RAFE HERE ... If you receive this from another source I apologize for the duplication.
This report is such that the government should resign.
Please take the time to read and pass on.
Thanks
August 16, 2010
ECONOMIST'S REPORT PROVES BC HYDRO IN EXTREME FINANCIAL PERIL DUE TO CAMPBELL PRIVATE ENERGY POLICY
Noted economist Erik Andersen confirms that the government's private river power policy (IPPs) are having a devastating effect on BC Hydro - the crown jewel of our public companies - which is owned by the citizens of British Columbia.
According to numbers unearthed by Andersen in a new report (see below) - entitled "Sinister Financial Vectors at BC Hydro" - the shareholders of BC Hydro, that is to say the citizens of BC, should be very alarmed at where BC Hydro stands financially at this time and where its contractual commitments are taking it.
Key findings of the report:
1. Hydro borrowing/spending - related mostly to new private power projects - is at an unprecedented rate at the very time when there was at least 4 years advance notice of a slowing domestic demand. Despite the government's assertions to the contrary, demand has fallen from 52,440 GWh in 2006 to 50,233 GWh by 2010. With no credible projection of improved economic circumstances for at least the next 3 years, this is irresponsible by Hydro's board and management as it has increased the risk of financial insolvency.
2. The available evidence indicates that Hydro is paying IPPs more than double the open market rates prevailing in western North America. Meanwhile, exports collapsed by 50% in 2009/2010.
3. The best available consulting report indicates that from now to 2020 new IPP producers will use more than double the capital now used by Hydro to produce a single unit of saleable energy. This is the antithesis of improved productivity normally expected when large capital projects are begun.
4. In fiscal 2007 (financial year ending March 31, 2007) BC Hydro’s net operating revenues, less financing expenses, were $379 millions. By 2010 the recorded loss was $249 million. In the four year period there has been a $628 million reversal of net operating income. The effect will be upward pressure on both provincial taxes (to make up for this loss of income to the public coffers) and hydro users' power bills.
Upon reading Andersen's revealing report, Common Sense Canadian co-founder Rafe Mair responded, "We have been warning the BC public for several years now about the disastrous effects of Campbell's energy privatization agenda; now this report from Mr. Andersen utterly vindicates everything we have been saying - and then some! Campbell's shameful private river power policy is not only destroying our environment, but the economic future of our province."
Despite the 2009 ruling by the BC Utilities Commission that this private power is both unnecessary and not in the public interest, the Campbell government has overruled the public watchdog and forced BC Hydro to proceed with more private power purchase contracts - bringing the total liabilities for public purchases of private power to an estimated $40-50 Billion! The results of this private power program will be increased risk of insolvency to BC Hydro, higher taxes for all British Columbians, and much higher power bills for consumers and industry - in the midst of an already challenging economic climate.
As shareholders of BC Hydro, the citizens of British Columbia should be outraged at the negligent energy policy of the Campbell Government and gross mismanagement of the public's crown corporation by its board and management.
To arrange media interviews with the report's author, economist Erik Andersen, or Common Sense Canadian co-founder Rafe Mair, contact Damien Gillis at 604.780.2544 or by email:
damien@theCanadian.org-------------------------------------------------------------------------------------------------------
Sinister Financial Vectors at BC Hydro
August 16, 2010
A vector gives information as to direction and the magnitude of a changing position. A series of financial statements can also provide vector information about the financial health or otherwise of corporations.
• The first vector is of the direction and speed of change for the operating net income at BC Hydro. In fiscal 2007 (financial year ending March 31, 2007) BC Hydro’s net operating revenues, less financing expenses, were $379 millions. By 2010 the recorded loss was $249 million. In the four year period there has been a $628 million reversal of net operating income.
• The vector for recorded demand is also instructive. Expressed in GWhs (what BC Hydro sells) total volume of domestic (inside BC) sales went from 52,440 in 2006 to 50,233 units by 2010. After five years at the 52/53 thousand levels, demand dropped away sharply in fiscal 2010.
• A handy vector is the ratio of debt-to-equity. A ratio of 0/100 is the extreme where the corporation or individual has zero debt. The opposite extreme is 100/0 where there is no equity. There can even be conditions where the debt is greater than 100. A ratio of 100/0 can be evidence of insolvency. At BC Hydro this ratio had traditionally hovered around the 70/30 mark. The 2009 Annual report showed a remarkable change to 81/19. After calling upon the “Regulatory Account” for the 2010 year the debt-to-equity ratio is now presented as 80/20. If the “regulatory account” transfers were stripped from the BC Hydro financial statements, the ratios for 2009 and 2010 respectively would be 87/13 and 89/11.
• Productivity vectors always help to illustrate if we shareholders are getting value for money. In fiscal 2007 about $236,000 of capital was used to produce one GWh. By 2010 it took 38% more capital to get the same quantity of energy for domestic customers. By this evidence it looks as though the system is becoming less efficient. Liabilities also mirrored this vector.
• The final vector of note is the immediate prospect of new and expensive contractual obligations associated with the call for power from Independent Power Producers (IPPs). From page 10 of the 2010 Annual Report BC Hydro states that “During fiscal 2010, IPPs provided 8,893 GWhs of energy to the BC Hydro system, which accounted for about 16 per cent of total domestic electricity requirements.” A December 2009 report from Price WaterhouseCoopers projects that existing and potential IPP projects will deliver 35,470 GWhs by 2020. The estimated total capital deployed would be $26.144 billion. That translates into $737,074 of new capital to produce one GWh or 126% greater than the already elevated 2010 level. Amazing!
Now what to make of this all? First off it was clear as long ago as 2006 that the growth in domestic demand for electricity was slowing and reversing. With this evidence it is hard to understand why the management and Board at BC Hydro embarked on the increased spending and aggressive contracting for energy from IPPs. From the 2010 Report it is manifestly clear that sales to outside of BC customers have collapsed. That leaves only the captive domestic customers to carry the growing financial burden.
As the evidence of need for more electricity in BC is not apparent, the aggressive borrowing/investing/contracting with IPPs is plain wrong. It is improbable that the BC Hydro team are “financial illiterates” so there must be some other explanation; hence the word “sinister”.
Erik Andersen
Economist
Questions arising out of my report of August 12, 2010 re BC Hydro that must be dealt with Immediately
1. Hydro borrowing/spending is at an unprecedented rate at the very time when there was at least 4 years advance notice of a slowing domestic demand. There is no credible projection of improved economic circumstances for at least the next 3 years. This is irresponsible by Hydro's board and management as it has increased the risk of financial insolvency.
2. The available evidence indicates that Hydro is paying IPPs more than double the open market rates prevailing in western North America. By the 2010 sales to others collapsed by 50% in 2009/2010.
3. The best available consulting report indicates that from now to 2020 new IPP producers will use more than double the capital now used by Hydro to produce a single unit of saleable energy. This is the antithesis of improved productivity normally expected when large capital projects are begun.
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Erik Andersen is a retired economist who practiced as a transportation economist with the Canadian Transport Commission; with Airports Branch,Transport Canada; with ICAO and at private corporations such as Pacific Western Airlines. More recently he has been lobbying Federal Ministers to reform the way Canada Pension Plan Investment Board invests pension funds. He has been using his talents of late to expose the calamitous fiscal impact of private power companies on British Columbians.
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