The government’s review of B.C. Hydro and power rates was grim reading.
The initial attention was focused on inefficiency within the Crown corporation.
The review panel - John Dyble, Premier Christy Clark’s deputy minister, Peter Milbrun, deputy minister of finance, and Cheryl Wenezenki-Yolland, acting deputy minister of advanced education - found B.C. Hydro paid too little attention to controlling expenses.
Hydro has an admirable commitment to quality, reliability and safety. But it has been paying a high premium to achieve those goals, and passing the cost on to its customers.
The result, the panel said, has included overstaffing. It suggested about 20 per cent of the 6,000-person workforce could be eliminated. Compensation had not been properly managed - 99 per cent of eligible employees received performance bonuses - and the corporation had missed opportunities for savings in dealing with suppliers.
The frank, independent look was welcome, though it raises questions about the attentiveness of B.C. Hydro directors - five of the 10 have been on the board for more than two years - and past energy ministers.
The report also suggested the government’s policy orders to B.C. Hydro have resulted in large and unnecessary rate increases.
Gordon Campbell, for example, said B.C. Hydro must make the province self-sufficient in electrical by 2016. It was ordered to have enough capacity to meet the entire power needs of the province even in a year of record low water - and to build a big buffer on top of that.
That has proved an expensive, wasteful order. B.C. Hydro had to ramp up staffing to achieve the goal.
And because the power was to be acquired by contracting with private producers, the public corporation had to commit to costly, long-term contracts for electricity that might never be needed.
B.C. Hydro estimates its current round of power from private producers will cost $124 MWh, for example. That’s more than twice as much as the market price, and one-third more than power from a Site C dam would be.
Because of the government’s order, B.C. Hydro faces the real risk of buying expensive power from private producers and selling it at a loss on the open market.
There is little risk in adopting a more conservative approach in adding capacity; in a crunch, B.C. can buy power from U.S. or Alberta producers, as it has in the past.
There’s another major policy issue. The report indicates that the government has been, effectively, using B.C. Hydro to bring in hidden tax revenue.
B.C. Hydro pays government for water rights - the use of rivers and streams across the province. It charges twice as much as other Canadian governments charge power companies, the report found.
If B.C. charged rates in line with Manitoba and Quebec, then B.C. Hydro’s costs would fall by $150 million a year, the panel noted. That would result in an immediate rate cut of at least four per cent.
And the government also claims a larger share of B.C. Hydro’s revenue as a dividend than comparable utilities - more than $600 million this year.
Energy Minister Rich Coleman said that’s not likely to change. The government is running a deficit; it needs the revenue from water rights.
But it’s an inefficient and unfair way to collect revenue.
Taxes, generally, are imposed based on some principles, with a primary one being that they are progressive - the amount paid rises with income or wealth.
Raising revenue through electricity bills doesn’t work that way. A low-income family with an older house - perhaps heating with electricity - would pay a larger share than an wealthy couple in an expensive condo.
And this approach to taxation also imposes larger costs on energy-dependent industries, reducing what should be a competitive advantage on attracting investment.
B.C. Hydro has some work ahead in improving its efficiency and cutting costs. But the government has an even larger role in fixing flawed policies.
Footnote: The review panel looked at the smart meter program and concluded it was justified based on future savings, although it urged B.C. Hydro to seek ways of cutting the $930 million cost.
The panel also notes that unless the corporation introduces differential rates to discourage power use at peak periods, some potential savings under the smart meter program won’t be achieved. Government policy has rejected differential rates; that too should be reviewed.