If you can get a corporation to pay you hundreds of millions of dollars in “dividends” on profits that don’t exist, it’s a pretty good racket. Unless you are the corporation’s owner and sole shareholder — then you are only conning yourself.
The NDP government decided in 1992 that B.C. Hydro should give a fair share of its revenue back to British Columbians. Since then, the Crown corporation has been locked into a formula that requires it to hand over 85 per cent of its net income to the government. The B.C. Liberals were willing to continue the practice.
But Hydro appears more profitable than it is because, through an accounting method called deferral, it kicks some major costs down the road rather than reporting them in the year they are incurred.
Hydro owes about $852 million to the government over the next three fiscal years, but because it doesn’t have the money, it will have to borrow it.
The government uses the Hydro money to reduce what it has to borrow for its other capital projects, such as highways, schools and hospitals. That eases the strain on the province’s finances, but it’s a matter of short-term gain for long-term pain. Hydro’s cash flow is not likely to improve — it will spend about $2.5 billion a year in capital upgrades over the next 10 years, in addition to nearly $9 billion on the Site C dam.
What British Columbians don’t pay now as taxpayers, they will be required to pay in the future — with interest — as Hydro ratepayers.
In 2011, then-auditor general John Doyle investigated Hydro’s financial workings and said Hydro and the government should change their ways. He criticized the Crown corporation for pushing off costs into “deferral accounts” so it could show annual profits that didn’t exist.
For instance, the corporation lost $249 million in the 2009-10 fiscal year, said Doyle, because expenses exceeded revenue. But Hydro was able to defer $696 million in expenses, thereby letting it claim a $447-million annual profit.
“They are spending more than they’ve got, they are paying out money to the province and, as a consequence, the financial management of B.C. Hydro is being masked by these transactions,” Doyle said then.
The government defended the practice as a way of avoiding sharp rises and falls in electricity rates. If natural-gas prices spike briefly, pushing up the cost of power production, the corporation is able to defer some of the expense and — theoretically — cover it in a future year when gas prices fall.
But Doyle said the practice was being abused. The Crown corporation was deferring debts with no plan to pay them off when they came due, he said.
The profit-and-dividend illusion has long since worn thin, and the B.C. Liberals have stopped pretending the dividends are real. Energy Minister Bill Bennett admitted that more than a year ago. He said then that the majority of the money paid by Hydro to the province since 1992 — it now totals nearly $6 billion — was borrowed.
It’s unsustainable, he said, and the government intends to change the practice in 2018.
We hope, but with little real expectation of success, that politicians will have learned by then to stop playing shell games with taxpayers’ money.
