The B.C. government has finally ’fessed up — those B.C. Hydro dividends are not really dividends after all. It’s time politicians stopped playing shell games with the public’s money.
Energy Minister Bill Bennett has made a start. Hydro has paid billions of dollars to the province over the past decade, ostensibly to allow taxpayers — who are also the shareholders — to share in the utility’s profits, but Bennett says most of that money was borrowed. He says it’s an unsustainable practice and has committed to change it in 2018, a year after the next election.
It has been a long time coming. In 2011, John Doyle, auditor general at the time, investigated the financial workings of B.C. Hydro and said Hydro and the government should change their ways.
The NDP government decided in 1992 that B.C. Hydro should provide a fair share of its revenues to British Columbians, and so the practice of taking dividends from the utility began.
A dividend is normally considered to be a distribution of a corporation’s profits to its shareholders, but Hydro’s profitability has been an illusion.
Doyle criticized the Crown corporation for pushing off costs into “deferral accounts” so it could show annual profits that didn’t actually 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.
Energy Ministry data show that Hydro has paid $5.2 billion in dividend payments since 1992, nearly two-thirds of which was borrowed money. That means Hydro’s current debt of $15.4 billion would have been about $3.2 billion less if it had not been forced to pay dividends to the government.
While turning Hydro into a cash cow was an NDP initiative, Bennett admits the B.C. Liberals were quite willing to continue the practice.
The money from Hydro allows the government to borrow less for capital projects, such as hospitals, schools and roads, but that’s just kicking the problem down the road, with interest accruing the more it’s kicked. It’s like using your credit card to pay off your bank loan.
In being party to B.C. Hydro’s debt deferrals, the government is deferring the political pain it would risk from raising taxes or reducing spending.
That’s short-sighted and disingenuous — what we don’t pay in taxes, we will pay in higher electricity rates. The government isn’t robbing Peter to pay Paul, it’s robbing Peter to pay Peter.
Bennett’s plan is to slowly wean the province off Hydro payments. The dividend will be reduced to zero between 2018 and 2020, and will not be resumed until the corporation’s debt-to-equity ratio improves, says the government.
Better late than never. It’s acceptable for the government to require B.C. Hydro to share its profits, but it’s wrong to insist the corporation continue to make payments to the government when profits don’t exist.