B.C.’s auditor general is right to red flag Victoria’s reduction of Crown corporation accounting transparency.
Carol Bellringer’s recently released 2014-15 public accounts report disagrees with the provincial government’s use of looser regulation for revenue and debt deferral.
Former B.C. auditor general John Doyle also took issue with the use of rate-regulated accounting, which allows BC Hydro to defer expenses that would normally be recorded in a current year’s financial statements.
Many utilities use regulatory accounts because their assets often take a long time to yield benefits, and, as Hydro points out in its third-quarter 2016 financial statements, the practice is common among regulated utility industries throughout North America because it allows them to “smooth out” rate spikes from unexpected costs or windfall profits. But it can also obscure fiscal performance by artificially turning loss to profit and, in B.C.’s case, generate government revenue where there is none.
As pointed out in Doyle’s 2011-12 BC Hydro: The Effects of Rate-Regulated Accounting, debt and other deferrals, if overused, “can mask the true cost of doing business, distort the financial condition of an enterprise and place undue burdens on future ratepayers.”
That prediction is being borne out.
At the time of Doyle’s report, $2.2 billion in Hydro expenses had been deferred, and the government estimated deferrals would grow to $5 billion by 2017.
But Hydro is well ahead of that forecast: the total is already at $5.97 billion; 10 years ago it was $182 million.
This is not good news for ratepayers and advocates of open and credible government accounting, especially in light of the continued drop in industrial power demand, as reported in Hydro’s Q3 2016 financials, and the Crown power corporation’s ongoing accumulation of debt.
That debt, which was $7.5 billion 10 years ago, is now cresting $18 billion, roughly one-third of the province’s total.
Informed infrastructure investment and realistic rate policies require fiscal clarity, not accounting sleight of hand.
