Fixing Hydro: End the Cash Cow Era

When analyzing the colossal mess that BC Hydro is in, it’s very hard to know where to begin.

Poor Bill Bennett; the newly minted energy minister is immediately handed a lose-lose and lose some more file that will defy any simple solution.

Whether it’s surprise cost overruns on future capital projects like the Northwest Transmission line, or billions in future costs placed conveniently in deferred accounts (meaning it’s some future sap’s responsibility), or artificially depressed electricity rates, there is no silver lining in any of these clouds.

But before we express too much sympathy for Bennett’s plight, remember that he represents a government that has for more than a decade plundered this Crown utility and politicized its mandate far beyond the simple provision of cost-effective electric power for both residential and industrial use. That’s not to let the NDP off the hook, because they did it tool it’s just that they haven’t been in control for a while now.

Let’s just look at one of several examples of mismanagement. A couple of years ago, the International Brotherhood of Electrical Workers (which represents about 2000 Hydro workers) prepared a report I’ll call (they didn’t) the “Cash Cow” report. It looked at how badly skewed Hydro’s economic viability was by the provincial government’s determination to bleed it dry through a variety of fees and dividend payments.

Between 1999 and 2011, the province consistently took more money from Hydro (sometimes by a factor as high as five-fold) than it earned by selling electricity. Over the 13-year period examined in the report, the total provincial take was a staggering $9.1 billion in dividends, water rentals, and grants in lieu of taxes.

Just look at 2011, the latest year in the report, and you see a Hydro net income of $589 million from electricity sales completely wiped out by a $463 million dividend payment, $298 million in water rentals, and $184 million in various taxes and grants in lieu of taxes. The water rental rates are almost amusing—B.C. has become adept at taxing rain and snow.

And that’s the operative word here: tax. The province’s decision to pillage its Crown utilities (Hydro isn’t the only example, just the biggest) has allowed the government to get away with the myth that B.C. is a low-tax jurisdiction. If the province had collected that $9.1 billion (and that’s just for Hydro) through its personal and corporate income tax rates, the picture would be much different.

So Bennett’s first responsibility, in my view, is to orchestrate a change in philosophy. Before he comes up with a Hydro rate increases (someone has to pay for this profligacy—and that’s us) it would be good to see him put a new vision forward for the province’s biggest (and arguably most important) Crown utility.

A key proponent of that new vision would be to end the cash cow era and get Hydro back to its original mandate of providing cost-effective electrical power. It won’t dig the utility out of its short-term hole, but it would go a long way to ensuring that this mess does not reoccur.