BC Hydro has hit back at claims it has deferred billions in costs to pad its bottom line.
In an interview with Business in Vancouver, BC Hydro CFO and soon-to-be interim chief executive Charles Reid said the corporation?s use of 27 different accounts to defer the cost of doing business today is the best deal for taxpayers. He also shot back at Auditor General John Doyle?s claim that the Crown corporation has no plan to pay off the $2.2 billion it has deferred thus far.
?He never asked me for a plan; he never asked any of my staff for a plan; I?ve never heard that before,? Reid told BIV. ?If he had asked I would?ve gone through every single one of our accounts and told him exactly how they all work, the logic and how they?re expected to be recovered in the rates. To me that?s a plan.?
Last month, Doyle?s report regarding BC Hydro?s use of rate-regulated accounting methods made headlines when it was pointed out that the Crown corporation operated at a $249 million loss in 2010 before deferred expenses (see ?$5 billion by 2017? – issue 1149; November 1-7).
But, according to its 2010 annual report, the utility deferred $696 million in costs, allowing it to report a net income of $447 million and pay the province a $47 million dividend it would not otherwise have been able to fork over.
BC Hydro uses rate-regulated accounting methods, or deferrals, to ?smooth out? variances in year-to-year electricity sales and unexpected costs or windfall profits.
Deferrals are not uncommon among North American utilities, but since 2005 the balance of BC Hydro?s deferral accounts has expanded to $2.2 billion from $182 million.
Doyle said that figure would balloon to $5 billion by 2017.
But Reid argued the deferrals are above board and fair because, without them, BC Hydro would have to absorb the costs into its bottom line every year and adjust rates accordingly.
In that scenario, rates could change drastically from year to year.
?Industries couldn?t plan based on that, our customers would be screaming, low income people would be upset,? said Reid.
?It would just be a mess.?
Instead, BC Hydro defers those costs into a variety of different accounts and recovers them accordingly.
The utility has deferred $104 million in expenses associated with the proposed Site C project, a $7.9 billion dam that would be located on the Peace River.
Reid said those costs will be recovered through rates once the project comes online.
But BC Hydro has also deferred hundreds of millions of dollars in expenses for its demand-side management programs, First Nations negotiations and settlement costs, smart metering and power unit outages, among other things.
Reid said there?s a reason each one of those accounts exists, adding that the BC Utilities Commission has approved them.
On top of that, he said approximately $500 million of the $2.2 billion in deferrals hasn?t been spent.
That $500 million is money the utility believes it will have to spend in future First Nations negotiations or other costs it has yet to incur.
Finally, Reid said a 2.5% rate rider is built into current rates. It recovers $100 million a year that is then applied to the balance of the deferral accounts.
But interest is also charged against those accounts, totalling $37 million in 2011.
Doyle told BIV that interest effectively increases BC Hydro?s net income today.
?They?ve inflated their performance by $37 million out of interest that?s appeared out of nowhere, paid by themselves to themselves,? Doyle said in October.
That interest influences the utility?s return on equity calculations, increasing the amount that gets paid into provincial coffers.
Reid maintained the interest charged on the deferrals has no impact on BC Hydro?s net income.
The important thing, he said, is that the deferrals costs will be recovered; the only question is when.
?I wouldn?t get totally distracted by deferral accounts themselves,? said Reid.
?The bigger issue is overall cost pressure going forward.?
The Office of the Auditor General maintained that it stands by its work, conclusions and recommendations. ?
