy over budget.
Once the prosperous Crown Corporation is completely floundering in debt you release the presstitutes to bombard the public with boatloads of propaganda lauding the beauty of the brave new world of private energy. (Cue the french horns.)
And there you have it. An incredible resource belonging to the people of a country is stripped away. Private interests gain a big chunk of very profitable.. re built.. infrastructure at pennies on the dollar. The banks profit from the huge debt that’s been created. And the public is left holding the bag.
I’ll leave it to others more skilled at law to label this betrayal of the Public Trust.
“Presstitutes”
I love that moniker and I hope you dont mind if I steal it……….
I was really interested in this post and was following your logic easily until the last 3 paragraphs. Could you please explain how the growth in assets is connected to the preceding paragraphs? Or why the growth in assets is evidence of a rip-off in progress? Or why this mess of wasted spending is working well for the Liberals? I am not saying you are wrong, I just don’t see the logic connections or the evidence for those assertions. Thanks!
Lyn, Hydro is spending billions on constructions projects that yield no benefit to the utility in terms of increased public power production. That leaves one to infer, logically, that these are more make-work projects to line the pockets of the engineering firms and construction companies who win these billion-dollar contracts after, not so coincidentally, donating big to the government’s election campaigns.
If I may add, most of the power that will be generated at Site C will benefit the LNG companies who are also enormous Liberal financial supporters.
Well, I’ve looked and looked and then looked some more and not only are there no signs of any banana crop, I can’t even find a banana tree…so how come we’re a Banana Republic province?
Not only are IPP a staggeringly bad economic choice, they are a major threat to fish. The IPP boffin who has repeatedly tried to convince my community that everything is fine and it’s all just tickety-boo points out that yes, they do divert water and pass it through their bag of tricks but then the water is returned to the river so…nothing to see here folks, move along, move along.
Except the little bugs and such which would be food for the young fish have gone through the machinery, as well, and been crushed, smashed, and macerated into something the fish do not recognize as food. Fish don’t grow well without food.
We’re being hosed, folks.
Gordon Campbell resigned with an approval rating of less than 10%, and a few months later was appointed to his current position as Canada’s High Commissioner to the United Kingdom and Northern Ireland.
He got his reward that few understand the nature of, and his lap dog deputy is carrying on the agenda like the dumb b—–, uh, like the loyal vassal he entrusted with the mission.
(in the same year as the career shift, he attended a closed door Bilderberg group meeting, hmmm?)
IMHO, it is their long con. Convince business people (and government workers) that their way is the only road to prosperity. Grow government to a size where it cannot be reduced (in Victoria, 5/8ths of working people work in government. They will tow the line). Rob Hydro, and ICBC of assets. Reduce all services. Add higher fees. Raise taxes. Lie about balanced budgets. Circumvent regulators. Circumvent or ignore First Nations. Obtain permits illegally. In the end, there will be two distinct classes of people: Haves and all of the rest of us peasants.
For starters here…. the balanced budget that was bragged about was the house budget…. payroll if you will… when they were asked on the news… that’s what they claimed and when questioned about it she explained that as premier that was the only budget she had to balance…. I’m not how far back you have to go to find that news cast… as in the same day of the new budget or before…. I just remember thinking at the time with this kind of book keeping no wonder that all these big corps that operate here do so…. and get away with such low taxes ect…. and with hydro pulling their own strings so to speak it’s easy to see why they don’t want to play in the same sand box…. the site C is setting that they must see themselves making billions selling the power to California and other states… because BC will not need the power from that dam for around another 20 years from now…. so the people up there will loose one of the most diverse growing areas in Canada and the tax payers of this province will pay for something not needed…
Come on people. Christy is running a balanced budget. It says so on the thousands of commercials that come up on my computer. How can a government can take the total debt from about $35 Billion to over $170 Billion with all these balanced budgets is accounting trickery at best but really it is criminal. Its like increasing your credit card credit limit every month and making the minimum payment and telling your spouse that you are being fiscally responsible.
There are no limits to the BC Liberal/BC Hydro corruption. Welcome to the third world in 21st century BC.