November 2011 - Earlier this year, Local Union 258 released a report entitled, “BC Hydro as a Vehicle for Government Revenue”. The report details how the provincial government takes money from BC Hydro to make its own financial situation appear better, while at the same time puts pressure on BC Hydro to keep domestic electricity rates low. The report shows how BC Hydro has transferred over $7.5 billion to the provincial government since 2000, mostly through its annual dividend payment, and through water rental fees.
One of the report’s conclusions is that BC Hydro is using deferral accounts to increase the company’s reported net income, which enables it to pay larger annual dividends to the government. Another of the report’s conclusions is that BC Hydro’s growing use of deferral accounts helps the company satisfy the provincial government’s desire to keep domestic electricity rates low. Unfortunately, by deferring present expenses to future years, BC Hydro is not collecting enough money through its current electricity rates to cover the true cost of its operations. Further, BC Hydro’s continuing use of deferral accounts will place upward pressure on electricity rates in the future, because the company will need to recover its deferred costs at some time.
On October 27th, British Columbia’s Auditor General released his own report on BC Hydro’s use of deferral accounting, and his findings support the conclusions of our own report. Read a summary of the Auditor General’s report, BC Hydro: The Effects of Rate-Regulated Accounting, below.
The Auditor General is scathing in his criticism of how BC Hydro has used deferral accounts over the past seven years. He states that the impact of BC Hydro’s use of deferrals has been to consistently increase BC Hydro’s net income, and higher net income has required the company to pay higher dividends to the provincial government. He also states that BC Hydro uses deferral accounting to obscure its financial management decisions and their implications, thus thwarting the objectives of public financial reporting, which is to ensure that a company’s financial management decisions are transparent so that the company’s management can be held publicly accountable.
The Auditor General is also critical of the provincial government, which has amended provincial legislation to require that BC Hydro adopt part of an American accounting stand that allows the continued use of deferral accounting, instead of having BC Hydro conform with International Financial Reporting Standards, which Canada is adopting in 2012.