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BC Hydro being run like a 'Ponzi scheme,' says union

Low rates and hidden costs are turning BC Hydro into a "Ponzi scheme," says the union representing the company's office workers.

In an ongoing dispute over electricity rate changes proposed by the crown corporation last November, the Canadian Office and Professional Employees Union, Local 378, says that BC Hydro is using an accounting slight-of-hand to mask the real financial toll of unrealistically low electricity prices.

Now COPE 378 is calling for provincial regulators to help BC Hydro out of its financial morass by raising the rate the power company will be allowed to charge British Columbians.

The controversy over BC Hydro rate increases began last March when the company announced plans to increase electricity prices by nearly ten per cent for the next three years. Balking at the prospect of higher rates and unhappy voters, the provincial government assembled a panel to look into the reasons behind the higher prices. Last August, the panel issued a report calling upon the utility to reduce rate hikes and sharply cut operating costs.

The crown corporation responded two months later, announcing that electricity prices would instead rise by 8 per cent in the first year and 3.9 per cent in the following two years.

But acording to Jim Quail, Cope 378's Legal Director, the lower rates will push BC Hydro towards an eventual financial crisis.

"The government is forcing them to do something that is impossible," he says, arguing that the lower rates have compelled the utility to employ creative accounting procedures, kicking current losses down the road.

While it is common practice for many companies to "defer" certain expenses, spreading out one-time costs when accounting for long-term projects, Quail says BC Hydro is using the technique to "shuffle today's costs off onto tomorrow."

"It turns BC Hydro's rates into a kind of Ponzi scheme," he says.

In the meantime, Quail claims these hidden costs will only rise as interest is compounded on the deferred expenses.

The union's criticism of BC Hydro accounting practices echoes a warning made last fall by B.C. Auditor General John Doyle. In a report published last October, Doyle notes that the provincial power company had deferred a total of $2.2 billion in costs as of March 31, 2011.

"What is that the current trend of escalating deferred expenses is unsustainable," the report reads, projecting that future costs will balloon to nearly $5 billion by 2017.

While a spokesperson for BC Hydro was not available to comment on this story, a fact sheet available on the company's website explains that recent growth of deferral accounts are the result of a necessary increase in infrastructure spending. Furthermore, the document says, this accounting method is regularly used by utilities across North America.

Last month, provincial regulators at the British Columbia Utilities Commission (BCUC) began reviewing the BC Hydro's controversial rate change application. While a final decision will not be made until next winter, under the revised schedule offered by the power company, the rate is scheduled to bump up by 3.9 per cent this coming April. Before its final ruling, however, the BCUC says that this new rate can be implemented in the interim.

In response, the union filed a submission with the BCUC last week asking the commission to approve the slightly higher rate hike of six per cent. In their call for a higher rate, Quail says the union is joined by groups representing commercial electricity users, industry advocates, and old age pensioners.

"Six per cent over the next two years would be a reasonable way to at least reduce the bump that we're going to hit when we come out of this three year rate period," says Quail. "It's either pay a bit now or pay a lot more later."

BC Hydro will be filing its response to the BCUC later today.

Ben Christopher reports for The Tyee.

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